Verizon Running Scared of T-Mobile 5G

In 2020 and 2021, U.S. telecom will be driven by how fast T-Mobile builds and markets its "best in the Western World" 5G network. It now has a better network than Verizon in much of the U.S. It will offer 5G at over 100 Mbps to 80-85% of the U.S. in about three years. I believe much of that will be in the next 12 months. There's little practical advantage, of courage, of speeds over ~25 Mbps, but customers still want to buy.

That drives a stake into Verizon's business model, which was built a decade ago on premium prices justified by the better network. All the U.S. carriers have been hemorrhaging subs to T-Mobile because of lower prices. T-Mobile and AT&T came close to network parity with Verizon about three years ago and consumers are catching on. The $billion restoration in Verizon capex will not be enough to pull them ahead,

T-Mobile is committed to spending ~$10 billion a year in capex for three years. That's easily enough to reach 35-45,000 towers, over 80% of the population. Sprint's golden 5G 2.5 GHz spectrum is remarkably cheap to upgrade to 5G and over 100 Mbps.

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B_______ "Our priority continues to be investing in technology and capabilities that will ensure Canadians remain leaders in the global digital economy over the long-term."

Rogers CEO Joe Natale's priority obviously is not, "Investing in technology and capabilities that will ensure Canadians remain leaders." in technology and capabilities that will ensure Canadians remain leaders." In the same investor presentation, CFO Tony Staffieri said, "We expect CapEx for the year to come in well below the guidance range we previously provided." He is not reducing the dividend despite lower earnings. The company has withdrawn guidance because of increased uncertainty.

Rogers is Canada's cable leader and one of the three dominant wireless carriers. The cuts are bad news for Canada's 5G deployment, already far behind the U.S. (Canadian 4G speeds are excellent, averaging over 70 Mbps.) 

Belgium’s Proximus, Sweden’s Telia, and most recently, France’s Orange have already cut dividends. Their stock prices have done relatively well, however. Telefonica, DT, BT, and Vodafone may follow.

If Telus of Bell Canada moved aggressively on 5G, Rogers would have to do so as well. The Capex cut by Rogers only makes sense if they have an understanding the others will go slowly.

Verizon CEO Vestberg: "No major impact from a network point of view, the wireless, the wireline, or the fiber network."

There have been essentially no major traffic disruptions reported on any major data network in the world despite the traffic increase. Almost all networks have enough spare capacity to handle what's come and probably what is next to come. The NY Times and others are overdue for a correction. Verizon CEO Hans Vestberg tells HBR's Adi Ignatius

We have seen no major impact from a network point of view, the wireless, the wireline, or the fiber network. That’s very important. The network is robust. We are prepared for it. 

Over a dozen other networks - from England to India - also have reported minimal disruption.

Hans, a very decent guy for a CEO, also said

You need to support the most vulnerable in our society in these times, especially if you’re the size of company we are. We are waiving all late fees and suspending terminations for nonpayment in order to keep our small business, enterprise, and residential consumers running. For our wireless consumers, we have automatically increased data limits by 15 gigabytes per month. You don’t need to apply. We just give them more. We’re also prioritizing data and communication of first responders and hospitals.

He announced a capex increase, which had previously only been hinted at. 

We had guidance for 2020 to spend $17.5 billion on our networks during 2020. Two weeks ago, we decide to increase that to $18.5 billion. 

The apex increase is necessary as T-Mobile is building a network that will be noticeably better than Verizon, using Sprint's 160 MHz of golden spectrum at 2.5 GHz.

Germany: $8B for 6M Fiber Homes in Ill-served Germany

Deutsche Telecom is years behind Telefonica and Orange/FT bringing fiber to homes, leaving it vulnerable to challengers like Deutsche Glasfaser. OMERS, a Canadian pension fund, and EQT, an affiliate of the Wallenbergs. EQT is partially funded by pension funds.

Uwe Nickl, Group Managing Director, will "focus primarily on the white and gray spots that are still there today - regions that so far could only dream of sustainable and energy-efficient digitization and that we want to send into the fiber-optic age with at least 300 Mbit / s." If Nicki delivers as promised, that is the best news for the German Internet in more than a decade.

