September greetings from Kansas Metropolis, Cedar Rapids, and Charlottesville the place we’re attending a household marriage ceremony (image is of the Rotunda on the College of Virginia). A terrific celebration with household and pals and congratulations to the brand new Mr. and Mrs.
There’s loads of information to cowl this week, and, after a quick market commentary, we are going to dive into two strategically essential occasions, First, as we began in final week’s interim Temporary (right here), we are going to full our evaluation of John Stankey’s wide-ranging interview at Goldman Sachs’ Communacopia convention (hyperlink right here). Then we are going to dive ino as a lot of final week’s T-Cellular Capital Markets Day as house will allow. For sure, we could have loads of materials for upcoming Briefs.
A giant thanks to Shiloh Vance at INDATEL for the terrific interview/ webinar since our final Temporary was printed; right here’s a hyperlink. And because of every of you who’ve supported and proceed to help CellSite Options.
The fortnight that was
“When you don’t like our climate, wait a minute” is the favored phrase first attributed to a January 1909 Subject and Stream article. The identical might be stated for Fab 5 market capitalizations. Within the final Temporary, we famous that the Fab 5 had misplaced near $600 billion over the 2 weeks ending September 6. Since then, they’ve gained $880+ billion with most of that coming earlier than the current Fed rate of interest lower. Complete market capitalizations are the place they have been at first of July, and, because the numbers present, the worst performing inventory of the group is up 16% (which in Microsoft’s case represents $440 billion in positive aspects). Barring a big change to market sentiment or some particular occasion, it’s extremely doubtless that they’ll develop $2-3 trillion in market capitalization this yr.
In the meantime, the Telco Prime 5 is experiencing a renaissance, holding on to $85 billion in year-to-date 2024 positive aspects. As we have now mentioned in earlier market commentaries, this represents a $108 billion in wi-fi/ telco positive aspects offset by $22 billion in cable communications firm losses. With dividends, every of the big wi-fi corporations are poised to return greater than 20% to shareholders in 2024. That trifecta has not occurred since 2017.
Apple had their iPhone 16 announcement, and we are going to publish our first have a look at backlogs later right this moment in a separate on-line Temporary submit. There are various good summaries obtainable on what has modified with the iPhone 16, however we discovered CNET’s to be essentially the most complete (hyperlink right here). The picture comparisons in that article additionally present how far Google’s Pixel 9 has are available in digicam high quality, notably with out of doors and low-light environments.
T-Cellular has already indicated that their iPhone 16 gross sales volumes are forward of 2023 iPhone gross sales; their backlogs, nevertheless, are about the identical as final yr. Our take is that will probably be a promotions-driven cycle (versus an AI-driven cycle): a great however not nice displaying for Cupertino.
All shouldn’t be roses for Apple, nevertheless, with the European Fee ordering Apple to pay Eire $14 billion in again taxes. Satirically, Eire was really defending Apple within the case. Per this BBC article:
“The unique resolution coated the interval from 1991 to 2014, and associated to the best way wherein income generated by two Apple subsidiaries primarily based in Eire have been handled for tax functions. These tax preparations have been deemed to be unlawful as a result of different corporations weren’t in a position to get hold of the identical benefits. That ruling got here at a time when the Fee was making an attempt to clamp down on multinational giants it believed have been utilizing inventive monetary preparations to cut back their tax payments. It was overturned by the decrease court docket of the ECJ in 2020 following an attraction by Eire. Nonetheless, that verdict has now been put aside by the upper court docket, which stated it contained authorized errors.”
Eire is Apple’s HQ for Europe, the Center East, and Africa, and the advantages of internet hosting the world’s most dear electronics firm is critical. What they’ll do with the windfall is anybody’s guess, and whether or not the $14 billion Apple paid to the US (as a substitute of Eire) is topic to a refund is anybody’s guess. As reference, the Emerald Isle collected 24 billion Euros (roughly $27 billion) in complete company taxes in 2022 (extra information right here).
