Google recently announced the introduction of it’s newest device called Chromecast, which is the newest entry into the crowded Internet video industry. The small device costs approximately $35 and promises to let you easily stream Internet video on a television. Plug the device into the back of a TV’s HDMI port, connect it to your home WiFi network and you can then fire up videos or music on your phone, tablet and computer and watch it on the bigger screen. Ross Rubin believes Chromecast’s price point could be its biggest draw stating, “Perhaps the best news about the Chromecast was its price. At $35, it is almost a third of what Apple TV sells for and even significantly less than even Roku. It’s not the solution to everything and it does require initiation from a smartphone or other device. And they don’t have all the services, but have some key ones in Netflix, YouTube and Pandora. It’s not a complete solution, but it’s trying to tackle a single problem — expediently getting online video to your TV — and at a price that beats about everything out there.” To read the whole article please visit http://abcnews.go.com/Technology/google-chromecast-lets-stream-video-tv-phone-tablet/story?id=19762854.

 

Ross has more than 16 years of experience analyzing consumer technologies. Prior to founding Reticle Research, he was executive director and principal analyst for the telecom industry at The NPD Group, where he provided analysis on a wide range of topics to clients and helped t launch several research products. Prior to NPD, Ross founded and developed the consumer access and technology service at Jupiter Research, where he served as vice president and chief research fellow. If you would like to speak with Ross further about this topic please contact info@roulstonresearch.com.

Despite positive quarterly results from Apple and Samsung, it is clear that smartphone sales growth in developed economies is leveling off. The next wave of growth will come from emerging markets, which is why Apple, for example, is as focused on developing a high quality, but lower cost device for Asia and Latin/South America as it is on the next wow-factor phone for the U.S. and other developed countries. We are in a new, market segmentation mode for smartphones: devices for different price points, and screen size choices to meet form factor preferences. Please follow the link to Mark’s FierceWireless article to read his 8 thoughts on how to re-invigorate the handset market by focusing on the totality of the user experience at http://www.fiercewireless.com/story/lowensteins-view-smartphone-ennui-and-what-do-about-it/2013-07-25.

Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein. If you would like to speak with Mark on a 1 on 1 basis about this or any other topic please contact info@roulstonresearch.com.

Earnings Scout is a proprietary analysis of the rate of change (the delta) in earnings trend expectations. This analysis is differentiated as it identifies divergence of stock price from the rate of change future expectations. The rate of change is a leading indicator of a catalyst for potential price change not measured elsewhere. Contact info@roulstonresearch.com to learn more on how they can create tailored reports so you can maximize your risk-adjusted returns.

• The Systems Software industry in the S&P 500 consists of six companies: BMC Software, CA,
Microsoft, Oracle, Red Hat and Symantec.
• The industry accounts for 2.68% of the S&P 500 index.
• In 2012, the systems software industry outperformed the information technology sector
(15.22% vs. 14.82%) and underperformed the S&P 500, which returned 16.00%.
• In 2013, the industry is outperforming the information technology sector (12.99% vs. 10.26%)
and underperforming the S&P 500, which has a total YTD return of 19.60%.

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3Q 2013 Systems Software Earnings Estimates
Company

2Q13

Report Date

3Q13

Estimate

3Q13 Est.

(90 days ago)

90 Day

Estimate Change

CA

7/25/2013

$0.73

$0.62

17.74%

Red Hat

6/19/2013

$0.33

$0.33

0.00%

BMC Software

8/6/2013

$0.99

$1.00

-1.00%

Oracle

6/20/2013

$0.56

$0.58

-3.45%

Symantec

7/31/2013

$0.45

$0.48

-6.25%

Microsoft

7/18/2013

$0.58

$0.68

-14.71%

Source: The Earnings Scout

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Yahoo has been in the news frequently the last several months as CEO Marissa Mayer tries to make the company more competitive. She made a major billion-dollar acquisition of the popular blogging platform Tumblr in May and has acquired a number of start-ups including the email organizing company Xobni, iPhone video and picture converter app company Qwiki, and picture taking applications maker GhostBird Software among others. While some in the industry feel that these acquisitions are positive steps in rebuilding the challenged internet giant others like Rob Enderle feel it could be a sign of lack of innovation. He states, “When a CEO is in trouble, and innovation is not happening internally, they go acquisition crazy. Marissa Mayer is bouncing all over the place; it looks like she is in a panic. Making acquisitions in rapid succession also burns through capital, meaning Yahoo must be careful not to eat away too much of its cash reserves or it could wind up “on death watch.” To read the full article please visit http://www.couriermail.com.au/business/breaking-news/yahoo-buys-email-organising-startup/story-fnihsevj-1226674357713.

Rob Enderle is President and Principal Analyst of the Enderle Group, a forward looking emerging technology advisory firm. He specializes in providing rapid perspectives and suggested tactics and strategies to a large number of clients dealing with rapidly changing global events. If you would like to speak with Rob on a 1 on 1 basis about this or other topics please contact info@roulstonresearch.com.

