The past week saw quite a few developments in the telecom sector. AT&T (NYSE:T) started the week off with a hike in upgrade fee for smartphones from $18 to $36, in a move aimed at taking some sting away from the huge loss incurred last quarter from the iPhone subsidies and the breakup fee paid to T-Mobile. Meanwhile, Lightsquared’s LTE plans took a big hit as regulators at the FCC refused to grant clearance for the network, citing interference issues with GPS receivers. Verizon (NYSE:VZ) Wireless’ CEO, Dan Mead, wrapped the week up with comments that the company doesn’t need to refarm any spectrum currently being used for its 2G and CDMA networks for meeting its LTE needs.
Lightsquared’s innovative plans to use satellite spectrum to develop a terrestrial LTE network could have solved the wireless industry’s spectrum woes if only their services hadn’t interfered with critical GPS services. Now, after a two-year long conflict between Lightsquared and the satellite services industry, FCC seems all likely to revoke the conditional waiver it had granted Lightsquared initially to go ahead with its plans. While this puts Clearwire’s relationship with Sprint (NYSE:S) on a much stronger footing, it leaves Sprint with one less partner to meet its spectrum needs for its planned LTE layout.
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However, Sprint will not be complaining much. It had earlier chosen Lightsquared ahead of Clearwire as a partner for its LTE plans and then made several indications that it was distancing itself away from Clearwire. However, when Clearwire threatened to default on an interest payment in December last year, Sprint had to yield and Clearwire got itself a plum $1.6 billion network sharing agreement that not only addressed its financial woes but also secured it cash for its LTE buildout. Sprint may have felt that it was pushed into a corner then but now that chances of Lightsquared salvaging its LTE plans by a March deadline seem remote, the company will be thanking its stars that it didn’t put all its eggs in one basket. (see Sprint’s Lucky to Have Clearwire While Lightsquared’s LTE Plans Flounder)
AT&T has hiked its activation fee on phone upgrades from $18 to $36 according to a memo issued to all AT&T store managers. (see AT&T Doubles Smartphone Upgrade Fee; Looking for iPhone Subsidy Relief) This comes on the back of a rough quarter for AT&T as the company recorded a massive net loss of $6.7 billion despite record iPhone sales. Smartphones have turned into a double-edged sword for the U.S. wireless industry, with the top 3, Verizon, AT&T and Sprint seeing their margins contract heavily as the smartphone boom takes over.
AT&T’s latest move shows that the company is starting to feel the heat of its huge subsidies. The failure of its attempt to acquire T-Mobile, which subsequently led to a $4.2 billion separation fee payout to T-Mobile, is also a likely factor. Also, the fact that users are also increasingly using cheaper Internet messaging options such as BBM as well as iMessage and moving away from the traditional high-margin SMSes could also have played its part.
Verizon, meanwhile, continues to gloat about its spectrum holdings that got a boost following a $3.6 billion coup in December of last year that got it a huge swath of unused AWS spectrum from the cable companies. Dan Mead, Verizon Wireless’ CEO, said in an interview with Global Telecoms Business that the company doesn’t need to refarm any spectrum currently being used for its 2G and CDMA networks for meeting its LTE needs.  Of course, that is contingent on the FCC and the DoJ approving the deal, which is pending right now. As the entire wireless industry scrambles to free up spectrum for their LTE needs, Verizon’s first mover advantage, both in terms of acquiring spectrum resources as well as deploying LTE, is shining through.Notes: