German phone giant Deutsche Telekom is looking to jump into the 4G wireless market in the U.S. through partnerships with U.S.-based service providers, according to a report by Bloomberg News.
Bloomberg reported Tuesday that Deutsche Telekom is looking to beef up its presence in the U.S. wireless market by investing in Clearwire, a company that is building a 4G wireless network using a technology called WiMax. Sources also told Bloomberg that Deutsche Telekom is also talking to Metro PCS, which recently acquired spectrum to build its 4G wireless network.
Deutsche Telekom already owns T-Mobile USA, the fourth-largest wireless carrier in the U.S. But the carrier's growth has remained flat for several quarters. And the company hasn't yet announced plans for its next-generation network.
Last week, rumors resurfaced that Deutsche Telekom was looking to buy Sprint Nextel. Sprint is the third-largest wireless operator in the U.S. and has been struggling the last few years to retain customers. The idea behind a potential buyout of Sprint is that it would give Deutsche Telekom more subscribers, which could help it compete more aggressively against the two largest wireless carriers in the U.S., AT&T and Verizon Wireless.
But now it looks like the German telecom giant could be looking for a more cost-effective way to increase its presence in the U.S. market.
Partnerships with Clearwire and MetroPCS would cost the German phone company much less than purchasing Sprint outright, and it would be a lot easier than trying to digest another wireless provider.
Buying Sprint Nextel would likely become an integration nightmare for Deutsche Telekom. Sprint Nextel is already the product of what many consider one of the worst telecom mergers ever. Sprint bought Nextel in 2005 for $35 billion. And for the past four years, the company has struggled to integrate two different wireless networks. Sprint's network operates using a technology called CDMA, while Nextel uses a technology called I-DEN. T-Mobile USA uses GSM, which would introduce a third type of technology into the mix.
But if 4G access is what Deutsche Telekom really wants, then a partnership with Clearwire makes sense. Sprint owns about 51 percent in Clearwire. Last year, the companies created a joint venture combining assets from both companies. Clearwire, which has already begun building its nationwide 4G wireless network, is using 2.5 GHz spectrum that is owned by Sprint.
Clearwire said in August that it would spend between $1.5 billion to $1.9 billion in 2009 to expand its network. Deutsche Telekom could provide more funding for this endeavor in exchange for access to the network, Bloomberg reports.
Clearwire has already made similar deals with other investors. Last year, cable companies Comcast and Time Warner Cable were among investors that provided the company with $3.2 billion in funding. Google and Intel have also invested in Clearwire.
As the Clearwire network comes online, Comcast and Time Warner Cable have each announced they will offer mobile wireless broadband service using the Clearwire network in areas where they offer cable service.
A deal with MetroPCS, which sells prepaid wireless service, could help Deutsche Telekom get access to a 4G wireless network that will use a more widely adopted technology called LTE or Long-Term Evolution. MetroPCS acquired spectrum in the 700 MHz wireless auction, and it has said that it plans to build a 4G network using LTE starting in 2010. Verizon Wireless, the nation's largest mobile operator, which also acquired spectrum in the same 700 MHz auction, is also building a 4G wireless network using LTE.
MetroPCS, which has recently expanded its prepaid wireless service offering to several large cities throughout the U.S., has just lowered its unlimited monthly plan to $40 a month for voice, texting and Web access.
The new lowered prices ushers in a new era of competition in the prepaid market, which is heating up as Sprint Nextel announces this week its intent to buy Virgin Mobile USA for $483 million.
MetroPCS, a regional prepaid operator, is now adding unlimited email, navigation and social networking to its $45 a month unlimited plan. This is in addition to unlimited voice, texting and Web access. These plans are now $5 a month less than they were before the price cut was announced.
The company also offers a $50 a month unlimited plan for smartphone users, which includes unlimited HTML Web browsing.
The move is a clear indication that MetroPCS is ratcheting up the pricing pressure to compete more aggressively in the crowded prepaid market. TracFone, which is the largest prepaid carrier in the market, offers a $45 a month unlimited plan for voice, text messaging and 30 MB of data. And Sprint's Boost Mobile prepaid brand started offering a $50 a month unlimited plan in January. Executives are attributing the recent growth in its prepaid customer base to this new service.
MetroPCS's cuts could spark a price war, which could further drive down how much revenue is generated per user. In a market that already relies on heavy customer volumes and super low cost structure to reach profits, further pricing pressure will only make it more difficult for these carriers to make money with prepaid services. But the good news for consumers is that they will get access to some very good deals in wireless if the choose to take the prepaid wireless route.
Regional prepaid cell phone carrier MetroPCS announced Wednesday a new plan that allows its customers to make unlimited international calls to over 100 different countries for only $5 extra a month.
To be eligible for the $5 unlimited international calling plan, users must already be signed up to an unlimited national calling plan that costs $40, $45, or $50 a month. Making international phone calls from a cell phone has typically been rather expensive with major carriers such as AT&T and Verizon Wireless.
