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May 8, 2009

Palm Pre May Revive Sprint’s Fortunes

Filed under: iPhone, Smartphones — Tags: , , , , — AJ @ 8:44 pm

Palm Pre has been getting rave reviews from all those who have seen it and many believe if there was ever an iPhone killer, this is it.  In a few weeks, Pre will be available exclusively on the Sprint’s network and combined with all the operational improvements Sprint has done in the last 18 months, it may very well revive Sprint’s fortunes.

What’s special about Pre?

 It has singular design vision – just like the iPhone. Almost two years ago, Palm managed to hire Jon Rubinstein, previously Apple’s head of hardware engineering and the guy behind Apple’s product design revival over the last decade – from iMacs to iPods (see details in Newsweek story). As WSJ reported in December 2007,  Jon has been actively involved in designing Palm’s smartphones and setting its strategy. Plus, as the Executive Chairman of the company, he has given “design” a seat on the board.

Palm started building buzz around the Pre at CES 2009 and it wowed everyone who saw it. Here is a link to a video recording of Pre’s CES debut. And here is another video that shows some of the really cool features of the phone – including its advanced multitouch capability, QWERTY keyboard, and amazing graphics.  At the heart of Palm Pre, is a new operating system called WebOS. According to a recent article in The Industry Standard, developers who have created apps on WebOS agree that it lives up to its hype. And according to Fast Company, Palm Pre can give iPhone 3.0 (the next-gen iPhone) a run for its money.

Though Palm will not have the tens of thousands apps that Apple boasts at the time of launch, it is working on getting all the top applications on the device before launch, from Google and Facebook to integration with MS Exchange and Pandora.  Just like iPhone, its browser is based on WebKit and beautifully renders web pages. And yes, it has a music store too – from Apple’s arch-rival – Amazon. 

Sprint has dry powder

 Palm Pre may be able to work a charm at Sprint only because Sprint (under CEO Dan Hesse) has aggressively trimmed its capital and operating expenses over the last 18 months, and has maintained positive free cash flow despite losing almost 6 million post-paid subscribers. 

Sprint has countered some of  the subscriber losses by winning pre-paid subscribers (its Boost service added ~700K subs in Q1’09) and adding more wholesale subscribers (like Amazon Kindle).  But more importantly, it has slashed cap-ex (Q3’07: $1.2B, Q1’09: 0.3B), and trimmed operating expenses (SG&A Q3’07: 2.7B, Q1’09: 2.2B). As a consequence, it generated $536M of FCF in Q4’08 and $796M of FCF in Q1’09. At the end of March 2009,  Sprint had $4.5B of cash and cash equivalents – a significant war chest to compete with the biggies.  (All numbers from Sprint Investor website)

A resurgent Sprint – small, nimble and hip?

If Palm Pre lives up to its hype, it would help Sprint reverse post-paid subscriber losses.  Consumers want cool devices, and just like Apple, Palm has its cadre of loyalists.  Not only can the Pre win new subs for Sprint, it can create a positive “hip” halo around Sprint.  The Pre, combined with the growth of Boost Mobile, could help Sprint reverse the trend of subscriber losses and may even add 5M between March and December 2009.

The world (yes, that is correct) needs Sprint. The US has been the center of wireless innovation – from new air interfaces like CDMA and WiMAX to devices like Blackberry, iPhone and now Pre – because it has carriers that need to compete.  And for competition to be vibrant, Sprint needs to be successful.

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April 21, 2009

AT&T’s Investment in GSM/UMTS Delivers Subs & Easier 4G Uprade

Filed under: 3G, LTE, Uncategorized — Tags: , , — AJ @ 4:11 am

AT&T’s investment in GSM & UMTS is paying off.  Not only does it have an exclusive on the most desirable handset in the US market, it may also be able to upgrade to 4G at lower cost than its major rivals.

Almost 10 years ago, the different components of today’s AT&T (AT&T Wireless, BellSouth, SBC, others…) started migrating their 2G TDMA networks to 2G GSM.  They launched their first GSM/GPRS networks in 2001 and completed the migration by 2004. See this AT&T and Cingular milestones chart for more information.  Also, see this 2002 press release on the first TDMA-GSM handset

This was a period in which CDMA carriers had the lead. While Cingular and AT&T were migrating their TDMA network to GSM, Verizon Wireless was improving the coverage of its CDMA network and getting ready to launch 3G.  By the time Cingular completed nationwide 2G GSM coverage (07/2004), Verizon Wireless was ready to launch 3G EV-DO networks in over 30 major cities.  

Further, Verizon and Sprint – the two nationwide CDMA carriers – were able to rollout 3G relatively inexpensively. Both carriers just had to add channel cards to their existing CDMA base stations.  As per Verizon’s January 2004 announcement, it planned spend $1 billion to build out nationwide EV-DO coverage (compare this to the $7.2B for broadband in the stimulus package!).

