In this episode of Industry Focus: Tech, Dylan Lewis and Motley Fool contributor Dan Kline chat about the latest news from the tech world. They discuss digital intruders, end-to-end encryption, and the importance of setting industry standards for new technologies. They also talk about a big telecom merger and much more.
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This video was recorded on April 3, 2020.
Dylan Lewis: It's Friday, April 3rd, and we're talking about a couple of pieces of tech news. I'm your host Dylan Lewis, and I'm joined by Fool.com's Dan Kline on Zoom. Dan, how's it going?
Dan Kline: Hey, there, Dylan, let me say congratulations. Just found out yesterday, Dylan bought a house.
Lewis: Yeah, amid all of the other insanity in the world, I just -- [laughs]
Kline: [laughs] Yeah, this is a very bizarre time to buy a house.
Lewis: Well, you know, it's not that I drew it up to be doing this during this period, but these types of things are often happening months in advance. And so, that's kind of what happened here, where over the course of early 2020, I decided that I was going to be buying my neighbor's house in Columbia Heights. And we ultimately closed the transaction when I got back from the Grand Canyon; I was not expecting a global pandemic to be going on while that was happening, but interest rates were low, so that was nice. [laughs]
Kline: Well, I look forward to the house party in a few months. The house warming party, not house party like the 80s movies.
Lewis: For now, we're going to have to settle for some Zoom house parties. And actually, really for the most part, everyone is kind of settling for Zoom versions of everything. Zoom happy hours, Zoom family get-togethers. Zoom dissertations. I mean, it's really incredible how important this technology and this service has become for people, and that's the reason that we're going to be talking about it today.
We're doing this over Zoom, and "very meta" we're going to be talking about Zoom. And it's incredible to see how popular this platform has gotten. You know this is not a company that most people knew about a year ago. They went public fairly recently. And there was a lot of fanfare around their IPO, but prior to that, most people hadn't really followed this business at all. And now they have hundreds of millions of people that are participating in their meetings, Dan.
Kline: Yeah. So, this was an enterprise solution. It was being used in December by about 10 million people, and in March 200 million people. And that created all sorts of problems, because when you're an enterprise use, you know, Motley Fool has used Zoom for a long time, we have an IT department, we have people to set protocols, to decide which meetings have passwords, all of the different safety measures that sort of keep our stuff private.
When all of a sudden you have, like, my mom and my wife and everybody moving to this platform for everything from crucial business meetings to virtual happy hours with their friends, it creates the opportunity for bad actors and that has absolutely happened.
Lewis: Yeah, I think if there's a bankable truth about the internet it is, if there's something wonderful, trolls will find a way to ruin it. And unfortunately, that's what we're seeing with a lot of people experiencing what they're calling "Zoom bombing." And you basically have these meetings that have been set up, and some of them are corporate meetings or educational meetings, you know, these institutions that are trying to continue doing whatever they have been doing for their students, sometimes their family happy hours or whatever. And you have people just hopping in, these intruders hopping in and hijacking the meeting, sometimes putting hate speech, pornography or just inappropriate content in the meeting. And that's a pretty grading thing and it's something that's pretty jarring for a lot of people, especially folks who maybe aren't digital natives and are just learning about what Zoom is and are trying to wrap their head around this technology.
And it has gotten so bad that the FBI has issued a warning and is asking people to report when it happens. So, you know there's a certain level of severity here, Dan.
Kline: Yeah. I mean, look, this is unfortunate, but you pointed it out in our notes, if you don't put a password on your meeting, you're very susceptible to this. And Zoom meetings are only nine digits, so people could literally just be trying different digits and seeing if they can get in. It wasn't a secure system, because in many ways it didn't have to be when it was off the radar.
What I do like is that the company came out, its CEO wrote a letter and he detailed some of the numbers we went through before, to sort of say, hey, look, we did not expect this level of growth. He also came out and said, hey, we screwed up here, there's some vulnerabilities in our system. And I know there's one that you don't agree with and you can jump in on that after. And then he said, OK, we're going to take away some features. So, those of you who've watched our live chats, our live video at Motley Fool, may have noticed we no longer have a chat function, we only have questions, that was one of the vulnerable features, so it's been removed for the time being.
