Season’s greetings to the Sunday Brief faithful. It’s been a trendful year, and while the pundits regurgitate headlines, I’ll try to provide a deeper understanding into the “Nine for 2009” trends. So far, we have covered the following:
1. Investor sentiment clearly shifted away this year from “networkers” to the “cloud.” The shift was seismic – over $300 billion (as of 12/28 = $335 billion). As a result, cloud “currency” has more value than any time since the beginning of the decade.
2. Bolstering this trend is the accumulation of cash among the “Big 4” – more than $86 billion of cash on hand as of 9/30. More cash for acquisitions furthers their innovation advantage versus the network. More cash encourages smaller and more widespread venture capital risk.
3. The acceleration of wireless as the primary/ sole means of voice communication.
4. The explosion of (nearly) free data driving applications. (Updated example: After discovering the capabilities of Pandora, I managed to rack up 1.27 gigabytes of usage through my Palm Pre last month. It only takes one application to tip the scales).
5. The re-birth of reading and the Kindle standard. (Updated example: The in-laws, who are pretty technologically savvy for their demographic, ordered a Kindle 2 for Christmas. “It reads to me!” proclaimed my mother-in-law, although they would have liked a more British voice for their Sherlock Holmes stories).
6. The shift from in-store to on-line spending, especially for smartphones. (Updated example: HTC Tilt 2, the top of the line phone, available for: $199 after rebates from www.att.com vs. $99 for Amazon vs. free on www.walmart.com. This is for new accounts only).
There’s a lot in the first six trends, and the last three should be categorized as “wild cards” for the wireless industry. Here they are (again, in no particular order):
7. DOCSIS 3.0 deploys nationwide (really). For those of you who aren’t familiar with the cable acronyms, DOCSIS stands for Data Over Cable Service Interface Specification. It took more than three years from adoption of the DOCSIS 3.0 standard to the subsequent rollout, but it’s finally making its way to most of America (for those historians, DOCSIS 2.0 provided the standard that enabled cable’s Voice Over IP product, a game changer to say the least). The result of DOCSIS 3.0 is a speed capability that challenges FiOS and U-Verse, and, most importantly, leaves DSL in the dust. 50 megabits per second has become the new “premium speed” in many parts of the country. Cablevision introduced Optimum Online Ultra throughout their service area; one of their competitors referred to their advertised 101 Mbps download speeds as a “parlor trick” but, even in a tough economic environment, Cablevision grew their penetration (now at 53% of households passed) and household ARPU (to $141) in Q3. Even Mediacom got into the mix, announcing Waterloo, Iowa as their trial city for 105 Mbps speeds. Plenty of bandwidth for a femtocell and resolve in-home wireless coverage forever. Could the femtocell become the new “triple play” component, riding the cord-cutting trend? Stay tuned.
8. The FCC – Remember us? The FCC made more headlines in 2009 under Chairman Julius Genachowski in the past 5+ months (he was confirmed on June 29) than it did under the previous leadership’s five years. He grew the “four freedoms” to six, adding non-discrimination and network management transparency principles. Through his leadership, we knew fairly quickly why Google Voice wasn’t allowed on the iPhone (the parties appear to continue to be at a stalemate, as the “harmful device” principle has not been transformed into one of “harmful device or application”), and we learned about all of the Google Voice users who could not call their rural constituents (including nuns) in parts of the upper Midwest. As of 12/28, this issue is also unresolved, despite AT&T’s prodding. Chairman Genachowski also announced that he would support more spectrum auctions (presumably raising more money for the government), remove red tape around municipal cell site construction (likely limited authority here), codify and reinforce net neutrality principles, and be more fact-based and data-driven.
