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Reality Check: New year wireless operator insights

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.

This year’s Consumer Electronics Show turned the lens to look at the bandwidth experience from the device into the network. This perspective looks at each device’s unique qualities and matches them to varying standards, carrier rules and operating system application programming interfaces. The focus of many exhibitors was on neutral yet universal interconnectivity – faster, bigger and consistent communication.

These alternate perspectives provide a glimpse of what is needed to be successful in the mobile ecosystem today. Devices need to be elegantly simple yet powerfully designed, and need to be paired with wireless networks (Wi-Fi as well as licensed spectrum) that consistently deliver a valuable experience. The keynote speeches from Qualcomm, Samsung and Verizon Wireless focused on this symbiotic relationship. Many other presentations and exhibitions did not.

Both the AT&T Developer Summit and CES also reinforced the importance of interface development. Simple programming interface understanding (e.g., how to display an in-app message) is not enough. “I have an app for that” is good, but having it integrated into similarly purposed apps is better. AT&T also went to great lengths to discuss integration into their voice, NFC and other APIs. One change in an API can mean the difference between a blockbuster and a “ho hum” application. As several of us have learned from previous start-ups, API standardization leads to a better product, but expecting that to happen organically is naïve.

During the week, two of the wireless carriers provided some hints about how the fourth quarter turned out. Prior to his keynote Tuesday afternoon in Las Vegas, Lowell McAdam, CEO of Verizon Communications, dished out some statistics on recent wireless performance at the Citi Global Internet, Media and Communications conference. While the headline number was 2.1 million retail postpaid net adds, a Verizon Wireless all-time record, another surprising figure was that 23% of their retail postpaid base is now using an LTE-equipped device (up from 16% in Q3).

I have read many analyses on how LTE will eventually reshape our lives, but few reports have focused on the speed of customer adoption. It’s not out of the realm of possibility that 70% of Verizon Wireless’ smartphone base could be LTE-enabled by the end of next year. To receive Verizon Wireless service on an LTE device last quarter, customers had to sign up for the Share Everything service (usage-based billing model). Therefore, it’s not surprising to Share Everything adoption grow dramatically.

With the “add a tablet” platform already in place for Share Everything, it’s also not surprising to see new (and in most cases unsubsidized) computing devices added to plans. My hunch is that there were some iPads and Galaxy tablets that previously had not been activated on any Verizon account that suddenly were added over the holiday season. This is likely a key source of the 700,000 “new to Verizon” net additions that McAdam reported last Monday.

Verizon Wireless’ “rinse and repeat” formula is simple: 1) fast network and devices; 2) migrate to shared data billing platform; 3) drive computing device activations to reinforce the value of the billing platform and the fast network. How this plays out in an LTE-centric (LTE-only?) environment is anyone’s guess. But Verizon Wireless’ leadership clearly showed in the fourth quarter.

AT&T did not lose any ground either, disclosing during CES that they had activated more than 10 million smartphones in the fourth quarter (that would represent about four million more than Q3 2012). They also disclosed that they have brought machine-to-machine module device costs down to the “mid-$20 range” from $75 a few years ago.

John Donovan, AT&T’s senior EVP of technology and network operations, took the stage on Wednesday at the Citi conference. While a lot of what he did was reiterate the Velocity IP (VIP) objectives that senior management set out in November, John went to great lengths to discuss the importance of leveraging investments across all of AT&T.

John discussed the leverage of one fiber connection – first, for the corporate head quarter customer (the investment driver), then the small business, then the business landlord which potentially could impact wireless coverage and speeds for all additional AT&T customers in that building. It’s a clear indicator of the opportunities that exist from the 1 million new businesses that AT&T will proactively enable with fiber (approximately 80,000 buildings) over the next three years.

John also discusses the platform AT&T is building to place the right type of traffic onto the appropriate network. While not backtracking from his support of Wi-Fi, he clearly indicated that when it comes to VoLTE (voice over LTE), Wi-Fi is not going to be the first option. VoLTE is the most critical application driving AT&T’s densification efforts, specifically in-building and near-building small cells.

This wide-ranging discussion, coupled with the AT&T Digital Life expansion announcement made earlier in the week, shows diverging growth strategies between the two largest U.S. telecommunications firms. For AT&T, it’s clearly about the value of the franchise: wireline investments where AT&T is the incumbent enable wireless growth, which in turn enable services and platform growth, thereby enhancing the value of the wireline franchise. This “flywheel philosophy” was not apparent in either McAdam’s or Dan Mead’s (Verizon Wireless CEO) discussions and represents a fundamentally different view of how shareholder value will be generated after nationwide LTE networks have been implemented.

While AT&T did not announce the exact expansion locations in the press release, it would be a safe bet that all of the cities launched in March are areas where AT&T serves as the incumbent local exchange carrier. Currently, these services are available in Dallas and Atlanta. Interestingly, Glenn Lurie from AT&T recounted during the Developer Summit how digital life was used to catch a thief who was stealing delivery packages from front porches throughout one Atlanta neighborhood. Digital life provided a clear picture of the thief.

There were more insights and announcements from T-Mobile USA that turned many heads at CES; MetroPCS, who disappointed investors with a net customer loss; and Sprint Nextel, although most of their announcements were overshadowed by the counter-offer made by Dish network. We’ll discuss these in detail over the coming weeks, as well as a blockbuster development: Walmart now has the iPhone lineup on their Straight Talk plans (an event sure to disrupt the iPhone ecosystem and T-Mobile USA’s iPhone strategy).

It was a week chock full of announcements. Translating these into shareholder value amid increasing competition and shifting business models is what separates leaders from followers.

Jim Patterson is CEO of Patterson Advisory Group, a tactical consulting and advisory services firm dedicated to the telecommunications industry. Previously, he was EVP – Business Development for Infotel Broadband Services Ltd., the 4G service provider for Reliance Industries Ltd. Patterson also co-founded Mobile Symmetry, an identity-focused applications platform for wireless broadband carriers that was acquired by Infotel in 2011. Prior to Mobile Symmetry, Patterson was President – Wholesale Services for Sprint and has a career that spans over twenty years in telecom and technology. Patterson welcomes your comments at [email protected] and you can follow him on Twitter @pattersonadvice.

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