And he's also taken all of the company's resources that were going into developing anything, new features, bells-and-whistles, new paid services, whatever it is. And all of that is being redirected toward privacy and security. That to me, is a company at least addressing the problem with a very aggressive manner. And I'm not a shareholder, but if I was, I'd be very happy about that.
Lewis: Yeah, and I'm not surprised that that was the corporate response. You know, Eric Yuan, their CEO, is someone that has a lot of fans here at The Fool, a lot of people really like the business that they've built. And I think this is good communication from the business. And I think what's tough about this part, the privacy stuff is, you know, you have people that are new to a platform and don't quite understand how it works and how everything might be coming together. It's bound to happen.
I will note that we are doing an unprotected Zoom meeting for this podcast. And I kind of love it. I was, like, hoping that that would be the case and we can kind of roll the dice and invite chaos and see if anyone hops in, because it would make for great audio, Dan. So, we'll see if that happens.
You mentioned that there is another thing that has popped up. And there are actually a lot of vulnerabilities that people have been spotting with Zoom, because it has become such a large part of the conversation.
The thing that I'm a little bit less thrilled with recently is Zoom and end-to-end encryption. And end-to-end encryption is kind of a can of worms in terms of explaining and really kind of getting into the nuts and bolts of how it works. But really the idea here is, with E2E, you want to have a true sender and a true recipient for information, and that those are the only people that can access it and modify it. And for anyone else, especially people who are operating a platform, the information might be stored somewhere, but they are unable to decrypt it and they wind up storing that data encrypted.
So, basically, it's something where, if you and I are having this conversation, you and I are the only ones that can make sense of the conversation. Zoom might know the conversation is happening, but they don't know what's in the conversation.
Kline: Yeah. And so Zoom, and you pointed this out, I'll give you all the credit for this, and I'm going to read the definition, they have their own definition for end-to-end, which you quoted from The Intercept, which is a publication, "When we use the phrase end-to-end in our other literature, it is in reference to the connection being encrypted from Zoom endpoint to Zoom endpoint and that content is not decrypted as it transfers across the Zoom cloud." So, it's kind of, you used the word "shady." It's you don't want to give, sort of, leeway, like, if somebody says "fully private," that should mean fully private. You know, if I'm in a fully private, I don't know, bathroom at an American Express lounge taking a -- you know, American Express has airport lounges, and some of them have showers. If I'm in one that says it's fully private, taking a shower, because they have showers. And it turns out it isn't fully private and a team of people come through, I'm going to be pretty upset. That's putting the real-world spin on this.
So, you can't be "sort of" encrypted, you can't be "mostly" encrypted, you're either fully encrypted -- and, look, can people break encryption? This isn't military-grade encryption. If somebody really wants to break in on Dylan talking to his dad, they can. But, for the most part, if you're saying you're encrypted, it shouldn't have any wiggle-room and Zoom is leaving itself a little bit of wiggle-room.
Lewis: Yeah. And I think the reason that this is a little frustrating for me is, end-to-end encryption is something that is, kind of, an industry term, in the same way that, like, when we talk about a GAAP financial metric, there's an understood definition for what that thing is and it means something very specific. And so, I don't love the fact that they took liberties and basically created a non-GAAP security way to define this thing. And so, I think that that's a little shady, particularly, because it wound up being in some marketing materials and, I think, in some white papers that they had published.
Now, I think the reality for all this stuff is, from the enterprise perspective, yeah, that stuff might matter. You know, talking about trade secrets, talking about private business financials. Those companies probably want that stuff secured, so that they are not leaked.
For the vast majority of conversations, for us taping this podcast, do we need for it to be end-to-end encrypted? No. But if you're saying that something has that capability or has that quality, there's an assumption of that with the people that are using it.
Kline: Yeah. And, look, there should be an assumption of privacy when you're having a conversation with another person in closed rooms wearing headsets. Like, I don't need to read their documentation to say that this is secure, to assume that it's secure. There's at least the illusion of that. So, I want to see these things stepped up.
