Quick Thoughts: AT&T REALLY Doesn’t Like John Legere, and Other CES14 Thoughts

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–        TMUS CEO John Legere was the star of the day – Big 4Q net adds, big talk on LTE speeds, and a big plan to kill his rivals’ lucrative family plans by paying early termination fees for churners

–        This is probably worth the cost for TMUS and a huge problem for T and VZ – look for share shifts toward TMUS (and S, once Spark rolls out) and for T and VZ to raise capex and cut prices.

–        Meanwhile, the big themes of CES14 are 4K TV, automotive electronics and “the connected home” – all of which have been seen before, but this year, seem a bit closer to reality.

–        I’m not sold on curved screens or “smart” TV, and the big vendors are offering numbingly similar products. 2014 looks like a year of commoditization to me.

Well, another day spend grinding the cartilage in my knees on the hard, unforgiving floors of the Las Vegas Convention center. Between swerving around the swarms of international press photographers clearing space to take pictures and dodging the too numerous attendees who insist on bringing their roll-a-way luggage to make life miserable for everyone else, I saw and heard some interesting things.

The biggest news on Wednesday was T-Mobile USA CEO John Legere’s tour de force performance in the company’s big press event. The crowd was already atwitter, as the story of Legere having been forcibly removed from the AT&T customer event, featuring popular hip-hop artist Macklemore, had circulated that morning. Fittingly, Legere bounded to the stage to the strains of Macklemore’s “Thrift Shop” and began trash talking his competition. Verizon got some props for owning up to its “network speed issues”. Sprint is “a pile of spectrum waiting to turned into capability”. AT&T’s sponsored data got a schoolyard taunt as the “biggest horse@#$% in the world”. Getting back on script, Legere then revealed that T-Mobile had added more than 1.6M subs in 4Q, the biggest increase in more than 2 years – post-paid subscribers were up nearly 870K in 4Q and 69K LTE tablet connections, with churn dropping to 1.87%. For the full year 2013, subs were up 4.4M.

T-Mobile is in the right place in the right time with the right strategy. Clearly consumers are reacting to the company’s “uncarrier” strategy, which separated device purchases from service agreements, delivering significantly lower costs for consumers with more transparency and flexibility. It also helps that Verizon and AT&T have struggled to maintain data service quality in the face of massive usage growth. Combining high prices, strict usage caps and badly deteriorating service, left the two market leaders vulnerable and T-Mobile capitalized. Legere boldly claimed that his network was delivering superior data performance to his competitors, based on his own internal testing rather than independent assessment (which can take many months to execute). Moreover, T-Mobile is planning to aggressively roll out the LTE Advanced upgrade, which should double the speeds on the network and widen the gap vs. rivals. Skeptics may bash his assertions, but the claims pass my sniff test.

The big news of the day was the next phase of the “uncarrier” program. T-Mobile will pay the early termination fees of up to $350 a line for individuals and families churning off of other carriers and a $300 instant credit for each recent vintage smartphone traded in. Earlier in the week, AT&T offered a $450 bounty to T-Mobile customers willing to move over on a 2-year contract. The T-Mobile plan blows that out of the water. For AT&T (and VZ), this initiative is insidious, as the strategic shift to family plans was supposed to create lasting lock-in for customers – various phones tied to the plans would come up for upgrade at different times, meaning that shifting the family out of the plan to a cheaper carrier would need to be planned well ahead of time and would almost certainly trigger an early termination fee. T-Mobile asserted that the typical family of 4 would save $1,880 over two years on its plan – even at fraction of that, the attraction is substantial.

What wasn’t said was how much this plan would cost T-Mobile (and thus, its shareholders). Customer acquisition costs, already averaging $400-500 in the industry due to subsidies will increase substantially for the carrier. Legere is betting that once he lures these subs over to T-Mobile that he will be able to keep them. If he is right about the superiority of his network, it may be a good bet.

Moving on. I have to admit that I’m finding it very hard to tell the difference between the various Ultra High Definition TV sets on display at CES. Moreover, the gap vs. the now entirely mundane 1080P HDTV models is noticeable but not mind-blowing. Given that there is, essentially, NO 4K content available, Cable systems are not even supporting full 1080P yet, very few US households have broadband service fast enough to stream 4K, and consumers generally keep their TVs for 6-7 years before upgrading, it’s very hard for me to get worked up about UHD, and don’t get me started on curved screens and 3D. I have been pretty vocal about the “PC-ification” of the smartphone, and given what I’m seeing in TVs, I’m left fairly bearish about the big consumer electronics firms at CES.

The most interesting things on the floor were “connected home” and automotive electronics. Having been coming to CES for about a decade, I’m well aware that the “connected home” has been a buzzword for all of that time, and a bit of an industry joke for most of it. Stick with me. This year it finally seems realistic – some standards are evolving, devices are able to talk to one another, the smartphone has emerged as a natural control point, and prices are coming down. The most impressive demo was probably Qualcomm, which is heavily promoting its “AllJoyn” and “AllPlay” solutions as open standards, hoping to sell chipsets to a new market. With the list of companies supporting the standard, it would seem that Qualcomm has a fighting chance.

The other big theme was automotive – BMW, Audi, and Toyota were all touting their progress on various aspects of autonomous navigation (self-driving cars), and every major manufacturer was talking up their scheme to deliver the power of the internet, and importantly, user preferred apps, to their in-car infotainment systems. Honestly, it seems a bit like a tug of war between Silicon Valley and the auto industry, and, unfortunately, I can see a future in which each automaker insists on their own approach and no real standards gain hold. I hope not.

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