MetroPCS' Keys discusses iPhone economics, VoLTE marketing and more
with MetroPCS COO Tom Keys
Flat-rate carrier MetroPCS (NYSE:PCS) recently threw down the 4G gauntlet by adding a new, promotional $55 unlimited LTE rate plan and introducing another LTE smartphone, the LG Motion 4G, that retails for $149 without a contract. FierceWireless Editor Phil Goldstein recently spoke with MetroPCS COO Tom Keys about the company's push to launch Voice over LTE and Rich Communication Services, the refarming of its spectrum and the economics of selling the iPhone.
FierceWireless: What will the addition of more LTE smartphones in the $99-$149 range do for LTE adoption?
Tom Keys: It's a two-fold question. First is probably the bigger umbrella of the company and the brand. I think it brings us what I call relevance again. I think we got a little quiet in the second and third quarters here on purpose, and again we had to wait until we were ready for the third wave [MetroPCS' "LTE For All" marketing]. So now with the adoption of 4G LTE I think we have an opportunity to, out of every 10 handsets that get sold, we could see a 50/50 split from people who upgrade to people who are new. So the upgrade phenomenon will help move the network over, giving us refarming opportunity and we will have more capacity there. The new customer comes to us, and that's the guy who comes in and says, "Wow, it is what I thought it was. It was advertised as such and is that." And that new customer has an ability to bring more people in.
We've modeled it from a capacity standpoint on the network. We think we know what we want to sell in terms of the next six months, if you will, of how many handsets we'll go through from an inventory requirement into the first quarter [of 2013]. But we really haven't gone public and said, "We think when this thing has five or six months of legs we'll be at X [LTE penetration]." Because we're not going to win that. If we make it and we hit it, great, if we miss we're failures. So internal models are all about capacity first. But there's got to be a financial model that says any impact to Capex in the network, anything we need to city by city, we think we'll get there, and we're always layering in more backhaul. Because backhaul is really important now--you have to have your pipes big enough so you don't suffocate the network and people can't get through.
FierceWireless: How will MetroPCS market VoLTE to consumers?
Tom Keys: VoLTE won't get marketed. VoLTE is a technological innovation that we've put out there ... To the consumer it's pretty much a non-event.
FierceWireless: One of the things you did talk about that will be more consumer-facing is RCS. What specific kinds of Rich Communication Services will MetroPCS be deploying and how will those offerings evolve?
Tom Keys: I'll take the latter part of that first. We think we know what's going to happen with the offering, meaning phonebook integration, presence, location information, and then simultaneous activity, voice and data at the same time. The acceptance of that, we hope will underscope this, meaning, as we've seen certain things on certain handsets, as we've seen on the new Samsung device [the Galaxy S III], beaming and touching and moving data over effortlessly. We think all of those experiences become part of a social networking aspect with wireless and mobile, that, once it works and people know about it they tell everybody, it becomes sort of the norm for what the expectations are. I think RCS in general will create a higher level of expectation. But I don't think we truly know yet the level of adoption and how well everybody's going to take to it. The basic deal is it's going to be something that comes with your LTE device. It comes with your LTE service. And is there an opportunity to put out a subset of products that may be upscaled in price? Potentially. But we haven't really gotten there. We're working on getting the infrastructure and the technology right. We'll probably have to test a couple of thing inside of it. It might be a bundle of RCS services for a small add-on fee—or not. That hasn't been determined yet. But we think it is an opportunity to make the airtime valuable for customers because they're going to get an enhanced experience.
FierceWireless: What's your perspective on the concept of toll-free data plans?
Tom Keys: Aspirationally, it's wonderful, meaning as a carrier I would love to have part of the freight covered by somebody else. I think other carriers probably have a leading edge on this because of their scale. I'm probably a fast-follower if that works and I'd probably ride somebody else's coattails there. But if you're asking me about the concept of having an offload strategy vis-à-vis relationships that are advertising-based, yeah, it makes all the sense in the world. It's an interesting model. But I think it's going to take some time to evolve because as you build the frameworks around that, this is a zero-sum game. If you're just shifting part of the financial burden over to somebody else, they have to get something in return. And if any of the models are wrong it opens up a part of the corner of the box, and that's called leakage. And that usually destroys an innovation if it's not modeled right. So it's interesting. We'll have to see if it will take hold. We'll probably be a fast-follower there instead of the innovator.