And we're going to talk about a related issue in the next segment when we talk about the Sprint/T-Mobile (NASDAQ: TMUS) merger. Well, 5G is going to come up. And that is another term that doesn't have a true definition. So, part of this is oversight. Like, if you look at certain industries that are regulated by say, OSHA, there are voluntary industry standards where all the companies in the industry come together, they write a standard and they agree upon the meaning of words, safety guidelines, other things. And that doesn't really exist in a lot of the technology world, partially because there are so many different standards and a lot of different technology being used. But when it comes to something, you know, end-to-end encryption, that is the kind of thing that an industry trade association really should take on and create a semi-binding, legal definition. OSHA isn't a legal entity, but if you want to use the term, you know, "meeting OSHA standards," you have to meet their standards. In this case, this is definitely a kind of out of the norm use of that term.
Lewis: And to kind of put a bow on this conversation that we're having on Zoom. I mean, everything that we're talking about here, all the scrutiny that comes with their privacy practices and some of the interface issues that they're running into, these are the types of things that you run into when you go from having a certain number of people on the platform to 20X that in a pretty short period of time.
And you know, we threw the numbers out there before, but I looked at the Google Trends data just to see what search volume for Zoom looks like over the last couple of months and it's 20X what it was three or four months ago. It has become such a large part of the conversation in a way that I don't think they possibly could have anticipated. They couldn't have dreamed of this type of popularity four months ago.
Kline: No. And when this happens this fast, it's sort of -- imagine if you went from like kindergarten to senior in high school all in, like, a month. That's kind of what happened. So, all of the mistakes they might have made quietly and fixed along the way when they were at $11 million then $12 million then ... they happened all-at-once, because there was so much scrutiny. So, the reality is, no company knew to expect this.
Walmart was not prepared to deal with the world shutting down and having to still supply it food. So, you got to give Zoom a little bit of slack that, one, the fact that they're still operating -- and we've been doing what? 12 to 14 hours a day of live video without there being a problem -- is pretty impressive, how they've been able to scale this, really, on-the-fly.
Lewis: Yeah, it is. And they deserve a lot of credit for that. I think, you know, if you're looking at them and saying, do these things matter? I would say, no, you know, the popularity is really unbelievable. The fact that they have become the de facto thing, you know, it would be so easy to say, "Oh, well, why don't you just use facetime?" And then you realize you have two friends that have Android phones and that goes out the window. There are alternatives out there to Zoom, but it seems like they've become the default.
And they're really centerstage right now. And I don't think that these issues matter so long as they have a good corporate response to them and they start to get their act together a little bit. But I look at this and I say, "You know what, you guys are centerstage, like, this is a really great opportunity for you to become a household name, you got to seize it and give people a good experience."
Kline: Yeah, and there's going to be a big, whatever the positive version of a hangover is from this. Because I know that I personally now have a paid Zoom account. I've been using it to tape personal stuff, there's less restrictions on how long you can broadcast and do other things and it's not very expensive. I know, most yoga studios and dance studios and places like that now have paid subscriptions so even if they're at home, they could run some classes. You're going to see a lot of schools are using this for free, but it might become an option for, "Hey, I'm a student. I just had an operation, I can't come to school for a month." Well, now you can Zoom into your classes. The adoption for this and the exposure this product has gotten is going to lead to a lasting business impact.
Now, obviously, the 200 million that are using it now, which will probably climb, that number is going to shrink way back down because some of this is need-driven, but the overall base of the company and its revenue model is going to be way higher than it was, probably, I don't say forever, but for an extended period of time, because it does what it says it's going to do and it's not overly expensive. So, a lot of companies are going to keep this as an option.
Lewis: Yeah. And you know they were already a fast-growing business and they doubled revenue in their most recent year. And this is kind of the greatest marketing event in the world for Zoom, so hopefully they can give people a good experience and be able to retain those folks going forward. Dan, you teed us up for our second half topic earlier --
Kline: Actually, one quick thing before we move on. Dylan, why don't you give everyone the ticker symbol for Zoom and explain why I'm bringing that up?
