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Q4 Results Special: Telco 2.0 News Review

Q4 Results Watch: Apple, Facebook, Ericsson, Alphabet, Xiaomi

Apple Q4s are out and, as usual, they broke records - Apple’s revenue has never been higher and neither has its profits. With $75.9bn in revenue and a gross margin of 40%, you might expect everyone to be happy. But nothing is more characteristic of Apple than perfectionism, except perhaps bevelled corners. Apple’s guidance for Q2 is between $50bn and $53bn, and if the out-turn is towards the lower end, it will actually be lower than Q2 2015, the first drop in Apple revenues in 10 years.

Part of the story here is that the first half of 2015 was driven skywards by Apple’s triumph with the iPhone 6 and 6S. There is no such big new product at the moment, so you’d expect some reversion to the mean. That said, Apple could legitimately start to worry about the iPad line, as its sales were off 25% year-on-year even with the iPad Pro and Mini 4 to push. Interestingly, as ZDNet points out here, sales of services and software were very strong and Apple executives have been talking up the importance of this business and the opportunity represented by the installed base.

Not, of course, that they’re going to give up on hardware.

9to5Mac has the key rumour, which promises a new 4-inch iPhone backporting the new stuff from the 6/6S, a new iPad Air, and some new Watches. The launch event is expected in the week of 14th March.

A less cheery gloss on the results would be this story. Strategy Analytics reckons world smartphone shipments grew 6% in Q4 2015, the slowest rate ever, having slowed in each quarter. We may all be running out of customers.

Xiaomi looks like it might be a pressure point if that’s the case - having repeatedly revised their shipments target down, and missed it, they’ve also missed their services revenue target by about 44%, $563m rather than a billion.

Qualcomm’s Q4 was frankly bleak; shipments are down 10%, and the distribution is skewed to the high-end, as revenue was off 19% and net income 24%. Oh, and $100m of revenue is frozen due to a dispute with LG.

Ericsson’s sales were down 1% on a comparable basis, but net income was up 68%; the answer is that they received a large payout from Apple under their patent settlement.

Despite all this, Samsung is promising that it will increase shipments and margins. Its own Q4 showed a slight reduction in smartphone shipments, a 4% drop in Mobile Communications segment revenue, but an increase of 13.8% in the segment’s net income. They blamed an inventory adjustment for the drop in shipments, for what it’s worth. The Galaxy S7, meanwhile, leaked.

Both Microsoft and Sony are shuffling and looking at the door. Windows Phone shipments are down to 4.5m, and the company just isn’t talking about them. At the same time, Sony says it’s taken a strategic decision not to pursue scale in the smartphone business.

However, they’re certainly not turning their back on mobile. Sony just acquired Altair, a maker of LTE modems and developer of one of the new low-power LTE profiles aimed at the Internet of Things market.

Jolla says it will deliver the 600-ish tablets crowdfunders paid for in advance and then stop. Here’s an interesting gadget: Asus’s ZenFone Zoom has the world’s thinnest optical zoom, and an Intel Atom CPU.

Having bounced off with its effort at a smartphone, Amazon is trying a different tack, trying to get more deeply integrated into Android vendors’ software.

Juniper Networks rounds off 2015 with revenue up 20%, chiefly on North American and APAC telco and cloud spending.

Facebook was next in the financial reporting diary tent, and there was really nothing to complain about: revenue is up 57%, of which 80% is mobile advertising, and the operating margin has gone from 29% to 44% in a year. CAPEX is running around $690m/qtr, but then, free cash flow is $2bn/qtr. Here’s another way to look at it - that’s a global ARPU of $3.73/quarter, $1.24/mo. The global average obscures a lot of variance. North American users generate about $4.5/mo, a respectable emerging market carrier number, but APAC is closer to 53 US cents/mo. The driver here is just the level of ad spending - Facebook’s ad sales in Europe are precisely half what they are in North America.

Everyone was waiting for the first set of Alphabet results, but they still hadn’t landed as we prepared this News Review. Reuters previews the show here. Here’s some detail about the flying Internet robot project - it seems to be 28GHz 5G based on a drone, which requires a complex phased-array antenna to get the range, which further requires a lot of power, but the drone is meant to be solar-powered…meanwhile, here’s a completely crazy story about the proliferation of fake locksmiths and how far they will go to fool the Google. No wonder they employ a thousand ad-scrubbers.

And finally, the problem with wearables is that people don’t wear them.

Strong prepaid Q4 for AT&T; the churn mystery; Sprint Q4, and another cunning plan

It’s Q4 time for the carriers, too. AT&T reported a positively T-Massive quarter, with 2.2m net-adds. Breaking this down, they had 526k post-paid net-adds, or a third of VZW’s, they consolidated the Mexican operation’s 593k net-adds into the total, and the Cricket Wireless prepaid brand claimed 469k net adds, a big swing from the 67k net loss in Q4 2014. 