Earnings Scout is a proprietary analysis of the rate of change (the delta) in earnings trend expectations. This analysis is differentiated as it identifies divergence of stock price from the rate of change future expectations. The rate of change is a leading indicator of a catalyst for potential price change not measured elsewhere.  Contact info@roulstonresearch.com to learn more on how they can create tailored reports so you can maximize your risk-adjusted returns.

  • The integrated telecommunication services industry in the S&P 500 consists of five companies: AT&T, CenturyLink, Frontier Communications, Verizon Communications and Windstream.
  • The industry accounts for 2.74% of the S&P 500 index.
  • In 2012, the integrated telecommunication services firms slightly underperformed the telecom sector (14.52% vs. 18.31%) and the S&P 500, which returned 16.00%.
  • In 2013, the industry is tracking the telecom sector (13.38% vs. 13.59%) but underperforming the S&P 500, which has a total YTD return of 18.79%.

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2Q 2013 Integrated Telecommunication Services Earnings Estimates
Company

Expected Report Date

2Q13 Estimate

2Q13 Est. (90 days ago)

90 Day Estimate Change

CenturyLink

8/7/2013

$0.67

$0.66

1.52%

Verizon Communications

7/18/2013

$0.73

$0.72

1.39%

Frontier Communications

8/7/2013

$0.06

$0.06

0.00%

AT&T

7/23/2013

$0.69

$0.71

-2.82%

Windstream

8/7/2013

$0.09

$0.11

-18.18%

Source: The Earnings Scout

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Earlier this year, the new exec team at T-Mobile, led by CEO John Legere and CMO Mike Sievert, must have sat down at a conference table at the company’s Seattle area headquarters and asked two questions:

1)    What are the top things about the wireless operators that    annoy customers the most?

2)    Which of these can we address…and still stay in business?

Thus was birthed TMO’s “Un-carrier Strategy”. Round 1, announced in March, took on contracts and handset subsidies. Round 2, announced today in New York, takes on handset upgrade policies, which leading operators AT&T and Verizon Wireless have tightened in recent months.

Before analyzing the new plan offerings, kudos are due the TMO network team for the quick integration they’ve pulled off with Metro PCS, as well as the swift progress on LTE. The Four Majors realize that LTE has to be available to the vast majority of their footprint by mid-to-late 2014 in order to be competitive in the U.S. wireless market. We will then start moving from strategic to tactical with LTE claims: instead of who has the most POPs rolled out, it will be more about real performance metrics, such as download speeds, latency, video performance, and so on.

Family Plan

T-Mobile has extended its Family Plan to those who don’t have credit. These customers have access to the same Family Plan offerings as credit-worthy subscribers, except that they must pay the monthly fee in advance. Clearly, this reflects Metro’s influence on the newly merged companies. T-Mobile also realizes that it will be very difficult to grow subscribers unless it can somehow chip away at the family plan fortress dominated by Verizon Wireless and AT&T.

T-Mobile might call this part of their “un-carrier” strategy. More broadly, this reflects a merging of the post-pay, pre-pay, and advance pay “categories”. There is, simply, an expansion of options for device procurement, ownership, and service plan structure. And, the wireless industry is getting a little smarter about market segmentation. TracFone gets this better than most.  

JUMP

The signature element of T-Mobile’s announcements today is JUMP, which allows subscribers to upgrade their device up to twice a year, for the same price a new subscriber would pay for the (subsidized or financed) phone. Typically, a subscriber who purchases, say, an iPhone at a subsidized price, has to wait 24 months to upgrade the device. Switching to another operator triggers an early termination fee; upgrading early requires the subscriber to pay the full retail price  or an early upgrade fee.

In order for a T-Mobile subscriber to be eligible for JUMP, they must: pay $10 per month for the JUMP program, which T-Mobile has cleverly bundled with handset insurance (which is currently bought by about 25% of smartphone subscribers); wait 6 months following the purchase of the first device; and be on an equipment installment plan (EIP). When the subscriber upgrades under the JUMP program, T-Mobile takes back the subscriber’s existing phone, presumably to sell it as a refurbished device. The EIP clock is “reset”, and the subscriber pays installment pricing on the new device. 

JUMP Economics

JUMP is a bit of a complex equation for the subscriber. It’s sort of like deciding whether to get dental insurance: how much dental service do you think you’ll need over the course of a couple of years, plotted against the monthly premium, annual maximum benefit, and what procedures are covered.

What the subscriber gains here is flexibility. For the subscriber who wants to upgrade their device more frequently than the average, JUMP makes a lot of sense. They pay more out of pocket costs for equipment-related expenses, gaining flexibility of upgrading when they want, plus the added benefits of insurance, which I think an increasing number of subscribers will opt for with smartphone growth. 

I did an exercise where I took two scenarios: a T-Mobile subscriber using Jump aggressively, buying an initial iPhone and then replacing it in months 7, 15, and 21; and an AT&T subscriber who buys a subsidized iPhone for $199 and replaces their iPhone with a new iPhone after one year in each of two years, at a $200 discount (because the contract is re-set). Since the AT&T subscriber owns their phone, I assume that they receive $200 for a “trade in” for their year-old iPhone. I used a retail price of $650 for the iPhone.

