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A widely expected deal that will see US operator Sprint acquire its competitor T-Mobile USA is nearing completion, according to a number of reports citing inside sources. News agency Bloomberg said that an agreement on the price, capital structure and termination fee is close and that the deal would value T-Mobile at $40/share, or roughly $31bn. At the time of writing T-Mobile USA was trading at $35.20. The agency suggested a deal could be announced in July.
Such a deal would create an operator with the same scale as market leaders Verizon Wireless and AT&T. A combined Sprint-T-Mobile would have 103.53 million customers according to the latest figures from Informa’s WCIS Plus.
In May it was reported by the Wall Street Journal that German incumbent and T-Mobile parent Deutsche Telekom (DT) was demanding a $1bn break-up fee be written into any deal with Sprint, which is majority owned by Japan’s Softbank. The payment, from Sprint to Deutsche Telekom, would be required should an agreed deal be derailed; perhaps blocked by regulatory or competition authorities.
DT’s enthusiasm for the pre-nup is based on rewarding experience. In 2011 it walked away from the collapsed $39bn takeover of T-Mobile USA by AT&T with $3bn in cash, substantial spectrum assets and a favourable roaming agreement. It was able to invest that sum into its network and has performed well in subscriber terms since.
And yet the firm’s financial performance has not reflected this trajectory. In Q1 this year, despite claiming to have taken “virtually all of the industry phone growth” in the period, T-Mobile USA posted a $154m loss, down from a $106m profit for the same period in 2013. The firm cited increased customer acquisition costs as having a significant impact on its bottom line.From June 2012 to March 2014 the operator increased its subscriber base by 48 per cent, from 33.17 million to 49.08 million, according to figures from Informa’s WCIS Plus. Over the same period Sprint’s subscriber base dropped by 2.8 per cent to 54.45 million, while AT&T’s grew 10.3 per cent to 116.04 million and Verizon Wireless’ by 9.8 per cent to 121.29 million. ###
Amazon CEO Jeff Bezos is rolling the dice once more with his riskiest wager yet.
When the Seattle e-commerce giant introduces its smartphone -- which is widely expected to happen at a company-hosted event on Wednesday -- it will be only Amazon's fourth device in the last seven years.
But where its first three products have skirted the edges of mainstream consumer electronic devices -- an e-reader, a budget-priced tablet, and a streaming Internet TV box -- Amazon is now jumping straight into the heart of an industry with the most personal and critical of tech gadgets. In doing so, Bezos is escalating Amazon's fight against Apple and Google for control of the hearts and minds of consumers by combining a branded smartphone with a set of services available through its Prime premium membership.
Amazon's anticipated foray into the smartphone world comes as its fellow tech titans have steadily expanded their own reach beyond devices such as PCs and smartphones, with Apple and Google -- as well as Microsoft and Samsung -- introducing an array of services. Their common goal: to power everything from thermostats to medical equipment to automobiles.
"The great ecosystem war has begun," said Ben Schacter, an analyst with Macquarie Research. "This is going to be a long, hard war with many battles."
For Amazon, it comes back to the smartphone, the one device many people won't leave home without, and its potential to be the remote control for all the other devices in our lives. The company likely sees it as the ultimate hook for its $99-a-year Prime service, which offers members two-day shipping, e-books, movie, and as of last week, a streaming music service. Bezos' bet is that Prime is more effective in keeping customers coming back to Amazon than any single device.
Here lies the company's main weapon. Bezos is more focused on making money off digital content and physical items shoppers buy through its hardware than actually making money off selling the devices.
Yet the e-commerce pioneer is treading into unfamiliar territory. The smartphone world is brutally competitive, with Samsung and Apple at the top of the market.
Amazon's phone is expected to feature 3D technology, enabled by four front-facing cameras, and to come with a service called Prime Data to encourage video and music streaming through the device. But it will take more than a gimmicky technology that hasn't worked in the past for other handset makers to win customers. In line with Amazon's usual hardware strategy, the phone is also expected to have a low price tag, which it needs to compete.
It will go up against the popular, and likely more expensive, Apple iPhone and Samsung Galaxy S franchises at the high end, and an increasing array of affordable, but high-quality smartphones including the Motorola Moto X and Google Nexus 5 for the more budget conscious.
The unique dynamics of the smartphone business will test the company's strategy of selling its products at cost to gain a price advantage.
Still, Amazon has as good a shot as any. The company has spent years turning its Kindle devices into a trusted brand, and it boasts the world's best digital storefront in the Amazon.com homepage.
The man behind the devices
Amazon's ability to break into the smartphone business comes down to Dave Limp, publicly named vice president of devices in April.
While Bezos spells out the vision for the company, Limp's job is to execute upon that vision.
"Every day, when I wake up, I read customer feedback," he told FastCompany, reciting a common mantra among Bezos' top employees. "Some days it's hundreds of emails; others, it's thousands. We get ideas from all of it. The feedback leads to rapid iteration."
A tech veteran who has worked on the Kindle business for the last four years, Limp joined Amazon in 2010 after serving as the chief operating officer of Limbo, a mobile entertainment company. He's worked with hardware before. Prior to Limbo, Limp was the chief strategy officer for Liberate Technologies, a pioneer of using TVs for additional services, like shopping or checking email, and even further back, he was chief strategy officer for Palm's PDA business.
Like Bezos, Limp has both technical expertise as well as business smarts. A graduate of Vanderbilt University and the Stanford University Graduate School of Business, Limp holds a B.S. degree in computer science and mathematics, and a masters in management.
During his time at Amazon, the company moved from e-readers to Kindle tablets and streaming TV boxes with this year's release of the Fire TV and, now, presumably, to smartphones.
"Our philosophy, which hasn't changed even as we add a third category of devices, is we try to effectively break even on our devices when we sell them," Limp told The Seattle Times at the launch of the Fire TV in April. "We want to make money when customers use the devices." All about Prime
Getting more customers to subscribe to Prime has been the primary reason behind Amazon's array of products. Amazon doesn't disclose how many Prime members it's garnered, saying only that the official tally of the service is in the "tens of millions."
The original Kindle e-reader drove e-book sales, and it has nearly dismantled the physical book retail industry. Amazon's line of Kindle Fire tablets, which run an altered, or "forked" version of Google's Android mobile operating system that omits key Google apps and services, presents Amazon services up front and even includes its own app store. The $99 Kindle Fire TV box also runs Amazon's variant of Android, and it's designed to take advantage of streaming video and downloaded media from Prime.
Amazon's smartphone is rumored to include a feature that displays images in 3D, which would make sense if the company views the device as an extension of its online store. 3D product images might entice more buyers to buy from their smartphone.
While Prime started as an option for fast, free shipping, Amazon has slowly layered more on top of the service, adding online movies, free e-books, and most recently a streaming music service, in a bid to secure the loyalty of its customer base. The company is highly motivated to sign up more Prime customers, who tend to shop more with the site.
"Every user that buys that device becomes your customer and then you own them," said Topeka Capital Markets analyst Victor Anthony. He estimates that of Amazon's 244 million active customers, roughly 25 million are Prime members.
Amazon's tactics in hardware show that Bezos is willing to bet big. While Apple boasts margins of more than 20 percent on its iPhone and iPad, and Google makes money from the advertising it delivers through its Android mobile OS, Amazon says it's happy to break even -- or even take a loss -- on its gadgets for the chance to win repeat customers who will keep coming back to the company's ecosystem and ultimately spend more money at its store.
Macquarie analyst Jeff Su called this the "Trojan Horse" approach to luring in customers.
Analysts say Bezos' strategy works. Kindle owners spend 30 percent more on Amazon than non-Kindle owners, according to a recent survey of 2,000 Amazon customers conducted by RBC Capital Markets. The results are even better for the company's main attraction: Amazon Prime members spend almost twice as much as non-Prime members.
A key dilemma for Amazon is what the company typically counts as an advantage: price.
Unlike other devices, smartphone pricing is skewed by the subsidies the devices enjoy. In exchange for a two-year contract with a carrier, what would be a $650 iPhone 5S ends up costing the consumer $200.
Even off-contract, there are a number of smartphones that offer plenty of bang for a reasonable buck. Both the Nexus 5 and the Moto X costs $349 unlocked. The Huawei Ascend Mate 2 phablet is available without a contract for $300 at GetHuawei.com.
The rumored Prime Data plan may offer customers an attractive way to save money in step with the growing popularity of streaming media, a service that increases the need for data. But it won't be easy.
Other non-telecom companies, such as ESPN and Disney, have released their own branded phones and services, but ultimately couldn't win enough customers to justify the devices or networks.
"There's a lot of corpses buried in the ground of companies who have tried and failed," said Julie Ask, an analyst with Forrester Research.
Still, there's room for growth in the smartphone market, and Amazon could capture some of the 70 percent of cell phone owners globally who haven't yet switched to a smartphone, according to Anthony, the Topeka Capital Markets analyst. In the US, however, that figure is less than half, with more people snapping up smartphones everyday.
Ultimately, it's not about selling more devices than Apple, or even getting Apple's customers to jump ship. It's about providing consumers with an affordable alternative, Anthony said.
And that goes back to Bezos' game plan: At the end of the day, Amazon doesn't care if it makes money off its devices as long as people shop more on its site.
"Amazon, no matter what ecosystem you use, they want you to buy their products," Anthony said. "Amazon wants you to shop no matter what device it is." ###
NEW YORK — The HTC One M8 that I reviewed when it appeared in March is one of the finest Android devices out there. It is a beautifully designed handset with a handsome curved all-metal unibody design. The 5-inch display is sweet to look at. The speakers are top notch.
According to a report at The Information ( paywalled), Cyanogen Inc., the company trying to commercialize the popular CyanogenMod mobile OS based on Android, recently met with Google's Android chief to talk about an acquisition. The report says Cyanogen turned down Google's offer and instead seeks funding from investors and major tech companies at a valuation around $1 billion. "Cyanogen has told potential investors that it has a deal in place to bring its custom version of the Android OS to India through a manufacturer called Micromax. Alongside Samsung, Micromax currently holds almost as much share of the smartphone market in India, making this deal a very large step to get Cyanogen into the hands of millions of more people. Lastly, the report claims that Cyanogen should be wary of modifying Android too much. During the process, the company must continue to follow Google's compatibility requirements which ensure third-party applications will work on their devices. If those requirements are not met, devices will not be licensed to run Google's services, such as Google Play and other Google applications."
We all know that Microsoft has lots of patents licensing deals with lots of Android OEMs. It was previously estimated that Microsoft may be earning over billion dollars in licensing revenue each year from these patents. In the recent court filing from Microsoft in the U.S. District Court in the Southern District of New York, it was revealed that Samsung paid more than $1 billion to Microsoft as part of patent royalties. Microsoft has already filed a legal complaint as part of the ongoing contract dispute with Samsung.
As we said at the time we filed our complaint, we began this case for two primary reasons. First, we’ve asked the court to resolve a contract dispute with Samsung. After months of painstaking negotiations by two of the biggest and most sophisticated companies in the world, in 2011 Microsoft and Samsung agreed on the terms of a patent license agreement and a separate business collaboration agreement, the latter of which is unique to our relationship with Samsung and, as explained in paragraph 35 of the complaint, was aimed at promoting the development and sale of Windows smartphones and tablets by Samsung. Samsung has suggested that Microsoft has breached the business collaboration agreement. We disagree, and that’s why we asked the court to rule that Microsoft is not in breach. Second, Microsoft has asked for $6.9 million in damages due to unpaid interest from last year.
Microsoft is confident that their case is strong and that they will be successful. At the same time, Microsoft values and respects their long partnership with Samsung, is committed to it, and expects it to continue.
Two respected British technology journalists comment on The new book by Pekka Nykänen and Merina Salminen of Kauppalehti which has not yet been translated to English.
"One area where blaming Elop was unfair is how badly Microsoft let Nokia down." - Andrew Orlowski -
"However, those they [the authors spoke to were insistent that, despite the claims of many outside the company, Elop was not a 'Trojan horse' with an agenda to make Nokia’s handset business worthless so that Microsoft could buy it cheaply." ... Charles Arthur
>> Of COURSE Stephen Elop's to blame for Nokia woes, says author
'Google did have some unique propositions for Nokia'
Interview Operation Elop, a new book on Nokia, got plenty of attention last week, with its suggestion that Nokia’s former CEO was the “worst CEO in history”. After I ridiculed the idea that Elop alone was solely responsible for Nokia’s crash, co-author Pekka Nykänen got in touch to say that isn’t quite fair. So we invited him to talk about what he had found.
