Ralph De La Vega

The downside of AT&T's iPhone 3G subsidies

Sue Marek — Thu, 23 Oct 2008 10:20:13 -0400

When AT&T made the decision earlier this year to subsidize the iPhone 3G and get the price down to a figure that would generate mass market appeal, Ralph de la Vega, AT&T Mobility's CEO, said that he expected a short-term hit to the company's margins. But de la Vega and the folks at AT&T didn't anticipate selling 2.4 million iPhone 3G devices during the third-quarter. That overwhelming sales figure boosted the company's net adds to 2 million, but caused its overall operating margins to fall to 33.8 percent down from 35.3 percent a year ago. AT&T said it spent $900 million in customer-acquisition costs related to the iPhone.

Investors never like to see a margin decline nor do they like to see customer acquisition costs rise. But that is the reality of AT&T's decision to subsidize the iPhone 3G. Nevertheless, the company remains confident that this margin hit is only short-term and will pay off in the form of better, higher paying customers. In yesterday's earnings call with investors, de la Vega said that the iPhone 3G customers generate better-than-average revenue per user--about 1.6 times that of the average for its postpaid base, or about $95 per month.

He also said that AT&T continues to attract new customers to its network because of the iPhone--an astonishing 40 percent of the iPhone 3G activations are from customers that are new to AT&T. That figure has to be causing some consternation among AT&T competitors and I have to wonder if we will see an increase in third quarter churn rates among some of the other operators as their customers defected to AT&T for the iPhone 3G.

It will be interesting to see how long it takes AT&T to recoup its iPhone 3G acquisition costs. Ultimately that will determine the success of AT&T's subsidy strategy.

By the way, AT&T's Ralph de la Vega was one of the the top 5 picks in our 25 Most Powerful People in Wireless list that we revealed last week. I'd like to thank all the readers who sent me their comments, criticisms and praise of our list. Many of you said that you were disappointed that our list was so U.S. centric. I apologize for not making it clear when we launched the list that we were looking at it from a U.S. angle--since that is the wireless market that we follow most closely.

We are in the midst of preparing our next feature--the Top Wireless Innovators of All Time. These are the folks who made the wireless industry what it is today. If you have any suggestions, send me a note and tell me why you think this person should be considered a top wireless innovator. -Sue

AT&T sells 2.4M iPhone 3Gs in 3Q, but margins suffer

Sue Marek — Wed, 22 Oct 2008 11:43:55 -0400

AT&T's debut of the iPhone 3G in July was a huge hit with consumers and big boost for AT&T in terms of subscribers, but the subsidies on the iPhone 3G wreaked some havoc on company's margins. The company said today that it sold 2.4 million iPhone 3G devices in the third quarter, and its total net adds were 2 million, bringing AT&T's total wireless customer base to 74.9 million. However, iPhone 3G subsidies reduced pretax third-quarter earnings by $900 million or 10 cents per share. AT&T's wireless operating income margin was 22.8 percent vs. 26.4 percent in the year-earlier quarter. AT&T wireless revenues were up 15.4 percent to $12.6 billion and wireless service revenues were $11.3 billion.

During this morning's call with investors Ralph de la Vega, CEO of AT&T Mobility and consumer market, said that the iPhone 3G will provide substantial long-term value for the company and said that already it has caused same-store traffic to increase, and contributed to strong data revenue growth. Here's breakdown of the third-quarter metrics:

Subscriber growth: Total wireless subscribers increased 2 million, with retail postpaid subscribers increased 1.7 million, which is the largest quarterly postpaid subscriber increase in company history. The company sold 2.4 million iPhone 3G devices and 40 percent of those activations were for customers that are new to AT&t.

Churn: Churn was 1.7 percent--the same as the year-earlier quarter. Postpaid churn was 1.2 percent, down from 1.3 percent in third quarter 2007.

ARPU: Average revenue per user was $58.99, up 2.6 percent vs. third quarter 2007.

Data: Data revenue increased 50.5 percent over the previous year for a total revenue of $2.7 billion. MMS volumes were more than double third quarter 2007 volumes. AT&T's UMTS/HSPA network is in 324 cities and will expand to 350 by year-end.

Devices: About 22 percent of AT&T postpaid wireless customers have an integrated device, up from 10.5 percent a year ago. About 17 million AT&T customers have 3G devices. Nearly 5.9 million customers use 3G LaptopConnect cards and broadband-speed integrated devices with a Qwerty or touchscreen keyboard.