Subscriber Economics 

T-Mobile Subscriber                                     

Buys iPhone Month 1 for $146                     

New iPhone Months 7, 15, 21 for $146        

Pays $21 EIP 24 months                            

Pays $10 Jump plan 24 Months                   

AT&T Subscriber

Buys New iPhone Month 1 for $199                

Buys new iPhone Month 15 for $450

Buys new iPhone Month 25 for $450

Gets $200 for each iPhone traded in

Over a two-year period, total “Equipment” Outlay: $1328 for a TMO Subscriber, $735 for an AT&T subscriber ($903 if they buy insurance). TMO subscriber has four new phones over 25 months, AT&T subscriber has three new phones. The TMO subscriber also spends $1,000-1,500 less on monthly access fees over the period, depending on whether the equivalent AT&T plan would be 2 GB or 5 GB of data for an individual line.   

Operator Economics        

T-Mobile Economics                                     

Pays $2,016 x 4 iPhones                             

Receives $504 in EIP                                  

Receives $240 in Jump payments                

Receives $450 for 3 iPhone refurbs       

AT&T Economics

Pays $451 initial subsidy       

Pays $200 subsidy for Month 15 iPhone

Pays $200 subsidy for Month 25 iPhone       

Here, TMO’s total equipment outlay is $660, while AT&T’s is $850. AT&T makes this up in the form of higher monthly access fees. 

This analysis shows that the economics for T-Mobile and AT&T are similar, not accounting for other economic benefits, such as customer NPV, reduced churn, early termination fees for the AT&T subscriber if they leave, or the difference in monthly fees.

It all boils down to flexibility and choice. The T-Mobile subscriber is paying a premium for the ability to replace their devices more frequently (and the added benefits of insurance), and also for not being in a contract. But the subscriber is also saving $1,000-$1,500 over the 24-month period. The AT&T subscriber does not get to replace their device as often and has lower out of pocket costs for devices, but pays higher monthly access fees and the risk of an ETF if they leave prior to contract expiration.  

So, Is JUMP a Good Idea?

In the intensely competitive wireless market, with smartphone growth showing signs of maturing and most new adds coming from taking share from a competitor, operators are going to have to do make more outside the box moves to differentiate. TMO is clearly tapping into the group of subscribers who would upgrade more frequently…if they could. Certainly T-Mobile will steal some subscribers, who are attracted to the JUMP concept and other elements of the “un-carrier” pitch. Even more importantly, this is a major initiative to reduce churn. A subscriber who is on an EIP and then additionally investing $120 per year for the “privilege” of an early upgrade, is less likely to churn, assuming other elements of the experience meet expectations.

JUMP could also help T-Mobile re-engage with the young/hip/urban demographic — where TMO has historically over-indexed but had recently lost its way. TMO could also aim some of its JUMP marketing at households with teens, who always want the latest and greatest, and would benefit from handset insurance, perhaps enabling the operator to nibble away at family plan share that is dominated by AT&T and Verizon Wireless.  

The Bigger Picture

This program also reflects the growth and legitimacy of the pre-owned/refurbished handset market – until recently the back alley of the wireless business. All of the major operators are growing their refurbished handset programs, and this is also expected to be an important part of Apple’s planned retail offensive in the third and fourth quarters. A solid refurbished handset market is an important component of reaching the next wave of smartphone subscribers – those who are more price-sensitive, or additional members of the family who still have feature phones.

More options on the equipment side will also start to force subscribers to change their behavior. They’ll have to look at total out of pocket costs for both equipment and services, rather than the historic mentality of “almost free handset” made up for by higher connection costs. 

I also believe T-Mobile’s moves are the opening volley in what is going to become a more frothy handset retail market. We are seeing an increased number of options for device procurement and ownership, as operators start chipping away at the subsidy model. Cheaper iPhone and Android devices, fewer subscribers in long-term contracts, a growing refurbished phone market, and a burgeoning variety of service plans and device procurement options will lead to an uptick in switching behavior and buying behavior in the coming months. This reflects the impact of an industry whose competitive index is intensifying.

Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein. If you would like to speak with Mark on a 1 on 1 basis about this or any other topic please contact info@roulstonresearch.com.

A lot of folks shortly are going to be asked to choose between Dell’s founder and CEO and Carl Icahn infamous corporate raider. For me it wouldn’t be a hard choice because I still blame him for destroying TWA and turning what was an ailing but powerful US brand into a place where hundreds of thousands of people used to work. But more pragmatically, after seeing him fail and make things worse at Yahoo I don’t think he can execute either and for most that may be the bigger problem. The Dell offer is a sure thing, Icahn’s promise not so much. To read Rob’s full article please visit http://www.tgdaily.com/opinion-features/72389-dell-vs-icahn-betting-on-a-sure-thing.

Rob Enderle is President and Principal Analyst of the Enderle Group, a forward looking emerging technology advisory firm. He specializes in providing rapid perspectives and suggested tactics and strategies to a large number of clients dealing with rapidly changing global events. If you would like to speak with Rob on a 1 on 1 basis about this or other topics please contact info@roulstonresearch.com.