Both consumer mobility and the mobile segment of Business Solutions saw revenues declining - this was hardly significant at Business, but consumer was off 8.1%, suggesting that the secret to the net-adds triumph was discounting. AT&T has been trying hard to create a strong prepaid smartphone offer around the $45 price point with Cricket, and one suspects this involves discounting the devices heavily. That said, they seem to be benefiting from the “LTE margin boost”, with service margin of 46%.

Although DirecTV scored 214k net-adds, that wasn’t enough to make up for the 240k net-losses spilling out of U-Verse TV. That said, the acquisition certainly makes the new Entertainment division look stronger - it made $1.5bn on revenue of $13bn in the quarter, compared to a $296m loss a year ago (notional, as the division didn’t exist).

Strategic services are now at $2.8bn in revenue and still growing 10% annually, with margins in the Business Solutions division up to 35%, while the residential division is net-adding broadband subscribers again, 192k in Q4. This is a significant turnaround, as AT&T’s FTTC net-adds usually weren’t enough to compensate for net-losses from the DSL user base to cable. It’s probably why the company is now thinking about extending the FTTH build beyond the planned 14 million homes. Although they are carefully not talking about financials in the residential wireline segment, the Internet service ARPU has started to rise significantly since the FTTH build began.

Verizon, meanwhile, seems to be concerned by its FiOS subscriber numbers. Net adds were 99k versus 145k a year ago, and they have no plans to roll out further. As a result, they’re offering a 100Mbps symmetric product for $69/mo in a bid to get more in-fill, which puts their 100Mbps pricing very close to AT&T and Google’s gigabit pricing. Embarrassingly close. Anyway, their fixed-line results are in - like AT&T, their TV product is struggling, with only 20k net-adds and 35% penetration, but that said, FiOS revenues are up 6.8% and margins are strong.

Sprint reported 491k net-adds for Q4. That broke down to 501k postpaid net-adds, of which 366k were phones and hence primary accounts, 481k wholesale net-adds, and a 491k net-loss in prepaid. That gives them an epic 5.8% prepaid churn rate, up from an already troublesome 3.9% in 2014. Churn in the States is weird at the moment; everyone is reporting postpaid churn numbers that are strong and getting better, but at the same time they’re also reporting millions of net-adds. Either the regionals and MVNOs are getting hammered again, or something’s up with the data.

Revenue is still falling, by 10% year-on-year for the third successive quarter. Service ARPU in postpaid is coming down just as fast, while prepaid ARPU is actually up - which would help if they weren’t spilling prepaid customers at a rate of knots. The less bad news is that they have managed to cut $3bn of OPEX, so the loss has come down from $2.4bn in Q4 2014 to $836m for Q4 2015. The OPEX saving, in practice, looks like this. Sprint has laid 2,500 staff off, while at the same time posting 1,300 new jobs. Most of this churn is concentrated in sales, especially the old RadioShack estate.

Last week we discussed their latest scheme to fix the network. There’s an interesting discussion of it here, suggesting that it involves lots of small cells, microwave backhaul, and some very, very tall macro sites located on public sector land.

This last bit is probably a regulatory strategy where Sprint might claim to be a fixed-line CLEC rather than a CMRS provider like all the other wireless operators, triggering open access obligations. There is likely to be opposition to this, and after the DISH spectrum caper one might imagine Lawman Wheeler taking a careful look.

CEO Marcelo Claure responded to the story by denouncing Re/Code’s coverage, while also quietly confirming most of it (notably the very, very tall towers and the microwave backhaul). Sprint certainly is trying to get a regulatory break of some sort - check out this story, in which it lobbies the FCC to get a price cut on backhaul links it uses under special access. FierceWireless points out that there are plenty of other dark fibre providers beyond the big two.

And there’s a new clever idea: after the special-purpose vehicle for leased phones, meet the SPV for network equipment. Hocking the network is meant to find $5bn in 2016, or enough to cover the accrued loss for the year at current rates, but what happens after that? This Businessweek piece interviews Claure and others but doesn’t tell us much more than they’re hoping the 2.5GHz comes good in the end.

Telcos join Open Compute; Facebook kills off Parse; PaaS shakeout; Microsoft Q2s

Open Compute Project, the open-source initiative led by Facebook to standardise data-centre hardware, has started work on telco/NFV gear. AT&T, Deutsche Telekom, EE, SK Telecom, and Verizon are the first operators to sign up, while Nokia Networks is saying that it might use the designs in its Airframe line of edge computing servers. Not surprisingly, it seems to be AT&T that’s pushing this one.