For more:
- see this press release

Related articles:
AT&T adds 1.3M subs; wireless data revenue surges
AT&T will subsidize 3G iPhone

3. Ralph de la Vega, CEO, AT&T Mobility and Consumer Market

Sue Marek — Fri, 17 Oct 2008 11:28:29 -0400

What makes him powerful: Although former AT&T Mobility CEO Stan Sigman is credited with negotiating the exclusive Apple iPhone deal last year, Ralph de la Vega is the executive who made the iPhone a mass market consumer device.

By offering the next-generation iPhone 3G at a consumer-friendly price of $199 with a two-year contract, de la Vega made the iPhone affordable for everyone. Of course, de la Vega accomplished this by having AT&T subsidize the iPhone 3G, a risky move for the carrier because it's likely the subsidy will negatively impact the company's earnings in the short-term (2008 and 2009).

But de la Vega has been adamant in his belief that the long-term rewards for this strategy will pay off. He expects AT&T to experience a significant uptick in data usage and reduction in churn. And it's likely that the carrier is also stealing lots of customers from its competitors. That trend, if true, will soon be apparent when the third-quarter wireless operator earnings results are revealed in the next couple of weeks.

AT&T is making up for some the costs of subsidizing the iPhone 3G by charging consumers a higher monthly fee for unlimited data usage. New iPhone 3G customers are paying about $30 per month for unlimited data. Of course, they will also reap the benefits of faster data because they will be using AT&T's HSPA 3G data service instead of the slower EDGE service.

Although there have been reports of performance issues with some iPhone 3G devices, AT&T has been steadfast is saying that its HSPA network is performing fine. And consumers don't seem overly concerned because the devices have been flying off the shelves. Just three days after it was introduced in July, Apple reported that it had sold 3 million iPhone 3G devices.

A long-time telecom executive, de la Vega has been praised for his management skills and his ability to navigate tough situations. He is credited for overseeing the successful merging of Cingular Wireless with the former AT&T Wireless when the two companies combined in 2004. Through his leadership, the company was able to change all the former AT&T stores into Cingular stores overnight.

Earlier this month, de la Vega was promoted to his current role, which has him overseeing not just AT&T Mobility but also heading up all consumer marketing, sales, content and converged services, customer care and operations for both wireless and wired. Expect to see de la Vega's shrewd iPhone moves translate to similar strategies in other areas of the company.

AT&T combines Mobility with landline, Internet and TV

Phil Goldstein — Tue, 30 Sep 2008 16:59:10 -0400

AT&T announced it was reorganizing into four distinct divisions--consumer, infrastructure, business and diversified business--and said Ralph de la Vega, currently the CEO of AT&T Mobility would be heading up all consumer activities, The Wall Street Journal reported.

According to the report, de la Vega will retain his post as head of the company's wireless operations, but that the wireless unit would be put under a division that included landline phones, Internet and TV services.

The move mirrors Verizon's attempts to more fully integrate wireless, landline phones, TV and Internet service.

For more:
- see this article (sub. req.)

Related Articles:
AT&T's new mobile TV service: a me-too offering
AT&T rides wireless to 22% bump in Q1 profits

AT&T will subsidize 3G iPhone

Sue Marek — Tue, 10 Jun 2008 08:54:56 -0400

AT&T confirmed it will subsidize Apple's 3G iPhone to customers who sign a two-year contract for the phone. AT&T CEO Ralph de la Vega told the WSJ that the company believes the $199 price point is necessary to drive mass market adoption. While he admits that the subsidy will negatively impact the company's earnings in the short term (2008 and 2009), he believes the long-term rewards will make up for the initial hit. Specifically, he expects the operator to see a significant uptick in data usage and a reduction in churn. Some analysts estimate that AT&T will be paying as much as $499 per iPhone. The company plans to make up for some of that cost by charging consumers a higher monthly fee for the unlimited data plan. AT&T currently charges $20 per month but with the new iPhone it will charge $30 per month. Of course, the new 3G iPhone users will get the advantage of faster data because they will be using AT&T's HSPA 3G data service instead of the slower EDGE service.

- Don't forget to check out our photo slideshow...