“There’s a few things I’d like to tell you that are not mentioned in the international coverage of our book,” says Nykänen.
“We feel that Elop didn’t tell the truth about Nokia’s options at a time," Nykänen opined. "From the negotiations with Google – Elop said Google only offered the standard ‘Welcome to Android’ conditions. But actually, Google did have some unique propositions for Nokia. Google would have bought patents from NOK – and those would have benefited Android.”
Good for Google no doubt, perhaps less so for Nokia. What else?
“Nokia was good at developing new markets and Android was going down in price it would have been a perfect alliance,” says Nykänen. “Nokia would have been the best to deliver it.”
The authors got the idea that Google would have been ready to change its roadmaps to accommodate Nokia.
A corpse rots from the head down
One area where blaming Elop was unfair is how badly Microsoft let Nokia down. It wouldn’t allow Nokia much (if any) customisation; it wouldn’t change its roadmap; its roadmap caused problems with Nokia’s first phones (which couldn’t be updated to Windows Phone 8, which appeared a few months later); and it was out-developed by Google, which added features to Android far quicker. The result was that Nokia had hardly anything to sell for two years.
Nykänen doesn’t disagree. “Nokia could have done anything with Windows Phone,” he says. If it had been allowed to, “they had the best talent to do that. Microsoft was so inflexible to the interests of Nokia, it was totally the wrong match when Windows Phone was selling in the high price point”.
And he agrees the rot set in long before Elop arrived.
“Yes, the responsibility lies heavily there. The organisation got bloated, and the matrix organisation structure meant that everything was in committees, nobody made decisions, and nothing happened. The decision to put touch on top of Symbian was stupid because it kind of closed the gate to any really changes,” he told us.
“The CEO should have been changed earlier and Symbian should have been dismissed earlier.”
Nykänen also highlights the role of Elop’s McKinsey guru - Endre Holen.
“The Burning Platform memo is an old McKinsey thing. Elop invited Holen to sit in on all the management and leadership team meetings. Nokia had 200 people working in strategy but the results were not very good and McKinsey took some of the work, that department was then cut down heavily after Elop arrived.” Humble pie
Anything positive to say for Elop?
“He had some very good qualities too – and he was a great motivator inside the company. He opened up the culture, which was paralysed after OPK [Olli-Pekka Kallasvuo]. Elop made the company act again – it started to move fast, and customers and operators were happy with the way he worked,” said Nykänen.
“He responded to emails all night. He worked like a maniac. This is also one of the reasons we are sure he was not a Trojan Horse. What was the motive to even have this Trojan Horse inside Nokia? A successful Windows Phone would have been better for Microsoft and better for Elop, it would have made his career.”
The staff interviewed by the authors also found the Canadian “fitted into the Finnish atmosphere well – he was quite humble.. and interested in ice hockey which we like,” but ultimately said he “made very poor decisions.”
As for the sale, Nykänen thinks it was a coup for Nokia:
“They were running out of money,” he notes.
And Microsoft didn’t really want to buy the phones division, but didn’t have a choice not to: it may have lost the OEM that generated over 90 per cent of platform sales. “It was not an easy decision but it was clever. Nokia’s share price has subsequently more than doubled.”
Kallasvuo, Elop’s self-deprecating predecessor, gave an interview earlier this year where he said the circumstances were unprecedented:
“Google and Apple were strong in industries outside mobile communications, who suddenly enter and in a couple of years become market leaders where they have never been before. That is unique in the business history of the world.
“The strategy was correct. The execution very often was difficult, some people, the skills were missing and you have to acquire them…Without good execution even a good strategy is worthless,” he told his interviewer.