Lewis: [laughs] That's a great point. So, yeah, this is a stock that has created issues for some folks and for some exchanges as well. There is Zoom Video Communications, and that is the company that we are talking about. They trade on the Nasdaq under the ticker ZM. And then there is ZOOM Technologies (NASDAQ: ZM), and ZOOM Technologies is ticker ZOOM, and trades over-the-counter. The reason that it's important for us to clarify this is, a lot of people have been errantly trading ZOOM Technologies thinking that it was Zoom Video Communications.
And if you want to look at a ridiculous stock chart, look at the ticker for the wrong company, ZOOM, trading over-the-counter and you will see that this was a company that was a penny stock and is now trading at almost $10 a share or something to that effect, because people have been mistakenly buying the shares thinking that it was something else. This is not the first time that this has happened, it's happened with other companies that have gone public and created confusion among their tickers before. But, Dan, yeah, that's a great point of clarification.
Kline: Yeah, we don't want people -- I had this conversation with Emily Flippen yesterday. She was talking about Planet 13, the cannabis company, and I wanted to make sure people did not buy Planet Fitness, the gym company. The tickers aren't that simple, but it's really easy to make these kinds of mistakes, especially with a lot of people trading on their own now, not using a broker.
So, really, know what you're buying. A good way to do that is usually there's a news feed where you can, sort of, look at some of the press releases. And if the press releases aren't about what you would expect them to be about, then it's a -- and look at the "About Us" that's usually at the bottom of the press release, that'll tell you. Just dot your i's and cross your t's a little bit here.
Lewis: Yeah, and if you're looking for another easy way to check on that stuff, take a quick look at the market caps for the companies that you're discussing. You know Zoom Video Communications is a multibillion-dollar company, their current market cap is just under $35 billion. ZOOM Technologies, the company that people are confusing for the business that we're talking about, has a market cap of about $30 million. And so, that should say everything that you need to know about which one is the legit, hundreds of millions of people using the platform, and which one is something that is accidentally picking up in popularity as a result of that.
Kline: Yeah. And then this next topic we're going to talk about, I'll let you introduce it, but I have to say, we've been talking about this for so long. I think I've been on shows with seven or eight different Industry Focus hosts. And I'm almost sad to see it no longer be a topic, which is this will be the last time, we'll talk about this company, certainly, but its merger, that won't be a topic anymore.
Lewis: Yeah. This was kind of a like glacial news story in that sense. The T-Mobile and Sprint merger finally done. Not that we're going to stop talking about the telecom space. We love talking about the telecom space. But yeah, I think we can finally put this one to bed. Arrivederci! merger, Dan.
Kline: Yeah. So, this is one that almost happened three years ago, and maybe a little longer than that, but there were very strong regulatory concerns. It was, sort of, put out publicly, "Hey, don't do this, it's not going to get approved." So, Sprint went back to the drawing board, made agreements with some of the cable companies to take kind of a looksee. No deal happened there.
And Sprint was in a difficult position, partially owned by SoftBank. So, had a good cash reserve and ability to fund the business, but was only gaining customers by offering very cheap prices. I'm pretty sure, Dylan, you took advantage of the very cheap prices at one point.
Lewis: [laughs] I did. Yeah, they were offering an online-only deal where they had a free year of unlimited data. And it was specifically targeted at folks that were with major wireless carriers. And at the time, I'd been a Verizon customer, and so I was able to get a free year of unlimited data with Sprint for taxes and fees, which wound up being about $4 a month. Which is the greatest deal I think I will ever find in my life.
Kline: Yeah. Unless you're a Sprint shareholder. [laughs] Because they were reporting pretty good numbers, you know, "Oh, we added a million customers, we added all these lines to existing accounts." And what they were essentially doing was heavily discounting to show growth at a time where -- that's a business you have to heavily invest in just to keep your network up. And now the added expense of 5G, all the time where Sprint's marketing was essentially, "Hey, our network is fine, it's not as good as everybody else's, but, meh, it's good enough." Which is true, by the way, as someone who had been a Sprint customer. And maybe you feel differently, but I thought their network was fine. But that's not a sustainable business.