Here's a rundown of other iPhone details:

iPhone launch: It will make its commercial debut July 11 in 22 countries. The 8 GB 3G iPhone will be priced at $199, the 16 GB device will cost $299. The new device will come with GPS, iPhone 2.0 software and WiFi. It also sports a battery life of 5 hours of 3G talk time and 300 hours of standby time.

iPhone metrics: Apple CEO Steve Jobs told attendees at yesterday's Worldwide Developers Conference that Apple sold 6 million iPhones in the first year and that the company ran out of the current generation of devices several weeks ago. The device has 90 percent customer satisfaction. In addition, 98 percent of users are browsing online, 94 percent are using email and 90 percent are texting. Approximately 80 percent are using 10 or more of the phone's features.

Special features: The 3G iPhone enables simultaneous voice and data communications and features a wealth of enterprise applications, including support for Microsoft Exchange ActiveSync for over-the-air push email, contact and calendar syncing, not to mention remote wipe and Cisco IPsec VPN for encrypted access to corporate networks.

MobileMe: Apple introduced MobileMe, a new Internet service delivering push email, push contacts and push calendars to native iPhone, iPod touch, Mac and PC applications. MobileMe also provides a suite of ad-free web applications promising a desktop-quality experience through any modern browser--applications include Gallery for viewing and sharing photos and iDisk for storing and exchanging documents online. MobileMe includes 20 GB of online storage that can be used for email, contacts, calendar, photos, movies and documents. The subscription-based service costs $99 per year for individuals and $149 annually for a Family Pack, which includes one master account with 20 GB of storage and four Family Member accounts with 5 GB of storage each.

For more on the iPhone 3G:
- click here to see our slideshow
- read this release
- read this WSJ story

Related articles:
Apple's 3G iPhone arrives
Developers ready for the 3G iPhone
Samsung tries to steal iPhone's thunder

AT&T's HSUPA deployment is nearly complete

Sue Marek — Wed, 21 May 2008 11:07:07 -0400

With just six more markets to go, AT&T is nearing the finish line for its HSUPA network deployment. The operator expects to have its HSUPA deployment finished by next month, making it the only U.S. operator to have a fully deployed HSPA network. AT&T says that the technology will give subscribers uplink speeds between 500 Kbps and 800 Kbps. Download speeds are in the 1.4 Mbps range.

The timing of AT&T's HSUPA network completion is key because June is when the 3G iPhone is expected to make its debut, giving iPhone users access to much faster network speeds than the current iPhone, which uses AT&T's Edge data network. AT&T Mobility CEO Ralph de la Vega said recently that AT&T will have a time-to-market advantage over WiMAX with its HSUPA technology because HSUPA Release 7 will give the company 7 Mbps to 20 Mbps data speeds within the next two years.

For more:
- see this press release

Related stories:
AT&T: HSPA will provide 20 Mbps data speeds. See this story on AT&T's HSPA plans.
AT&T CTO HSDPA progressing, HSUPA in test phase. See this story on AT&T's HSPA deployment.

AT&T: HSPA will provide 20 Mbps data speeds

Sue Marek — Wed, 14 May 2008 10:42:15 -0400

During a presentation this morning at Morgan Stanley's 13th Annual Communications Conference in Washington, D.C, AT&T Mobility CEO Ralph de la Vega said that he believes AT&T has a time-to-market advantage over WiMAX with its HSPA technology. De la Vega said that HSPA Release 7 will give the company 7 Mbps to 20 Mbps data speeds within the next two years and the company will only have to deploy a software upgrade. "When people talk about future technologies like WiMAX, they don't realize it doesn't do any good to just have it in the network. They have to have devices, coverage and the entire ecosystem," he said. "We have the best broadband network with the best throughput today. And it will get better in the short term." Of course, the company does plan to migrate to LTE technology in 2010, bringing data speeds of up to 100 Mbps.

De la Vega also touted the company's exclusive deal with RIM to distribute its new Blackberry Bold device, which he believes that along with the Apple iPhone and other advanced devices will help increase the number of postpaid subscribers using integrated devices on the AT&T network. Currently 16 percent of postpaid subscribers on AT&T have integrated devices but de la Vega said this figure will grow substantially in the year ahead. "We have seen that when you give integrated devices to customers, the ARPU is double what you get with an average phone," he said. "If you make the devices easier to use and more intuitive to the user, you will see the usage go up."

For more:
- see the replay of de la Vega's presentation here.

Related stories:
AT&T to launch 3G BlackBerry Bold. See this Blackberry Bold story
AT&T extends 3G deployments, backs LTE for 4G. See this AT&T LTE story