By Jim Patterson
More snowy and chilly greetings from Jefferson City and Willard, Missouri, as well as the Tar Heel state, where we anxiously await next week’s warmup. The opening picture is from a Zoom presentation last week to the Colorado Wireless Association (COWA). A terrific discussion and lots of field insights.
Despite the cool temperatures, the news cycle this week was heated, with Samsung’s new Galaxy S21 announcement, the C-Band auctions concluding and Verizon’s CEO, Hans Vestberg, delivering a spirited keynote address (virtually) at the Consumer Electronics Show. There is plenty to talk about as we await Q1 earnings.
Tepid 2021 performance continued this week, as the Fab Five lost US$270 billion in equity value (more than one Verizon). Thus far in 2021, the Fab Five have lost about 12 per cent of 2020’s record-setting gains, while the Telco Top Five have already lost 43 per cent of last year’s gains.
This week’s Fab Five losses were broad-based, with Apple losing US$83 billion, Microsoft down US$53 billion, and Google losing US$48 billion. Every company contributed to the weekly losses, and stock prices are down to beginning-of-year to mid-December levels for everyone but Facebook (who seems to have created a lot of confusion in their latest WhatsApp update – more from CNET here).
The Telco Top Five changes, with the exception of Comcast (down US$13 billion this week), were more muted as investors await final C-Band auction results. We got a hint of some needs, however, when T-Mobile raised US$3 billion for spectrum purchases (announcement details here) and it was revealed that AT&T was planning on raising US$14 billion for spectrum purchases. The linked article described the mechanics of the loan, which is structured as a 365-day draw as opposed to a traditional bond offering. That structure could presage a DirecTV sale, which, incidentally, is rumored to fetch around US$10-11 billion for AT&T. As a reminder, Verizon already raised US$12.5 billion ahead of the auction (Fierce Wireless article here), but it’s unlikely that will be enough to cover what’s expected to be a US$45-50 billion bill (including clearing costs).
While there are differences in how the spectrum allocation works, we cannot help but contrast the results of the CBRS auction (105) with the recently concluded auction (107). As a reminder, the CBRS auction consisted of a maximum of four 10 Mhz licenses per winning bidder (40 MHz total). But a total of 70 MHz of spectrum in the 3.55–3 65 GHz band were sold at the county level for US$4.5 billion. The C-Band range is much larger (A block @ 100 MHz, and BC block @ 180 MHz), but does that swath equate to a 4-5x higher yield per MHz POP (see Sasha Javid’s results here for Auction 105 and 107)?
As we discussed last week, Auction 107 makes T-Mobile’s acquisition look downright brilliant. Here’s a chart showing the ranges of each of the spectrum bands that we put together for a client in 2019:
T-Mobile’s 2.5 GHz + 600 MHz deployment results in meaningfully greater geographic coverage and throughput than C-Band + 1900 MHz (PCS shown above) or even C-Band + 700 MHz. Even if new modulation techniques emerge that can be used for 3.5 Ghz but not 2.5 GHz (we cannot think of any), the advantage will only be reduced to an 8-9x advantage for T-Mobile.
Spectrum is the foundation of cellular architecture and engineering (just ask Sprint engineers prior to their merger with T-Mobile). Cellular architecture forms the basis for service costs ($ per GB). If T-Mobile’s overall service costs are 20-25 per cent less than Verizon’s as a result of their respective C-Band auction bids (and increased tower operating costs required for equal coverage), that will either result in increased margins, improved market share gains, or a combination of both (provided that T-Mobile’s bandwidth consistency, a function of engineering, approaches or exceeds Verizon).
Bottom line: There are a lot of “ifs” and “provided that” statements above. But underlying cost structures between AT&T, Verizon, and T-Mobile are going to converge, particularly in metros, if T-Mobile executes on their engineering and transport/ backhaul plans. To use a football analogy, T-Mobile, through their Sprint acquisition, just traded up for a superior offensive line.
Samsung’s Galaxy Unpacked announcement
On Thursday, Samsung announced their new Galaxy S lineup for 2021. The S21, S21+ and S21 Ultra bring different features to the table while improving many parts of the S20. Headlines were focused on the US$200 lower price for each model. Less RAM (from 12 GB to 8 GB) and slightly degraded screen resolution (from 3200 x 1440 to 2400 x 1080 panels) only make a difference at the margin (re: YouTube rarely defaults to 1080p, and many budget plans only feature standard definition screens). We think Samsung made the right tradeoffs for their entry level premium devices.
All three models feature the 2.84 GHz Qualcomm 888 processor and at least 4,000 mAh batteries (the Ultra clocks in with 5,000 mAh which will power average users for multiple days). Samsung has also upgraded the fingerprint sensor (one of the subpar features of the Galaxy S20). There’s little doubt that with aggressive trade-in promotions through Samsung.com, and AT&T’s continuation of offering equivalent deals to both new and existing customers (see announcement here), both the S21 and S21+ will see strong sales.
The real treat Samsung announced on Thursday, however, is the S21 Ultra (pictured left). It’s US$200 more expensive than the S20+ (starts at US$1,199 before the S-Pen or a case and is US$100 more than the baseline iPhone 12 Pro Max price), but features 12 GB RAM, a 108 Megapixel rear camera with 100x zoom and 5,000 mAh battery (similar to the S20 Ultra). If you need a lot of processor or require premium resolution on pictures, the Galaxy S21 Ultra should do the trick.
What intrigued us was the S21 Ultra S-Pen integration and what this potentially means to the Galaxy Note’s future. Larry Dignan at ZDNet penned a terrific, insightful article here about the potential transformation away from the Note, with premium (larger) devices transitioning into the Galaxy Fold series. If you are a Note fan (and, as Larry points out, Samsung has nearly perfected pen integration through years of Note upgrades), you might want to investigate the Note 20 now before it’s gone (Note 20 prices now start at US$999 on Samsung.com). Our money is with those who think the S-Pen lives on, but the Note is discontinued.
