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Verizon sees an industry-wide shift from prepaid to postpaid plans

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October 22, 2014

Verizon said today that it's currently seeing an industry-wide shift from prepaid to postpaid plans, according to Chief Financial Officer, Fran Shammo.

During a 3rd quarter earnings call yesterday, Shammo said that recent competitive pressure on pricing levels in the U.S. would drive mobile subscribers to postpaid plans.

“We’re just looking at the overall mobile industry, and the assumption is that we do see the prepaid customer moving,” Shammo added. “If you look at single-line pricing, those price points are pretty close to what you’d pay on postpaid.”

Shammo made the comments during an earnings call that saw Verizon Wireless post a whopping 1.5 million postpaid net adds in the third quarter, up 63.5 percent from the same 2013 quarter.

To be sure, tablets continued to be a big driver of usage. Broken out, Verizon’s total postpaid additions included 457,000 postpaid phones and 1.1 million postpaid tablets.

Shammo also noted that tablet customers are currently using more data than 3G smartphone customers. So while margins slipped slightly year over year to 48.5 percent on $12.6 billion in capital expenditures (CapEx), revenue for the company’s wireless segment was up 7 percent to $21.8 billion.

Consolidated earnings per share came in at 89 cents per share, up from 78 cents per share in the same quarter in 2013.

Shammo said that he still expects CapEx to hit $17 billion by the end of the year, but he believes the company can improve on margins going forward.

When asked whether increased upgrades in the fourth quarter would improve margins, Shammo said that service revenue margins will continue to be affected by Verizon’s response to industry competition.

“There is some deceleration here, as we increase the bundles, it’s going to take some time before people have to take the next step up,” Shammo said.

In all, Verizon activated 8.9 million smartphones during the quarter. The wireless carrier noted that about 77 percent of all mobile phones on Verizon’s network are now smartphones, up 67 percent from the same quarter last year.

Retail postpaid average revenue per account (ARPA) increased 3.5 percent annually to $161.24 per month.

And while Verizon has expanded its XLTE offering to 400 markets on its AWS holdings, Shammo said he was unable to comment on the upcoming AWS auction due to the FCC rules.

European Union trade chief Karel De Gucht believes he’s come to a practical solution to a trade dispute with China over telecom equipment subsidies.

The EU has been fighting relentlessly with China, its second largest trade partner behind the United States, over what the EU claims are illegal subsidies for mobile network equipment made by Chinese companies such as Huawei.

Following a trade conference in Rome yesterday, De Gucht told Reuters that the trade partners had reached a sort of agreement, and he’d be asking the European commissioners to drop the case next week.

Chinese telecom equipment makers Huawei and ZTE export approximately US $1.26 billion worth of products annually to the EU, competing directly with European-based equipment makers Ericsson, Nokia Siemens Networks and Alcatel Lucent.

Some details of the agreement are expected to be released in the next few days. Chinese Premier Li Keqiang will be meeting with top EU officials in Milan, Italy, later this week.

The EU has fined Deutsche Telekom and its Slovak subsidiary US $88.5 million for blocking its competitors in Slovakia’s Internet market.

The companies are accused of preventing competitors from accessing Slovak Telekom’s broadband infrastructure.

In other mobile news

You could probably agree that the topic of connected cars is a popular one these days, but what isn't fully understood it that it's still relatively unclear in it’s own definition as a concept.

Need more information? Well, although it’s interesting to talk about 'infotainment' and all the things you’ll be able to do while driving in your vehicle to make it feel more like your living room, the reality is that the primary focus of the automotive industry is safety.

And it should be, bare none. This week Rohde & Schwarz announced a partnership with Miro-sys in order to enable test simulations of automotive radar for both development labs and production facilities.

A key factor is ensuring the safety of the occupants of cars and trucks as they travel down the road these days.

From the Miro-sys venture, the solution includes its Automotive Radar Target Simulator (ARTS), a part of its Innovative Technical Systems (ITS) portfolio.

The radar simulator can be used by various production facilities in order to manipulate the potential implications of speed, size and distance of the object and some weather conditions in order to determine the responsiveness of automated driver assistance systems (ADAS).

The ARTS system is optimized for the standard automotive radar band, it it has a broad RF band capability that extends from 75 GHz to 80 GHz.

The functionality shows real-time performance simulation of many real life situations. For example, the detection of a specific object, ie-– are you approaching a bike, car or wall?

And how will the vehicle itself respond to this based on the speed at which it is traveling and the external weather conditions?

Rohde & Schwarz are providing the FSW-K60C signal and spectrum analyzer to the solution. The new system is targeted at research and development teams requiring a tool to test the signal performance of automotive radar.

By testing the signal performance while in the design phase for radar sensors, organizations will be able to determine the true potential impact to the signal performance of external factors such as environment, speed and other critical elements.

Combined, these products enable developers to verify signal processing algorithms of sensors at an earlier stage. There is also the ability to test at a deeper level during the production process.