Bottom line: We now have a chairman who wants to help the innovation process but who fully knows that broad-based government intervention and regulation can hinder this objective. He will likely miss an opportunity to pass any legislative reforms through Congress if he doesn’t get them passed by May. There is more hope for reforms here than we had under Kevin Martin, but the current chairman needs to realize that undelivered promises result in diminished credibility. Deliver on the expectations in the same manner you demanded of your investments in the venture capital days – your taxpaying “investor” public will be forever thankful.
9. Limited/ focused M&A activity. 2009 was a slow year for traditional M&A transactions, leaving most of the activity to integrating 2008 acquisitions, complex spins, and the Comcast/ NBC Universal mega-content structure. AT&T had some minor activity at the end of Q3 with the acquisition of Plusmo, the wireless applications developer, as well as Verisign’s Global Security Consulting business and spectrum acquisition of overlapping Alltel assets from Verizon. In turn, Verizon had the completion of the ($28B) Alltel merger, as well as the announcement of the divestiture of most of the GTE assets to Frontier ($8.6B), and some spectrum acquisition so AT&T could complete the Centennial transaction. Sprint acquired Virgin Mobile USA and iPCS, but both of those assets largely use the Sprint networks/ CDMA standards today, making for an easier integration.
Wireline, not wireless, was the headline for this year, and was as much about what didn’t happen as what did. Here’s the combined timeline:
March: Charter files for Chapter 11 bankruptcy protection.
April 2: Reports surface that Qwest would like to sell its long distance network for $2-3 billion.
May 10: Windstream acquires D&E communications (Pennsylvania) for $330 million.
May 14: Frontier Communications announces acquisition of 4.8 million access lines from Verizon (mainly GTE territories). Transaction value of ~$8.6 billion.
June 8: Qwest backs off sale of long-distance network due to “valuation differences.”
July 29: Sprint announces acquisition of Virgin Mobile for $480 million.
July 30: Cablevision announces its intention to spin their Madison Square Garden business
Sept 8: Windstream announces the acquisition of Lexcom (N.C.) for $141 million.
Sept 30: AT&T announces acquisition of Plusmo for an undisclosed amount.
Oct 1: AT&T announces acquisition of Verisign’s Global Security Consulting Business for an undisclosed amount.
Oct 8: Comcast acquires Chicago-based CLEC CIMCO for an undisclosed amount.
Oct 19: Sprint announces acquisition of iPCS, one of the last remaining affiliates, for $831 million.
Nov 3: Windstream announces the acquisition of Nuvox, a Charlotte, N.C.-based CLEC for $643 million.
Nov 25: Windstream announces the acquisition of Iowa Telecom. Transaction value of $1.1 billion.
Nov 30: Charter emerges from bankruptcy with $8 billion of less debt. Paul Allen remains in control.
Dec 3: Comcast/ NBC Universal deal announced. Value of NBC Universal = $30 billion.
Bottom line: While the equipment sector (Nortel, Cisco, HP, IBM) had plenty of activity in 2009, the service provider segment, particularly in cable, was very quiet. With network providers, build is beating buy – that says something about the industry (see headline 1). The stage is set for additional M&A activity in 2010 if the credit market environment cooperates.
That’s the “Nine for 2009.” We end a decade that began with irrational expectations and pet puppets, followed by a market collapse, Sarbanes-Oxley, WorldCom, Enron, 9/11, anthrax, and the iPod. We end with a headline grabbing Twitter and Blackberry outages, free Wi-Fi in McDonald’s, “un-friend” as a verb, Pandora at 40 million downloads, Google storing and analyzing our every e-mail/ on-line/ calling move, 50 Mbps to the home and 103,000 data-hungry iPhone applications straining AT&T’s wireless network. The industry we thought we knew is a shell of its previous self, and, as innovation shrinks, its ability to attract the best and brightest minds who can construct a sustainable future is in question. More cross-carrier cooperation, more selfless leadership, and more customer focus are desperately needed. Without it, expect a cloudless future.
Jim Patterson is CEO & co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. He was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. He welcomes your comments at firstname.lastname@example.org.