Tag Archives: Sprint

It’s Hard Being Number 3

Cell-TowerSprint might be the most interesting carrier in the market today in either the mobile or landline industry. They have done one of the biggest turnarounds ever in the telecom world. In 2008 Sprint was by far the least popular wireless carrier. They got really low marks in customer satisfaction surveys, far below the other three carriers. This was partly due to poor customer service, but also do to their launch of WiMax in 2008 that never worked as well as the LTE being launched by the other carriers.

But Sprint has turned it around. They had hired Dan Hesse as CEO in 2007 and Sprint now ranks equal to AT&T and Verizon in terms of customer satisfaction. This goes to show you that a big company can change their customer experience if they decide that it is a priority. I just wrote last week how Comcast has been at the bottom of customer service rankings for years and how they don’t seem to be concerned about it. But Sprint decided that poor customer service was holding them back and they fixed their many problems.

Sprint has also undertaken steps to leapfrog the other carriers in terms of data performance. Sprint spent a lot of money to buy Clearwire, mostly to get their spectrum. They plan to combine the 2.5 GHz spectrum they got from Clearwire with the 1.9 GHz LTE spectrum they bought in auctions to create significant data pipes. This will give them two separate 60 MHz blocks of spectrum that will perform well both close to a cell site and some distance away. They are shooting to have this all deployed by the second quarter of 2015, which will give them the ability to offer LTE speeds up to 150 Mbps download

Sprint also has been doing other interesting things. For instance, they had a promotion for most of 2013 that would give free service to any student who brought their own handset. This free service came with unlimited voice and texting and 1 GB of data. For only $10 a month a student could get unlimited data. One looks at that sort of plan and wonders how it could possibly benefit them to have a lot of customers that are not paying for service. But I think it’s a brilliant long-term strategy, and we don’t see a whole lot of long-term thinking in the carrier world that is measured by the earnings in the latest quarter. But think back a few decades when Apple was putting free, or nearly free computers in schools across the country. In doing so they raised whole generations of kids to like the Apple brand and this is part of the reason why they have exploded in popularity in recent years. Sprint is building the same brand name identity and loyalty of a whole new generation of cellular customers.

Sprint has also seriously been aggressively pursuing a merger with T-Mobile. They were told late last year by the feds that such a merger was probably going to be opposed. However, the current thinking in the industry is that if the government let’s Comcast buy Time Warner that it’s then going to be very hard to say no to a Sprint – T-Mobile merger. I think such a merged company could be powerful. Sprint has a vision that cellular data needs to be unlimited, or with very high caps in order to be relevant a decade from now. When you look at combining the spectrum and customer bases of the two companies, along with Sprint’s new focus on customer service you could have a true third competitor to AT&T and Verizon. Today neither Sprint nor T-Mobile can be considered as real rivals. T-Mobile has been buying customers at the bottom of the market using low-cost specials, and as good as Sprint is, they are just not in the same stratosphere as the big two.

The End of Special Access?

Image representing EarthLink as depicted in Cr...

Image via CrunchBase

For those not familiar with the term, special access refers to selling traditional data pipes on the TDM telecom networks. These are circuits like T1s and DS3s. While one might think the world had transitioned to ethernet circuits there are still huge numbers of these traditional circuits being sold in the world.

In many cases the traditional circuits, especially T1s are being sold because of lack of fiber in the distribution plant. TDS data circuits can still be delivered over copper in many cases and often are the only way for a business stuck on copper to get faster data speeds.

AT&T recently announced that they were going to do away with all of their long-term discounts on these traditional TDM circuits. Customers and other carriers have been used to buying these products with a significant discount for signing up for long periods of time. There have been discounts offered for agreements to buy for up to seven years. And these discounts have teeth since there are significant penalties for breaking the contracts. As of November 9 AT&T will not be signing any contracts with terms longer than three years.

AT&T says the reason they are doing away with the discounts is due to the fact that they are going to be discontinuing TDS special access by 2020. However, that rings untrue since somebody can still sign a 5-year or 7-year contract today and still have that contract finished on or before 2020.

Some of the competitors of AT&T filed a letter of complaint with the FCC this month complaining about the cessation of the term discounts. This included Sprint, tw telecom, CBeyond, EarthLink, Level3 and Megapath. These carriers say that eliminating the discounts is anticompetitive since they are the in direct competition with AT&T and they are the primary purchasers of special access circuits.

Sprint says that eliminating the term discounts will increase the prices they pay and ultimately affect what customers pay. They say that in the worst case examples that their costs will rise 24%.

If you have been following this blog I have reported that AT&T has been positioning itself to get out of the TDM business. They want to convert all data circuits to ethernet as part of their ‘Project VIP’ initiative. But they also want to get homes and small business off of copper and in many cases replace them with cell phones. The FCC has not given AT&T the permission to do this anywhere, yet they keep moving towards that goal.

The biggest problem I see with trying to eliminate TDM data circuits, particularly T1s, is that the customers who use them often are in parts of the network that don’t have fiber alternatives. It’s nice for AT&T to be able to talk about offering only ethernet, but in many cases this is going to result in customers losing what little data they are able to buy today.