FierceWireless: At what point will moving to VoLTE allow MetroPCS to refarm its existing spectrum holdings?
Tom Keys: It will be market-by-market. Getting that channel open in a market and going from a 3X3 to a 5X5 to a 10X10 [MHz configuration] is certainly exciting. But there's got to be a proliferation of LTE devices, because a higher concentration of your network traffic has to migrate off and migrate on. And once you've got those numbers done you could see a market go first and realize that you've now just moved and put in an LTE carrier, and you've moved off either a CDMA or a 1X carrier. So market-by-market. But as Tony [Lau] said, we go into next year and three-quarters of the handsets are LTE, it starts to rapidly go as part of the migration of the base, and upgrading the base over is a big important feature.
FierceWireless: So you see this as something that can happen next year?
Tom Keys: I would love to see a market get there by the middle of 2013 or the latter part of 2013 and have an opportunity to say we've refarmed our first set of carriers in this market and here's how it went.
FierceWireless: Would MetroPCS consider revisiting a merger with Leap Wireless? What is the company's broader view on industry consolidation?
Tom Keys: I can't answer specifics about a company. Just as an officer of the company I can't got there. However, I would say that we made the attempt in 2007 [to merge with Leap] and we thought it was good then. Right now it's probably a function of sequence. Would we would be better off having nationwide spectrum, and then considering something like that? I suspect that sequence would be better than still needing spectrum, but needing spectrum in more places. So that's how we view that today.
On the big, broad brush-stroke question of consolidation, I don't think our company has a view per se. We're made up of individuals and we all kind of look at the world and go, "Wow, what would happen?" But there's one factor that's out there. You have about 105, 106 percent [wireless] penetration rate today. And everybody needs spectrum. So it's probably a place for consolidation. It would probably be a better time to do it now than any other time you can think of in the recent past. Now, how, who, why, where and what--that's going to be up for debate. But at the end of the day, I think what you've seen with the AT&T/T-Mobile deal is that there's at least two companies that thought that consolidation was a good thing. So if you take that as a precursor, yes--[but] under the desire that we always a provide a good experience for the consumer and the consumer doesn't get harmed by having artificially higher rates because you have one less competitor.
FierceWireless: What is MetroPCS' view on using LTE to enable M2M and embedded wireless?
Tom Keys: I love the technology use of it, but we're not there at the moment. That's not a focus for us right now. I go to my old pager days and telemetry and machine-to-machine on early paging technology was interesting and is still out there to some degree. But we're really after the customer who pays their own bill. That's our marketplace.
FierceWireless: What does MetroPCS think of the prepaid MVNOs that are coming out like Ting, FreedomPop Republic Wireless? Are they competitive challengers to MetroPCS?
Tom Keys: Do the names Helio, Disney and ESPN ring a bell? I could tell you about my personal view of MVNOs. They don't own the network, they don't have owner's economics. And the history that we've seen play out is that most of them have a short life, depending upon their size and scale.
FierceWireless: What's your view on Windows Phone 8?
Tom Keys: Windows Phone 8 we think has a place in the portfolio. We're actually working with a manufacturer right now on bringing Windows Phone 8 to marketplace. We think we want to offer it. Similar to what Apple did--you have the iMac at the house, you have the iBook for the office, you have the iPad for the couch and you have your iPhone. If you own the home screen, now with multiple devices, they have a very good opportunity for calendars and sharing content, and this looks like it's Microsoft's opportunity to go there. Secondarily, I think Nokia is going to be the bellwether there for how well it does since they've made a large bet on Windows Phone 8. So at the end of the day, we think it's interesting and competition among operating systems is good for the ecosystem.
FierceWireless: Would MetroPCS consider the iPhone if the economics were right?
Tom Keys: An LTE version of an iPhone would always interest MetroPCS. Since we've never had the technology match up together because it's not AWS-compatible, we've never gone down the steps, because if you can't get your technology together you've probably not negotiated it. We are mindful of the handset roadmap that we have and the commitments that we have--not by quantity commitments but by commitments to future handsets and roadmaps. It would be harmful to MetroPCS to have to cut out part of our handset portfolio to accommodate one phone from one provider that the economics could be at risk. Meaning, it's so high-priced that we couldn't sell that volume. We think we can sell volumes of higher-priced phones, but smaller. A large commitment could be detrimental to the entire handset lineup.