I've seen it many times: a cool product that finds few customers. That seems to be the case with Helio's mobile phones. Basically, customers didn't want to pay premium prices for such things as access to MySpace and other new-fangled features.
It's a tough lesson (and expensive). SK Telecom and EarthLink (NASDAQ: ELNK) formed Helio as a joint venture in 2005 with start-up capital of $440 million. SK Telecom invested an additional $270 million in the venture last year.
Yet, in the end, Helio turned out to be a big dud. That is, the company sold out for a measly $39 million to Virgin Mobile USA (NYSE: VM). In fact, the space is full of dead companies, such as Disney Mobile and Amp'd Mobile.
I had a chance to interview Frank Dickson, the co-founder and chief research officer of MultiMedia Intelligence. According to him:
Honestly, the merger is a desperate move. Overall, the MVNO (Mobile Virtual Network Operator) model makes sense in a limited number of situations. For example, if a cable MSO wants to leverage its customer base and offer triple or quadruple play offering, there is a clear distinctive competency and the MVNO route makes sense.
Since its IPO last year, the shares of Virgin Mobile USA Inc. (NYSE: VM) have imploded -- going from $15.69 to a low of $1.90. The stock has lifted somewhat lately though, and is now trading at $3.43.
Actually, the company has confirmed that it is talking with Helio -- majority owned by SK Telecom (NYSE: SKM) -- about a possible merger.
Both companies are known as mobile virtual network operators (MVNOs), which means that they provide cell services by using another carrier's infrastructure. Unfortunately, the MVNO model has been extremely difficult to pull off (in fact, there have been several high-profile blow-ups in the space, such as Amp'd).
So will a combination help things?
To get some perspective on things, I had a chance to interview Frank Dickson, who is the Chief Research Officer at MultiMedia Intelligence. According to him:
Maybe it was tightening bank standards, maybe it was strong business orders for the services sector. Or, maybe it was a big hike in oil prices back to the $120 mark. Stocks took it on the chin today. Below are the unofficial closes for the major US index readings:
Yahoo! Inc. (NASDAQ: YHOO) traded much lower, bringing Wall Street down after Microsoft Corporation (NASDAQ: MSFT) withdrew its $43.7 billion bid to acquire Yahoo Saturday. Shares fell 15% to $24.37.
Shares of Sprint Nextel Corp. (NYSE: S) are rising on a Wall Street Journal (subscription required) report that Deutsche Telekom AG (NYSE: DT) is poised to make a bid for the wireless telecommunication company. If the report is accurate, Sprint's long suffering shareholders should do as the Steve Miller Band song suggests "take the money and run" because the deal may not happen.
For Sprint, though, this may be its only hope. Sprint shares have slumped almost 40% this year as the Overland Park Kansas-based company tried in vain to gain marketshare against larger rivals including Verizon and AT&T Inc. (NYSE: T). The commercials starring the company's affable CEO Daniel Hesse haven't helped much either. Remember when Hesse was named CEO last December, board member Irvine O. Hockaday Jr. remarked that Hesse "has the board's full support to take decisive actions necessary to improve our performance."
But as Bloomberg News points out, analysts argue that integrating the Deutsche Telekom and Sprint Nextel networks wouldn't be easy. Moreover, the U.S. Department of Homeland Security may not look kindly on a foreign company taking over a U.S. telecom provider for national security reasons, the news service notes.
Even so, the arguments for the merger are so compelling that it might be worth the risk.
Most of the time, I read the news because I want to be informed about the world. Looking through articles, I spend my time on the ones that affect my world, give me an idea about what to expect in the future, and generally make everything clearer. Once in a while, though, I read the news for the sweet taste of revenge.
Looking through the paper today, I noticed that Sprint seems to be in big trouble. Yesterday, their stock dropped more than 9% after they announced a loss of over $29 billion in the fourth quarter of 2007. While this loss was largely tied to Sprint's disastrous merger with Nextel, a fair bit can also be chalked up to Sprint's abysmal customer service.
I have a lot of experience with Sprint's customer service. When I first got a cell phone, almost ten years ago, my provider was a small regional company. While I could only call from a very constrained area, I was generally impressed with the level of customer care that my provider offered. Most of the time, my phone calls were answered by a person, not a machine, and the company was very nice about crediting my account in cases of incorrect billing. Unfortunately, I was only with them for a few months before they were bought out by Sprint.
Tom Taulli wrote Tuesday about Verizon (NYSE: VZ)'s unlimited wireless calling plan, and competitors AT&T, Inc. (NYSE: T) and T-Mobile (part of Germany's Deutsche Telekom) followed suit with unlimited wireless calling plans for U.S. customers. This is a first in the wireless industry for the major carriers, but it's a welcome one for many consumers. Both AT&T and T-Mobile will offer unlimited calling starting by the end of this week -- T-Mobile starting today and AT&T starting tomorrow.
Where is Sprint Nextel Corp. (NYSE: S), you may ask? The carrier also announced unlimited calling plans two weeks ago, but just in a few select markets -- and starting at $119.99 per month. Although the unlimited calling plans vary from carrier to carrier, generally, there is a $99.99 per month price of admission with all of them. T-Mobile offers the best value, with all call minutes and unlimited text messages included. Why did all the carriers -- except Sprint -- unveil unlimited calling within just a few days of each other?
