The Sunday Brief: Three up and comers (Nov. 2020 edition)
Thanksgiving greetings from the Lake Norman, NC, home to the annual Hospice Regatta. As we get ready to trek across the country for the Thanksgiving holiday, we count our blessings of family, friends and health, and hope that each of you stay safe during the week.
This week, we will highlight some additional “Up and Comers,” defined as privately held telecommunications and technology companies who have received $50 million or more in their latest fundraising round. We will also look at comments made this week by T-Mobile and AT&T. Finally, we will check in on the backlog state of the iPhone 12 Pro and iPhone 12 Pro Max.
Please note that the Brief will be taking a break next week but will post a few articles/ podcasts/ video interviews we think are worth (re)reading over the Thanksgiving holiday (including this CNBC interview with John Malone). Nominations are welcome.
The week that was
This was a relatively quiet week for the telecommunications and technology sectors. The Fab 5 had moderate losses, led by Microsoft (down $47 billion in capitalization this week), but are still well on track to gain more than $2 trillion in market capitalization for the year. As we mentioned last week, it’s hard to cry for this group when the worst performing stock (Alphabet, parent company of Google) is up 30%.
The Telco Top 5 also had a very stable week, with losses in AT&T (-$5 billion) and Verizon (-$4 billion) offset by gains in (new Berkshire Hathaway holding) T-Mobile (+$1 billion) and Charter (+$2 billion). Comcast spent part of the week above $50/ share, something that would have been unthinkable six months ago. Overall, the Telco Top 5 are enjoying a renaissance, up $44 billion for the year after spending most of 2020 at or under water.
The biggest news in the telecommunications space was the retirement announcement of AT&T CFO John Stephens. Pascal Desroches, the current finance lead of WarnerMedia, will take the CFO helm next March. We wish John well in his retirement and look forward to seeing how the new CFO influences AT&T’s direction.
John had a terrific interview with Simon Flannery at the Morgan Stanley (virtual) Telecommunications, Media and Technology conference last week (transcript here; note – there are still some final edits needed). One of the more interesting responses (on the back of last week’s Brief which focused on Verizon’s network deployment) was concerning millimeter wave. Responding to Simon’s question on the topic, Stephens responded:
“… the reality of it is, is with COVID and with the shift to work from home, what we’ve seen is a dramatic shift in volumes into the suburban and into the rural areas, where our extensive, quite frankly, low-band spectrum holdings and our extensive towers and fiber footprint has really served us well and served our customers well. So we believe millimeter wave, as you know, we have a significant amount of millimeter wave holdings from the last auction as well as from our FiberTower acquisition. But with that, we believe it’s only part of an integrated solution and feel really good about where we’re at with regard to the process.”
From this statement, it appears that Verizon is the lone provider aggressively deploying outdoor millimeter wave broadly within metro areas (Neville Ray’s comments are covered below). AT&T’s focus on suburban and rural upgrades could also be a reflection of the completion of FirstNet deployments, and perhaps a sign that T-Mobile’s 600 MHz network deployments (1.4 million square miles deployed with low-band 5G, starting to accumulate meaningful market share within 18-24 months of launch) are also creating additional competitive pressures.
John also announced that the ad-supported version of HBO Max would not be released until “later in 2021” which dashed hopes of a Disney+ sized base by the end of next year (in last week’s Brief, we discussed how their 73+ million base will be the platform for many new content ventures). He was consistent in every other theme, however, emphasizing cost reductions (particularly in business wireline), capital reductions, (small) asset sales and dividend preservation.
Meanwhile, T-Mobile Technology President Neville Ray had two appearances this week, one as a solo interview at the BCG and New Street Conference and the other with Morgan Stanley. There are many elements of T-Mobile which deserve discussion (the most important being that the T-Vision product now includes the T-Vibe channels. More in their announcement here). Neville raised some eyebrows in his comments at the BCG/ New Street conference when he made the following comment about millimeter wave 5G (full interview here):
“There is a lot of promise in that Verizon advertising, about a breadth of 5G experience in this Ultra Wideband thing. But quite frankly, customers are just not finding and not seeing. And so I think they are really over their skis, right, promising a 5G experience, which, quite frankly, for the vast, vast majority of their customers does not exist in the U.S. today.