Distances of less than one meter can be simulated and tested with this solution. Users also have the option to create their own test scenarios and review them at a later time for future simulations.

All test results can be saved for background documentation required by the automotive industry for various safety requirements.

The solution can test 100 percent of the safety-relevant radar components on the production line as opposed to conducting random quality assurance tests where there is the possibility for a key issue to be overlooked.

The major difference compared to offers in the market today is the ability to run real-time tests with different parameters as opposed to individual static test simulations based on optical delay lines.

In other mobile news

Location-based services are entering a new era of opportunities for wireless carriers, with applications for network optimization and personalized offerings for mobile subscribers that are based on the ability to leverage collect and analyze large amounts of location data, according to market research firm ABI.

“Location for wireless carriers is no longer about navigation applications,” said Patrick Connolly, senior analyst for ABI.

“Overall, location-based services will become an essential tool in network optimization and customer experience management, as we move to LTE, heterogeneous networks and personalized subscriber packages. While this in itself gives a clear return on investment, there is also significant upside on new exciting areas such as retail/indoor, financial/banking, big data analytics and advertising.”

ABI expects direct carrier revenues in this area to reach about $2 billion by 2019 “with far greater long-term potential.”

ABI cited an increase in joint ventures between wireless carriers to provide scale in this area, as well as announcements of solutions such as Verizon’s Precision Market Insights and Smart Rewards; AT&T’s Location Information Services; SK Telecom’s Indoor Location; Sprint’s Pinsight Media; and Orange’s Data for Development.

“Wireless carriers have been sitting on a location goldmine for too long, fearing a privacy backlash,” Connolly said. “But through careful segmentation of aggregated, anonymous analytics and advertising, coupled with clear opt in/out options and third-party approval of anonymity, carriers can overcome these unnecessary fears, while giving subscribers the power to choose how their data is used, if at all. Demand is growing for location-based information and there is always a need for a Google alternative. Carriers are well placed in the analytics, retail, financial and advertising spaces to be just that.”

In other mobile news

There's been some rumors flying around these past few days that Vladimir Putin wants to take Russia off the internet in case of an emergency, like war or anti-government protests, according to recent reports. Reports which, of course, the Kremlin denies categorically.

It's difficult what to believe or not when it comes from Putin these days, after all the nasty things he's done so far in 2014.

It’s easy to dismiss such a decision as the madness of Vlad (as German Chancellor Angela Merkel has said the man is living “in another world”), except that in the calm, well-mannered halls of European governments, leaders are also calling for building similar Internet walls against outside countries.

In February 2014, Merkel and French President Francois Hollande discussed a few ways to create a “European Internet.” This week, representatives of sixteen European countries called for the EU to take several measures to protect their citizens’ data from outside countries.

The enemy they are most seeking to protect that data against is the United States. Of course, not everybody might agree to that concept.

“The EU must impose its data protection standards on third countries, otherwise they will do it first. I am thinking particularly of the United States,” said the Luxembourg representative Viviane Loschester.

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It’s no secret that the NSA spying scandal has made Europeans very protective of their data. In Germany, when the news broke out that the U.S. had tapped Merkel’s phone, more than 700,000 Germans signed up for encrypted messaging services that very same day.

Now, a Der Spiegel report written last week states that the NSA’s “Treasure Map” program had infiltrated wireless carrier Deutsche Telekom, gaining access to the private information of millions of Deutsche Telekom users is prompting a new scramble for secure data services based in Germany.

The German government made its own privacy move in June by canceling a contract with U.S.-based Verizon Wirelees in favor of DT, which incidentally is partly owned by the German government, saying it wanted more “technological sovereignty.”

At the EU level, punitive actions are being discussed against companies caught sending personal data outside the EU without permission, including fines equal to €100 million or 5 percent of the company’s global turnover.

The European privacy efforts are not at the same level as Russia attempting to cut its entire Internet off from the rest of the globe, but they do mark a new political stage in the development of the internet, where countries are trying to build virtual borders.

It's all part of a spectrum of isolation-- one that moves from in-country data centers and restrictions on outside companies to cutting off those companies or even the outside Internet entirely.

The ability of European countries to create walls to stop U.S. spying is questionable as long as the internet continues to be dominated by U.S.-based companies like Google, Facebook and Twitter.

That is unless they want to exit the global Internet entirely, Putin-style... Given that the Web is known for being lawless and hard to control, there’s also some question whether Russia can accomplish its goal of internet isolation.

Observers seem to come down on both sides, but some countries have had some success in restricting Internet utilization recently ? the semi-successful attempt to shut down Twitter and YouTube in Turkey this spring comes to mind.

But even if Putin can't create a Russia-only Internet, he can probably disconnect his country entirely. After all, Russia has already done that once to another country. Just ask Estonia, and now the Ukraine.

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Source: Verizon Wireless.

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