Something has to keep growth churning along in the wireless industry. With 85% of Americans now owning a cellphone, wireless is heading for commodity status (it may already be there), where price wars will begin erupting and "me too" marketing campaigns following shortly thereafter. The PC industry knows all about this. But price wars only help the consumer -- not the wireless carrier. Yes, many of us heavy wireless users may soon have lower bills, but the carriers may have lower bottom lines as well. What wireless company stocks do you have in your portfolio? Will this cause more customers to abandon landline telephones and switch to unlimited-minutes wireless only, pumping in growth into the wireless sector for the time being? Food for thought.
Get ready for the price of making phone calls to drop, probably a lot. T-Mobile is introducing a product to replace most home landlines with internet-based phone service. According toThe Wall Street Journal, "The service will be available only to T-Mobile cellphone customers. To sign up, they must buy a $50 Internet router from T-Mobile and pay $10 a month for unlimited local and long-distance domestic calling."
It is a good bet that the service will be rolled out to reach customers that T-Mobile does not have as cell subscribers or that AT&T (NYSE: T) and Verizon Wireless will have to match the program. In the case of AT&T and Verizon (NYSE: VZ), they will be competing with the shrinking but profitable landlines businesses which are being eroded by VoIP, especially from cable companies.
AT&T and Verizon Wireless have already announced flat-rate unlimited calling plans for $99.99 a month. The price war in the cellular market is cutting these stocks down to 52-week lows, but the deal for consumers is outstanding. And, that pricing pressure is about to move into the consumer home phone market.
A cellular price war. A home phone price war. For shareholders in major telecoms, it's bad news For consumers, it doesn't get any better.
In what may be a sign of interest from large media companies looking to delve into the "content delivery space," the Wall Street Journal reported that EdgeCast Networks is set to announce it has raised up to $6M from Steamboat Ventures, The Walt Disney Company's (NYSE: DIS) venture-capital arm.
Barron's "The Trader" section says they'd stay away from Federal National Mortgage Association (NYSE: FNM), even though the Bush administration's subprime-mortgage freeze program caused the stock to rebound some. Barron's speculates that Fannie should take an earnings hit in the range of $6.4B to $14B.
According to the Financial Times Deutschland, Deutsche Telekom AG's (NYSE: DT) T-Mobile is selling less than 700 of Apple Inc's (NASDAQ: AAPL) iPhones a day; this compares to the 10,000 iPhones the unit sold on a daily basis during Christmas.
With Apple, Inc. (NASDAQ: AAPL)'s iPhone setting the stage to become a phenomenon in Europe like it has in the U.S., some minor glitches are starting to unravel in the company's plans there. This week, a German court wanted T-Mobile (part of Deutsche Telekom AG) to change the way it markets the iPhone. Unlike in the U.S. -- where Apple and AT&T have a five-year exclusive partnership -- things aren't that easy in the world of European "open market" wireless.
In other words, the German court doesn't want T-Mobile to sell the iPhone only in conjunction with a two-year service contract (the same deal AT&T gives U.S. iPhone customers). The court, in addition to that rather-large order, also asked that the T-Mobile version of the iPhone be opened up so it can work with other wireless providers. Ouch!
European wireless giant Vodafone is most likely to blame here, as it had a gripe with T-Mobile's marketing plans. T-Mobile says that it reserves the right to claim damages from any moves Vodafone makes that would impede iPhone sales, but this is just the beginning. Apple's tight grip on revenue sharing from each mobile partner it signs a contract with may not fly in some parts of the world -- something Apple should know by now. But that's the power the iPhone has -- wireless carriers will do anything to offer it to customers.
A ruling in Vodafone Group Plc's (NYSE: VOD) favor may cause Apple Inc (NASDAQ: AAPL) to rethink its business model for the iPhone device. The injunction against Deutsche Telekom AG (NYSE: DT)'s T-Mobile unit may force Apple to "unlock" its iPhones, the UK Times reported.
Struggling airline UAL Corporation (NASDAQ: UAUA), along with its unit United Airlines, is struggling, but finding a carrier willing to merge may be a problem, BusinessWeek speculated.
The Starbucks Corporation (NASDAQ: SBUX) partnership with Apple Inc. (NASDAQ: AAPL) first announced almost two months ago to bring the iTunes Store into Starbucks locations is now up and running. A San Francisco area writer noted the program's opening in the city's 360 stores last Wednesday. The program offers coffee drinkers the ability browse through the iTunes Store on their WiFi enabled computers, iPhone, or the iPod touch and purchase music tracks.
The biggest feature is the ability to purchase tracks then currently playing in the Starbucks store, but the iTunes connection does not extend to other internet sites, or video and other content in the store. Consumers must still pay for WiFi access to other internet sites in the stores, due to an agreement between Starbucks and T-Mobile. Ken Lombard, the head of Starbucks Entertainment, told Ellen Lee, a San Francisco Chronicle contributor, "we'll never turn our store into a music store" and she notes, "through the Apple partnership customers will have access to any music they like." Unfortunately, if you do not live in the larger markets, you will be waiting until as late as the end of 2009 to see this feature fully operating, as it is extended to the 6,000 U.S. Starbucks locations.