If that isn’t sufficient of a headscratcher, we awoke Friday to the information that Constellation Power is being paid $1.6 billion by Microsoft to reactivate Unit 1 of the Three Mile Island nuclear facility in central Pennsylvania (Unit 1 was not impacted by the 1979 catastrophe and Unit 2 will proceed to be decommissioned on schedule). Because the information launch linked above signifies, the Redmond-based firm shall be buying all the vitality produced by the plant for the subsequent twenty years. The precise worth of the unique buy of vitality from a facility able to producing 837 megawatts of electrical energy for twenty years shouldn’t be identified, however its impression to central Pennsylvania goes to be significant. We anticipate this to spawn further modern vitality preparations from Microsoft and their friends.
Power sourcing goes to be a particularly essential a part of crucial infrastructure improvement over the subsequent decade. Additionally, creating extra vitality environment friendly buildings (notably the place the grid is challenged) goes to be required. NB: it’s one of many largest challenges being tackled by the group at CellSite Options.
John Stankey goes natural at Communicopia
There have been many terrific audio system on the Goldman Sachs Communacopia + Know-how convention held on September 9-12. We listened to a number of, however thought that AT&T CEO John Stankey (hyperlink right here) had the best insights. He begins with the premise that extra computing energy (pushed by AI) goes to generate extra bandwidth necessities, and that to facilitate that demand, a fiber spine is required.
John then goes on to speak about why their fiber + wi-fi product (which he admits goes via a change) has higher long-term prospects than that provided by cable rivals (see the interim Temporary hyperlink right here for the complete quote). There’s lots to debate in his assertion that house doesn’t afford on this Temporary version, however we imagine that there’s a lot of room for each cable and AT&T (and T-Cellular and Verizon) to accumulate prospects in areas the place AT&T is the incumbent wi-fi and wired infrastructure supplier. Having an awesome wi-fi backup helps, however so does having engaging costs and a worth proposition that encourages trial of functions and content material.
Probably the most intriguing assertion made by Stankey, nevertheless, are his feedback about capital and steadiness sheet investments:
“…we could run at a little bit of an accelerated greater than perhaps conventional ranges of capital funding within the enterprise. It’s come down from peak and it’ll proceed to drop down. We could run just a little bit greater than the place we’ve historically been as a result of it’s largely natural. And we’re centered on natural play versus inorganic work exterior that form of is available in huge chunks. The place you go whenever you name on the steadiness sheet all at one time and then you definitely’re working via three or 5 years of transition. So I really feel actually good about the place we’re in that. I’ve by no means been on this enterprise the place I’ve seen as a lot natural alternative in entrance of us to run the enterprise higher. I like that as a result of doing issues organically, you don’t must go and present up at a regulator and also you don’t have to string the needle on authorized points, and also you don’t have to point out up in 25 states to get approval to do one thing and everybody desires to gather their toll whenever you present up and each particular curiosity desires to have their again scratched round one thing.
The administration group is concentrated on executing what we have now in entrance of us and what we’ve persistently had because the place for the final 4 years, and we’re getting higher and higher and higher at doing it, and that’s what we have to do. And I feel we’re arrange very properly to do this. And I feel we’re going to have a great equation of capital allocation shifting ahead.”
In addition to the apparent dig at Verizon’s acquisition of Frontier (which mirrors quite a lot of the issues we have now in regards to the transaction – see the final full Temporary right here for extra), Stankey’s assertion units the stage for extra fiber spending (perhaps with BEAD cash, however we don’t learn any type of dependencies into his assertion), and subsequently greater capital ranges than their friends.
This spending is pushed by elevated confidence of upper penetration of wi-fi + wireline in these beforehand marginal areas. It additionally accelerates further infrastructure investments due to improved broadband. In contrast to earlier cycles, fiber could precede asphalt or concrete (and in a number of circumstances even sturdy wi-fi) infrastructure tasks. That’s a giant change.