For example, AT&T offers its WorldConnect service for $3.99 extra a month, which gives subscribers lower rates on international calls. This means that a call to France still costs 22 cents a minute even with the $3.99 a month WorldConnect plan. By contrast a call to France using MetroPCS' new $5 unlimited international plan is free.
MetroPCS mainly competes against other prepaid services such as Sprint Nextel's Boost Mobile and Virgin Mobile USA. But recently as the economy has tanked, it has been stealing some customers from traditional carriers. With its unlimited plans and an expanding network, MetroPCS offers mainstream cell phone users an alternative to expensive contract services from the big carriers.
And now for people who make calls to friends and family in other countries, MetroPCS offers an even more compelling reason to switch to its service. Of course, the main drawback of the service is coverage. Even though MetroPCS is expanding its network to cities such as New York and Boston, its footprint is still relatively small compared to the major carriers. Most of the areas it covers are near major cities. But for customers in the MetroPCS markets who don't leave those markets very often, it offers a good deal compared to the post-paid, contract plans of the major carriers.
One other potential drawback is that MetroPCS, like other prepaid operators, doesn't offer the latest and greatest phones. That said, it does offer the BlackBerry Curve.
q&a Leap Wireless is finally in the right place at the right time.
The company, which sells its prepaid service under the Cricket and Jump Mobile brands, has been in the wireless service market since 1998, when it was spun off from mobile chipmaker Qualcomm. It filed for Chapter 11 protection in 2003 and was restructured and emerged from bankruptcy protection a year later.
Doug Hutcheson, CEO of Leap Wireless
(Credit: Leap Wireless)Now the company is strategically expanding its network into 14 new markets with spectrum it won in two recent Federal Communications Commission auctions. It now operates in 29 states and holds licenses in 35 of the top 50 U.S. markets, including Chicago and Philadelphia, where it recently launched service, and in Washington, D.C. and Baltimore, where it plans to launch soon.
And all of this happening as Americans are getting fed up with lengthy and expensive wireless contracts from national carriers, such as AT&T and Verizon Wireless. And as finances tighten, people are looking to reduce their monthly expenses by finding cheaper options for phone service. Prepaid service plans, which allow customers to pay in advance for service without signing a contract, provide a good alternative. Low-cost unlimited plans, from Leap and others, make it an easy choice even for wireless subscribers who talk and text a lot.
I recently chatted with Leap CEO Doug Hutcheson to get his take on the prepaid wireless market and get his thoughts on the future of the industry. Below is an edited version of our conversation.
Q: Prepaid cell phone plans are getting a lot of attention lately. Why do you think that is?
Hutcheson: The prepaid cell phone market is in its third or fourth phase of development right now in the U.S. And it's at the same phase that the European market entered about five or six years ago. Prepaid really started to take off in Europe as wireless penetration started to reach 100 percent. And of course the economic realities of today are also a factor. For a number of people, prepaid wireless is the best value.
Do you think prepaid carriers, such as Leap Wireless, are in a position to threaten the nationwide incumbents, such as AT&T or Verizon Wireless?
Hutcheson: I don't think we are a material threat to either AT&T or Verizon Wireless. They have built great, broad franchises with 80 million customers. What we are trying to do is focus on our customer base, which tends to be younger and more ethnically diverse with people at the median to below median household income level. We serve this market really well. And this is a customer base that others aren't as interested in serving or aren't able to focus on. These operators have their own prepaid products, but I think AT&T's primary focus is on selling iPhones and two-year contracts. And Verizon is focused on its 4G rollout and combining those services with its Fios fiber network.
Correction: Virgin Mobile began selling its $50 unlimited plan in April after the first quarter had ended.
Competition in the prepaid cell phone market is heating up, making it more difficult for companies, like Virgin Mobile USA, to hold onto subscribers in an increasingly crowded market.
Virgin Mobile USA, a longtime player in the prepaid cell phone market, reported Monday it had lost a total of 133,292 net customers during the quarter to end the period with 5.2 million subscribers. Even though subscribers were up 2.8 percent compared with last year, the company's losses during the quarter point to growing competition in the prepaid market.
The market appears to be especially competitive when it comes to flat-rate, contract-free wireless services. Regional players Leap Wireless International and MetroPCS, which have long offered cheap flat-rate services, reported strong subscriber growth during the first quarter, as they each expanded into new markets. And Sprint Nextel's Boost Mobile, which began offering its $50 unlimited plan in January, also added about 764,000 new subscribers in the first quarter.
Virgin Mobile, which had been successful in the past selling pay-as-you-go service in the U.S. market, lowered the price of its all-you-can-eat plan in April to $50 a month, as well. The company also launched the Pink Slip Protection program, which offers customers who have lost their jobs free service for three months.
Virgin Mobile has managed to improve its churn rate, or the rate at which subscribers leave its service. The company reported that its churn fell to 4.8 percent from 5.1 percent during the same period a year ago.
The company sees the $50 flat-rate plans and other "hybrid" plans, which offer a set number of minutes at a standard price without a contract, as its growth engine for the future. Chief Executive Dan Schulman said that 55 percent of the gross customer additions during the quarter came from "hybrid" plans, according to the Wall Street Journal.
