The Sunday Brief: Verizon at CES—let the renaissance begin

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More snowy and chilly greetings from Jefferson City and Willard, Missouri, as well as the Tar Heel state, where we anxiously await next week’s warmup.  The opening picture is from a Zoom presentation last week to the Colorado Wireless Association (COWA).  A terrific discussion and lots of field insights. 

Despite the cool temperatures, the news cycle this week was heated, with Samsung’s new Galaxy S21 announcement, the C-Band auctions concluding and Verizon’s CEO, Hans Vestberg, delivering a spirited keynote address (virtually) at the Consumer Electronics Show.  There is plenty to talk about as we await Q1 earnings.  Speaking of which, upcoming earnings calls are scheduled as follows:

  • Verizon                Tues, Jan 26 @ 8:30 ET
  • Microsoft            Tues, Jan 26 @ 5:30 ET
  • AT&T                    Wed, Jan 27 @ 8:30 ET
  • Apple                   Wed, Jan 27 @ 5 ET
  • Facebook            Wed, Jan 27 @ 5 ET
  • Comcast              Thurs, Jan 28 @ 8:30 ET
  • Google                 Tues, Feb 2 @ 5 ET
  • T-Mobile             TBD (likely Thurs, Feb 4; preannounced subscriber results on Jan 6)
  •  Amazon               TBD (llikely Thurs, Feb 4)

The week that was

Tepid 2021 performance continued this week, as the Fab Five lost $270 billion in equity value (more than one Verizon).  Thus far in 2021, the Fab Five have lost about 12% of 2020’s record-setting gains, while the Telco Top Five have already lost 43% of last year’s gains. 

This week’s Fab Five losses were broad-based, with Apple losing $83 billion, Microsoft down $53 billion, and Google losing $48 billion.  Every company contributed to the weekly losses, and stock prices are down to beginning-of-year to mid-December levels for everyone but Facebook (who seems to have created a lot of confusion in their latest WhatsApp update – more from CNET here). 

The Telco Top Five changes, with the exception of Comcast (down $13 billion this week), were more muted as investors await final C-Band auction results.  We got a hint of some needs, however, when T-Mobile raised $3 billion for spectrum purchases (announcement details here) and it was revealed that AT&T was planning on raising $14 billion for spectrum purchases.  The linked article described the mechanics of the loan, which is structured as a 365-day draw as opposed to a traditional bond offering.  That structure could presage a DirecTV sale, which, incidentally, is rumored to fetch around $10-11 billion for AT&T (see New York Post Article here).  As a reminder, Verizon already raised $12.5 billion ahead of the auction (Fierce Wireless article here), but it’s unlikely that will be enough to cover what’s expected to be a $45-50 billion bill (including clearing costs).  

While there are differences in how the spectrum allocation works, we cannot help but contrast the results of the CBRS auction (105) with the recently concluded auction (107).  As a reminder, the CBRS auction consisted of a maximum of four 10 Mhz licenses per winning bidder (40 MHz total).  But a total of 70 MHz of spectrum in the 3.55–3 65 GHz band were sold at the county level for $4.5 billion.  The C-Band range is much larger (A block @ 100 MHz, and BC block @ 180 MHz), but does that swath equate to a 4-5x higher yield per MHz POP (see Sasha Javid’s results here for Auction 105 and 107)?  

As we discussed last week, Auction 107 makes T-Mobile’s acquisition look downright brilliant.  Here’s a chart showing the ranges of each of the spectrum bands that we put together for a client in 2019: 

T-Mobile’s 2.5 GHz + 600 MHz deployment results in meaningfully greater geographic coverage and throughput than C-Band + 1900 MHz (PCS shown above) or even C-Band + 700 MHz.  Even if new modulation techniques emerge that can be used for 3.5 Ghz but not 2.5 GHz (we cannot think of any), the advantage will only be reduced to an 8-9x advantage for T-Mobile.  