I've commented on this program before, when Starbucks rolled out the iTunes "Song of the Day" that ended last Wednesday, coincidentally. I would argue that in many ways Starbucks is becoming a music store, even if they do not think they are. Maybe not a conventional one, or a large retail chain with a music section, but with the establishment of a record label, Hear Music, and the partnership with iTunes, Starbucks is taking all of the same steps that many music stores have taken in the past. After all, before Tower Records folded last year they had started selling digital tracks. Starbucks is certainly in no position to file for bankruptcy, but the partnership with iTunes makes for a better deal than if a "StarbucksTunes" store had opened.
Sprint Nextel Corp. (NYSE: S) can't seem to climb out of its funk. The company continues to lose customers to the competition, it ousted its CEO a month ago, and the customer service rap the wireless carrier gets from just about all the media I see is atrocious. It's no wonder the third-largest wireless company gets smacked around more than a well-played racquetball.
To set the record straight, I am a Sprint customer. After having tried the other national wireless carriers, the one that just works best for my family is Sprint. Let me preface this by saying YMMV (your mileage may vary). The phone I use, the clarity of every voice conversation, the roaming capability I have nationwide and the data features I receive all work pretty flawlessly and have for some time. And the cost is very reasonable. When I've emailed Sprint customer service for questions and changes to anything on my account, responses typically take no more than 18 hours and aren't canned replies -- they are written to answer my questions, not pawn me off to a website for help.
So, it's interesting to see that Sprint receives such a bad rap these days. In my experience over a few years, the company's products, service and support are top-notch. I cannot say that about my experience with T-Mobile (NYSE: DT) or Cingular, now AT&T (NYSE: T). Dropped calls with those providers were normal, and the value was just not there for what Sprint supplies. Things may have changed since 2005, of course.
Apple (NASDAQ: AAPL) and T-Mobile today announced that T-Mobile, the leading network operator in Germany, will be the exclusive German carrier of Apple's the iPhone when it makes its debut in Germany on November 9.
By the end of 2007, T-Mobile will be the only network operator in Germany to offer EDGE throughout its entire GSM network. EDGE accelerates the mobile data transfer rate to over 220 Kilobits per second, which makes it almost four times as fast as ISDN in fixed-line networks. The company also has 8,500 WiFi hot spots in Germany.
Douglas A. McIntyre is a partner at 247wallst.com.
Wall Street has wondered for some time how profitable the Apple (NASDAQ: AAPL) iPhone is. First, numbers of analysts pulled the device apart and found out what each component cost. That probably gave a good sense of how much the margin was on the hardware.
But, there has always been a sense the Apple was making a great deal from AT&T (NYSE: T). This was based on the idea the the phone company gave Apple a bit of its service plan revenue in exchange for have an exclusive right to sell the phone in the U.S.
Now that Apple is coming close to closing deals to sell the phone in Europe, information is leaking out about what the consumer electronics company will make for calls placed on the device. According to The New York Post, T-Mobile will have exclusive rights to sell the phone in Germany but will pay "10 percent of the revenue from voice calls and data usage." If the German company is anything like Verizon Wireless (NYSE: VZ), it operations have an operating margin of 15%. So, they are giving up a very great deal indeed.
The paper also writes that Gene Munster, an analyst with Piper Jaffray, in July estimated that Apple collects $3 per month per iPhone subscriber from AT&T for voice calls and data usage, as well as $8 per month for every new subscriber who signs up for AT&T with the device. But, if the T-Mobile deal is as good as its looks for Apple, the estimate of what AT&T gives up may be too low.
The bottom line: If the iPhone is not a huge hit at bringing in net new customers to these cell carriers, then they have made very bad deals.
A new poll shows that the Apple (NASDAQ: AAPL) iPhone, marketed through AT&T (NYSE: T) Wireless, could take more business from competing cell service providers than was previously believed. According to a survey in May of about 11,000 cellphone users by M:Metrics Inc, two-thirds of the people interesting in buying the phone are not AT&T customers.
Most vulnerable of the competition is T-Mobile, a units of Deutsche Telekom (NYSE: DT). Almost 13% of its customers expressed strong interest in the phone. DT recently expressed confidence in its US unit, which ranks fourth in the US, saying it would grow faster than the US market over the next few years. Well, maybe not.
About 8% of Sprint (NYSE: S) customers expressed interest. That would be bad news for the company which has been struggling in competition with AT&T and Verizon Wireless due to trouble integrating NexTel and poor customer service.
If the iPhone can steal anywhere the number of customers that the survey indicates, it will be a huge benefit for AT&T, which has been losing landline consumers to VoIP and needs it cell arm to help make up the revenue shortfall.
I've seen it many times: a cool product that finds few customers. That seems to be the case with Helio's mobile phones. Basically, customers didn't want to pay premium prices for such things as access to MySpace and other new-fangled features.
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