Verizon may still have the best voice and data coverage in America,  but advantage has now shifted to AT&T.  With HSPA, AT&T can now boast of having the fastest 3G network and AT&T’s GSM network allowed it to get Apple’s iPhone device in 2007. As Verizon CEO Ivan Seidenberg admitted in a recent interview with the WSJ,  Apple never seriously considered building a CDMA device.  And it is the  iPhone that helped AT&T outpace Verizon in 2008.

Things get more challenging for Verizon (and other CDMA carriers) with 4G.  While Verizon and Sprint (Clearwire) invest billions on building their respective 4G networks, AT&T claims that it will be able to increase the peak sector throughput of its UMTS base stations from 3.6 Mbps to 7.2 Mbps via a software upgrade,  and then to 21 Mbps by upgrading to HSPA+ (the HSPA+ upgrade will involve upgrading antennas to MIMO).  These incremental base station upgrades, combined with backhaul upgrades, give AT&T the time to wait till LTE equipment is stable and cheaper.  Of course, Verizon and Sprint (Clearwire) understands the risks, and are taking aggressive steps to drive their network equipment and handset vendors to make their 4G migration as successful as possible. Still, the next two years will be very interesting.

February 26, 2009

Verizon’s LTE Rollout – Lessons from CDMA

Filed under: 3G, LTE — Tags: , , , , , , , — AJ @ 5:58 am

There is lot of speculation in the press, among analysts and in the blogosphere about the timing of Verizon’s LTE deployment. This is unfortunate considering that Dick Lynch has actually provided very clear guidance.  In his interview with Sue Marek of FierceWireless he said, “…when we launch we will do what we did with 1xEV-DO and 1XRTT…” 

Verizon, under Dick Lynch, has been remarkably consistent in its process for deploying new air interface technologies. If one digs through years of Verizon press archives, one will find that Verizon’s EV-DO rollout followed the same process as its 1xRTT rollout.  At both those occasions and now, Dick Lynch was at the helm and we should not expect anything different for LTE.

As in EV-DO, Verizon has initially selected two vendors for LTE.  For EVDO, these two vendors were Lucent and Nortel. For LTE, it is Alcatel-Lucent and Ericsson. This does not mean that Verizon will not have a third vendor.  In EV-DO, the third vendor was Motorola, and as Dick said in his FierceWireless interview, “The rest of the vendors will have another opportunity in the future. We will go out again in mid-2010 and look for vendors for the next wave of the coverage”.

As in EV-DO, each LTE vendor has been assigned one city that each is expected to get on the air in 2009. For EV-DO, Nortel had San Diego while Lucent had Washington DC.   Once the two cities are on the air, each vendor will be expected to work out all the kinks in its products, a process well known in the industry as “First Office Application (FOA)”. A FOA can take anywhere from 3-9 months, depending upon the complexity of the system and the quality of the vendor’s product.

Once FOA is complete for LTE systems, either by the end of 2009 or in early 2010, Verizon is saying that it will start building out a sizeable national footprint.  In the EV-DO case, Verizon announced its decision to start building a national footprint in January 2004. Within 9 months, Verizon had launched EV-DO service in 14 metropolitan areas and by Aug 2005,  it covered 52 metropolitan areas.  All these services were launched using EV-DO data cards.  If Verizon’s LTE vendors can wrap up their FOA by Q1’2010, expect Verizon to at launch LTE data cards in dozen or so markets by Q3 or Q4 of 2010.

The other key player whose actions determine the pace at which Verizon can roll out LTE services is QUALCOMM. Verizon cannot launch an LTE handset (smartphone) unless this handset supports both 1xRTT and EV-DO. It needs 1xRTT to support all the legacy voice features (tough to replicate on IMS) and needs EV-DO for data service wherever there are LTE coverage holes. QUALCOMM is the only company that can build a dual-technology LTE/CDMA chip, and it is doing just so. On Feb 16th, Qualcomm introduced its MSM 8960 3G/LTE chipset, and said that this chip will sample in mid-2010. Since handset vendors need at least 12 months from the date Qualcomm samples its chipsets, to build a commercial device, one should expect the first dual-mode CDMA/LTE handset to reach the market in Q3’2011.

To summarize:

  • Verizon is likely to light up two cities with LTE in 2009 and have meaningful national footprint in 2010. They have a playbook for large scale wireless rollouts and they seem to be following it.
  • There will be no LTE handsets/smartphones in 2010,  just data cards. Therefore, Verizon will continue to add capacity to their CDMA network at least till the end of 2010.
  • Expect CDMA/LTE handsets to reach the market in Q3’2011. 

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