Spectrum is the foundation of cellular architecture and engineering (just ask Sprint engineers prior to their merger with T-Mobile).  Cellular architecture forms the basis for service costs ($ per GB).  If T-Mobile’s overall service costs are 20-25% less than Verizon’s as a result of their respective C-Band auction bids (and increased tower operating costs required for equal coverage), that will either result in increased margins, improved market share gains, or a combination of both (provided that T-Mobile’s bandwidth consistency, a function of engineering, approaches or exceeds Verizon). 

Bottom line:  There are a lot of “ifs” and “provided that” statements above.  But underlying cost structures between AT&T, Verizon, and T-Mobile are going to converge, particularly in metros, if T-Mobile executes on their engineering and transport/ backhaul plans.  To use a football analogy, T-Mobile, through their Sprint acquisition, just traded up for a superior offensive line. 

Samsung’s Galaxy Unpacked announcement

On Thursday, Samsung announced their new Galaxy S lineup for 2021.  The S21, S21+ and S21 Ultra bring different features to the table while improving many parts of the S20.  Headlines were focused on the $200 lower price for each model.  Less RAM (from 12 GB to 8 GB) and slightly degraded screen resolution (from 3200 x 1440 to 2400 x 1080 panels) only make a difference at the margin (re: YouTube rarely defaults to 1080p, and many budget plans only feature standard definition screens).  We think Samsung made the right tradeoffs for their entry level premium devices.

All three models feature the 2.84 GHz Qualcomm 888 processor and at least 4,000 mAh batteries (the Ultra clocks in with 5,000 mAh which will power average users for multiple days).  Samsung has also upgraded the fingerprint sensor (one of the subpar features of the Galaxy S20).  There’s little doubt that with aggressive trade-in promotions through Samsung.com, and AT&T’s continuation of offering equivalent deals to both new and existing customers (see announcement here), both the S21 and S21+ will see strong sales. 

The real treat Samsung announced on Thursday, however, is the S21 Ultra (pictured left).  It’s $200 more expensive than the S20+ (starts at $1,199 before the S-Pen or a case and is $100 more than the baseline iPhone 12 Pro Max price), but features 12 GB RAM, a 108 Megapixel rear camera with 100x zoom and 5,000 mAh battery (similar to the S20 Ultra).  If you need a lot of processor or require premium resolution on pictures, the Galaxy S21 Ultra should do the trick. 

What intrigued us was the S21 Ultra S-Pen integration and what this potentially means to the Galaxy Note’s future.  Larry Dignan at ZDNet penned a terrific, insightful article here about the potential transformation away from the Note, with premium (larger) devices transitioning into the Galaxy Fold series.  If you are a Note fan (and, as Larry points out, Samsung has nearly perfected pen integration through years of Note upgrades), you might want to investigate the Note 20 now before it’s gone (Note 20 prices now start at $999 on Samsung.com).  Our money is with those who think the S-Pen lives on, but the Note is discontinued. 

Verizon at CES – let the renaissance begin

Hans Vestberg delivered a 5G vision this week as the opening CES keynote and highlighted significant changes that were beginning to occur thanks to pandemic dynamics as well as network deployments.  His speech warrants a Sunday Brief headline and the corresponding analysis. 

Hans delivered compelling use cases for three specific areas, all of which were negatively impacted by COVID-19:

  1. Live sports.  5G enables a richer viewing experience for on-site and on-couch fans, enabling a variety of camera angles as well as integration with real-time statistics.  Also, 5G enables the teams themselves to more quickly understand opponent’s offensive and defensive changes.  This was a good example, although we thought Amazon’s AWS ads here and here tell a better (and shorter) story about the integration of field play with statistics.  Given Verizon’s relationship with AWS for Mobile Edge Compute (MEC), we think they may have missed an opportunity to make the 5G + MEC case even stronger. 
  1. Archived content (moving from two dimensional to fully immersive).  Using a 3G apollo spaceship as a background, Hans explained with Lonnie Bunch from The Smithsonian Institution how they are bringing many artifacts from the “nation’s attic” to life.  Then Verizon’s CEO unveiled The Met Unframed, an “immersive art and gaming experience” available only to mobile devices at www.themetunframed.com.  We included a screenshot nearby.  It’s a terrific collaboration that will extend the Met’s art troves to hundreds of thousands of new observers (and perhaps trigger post-COVID visits).  However, we aren’t quite sure what this extension has to do with 5G, and really wish that the experience was extended to larger screens. 
  1. Education and Virtual/ Augmented reality (extending the frontiers of learning beyond textbooks and video).  Rose Kirk, President of the Verizon Foundation, discussed the company’s commitment to providing 5G immersive experiences to 100 schools in the coming years.  Hans also discussed the role more efficient (smart) cities could play in reducing greenhouse gas emissions through improved traffic management services.  We think there is enormous potential in using technology to stimulate interest in math, science, and engineering.  There is a lot of content that needs to be transformed to make that happen, taking students from the fundamentals to application.  The result also needs to be fully embraced by teachers, some of whom see technology as a threat to traditional classroom learning and are reluctant to adapt. 
  1. Mobile Edge Computing (MEC) featured a Verizon-owned drone management software company called Skyward.  From our work with Lucid Drone Technologies in Charlotte, we were very pleased to see the focus on drones and relationship to MEC.  They also featured their current partnership with UPS, whose Flight Forward program is pushing the edges of multi-drone flight management.  It’s hard to argue against the need for coordination of hundreds of simultaneous drones delivering good to homes and businesses. 
  1. Live Concerts and Musical Performances was the last use case highlighted, and Hans’ presentation was followed by a concert from the last guest, musical group The Black Pumas.  The lead picture for this section  highlights how they were able to use avatars to improve the overall concert experience.  Verizon also announced that they would enable 15 Live Nation venues this year to extend the concert experience beyond the physical stage. 

Since Hans was presenting to a consumer-focused audience, he was limited in his discussion of business productivity.  There was very little discussion of autonomous vehicle network development, and no mention whatsoever of 5G Home Internet (that was a headscratcher for us, especially in the context of the future of learning from home). 

What struck us from this discussion was the transition that 5G forces with live content.  Today, there are producers who select the camera angle, museum directors who decide which exhibits will be shown, broadcast hosts who provide analysis and insight, and teachers who manage lesson plans and curriculums.  5G removes those layers and makes the sports fan, art enthusiast, and student the producers.  A terrific resource for those who want to go deeper on a particular topic, but will it be received by Bills or Chiefs fans?

The answer lies in improved correlation and timeline management, something Google (another Verizon partner who was missing from this presentation) excels at.  Bridging interests (e.g, Kansas City Chiefs football) with content (e.g., Kansas City radio sports commentary, multi-camera replay on 75-inch HDTV screens with like-minded fans, auto adjustment within Madden NFL 21 based on each Chiefs’ player’s performance) increases fan intensity. 

Bottom line:  Verizon had a tough job at this year’s CES – explaining the value of bandwidth intensive mobile experiences for consumers (something that can only be experienced across a small swath of their wireless footprint).  They did a good job but missed opportunities to include other consumer icons such as Apple, Amazon, and Microsoft. 

Verizon has a unique opportunity with their Ultra Wideband deployment to create a sustainable competitive advantage.  To be successful, however, there needs to be incremental value to residential and business customers.  Hyperlocal marketing is going to be critical to their financial success – there simply isn’t enough money to deploy citywide.  To win, Verizon must enjoy a renaissance of their own.  How they operate (and react when cable and AT&T fiber counteroffers) needs to change.  As 5G ushers in its own renaissance – how we cheer, travel, learn, worship and more – Verizon needs to rethink how they do business. 

Next week, we will tackle the issues facing Comcast.  Until then, if you have friends who would like to be on the email distribution, please have them send an email to [email protected] and we will include them on the list (or they can sign up directly through the new website).  Thanks again for the referrals. 

Stay safe, keep your social distance, and Go Chiefs!

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