This makes sense given that consumers say they are considering prepaid cell phone services as a way to reduce costs and avoid lengthy carrier contracts.
Prepaid wireless providers are scooping up subscribers as cash strapped consumers downgrade to lower cost cell phone service.
First quarter earnings reports from MetroPCS Communications and Leap Wireless on Thursday provided further evidence that consumers are flocking toward no-contract, unlimited prepaid services. These carriers, which operate primarily in smaller urban areas, each reported they had nearly doubled their subscription rate compared to a year ago.
MetroPCS said its new subscriber additions increase 51 percent compared to the same quarter a year earlier. In total it added 684,000 new subscribers, bringing its customer base to 6 million. This was the third quarter in a row in which the company had a record breaking increase in subscribers.
Leap Wireless, which sells its service under the Cricket brand, also had a big quarter, increasing subscribership by 40 percent compared to the same quarter a year earlier. In total, the company added 493,000 new customers, ending the quarter with 4.3 million wireless subscribers. A year ago, Leap ended the first quarter with 3.1 million customers.
MetroPCS increased revenue 20 percent to $795.3 million and posted earnings of $44 million.
Leap actually posted a wider first quarter loss, mostly due to the company's expansion into new markets, such as Chicago and Philadelphia. The company lost $47.4 million, or 74 cents a share, compared a loss of $16.9 million, or 28 cents a share, in the first quarter of 2008. Revenue increased 25 percent to $587 million.
All of this news comes just days after Sprint Nextel reported huge subscriber gains in its prepaid service from its subsidiary Boost Mobile. Boost added about 764,000 customers to its service.
What all three services have in common is that they offer low-cost, prepaid plans with all-you-can-eat voice, text messaging, and Web browsing. The Boost Unlimited service, which launched in January, costs only $50 a month. And MetroPCs's and Leap's services are in the same neighborhood.
Based on these strong subscriber numbers, it appears that consumers are looking for more affordable cell phone plans. This is likely a direct result of the ailing economy, which has resulted in high unemployment throughout the country.
While it's true that cell phone service has become essential for most Americans, that doesn't mean consumers are willing to pay a lot of money for it. And as finances tighten, people are looking to reduce their monthly expenses by finding cheaper options for phone service. Prepaid service plans, which allow customers to pay in advance for service without signing a contract, provide a good alternative. And now the low-cost unlimited plans make it an easy choice even for wireless subscribers that talk and text a lot.
MetroPCS and Leap Wireless have each been offering their low-cost prepaid unlimited plans for quite some time, but as these carriers move into bigger markets, such as Chicago, Philadelphia, and New York, they are putting pressure on other wireless operators to match or beat their prices.
Sprint's Boost was the first to answer that challenge with its $50 unlimited plan. Virgin Mobile followed with its own all-you-can-eat plan for $50 a month. And T-Mobile USA, owned by Deutsche Telekom, is also getting more aggressive with its prepaid cell phone plans.
The question now is whether the two biggest cell phone companies, AT&T and Verizon Wireless, which make millions of dollars in profits from postpaid subscribers, will also go after the prepaid market. And if they don't, will they slash prices on their postpaid contract service plans? AT&T is already rumored to be considering lowering the price of its iPhone service plan by $10 when the new iPhone comes out this summer.
As economic worries grow in America, many consumers are ready to disconnect their expensive cell phone plans and seek cheaper alternatives for wireless communication, according to a survey released Thursday.
The study, conducted by Opinion Research Corporation (ORC) for the New Millennium Research Council (NMRC), reports that 19 percent of cell phone users polled have already canceled their cell phone contracts in reaction to the financial crisis.
The survey, which earlier this month polled 2,005 adults ages 18 and older via their landline phones, found that two in five Americans are likely to cut back on their contract-based cell phones if the economy worsens.
The NMRC, a Washington, D.C.-based organization that conducts surveys largely for telecommunications companies, suggests that as a result, consumers will turn to alternatives such as prepaid cell phones, or cut back on "extras" such as text messaging and Internet access.
Some may even ditch their cell phones altogether and stick with their landlines (of course, the very fact that the survey was conducted via landline excludes those who already lead landline-free lives).
During a live conference call Thursday morning, representatives of the ORC and NMRC went over the survey's findings and said the poll suggests that "millions" of consumers could end up altering their cell phone services.
Currently, prepaid cell phones are commonly suggested for emergencies, light usage, or avoiding long contracts. However, the NMRC suggests that as consumers continue to disconnect or cut back on their contract-based cell phones, wireless companies such as AT&T and Sprint will offer more less expensive prepaid plans.
Though less expensive prepaid plans offer financial advantages, there are downsides. Handsets purchased with prepaid plans generally have little in the way of advanced features, and that could discourage consumers who keep up with the latest gadget trends.
But like the NMRC suggests, the dramatic changes in cell phone behavior may encourage wireless companies to revise their plans. For example, companies may go the way of MetroPCS, a no-contract company whose customers get "unlimited" plans and cheaper monthly rates in exchange for purchasing more expensive handsets.
NMRC would not disclose details on who funded the survey, although it did say that some telecommunications companies provide financial support.
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