There are still huge numbers of T1s that are used to support PBXs and small company WANs for functions like data back-up. It’s hard to picture what a customer will do if the copper goes away and they are expected to somehow perform those functions using cellular data – with data plans that are likely to be capped. We tend to think of a T1 these days as a small data pipe. But if you are using it for data backup, a T1 can transmit a lot of data during a month’s time.

The FCC is in the middle right now of looking at special access issues. They have issued a request for data from the industry that will hopefully help them understand the state of the current TDM data market. I think they are going to find that the market is still a lot larger than AT&T wants them to think.

Spectrum Winners and Losers

AT&T posted a short statement on their public policy blog called ‘Inconvenient Facts and the FCC’s Flawed Spectrum Screen’. In that blog post they complained that the FCC had failed to apply the spectrum screen to Softbank’s acquisition of Sprint and Sprint’s acquisition of the rest of Clearwire. And AT&T is right. The FCC has been incredibly inconsistent in the way it looks at wireless acquisition and mergers.

So what is the spectrum screen? The spectrum screen is a set of internal rules at the FCC that they use to determine if any wireless carrier owns too much spectrum in a given market. Historically the FCC had a generic rule that said that no one company could own more than one-third of the spectrum usable for wireless in a given geographic area. This spectrum screen was applied both to attempts of wireless carriers to buy new spectrum or to mergers between wireless carriers.

The FCC has been very inconsistent in the way they apply the existing screen. Last September they announced that they were going to look at the way the spectrum screen ought to work. But meanwhile, during the last year the screen has been applied (or ignored) in the following ways:

  • When the FCC looked at the proposed AT&T / T-Mobile merger they rejected the merger in part because they said that the acquisition would fail the screen test in 274 CMAs that covered 71 of the top 100 markets and 66% of the US population. However, the FCC fudged the spectrum screen in coming up with those numbers. At that time the spectrum screen set the maximum amount that any one carrier could own in one market at 95 MHz, which was one-third of the spectrum available for wireless carriers. However, in coming up with their conclusion the FCC lowered that threshold to 90 MHz in judging the merger. That might not sound like a big difference, but it lowered the number of markets affected by the merger by 84 and reduced the overall problem to less than 50% of the top 100 markets and 50% of the US population. That is still a lot of places where the proposed merger would have failed the spectrum screen, but AT&T had announced plans to divest of bandwidth as needed to meet the FCC test. The FCC made this change in the spectrum screen without any public input.
  • When Verizon acquired spectrum in the 1.7 to 2.1 GHz band the FCC applied this fully to their spectrum screen band. They did the same when AT&T acquired 2.3 GHz spectrum.
  • And then there is the recently announced approval for Softbank to acquire Sprint and Clearwire spectrum. The Clearwire spectrum at 2.5 GHz is right next to the 2.3 GHz spectrum recently acquired by AT&T. While the FCC fully counted the spectrum AT&T purchased against the spectrum screen, in the Softbank acquisition the FCC counted only 55.5 MHz of the Clearwire spectrum against the new Softbank spectrum screen even though there is an average of 140 MHz available in most of the Softbank markets.

So AT&T has a legitimate gripe. The FCC seems to apply the spectrum screen to get the results they want. It looks a lot more like the FCC is picking market winners and losers than they are protecting the public. The spectrum screen was established in the first place to promote competition. The FCC wanted to make sure that a given carrier did not get so much spectrum in a major market that they could effectively close out competition. They also didn’t want carriers to be able to hoard spectrum for future use. But the FCC no longer seems to be using market protection as the criteria of deciding who can and cannot merge.

It’s clear that the FCC didn’t want AT&T and T-Mobile to merge. They thought that it was bad for competition to lose one of the major carriers in the country. But it was wrong for them to fudge the spectrum screen as a way to justify their position rather than just oppose the merger on pure competitive grounds.

And in the case of Softbank they are going in the opposite direction. They obviously want a new competitor to AT&T and Verizon and they are ignoring the spectrum screen to make sure that happens.

Why does all of this matter? Like anything else it’s a matter of money. Wireless carriers have two ways that they can address congested conditions. They can just add more cell sites, closer and closer to the old ones. In effect spectrum is reusable and each new cell site uses the original spectrum freshly. The other solution is to just layer on a new spectrum in a crowded area so that no new cell sites need to be constructed. That is much cheaper than building cell sites, and so carriers want more and different spectrum in major markets to meet the seemingly insatiable and rapidly growing demand for mobile data.

The issue is going to get a lot worse. President Obama announced a new policy that will release up to 500 MHz of new spectrum for wireless use over the next five years. So there is going to be a new land grab by all of the carriers and the FCC needs to get ready.

It just seems to me like the FCC needs to toss out the spectrum screen and come up with a new way to determine the right amount of competition. In the two biggest merger cases before them in the last few years they blatantly ignored their own spectrum screen rules to get the result they wanted. That is evidence enough that we need to stop having the fiction of a spectrum screen. If the FCC wants to be in the game of picking market winners and losers they just need to be upfront about it.