Amidst the noise about 5G, few have noticed how fast fiber is growing. France, Canada and Spain are mostly fibered, Italy, Britain & Germany are growing at 20% per year. While AT&T cut back, a nearly unique competitor, Sonic, has fibered much of San Francisco and neighboring areas. PC named them the best ISP in the US.

Of course, nothing compares to the 400 million fiber to the home in China.

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Historic: China Broadband Falls in December 2019

For the first time after a decade of growth, the Chinese giants actually lost fixed broadband subscribers in December. China Mobile lost 609,000 to 187,041.000 after adding more than 2 million a month earlier in the year. China Telecom dropped 620,000 to 153,130,000. China Unicom. Nearly a million turned off China Unicom, leaving 83,478,000. As recently as September, China added over 5 million. In December, the number fell by 2 million.

China's economy is growing by more than 5%, slower than before but still faster than any western country. Prices are flat or falling under a government mandate. There is no obvious explanation.  

Could this be the first sign of the long-expected switch from landline to mobile broadband? I've been looking for reduced growth and then a decline since 2011. China added 5 million 5G users in both November and December. The price for 30 gigabytes is $18/month, often discounted to as low as $12. However, the price goes up rapidly and would be high for typical users of over 100 gigabytes/month. 

One month does not make a trend. The companies many have cut promotions as 5G costs became important. They could have tightened payment terms to improve cash flow. 

Or this may be an early sign of a switch to mobile broadband.

New Coronavirus Already Affecting Telecom

The new coronavirus is already one of the worst infections of our lifetime. Let us hope and pray the massive containment effort is effective. Most of China is on lock down this week and next, with preparations underway in case six more weeks are required. Update Feb 2 NY Times estimates actual cases are over 100,000, with official counts only reflecting severe cases seeking medical attention.

One of the least significant problems of the virus is the effect on our industry. The iPhone and nearly all other phones (except Samsung) are mostly produced in China. Two weeks of production and store closings can be recovered. Six weeks more is could have a severe impact.

Skyworks, which supplies radio frequency parts to nearly every phone manufacturer, just said

To date, we've seen no material impact in our supply chain or with demand signals. However, the situation is evolving. So we've reflected some added risk, as I mentioned, to our March guide, including, as you'll notice, a wider range of outcomes. So to your question, likewise, we're thinking about potential effects into the June quarter. And even though our channels are lean, we are concerned about how this plays out because we just don't know. (Emphasis added.)

 I reported AIDs for two years at the height of the epidemic. So far, the new coronavirus is not at that level.  

But I'm scared.

Equinix/Packet Deal Bringing Cloud Everywhere

Zac Smith of Packet recently introduced me to an entire market I hadn't realized existed: the massive "private clouds" being built by company after company. I had assumed most cloud needs would be well served by the giants, Amazon, Google, ... They have the scale to keep prices low and tens of thousands of engineers ensuring their technology is better than almost everyone else.

Packet is doing very well and has strong products and a growing customer base. Equinix, a $50 billion company, presumably paid a generous price. Equinix's P/E ratio of ~100 requires rapid and profitable growth. Packet can deliver that, initially by serving Equinix's existing customer base.

Packet can deploy private networks for Equinix clients in weeks across a dozen data centers worldwide. Perhaps more interesting is Packet's ability to extend Equinix from the data center to inside carrier networks, towers, and ultimately customer sites. All of that is part of today's Edge design, also called a hybrid cloud. Packet is already there.

Zac is selling "bare metal servers" in large numbers to companies that had particular needs or security concerns the big outfits couldn't meet. Call Packet, and in days or weeks you can have 100's of Linux servers installed almost anywhere in the developed world, ready to go and well configured with software. More

Understanding Telco People

A consulting client, expanding rapidly in the cloud, asked me for advice on how to understand the culture at phone companies. In the cloud/webscale world, mistakes happen often and are fixed quickly. That's usually impossible in telecom. Networks take years to build. A fast 5G rollout is 3-4 years. 5 years or more is common. You can't turnaround quickly.

Don't underestimate the tech people in telecom. Almost all very smart and capable. Few have fancy degrees, Almost all have worked their way to the top against a thousand others. Most are lifers and have spent many years at the same company. They believe outsiders don't understand the business. They are usually right.

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