Will Carriers Finally Get Their Piece of the Apple Pie?

“Better coverage… fastest network… fewest dropped calls…” Which mobile carrier am I talking about?

ALL OF THEM

There is a huge gap in the current capacity and the demand that is being created by new high-bandwidth mobile devices like the iPhone, iPad, RIM smart-phones, Androids, Nokia Nxxx’s, MiFi/RocketStick 3.5G/4G devices used with laptops/netbooks, and Kindles. This capacity gap is inspiring another internet arms-race, just like the catastrophic that contributed to the ‘.com bubble burst’ of 2000/1. All of these competing wireless carriers are upgrading their wireless network capacity many-times over (10-100x+). The main difference –this time– is that demand exceeds supply… for now.

Dilbert.com

Right now, customers are very much choosing carriers based on the phones available, but this will soon change as cachet devices like the iPhone are made available on multiple networks. Then people will start switching from one to another because they are dissatisfied with the service (probably because a carrier is picking up high bandwidth users faster than their network engineers can deploy capacity). Then we will reach an equilibrium…

Then What?

Well, until recently, the answer would be –like any commodity market– a race to the bottom. The raging ‘red ocean’ of the wireless market would lead to the survival of the cost-cutting fittest. Just like pork-bellies, barrels of oil & even computer RAM, the winners will be those that produce a common unit for the lowest cost. The only people making real money (margin anyway) in this scenario will be those who can create differentiated products: handset makers & those that own the content (Apple and Apple respectively – I kid).

But then ‘net neutrality’ & the FCC got a big kick in the nuts courtesy of Comcast.

People who don’t care about FCC regulations (probably 99.99999% of you) may have missed the recent ruling in favour of Comcast on their ability to control how their customers use the internet (whether they were ‘neutral’ or could treat data from different sources differently).

Comcast, by challenging the FCC’s right to control neutrality, has now set a precedent that would allow carriers to be less ‘neutral’ when providing these over-the-top services (particularly those that make it hard to identify the source of all the bandwidth, like BitTorrent, etc.). This could potentially mean that they can have more control over the internet experience the user has. They could treat websites preferentially (higher speed) that agree to do revenue sharing, or block/restrict the bandwidth to those they don’t like.

The wireless and wireline carriers now have another way to differentiate from each other, aside from the “Better coverage… fastest network… fewest dropped calls…” mantra they all currently drone.

The internet experience could end up being VERY different from one carrier to the next, with an infinite combination of content/carrier/geography relationships possible. A very basic example would be a carrier winning business based on allowing BitTorrent traffic to your cell phone vs. one that does not allow it.

Things just got a whole lot more complicated… will carriers finally get a piece of the Apple pie?

AAPL: Sold the Shares I Picked Up Yesterday

Apple LogoSince I really didn’t want to have to pay for them, I wanted to sell and take the gains from my shares I purchased yesterday, and left the rest in to take advantage of gains that will hopefully come over the next few weeks.

Based on pre-market trading, I was hoping for more of a pop in the stock, but I always find that pre-market numbers don’t give you much idea of what is going to happen at market open.  I will take the 9% gain for one day, and return to a more long-term view on this stock.

My biggest struggle when considering if to sell or not is really more to do with the CDN-USD exhange rate.  Since I have been buying AAPL stock, the $USD has ramped from close to parity to a +26% rate.  This gain in the USD would make transferring the USD held in Apple stock back to Canadian dollars attractive.

Generally, based on how soundily AAPL trounced their estimates, I was hoping for more.  RIM is climbing like crazy, but the only explanation I can see is that Obama has one.  This just doesn’t make any sense.

Increasing My Stake in AAPL, Just Prior to Earnings…

Apple LogoI am (almost) doubling my number of shares by picking up a bunch today at $80.  Yesterday, the stock traded at its lowest value in 52 weeks.

Earnings are announced at the close of the markets today, and the analysts are very split on what the news will be.  The stock has been seriously depressed by the recent news about Job’s health issues, and the continued negative sentiment on the world economy.  I think this is a buying opportunity ahead of what I think will be strong results beating the estimates.

If they don’t or the stocks tanks for other reasons, I will be making a quick run for the toilet.  Based on selling RIM shares to buy AAPL stock at $90, and watching RIM run up 32% since, I really need some good news (NT news didn’t exactly help either).

I keep telling myself “you have to stick with your plan, you have to stick with your plan…”

Really Blew it on RIM!

In order to cover my purchase of more AAPL shares I sold my stake in RIM at $47.80.  I admitted at the time that I wanted to go long on RIM, but I was uncomfortable with how much I had in the market, and how poor the ratings were on the new Blackberry Storm.