How AT&T explains the scale, pace, and funding projections of their subsequent construct (after the 30 million houses milestone) goes to be essential. We’re not satisfied that they’ll obtain a sensible share in lots of markets with out buying current fiber suppliers in these markets or having significant regulatory reform (e.g., the resumption of the Reasonably priced Connectivity Program) – prices have risen, and the mileage necessities for fiber haven’t decreased.
Backside line: AT&T continues to plow forward with their fiber-first technique. Their subsequent act will decide whether or not they can maintain and develop their market affect.
T-Cellular Capital Markets Day—what it takes to be a champion
Final Wednesday, T-Cellular hosted an investor day on their Bellevue campus. The theme of the day was “From Challenger to Champion” and the corporate outlined their plan to vary to an modern chief. Close by are the pillars they plan to make use of to ship their champion technique.
As acknowledged close by, T-Cellular’s best inhibitor to successful the champion’s crown is their potential to persistently execute new improvements. For instance: a digital future the place almost all upgrades and most inbound service name causes are dealt with with minimal/ no buyer interplay. The diploma of knowledge know-how investments wanted to realize these objectives is critical. It requires rethinking every step within the course of. If a buyer wants to change gadgets due to a customer-induced defect (e.g., a multi-story dropped smartphone), and subsequently can’t entry any of the telephone’s info, how can/ ought to the service restoration course of happen (assuming the shopper can’t entry any of the data such because the IMEI on the gadget)? As T-Cellular rethinks their digital technique, dozens of processes might both be mixed or eradicated. Sequencing and execution shall be critically essential.
Whereas that’s their largest concern, we appreciated their dialogue with Nvidia about extra capability. Right here’s the assertion made by Jensen Huang, their CEO:
“So when — however when someone doesn’t want it, that infrastructure is sitting there and it might be re-utilized. And so after we made a software program outlined, made it accelerated, made it in a position to run AI processing. We now flip that total community into extra capability whenever you want it for extra alternatives. And so that is going to be an awesome new progress alternative for the telecommunications trade.”
This caught our ear given our wholesale background. Historically, wi-fi community suppliers solely wholesale particular outputs like minutes, textual content messages, and knowledge packets. What Jensen was talking about, nevertheless, is definitely wholesaling the computing platform for both MVNOs or different industries. Given the “service grade” of most wi-fi networks, we thought that was an intriguing idea (so did Walt Piecyk from Lightshed Companions, who requested a selected query to T-Cellular CEO Mike Sievert in regards to the remark throughout the Q&A session. We discovered Mike’s reply to be much less enthusiastic than Jensen’s remark above). To be a champion, T-Cellular might want to prioritize a big array of functions and use circumstances that drive income and improve buyer satisfaction.
Lastly, T-Cellular launched T-Precedence for presidency prospects (announcement right here). We like the concept and imagine that it might (and may) be prolonged to different functions, even when it implies that they should struggle the notion that business precedence equates to paid prioritization. We’ll go into this in higher element in a post-earnings temporary, however T-Cellular must have equal footing throughout the FCC and state PUCs with each Verizon and AT&T if they’re to assert the championship mantel.
Backside line: T-Cellular’s string of bulletins positioned the corporate in a “future-focused” class. To develop into an trade influencer, nevertheless, they’ll want to have the ability to execute the place there isn’t any precedent playbook, aggressively allow others to make use of extra capability when obtainable, and set up a fame with authorities our bodies that they’re know-how leaders who can set up precedence lanes whereas rising general scale. This can be a tall order for any know-how firm, however particularly one who serves all segments.
That’s it for this week. Search for the primary Apple iPhone 16 availability charts tonight, and within the subsequent Temporary, we are going to pose ten questions for third quarter earnings. Till then, in case you have pals who want to be on the e-mail distribution, please have them ship an e-mail to [email protected] and we are going to embody them on the checklist (or they’ll join immediately via the web site).
Lastly – go Sporting KC, Kansas Metropolis Chiefs and Kansas Metropolis Royals!