The authors of Operation Elop tell us an English translation is on its way. ®
>> Elop was 'wrong man to lead Nokia' says new book on phone company's downfall
‘Operation Elop’ by Finnish journalists says ex-Microsoft executive was not a Trojan horse - but someone else might have been able to save the struggling business
Stephen Elop wasn’t a Trojan horse brought in from Microsoft to undermine Nokia - but he was “one of the world’s worst” chief executives, according to a new book published in Finland this week.
The book, “Operation Elop”, by journalists from the Finnish daily paper Kauppalehti, makes its harsh assessment of the Canadian who was hired to try to lead the mobile phone, mapping and networks company out of trouble in September 2010 – after an executive hunt that is said to have approached Tim Cook, then chief operating officer at Apple.
Elop was hired instead, lured away from his position at the head of Microsoft’s Office division in Redmond, near Seattle, to run what was then the world’s biggest mobile phone company - but one that was facing serious problems.
“By many measures Elop is one of the world’s worst - if not the worst - chief executives,” declare Pekka Nykänen and Merina Salminen, the authors, who interviewed more than a hundred people to produce their book.
They say that “Elop was the wrong man to lead Nokia. Someone else could have saved Nokia’s phone business.”
However, those they spoke to were insistent that, despite the claims of many outside the company, Elop was not a “Trojan horse” with an agenda to make Nokia’s handset business worthless so that Microsoft could buy it cheaply.
They also accept that many of the problems cannot be laid only at Elop’s door. Nokia also suffered from an obsession with costs, unclear chains of responsibility and bad executive decisions. “Elop… failed in his attempts to save Nokia,” the writers say. “He made monumental mistakes - but all in good faith. He took massive risks by putting all his eggs in one basket.” That was the decision to go with Windows Phone rather than Google’s Android, or keeping the Symbian software Nokia already used on its smartphones.
To categorise Elop as “one of the worst” CEOs, the authors look at Nokia’s market value before and after Elop took over, when he replaced Olli-Pekka Kallasvuo, who in the summer had challenged Nokia’s board to “back him or sack him”. One day before Elop took over, the company was worth €29.5bn on the stock market; three years later, as the phone division was sold, its valuation was €11bn.
Nokia’s handset division was sold to Microsoft for €5.4bn in September 2013 after it had fallen into a pattern of lossmaking, and failed to make significant impact on the smartphone market.
The authors charge that Elop’s famous “burning platform” memo “has become a legendary example of how a CEO can destroy everything in just one stroke”. The memo emerged from a jointly-written speech that he gave to senior managers to describe the problems that Nokia’s Symbian software faced by the end of 2010, as Apple’s iPhone and Google’s Android software drove a new wave of touchscreen phones, to which Nokia had no effective answer.
The choice of Windows Phone was partly advised by the consultants McKinsey, the book claims. Elop is known to have spoken to Google about the possibility of going with Android - but did not, famously leading Google’s Vic Gundotra to tweet that “two turkeys don’t make an eagle” - a reference to a comment by one of Nokia’s executives in 2005 about the proposed merger of BenQ and Siemens’s phone handset divisions. (It flopped.)
They also say that Nokia’s staff did not examine Windows Phone closely enough before choosing it - and only realised after signing the agreement with Microsoft that they would not be able to install it on handsets then priced at €100 which used keypads rather than a touchscreen. Nor could it use a front camera - useful for video calls - and had patchy support for MMS, a carrier standard for sending picture messages. Foreign language support was also patchy - so much so, the authors say, that one engineer thought there were missing pages when he first saw the list of supported languages.
Microsoft is also blamed as being inflexible, even though Nokia was its biggest Windows Phone OEM. ###
"The leadership of Nokia phones shuffled out of Microsoft yesterday, with phones VP Jo Harlow joining former CEO and Microsoft devices VP Stephen Elop in the taxi queue. ... It’s no surprise: Nadella had been saddled with an acquisition he didn’t really want and distanced himself from it from Day One. Nadella shed some 18,000 jobs, with the majority coming from the former Nokia unit. ... Talking to dozens of former Nokians, I'm struck by how well-respected Elop was amongst his colleagues. ... Elop was actually a pretty good CEO – I’ve no doubt he will be again."