And at T-Mobile, we are not going to do that. We have never done that in our past. We have been edgy on our advertising. But I think Verizon is in a difficult position, and I think it will come back to haunt them as their customers buy into iPhones and other 5G products now, and they see and open that box and get the experience behind it and can’t find Ultra Wideband in most geographies and areas, even where it is advertised.”
He goes on to distinguish T-Mobile’s strategy from AT&T as well (their strategies are “in disarray”). Not quite the “dumb and dumber” comments from his former colleague John Legere, but Neville is taking the offensive with the Wall Street community.
Apple iPhone 12 Pro – backlog is building
Are 5G network deployments really translating into upgrades? We continue our look at the iPhone 12 Pro backlog using the carriers’ websites. The short answer is “yes.”
There are 36 possible memory/ color/ carrier combinations described above, and 17 of them are backlogged more than four weeks. More than four weeks have passed since launch, and there are few new promotions on the iPhone 12 Pro model in the Black Friday specials. This is starting to resemble the backlogs we saw with the iPhone X more so then the XS/ XS Max or the iPhone 11.
Also, we saw more constrained colors and sizes at T-Mobile and AT&T with greater availability at Verizon. That has changed – Gold and Blue are constrained across the board, with Verizon enjoying a greater selection of Silver and Graphite than AT&T.
But there’s more… a backlog for the high-end iPhone 12 Max Pro. We teased the idea that there might be a backlog emerging, and our hunches were correct.
It’s important to emphasize that the iPhone 12 Pro Max inventory will really start to solidify next weekend (Black Friday) – it really takes a full week of in-store sales to understand supply constraints. But, judging from inventory levels observed last weekend (when preorders first started), it appears that demand at T-Mobile has changed the most. This could be a consequence of the Sprint upgrade cycle, or it could be increased demand from Verizon and AT&T switchers.
Bottom line: The iPhone 12 Pro continues to sell extremely well, especially for AT&T and T-Mobile. Verizon is seeing more backlog balance with the iPhone Pro Max. Assuming supplies are being proportionately distributed, AT&T and T-Mobile appear to be the launch winners.
Three up and comers (Nov 2020 edition)
There was a lot of competition for the U&C Fall 2020 edition as many investments were completed during the COVID-19 crisis. Before going into the three companies selected, a few updates on past winners:
- Starry Wireless had a major equipment upgrade as well as a groundbreaking partnership agreement with Microsoft’s Airband Initiative and the city of Los Angeles. Starry has clearly turned their immediate focus to serving low-income housing needs. How this will translate into an increased valuation remains to be seen.
- Helium Network continues to grow globally. This Forbes article outlines how they plan on continuing to be a disruptive force. Per their website, The Helium Network now encompasses over 20,000 devices across 2,000 markets. Helium is definitely the dark horse of IoT.
- Augury closed an additional $55 million funding round in October 2020, bringing the total amount raised to $106 million. This news release provides an update on the company’s progress. For those of you who think deeply about the role sound patterns can play in detecting equipment anomalies, this is a company worth a detailed look.
- Ligado (L-Band spectrum)has made a lot of headlines since we first featured them last June, receiving unanimous approval for deployment plans from the FCC and also 3GPP (telecom standards body) approval of their submissions over the summer. Based on this, they managed to raise just over $3.8 billion in new funding to launch their network. If this Wall Street Journal article is accurate, about half of the money raised went to pay off $2 billion in loans maturing in December 2020. The company also benefitted from $8 billion in junior loan conversions to common stock.