Starting in 2013, Facebook made a major effort to become the host of choice for mobile apps’ back-end servers with its Parse PaaS. Not any more; they’ve announced that the service is closing down, giving developers a year to move their stuff, and releasing their implementation of Parse as open-source software for the ones who want to self-host rather than rewrite the client apps.

It was probably a bad sign for Parse when Facebook started recommending Heroku as a solution. Interestingly, the Salesforce-owned PaaS is also the lifeboat of choice for apps fleeing dotCloud. VentureBeat makes the point that the PaaS sector seems to be shaking out - arguably a sufficiently strong IaaS will always beat a PaaS.

Microsoft, meanwhile, just gets cloudier and cloudier. Q2 results beat the spread and it was very noticeable that all the growth is coming from Office 365, MS Azure, and Dynamics CRM.

T-Mobile spins Binge On!; Nokia LTE Broadcast trials; FCC vs. STBs; patenting the word “react”

T-Mobile USA has shared some detail about its controversial Binge On! zero-rating. One of the services it covers has seen a 79% surge in daily viewers, while four more video sources have joined (Amazon Video, Fox News, Univision NOW, and WWE Network). They’re also now offering a shortcode to opt out of the service. Clearly, T-Mo is trying to manage the controversy better than it did when it declared war on the EFF - as well as pushing the service’s popularity (the 79%), and making it easier to opt out (the shortcode), they also claim a non-Binge On! video source saw 33% more traffic, presumably because users had more data allowance left.

Buzz continues that AT&T will try some sort of broadcast/broadband integration.

Nokia Networks talks up the results of its big LTE Broadcast trial in Munich. They argue that low-power 700MHz is optimal.

Lawman Wheeler wants open set-top boxes. He points out that while Moore’s law drove the price of everything electronic down, the rental fees for STBs remained suspiciously steady. The cablecos don’t want any of this and they allege he’s in cahoots with Google.

Interestingly, the Nokia trial we mentioned above claims it demonstrated you can use a smartphone to receive the LTE Broadcast TV signal and cast it onto any TV that happens by, which would incidentally render STBs obsolete.

And this is ironic: a pair of YouTube microcelebs decided to do something very un-millenial and try to copyright the word “react” and the broad concept of filming a reaction shot. It didn’t work.

OFCOM turns against 3UK/O2; Free.uk? TeliaSonera CAPEX; BT Q4; smart meters aren’t

OFCOM director Sharon White has written to the European Commission asking it to block the 3UK/O2 deal. She argues that it would drive up prices, disadvantage independent retailers and MVNOs, and disturb the infrastructure-sharing setup. She specifically takes sides between the “bigger operators for investment” and “competition for investment” schools of thought. The letter is here.

Rumours keep swirling about a possible Xavier Niel project in the UK, usually assuming that the regulator forces 3UK/O2 to sell substantial assets. Sharon White mentioned recreating a fourth network as one solution, albeit an expensive one. Is that who she’s thinking of?

O2 UK claims 90% of its planning applications in London are refused.

TeliaSonera says its current CAPEX cycle will peak in 2016 at around $1.7bn. It better had, as they’re still losing money. TDC, for its part, says its revenues are up but its EBITDA is sliding. As a result, they intend to “leverage” the 4G network, start an MVNO in Norway, and upgrade the cable network. Specifically, that means Huawei will deploy 1Gbps DOCSIS 3.1 throughout its Danish co-ax assets. In Germany, meanwhile, LibertyGlobal opco Unitymedia is upgrading to 400Mbps.

BT says its revenue is up 4.7% in Q4, and profits are up 14%. It’s the best result in 7 years, and BT celebrated by announcing its post-EE merger structure. There will be 6 business units - one each for fixed and mobile in each of the consumer, enterprise, and wholesale segments.

After the revelation that the EE-run emergency services network won’t work in the tube, they’re now saying it will or at least that the old system will be maintained until it does.

Here’s a really crushing assessment of the UK smart metering programme.

Bharti Airtel Q4; Idea 4G; NTT 9Ms; KT, Nokia LTE-M; South African OTT lobbying row

Bharti Airtel’s Q4s are in, and it looks like they’re winning the Indian 4G race so far. Revenue was up 3.7%, while data revenue rose 51% year-on-year, users 30%, and traffic 73%. On the other hand, voice ARPU fell 13%, and net income was off 22% thanks to the CAPEX bill.

Airtel is also planning to buy unused 2.3GHz spectrum off Aircel.

Meanwhile, Idea Cellular turned up 4G in Bangalore.

NTT DoCoMo is looking pretty solid - revenue up 1.7% for the first 9 months, net income up 29%, and they’re planning to add a lot more LTE-A sites, pushing peak speeds towards 375Mbps.

KT and Nokia Networks claim the first field trial of LTE-M.

And South Africa’s top two MNOs want the government to tax OTT apps - third operator Cell C, however, thinks they’re great.

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