When earnings were announced on Thursday with bullish comments about their ‘best start ever’ start to the Christmas season and the fact that they beat their revised (and lowered) estimates, the stock rallied which had me leaving a 11.5% gain on the table!

If I had infinite cash, I would go long on RIM, at the moment I just don’t think there is as much upside opportunity as with AAPL.” So I guess if I had ‘infinite cash’ I would be better off… but then again, I probably wouldn’t spend any time on the stock market.

I am not really upset about this gaffe however, and this is why:

  1. RIM’s results have re-affirmed my view that the key player in the rapidly growing ‘mobile internet’ business, namely RIM and AAPL, are going to see limited impact as a result of market dive brought on by the credit crisis.
  2. A 14% daily gain in the stock as a result of positive news shows that investors are willing to get back into stocks that indicate that they are less sensitive to the negative market conditions (i.e. when AAPL surprises in the next quarter with good results, I should see good gains!)
  3. This shows that companies involved in the telecoms industry may have better resilience to market conditions than others.  Since my day job involves telecom, this might be a good thing.

While doing some Christmas shopping, I followed my friend Justin around to every single wireless store in the mall (I didn’t know there were so many), to see if we could find a Blackberry Storm we could actually try.  At the last store we tried (Bell) they had an early production version that they were not allowed to sell.  I gave it a try, and wasn’t really very impressed with the user interface.  The clicking screen is very much a gimmick I am afraid.

What I didn’t fail to notice was, every single store that got an allotment of the Storm were sold out.  Perhaps the desire for an ‘iPhone’ for those stuck on the Bell/Telus/Other-non-GSM networks (that can’t carry the iPhone, even a hacked one) due to contract obligations was enough to put aside bad reviews and fork out for a Storm.

I am VERY happy that RIM continues to do so well!

Increasing My Position in AAPL, ‘Trying’ to Get Out of RIM

I watched news reports this morning that covered Apple’s annoucement that not only are they participating in their last MacWorld conference, but Steve Jobs’ will not be doing the usual keynote speech at the event.  While Apple claims that this is just the next step in a change of strategy that relies more on their Apple stores, Apple.com and iTunes to reach out to customers, some of the press coverage decided to renew speculation that Jobs’ health is in trouble.

This, along with analyst downgrades to market perform from outperform (Oppenheimer) and the French government’s ruling that Apple has to allow other carriers in France to sell the iPhone, made for a bad day in Apple stock to the tune of -6.6%.

At first, I was pretty worried, but then I started thinking about the leadership position at Apple.  The market has a perception that Jobs is a ‘genius with a thousand hands’ type of leader, as evidenced by Apple’s decline after his original departure, and its resurgence after his return.  As a result the stock price is heavily influenced by rumours about his health since the expectation is if it fails, so will the company.

This may have been true when he originally left Apple, but I think there is evidence to show he has been able to grow good leaders under him since.  For example, he was the head of Pixar studios which was eventually sold to Disney for >$7 billion dollars, which has since continued to excel with such hits as the Incredibles and, most recently, WALL-E.  Clearly Jobs had set up a system which could continue to succeed in his absence.

No question that the stock will get hit hard if Jobs proves to be ill, but since Apple is unlikely to provide any more detail in the next few months, and I still expect Apple to positively surprise the market over this Christmas season, I am viewing today’s drop in the stock price, and a month-low in the US dollar as a buying opportunity.  I am increasing my position another 20% at $89.31.  For those keeping track, my average cost is now about $115.

In order to pick up more stock, I wanted to sell something else which had less up-side, since I was getting uncomfortable with how much I had in the market.  I am starting to lose faith in the ability of RIM to balk the downward trend in the economy.  Their new Storm was received cooly by reviewers, and appeared to be more of a reaction to Apple iPhone instead of something new and innovative.

Clearly a LOT of Blackberry purchases are driven by enterprise, and trimming costs on cell phones is one of the first things enterprises do when the economy turns sour.  While if I had infinite cash, I would go long on RIM, at the moment I just don’t think there is as much upside opportunity as with AAPL.

IF I can get out of RIM tomorrow that is…   This is what I was greeted with when I logged into my trading account to sell the RIM shares:

TSX Trading Halted All DayIt turns out, aside from 20 minutes at open, the TSX was closed ALL DAY.  Hopefully things will be resolved by market open tomorrow, but with RIM’s earnings coming out at the end of day tomorrow, the TSX’s technical glitches may end up costing me (or maybe saving me) money.  I’ll let you know how it goes…

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