There are many more updates of the nine companies we have featured thus far, but for space reasons, we’ll have to save those for future Briefs. The November 2020 Up and Comers class are:
Dialpad ($100 million Series E round at $1.2 billion valuation). Cloud-based communications services sounds like yesterday’s news, until you consider Dialpad. Craig Walker, the company’s founder, sold the company to Yahoo for $50 million in 2005 only to buy it back a few years later at a fraction of the cost. In the interim, Walker founded another Voice over IP technology company called GrandCentral Communications which became the underlying technology behind Google Voice after the Mountain View search giant acquired GC for ~$100 million.
After a transition and a stint as an Entrepreneur in Residence at Google, Walker founded Firespotter Labs and invented the extremely innovative Uberconference platform (which has no affiliation with the ride sharing company). Full disclosure: PAG has been an Uberconference customer since 2012. Walker then repurchased rights to the Dialpad name from Yahoo! and developed Dialpad Talk and contact center systems to enhance the conferencing platform.
In 2016, Dialpad signed a contract with Sprint, who worked with the provider to integrate wireless into the platform. It is not known whether T-Mobile will embrace unified communications with the same vigor as their merger partner.
Dialpad acquired TalkIQ in 2018, which brought significant Artificial Intelligence improvements to the Dialpad product platform (think inbound customer analysis to gauge sentiment/ satisfaction, and also meeting note analysis that can assign tasks). TalkIQ has been fully integrated into Dialpad and is one of the platform’s distinguishing characteristics. Dialpad also bought videoconferencing platform HighFive this year to improve their product offering (more about that in this Q&A with Craig Walker).
This VentureBeat article provides an excellent summary of the round raise and history of the company. As users of the platform, we find it to be one of the most affordable and easy to use business solutions on the planet.
MessageBird is an omni-channel platform as a service that has thrived during this pandemic. As a result of skyrocketing demand, it raised a $200 million Series C round in October at a pre-money $2.8 billion valuation. Will Reed of Spark Capital joined the board as a result of their investment. Other investors in this round include Bonnier, LGT Lightstone, Longbow, Mousse Partners, New View Capital, Glynn Capital, Atomico and Accel Partners.
This European-based company (and Y-Combinator program alum) integrates SMS, WhatsApp, Voice, Messenger, WeChat, Google Business Messaging, Line and telegram into a single communications channel. They currently boast over 15,000 customers across the globe.
With messaging applications proliferating, companies like MessageBird will continue to grow in importance. A full description of the company fundraise, along with links to the product pricing, are here and here.
Volterra ($50 million round in late 2019) is one of the leading developers of multi-cloud distribution applications solutions. While their raise was last year, we got to know the company through their Medium post last August. It’s a simple yet complete description of what the company does. They are backed not only by Khosla Ventures and Mayfield, but also the venture arms of Microsoft (M12 Ventures) and Samsung (NEXT).
As application responsiveness becomes a critical element of both cloud computing and 5G networks, more “entry ramps” are going to be required. Volterra, who had 20 such instances in 12 markets as of August, is expanding their presence to 100 instances in the very near future. Founded by Anklur Singla and Harshad Nakil (both founders of Contrail Networks, now a part of Juniper), the Volterra team includes former executives from Juniper, Cisco, and Acorus Networks.
This past week, Volterra announced a deepening of their relationship with Microsoft, achieving “co-sell ready” status with the Microsoft One Commercial Partner Program. More on that development can be found in this news release.
Bottom line: Whether it’s an SMB communications platform, an omni-channel global messaging platform, or providing broad and secure cloud computing to enable easy access, there’s serious money going into the telecommunications sector even in the midst of a pandemic. Each of these companies has established Tier 1 relationships with global reach.
That’s it for this Brief. As mentioned earlier, we will take a break for Thanksgiving but be back at it on December 5. Until then, if you have friends who would like to be on the email distribution, please have them send an email to firstname.lastname@example.org and we will include them on the list (or they can sign up directly through the new website). Thanks again for the referrals.
Stay safe, keep your social distance, and Go Chiefs!