>> Farewell then, Mr Elop: It wasn't actually your fault
The leadership of Nokia phones shuffled out of Microsoft yesterday, with phones VP Jo Harlow joining former CEO and Microsoft devices VP Stephen Elop in the taxi queue. The traffic wasn’t all one way: Meego UX guy Peter Skillman has joined Microsoft from Nokia’s HERE division.
The moves are a result of a corporate reshuffle which has demoted the entire hardware business at Microsoft, subsuming it into the Windows fiefdom under Terry Myerson, so there were fewer chairs to sit on. It’s no surprise: Nadella had been saddled with an acquisition he didn’t really want and distanced himself from it from Day One. Nadella shed some 18,000 jobs, with the majority coming from the former Nokia unit.
Elop himself divides opinion, with some Finns blaming him for the demise of Europe’s biggest technology company and the former number one phone maker in the world. This really is a bit of chauvinistic nonsense, which seeks to transfer blame away from years of complacency and mismanagement at Nokia. What Elop’s critics forget is that he had an impossible choice in front of him when he arrived in late 2010.
Nokia’s demise differs from RIM/BlackBerry’s demise in one very important way. Apple’s iPhone, along with almost all devices on the market today, is a power-guzzling mobile computer which also makes phone calls. This doesn’t matter to people, as the value shifted to apps and services. Suddenly, everything the mobile industry had talked about for a decade was easy and accessible, and you didn’t need a manual. The consumer gave up a four-day battery life to enter this brave new world and so far seems pretty happy with it. RIM at first insisted that the practical nature of its assets – a great physical keyboard and efficient data usage – would mean the fad would pass. Then it kidded itself that it could make a leisurely transition at its own sweet pace.
Nokia was different, however, as it obsessed with the future and foresaw the eventual platform shift. In 2002 it began planning for it, by developing a computer which also made phone calls. It launched it ten years ago. Unlike RIM, Nokia saw the future and was ready for it... except it wasn’t. When the crunch came, it was too slow to execute. Corporate bureaucracy and infighting saw to that.
Nobody in the industry was interested in licensing Nokia’s modern, but still-to-be-finished Meego platform by then, and licensing was Nokia’s preferred ethical way of doing things. Google had given Android away for free, and Google wasn’t Nokia. There was no time to look the gift horse in the mouth; eager to get something iPhone-ish to sell punters clamouring for an iPhone-ish experience (which Symbian couldn’t offer), the industry rapidly swung behind Android.
So Elop’s choice was really to go with Android or risk going with the brand new Windows Phone platform. Going with Android may in theory have yielded more revenue, but look at where Android OEMs are today: Sony, HTC and even Samsung are all bleeding red ink. Some day soon, Google will reintroduce its Silver program and try and capture what value there is left in those brands. The Android option would also have been too much of a culture shock for Nokia. Think of Brian Clough at Leeds.
But by choosing to retain more independence than he would have under Android, Elop ran into two problems, as David Wood’s epic insider account of the smartphone wars reminds us, and armchair pundits forget. Windows Phone was very immature and lacked key features, while Nokia was left with a dead-end branch of the platform – leaving it effectively with nothing competitive to sell for almost two years. Only in early 2013 – two years after the Burning Platforms memo and the big switch – was Nokia able to start introducing a range of devices, from high-end flagship imaging phones to budget models.
Talking to dozens of former Nokians, I'm struck by how well-respected Elop was amongst his colleagues. Elop may have sometimes been predictable in interviews, for fear of moving the share price the wrong way. But Nokia’s presentations were a model of good, clear communication, and often full of playful little details people didn’t notice. Nokia made bold design choices that others, notably Apple, have copied. Elop chose the right technologies to promote, too, seeing the potential of the imaging team.
Windows Phone loyalists today haven’t seen a flagship for 18 months, but that’s a pragmatic decision too: the Zen-like consistency of the UI and meagre hardware requirements lend the platform to be a feature phone replacement. The Microsoft merger largely tied his hands: the board wouldn’t sanction expensive splurges on showy flagships like the Lumia 1020 that few people bought. And once in Nadella’s hands, the Nokia phones unit went from bold experiments to continually having to justify its existence.
Elop was actually a pretty good CEO – I’ve no doubt he will be again. ®