If your business model is, you're the cheapest, but your costs aren't different from your rivals, that's very difficult to sustain. Again, and I've used this analogy on a lot of shows. That is selling $20 bills for $19 and making it up on volume; not going to work.
Lewis: [laughs] Yeah. And I think that, you know, so much of the promise of those types of promotions -- and this is not the only one they ran, I think it just might happen to be the most outrageous one they ran, is that, you know, we will get people to stick around. And the thought with a lot of these businesses is like, you know, this is a sticky product, it's a pain in the butt to switch wireless carriers. Most people are lazy and so, once we get past that first year where we're basically given away the service, they'll stick around.
I forget which management team it was, but it wasn't in a telecom space. Someone used the term "promiscuous customers" I think it might have been in food delivery. And they were talking about how people are ultimately looking for the best deals, they are not loyal. And that's what you see in the telecom space too.
You know, you have folks that are sticking around with the same wireless carrier for years, but as soon as my year was up with Sprint, I started looking for better deals and ultimately, I found one and I'm not with them anymore. And so, all that acquisition cost for them wound up being for naught.
Kline: Yeah, it's gotten easier and easier to move your phone around. I remember the time where, like, you had to fill out forms and changing your number was difficult and you couldn't keep your phone, so you'd have to like mail your phone in a box and then a new one would come. And it's gotten very easy. There's more inter-compatibility, especially if you're using an iPhone, your number can move pretty easily and automatically. And that's even to some of the very low service, very low-cost providers.
So, yeah, we're seeing this in a lot of spaces. There's going to be loyalty. One of the things I like about T-Mobile is they essentially say, "We're going to give you a fair deal." Is it always going to be the lowest price for every possible thing? No. But one, they give you a real price. Meaning that, if it says $55 a line, that's inclusive of tax and fees, so you're paying $55. They're very upfront about everything they do. So, I'm a T-Mobile customer now. I know I could save money by playing the game and shifting around, but there's three of us in my household, it's just not worth it. So, I do think there is a place for loyalty, there's also that old-school, and I'll call it like, "loyalty by default" where you have Verizon and you just have Verizon. Like, unless they raise the price, like, triple, you're not going to leave.
And the cable industry benefited from that for a long time, but there is an eventual tipping point where someone like -- and I hate to bring my mother up again -- but my mother has a way too expensive cellphone plan; and she's going to get mad at me when she listens to this. She could easily switch to T-Mobile or even take a line on my T-Mobile plan and it would be dramatically cheaper, but I think when you hit a certain point of comfortability, you might not want to change. Certainly, you know, as people get older, they get a little more set in their ways for the most part. There are some very adventurous older people as well, I'm sure.
So, T-Mobile and Sprint, now as a combined entity, have the ability to be the alternative to Verizon and AT&T, that has been how T-Mobile markets itself; The Un-carrier. And when they say that, what they mean is, they were the first carrier to get rid of overages, they were the first carrier to stop pretending your phone was free and really just putting the price of your phone into your wireless bill, they were the first carrier to make unlimited sort of the default. There are some programs they have that aren't unlimited, but for the most part they're all unlimited.
And that forced the industry to do these things. They've upped their game with customer service. I have not seen similar improvements from AT&T and Verizon, but in a lot of cases, they have taken these stodgy, monopolistic businesses and forced them to treat their customers better. And I don't expect that to change, that's kind of the T-Mobile brand. If they changed, I think they would really see a lot of customers go away.
Lewis: Well, one of the question marks, Dan, is, so much of that un-carrier movement and the disruptive nature of T-Mobile over the last couple of years has been the guidance of John Legere; and their CEO really kind of shaping where this company is going to go and where the industry is going to go. And now we have this merger done. We have him stepping down as CEO, which was planned, and I think that that remains one of the largest question marks for this combined entity and really the industry.
Kline: Yeah, it's absolutely big question mark, because John Legere was a bombastic guy, he was a Don King, a Vince McMahon, a very bold, you know, wasn't afraid to call his enemies -- his rivals, I'm using his terms -- to call rival companies names, to really call-out AT&T and Verizon and sort of show their customer-unfriendly practices and it made him kind of a cult figure. He has a huge following on Twitter where he does things like a Slow Cooker Sunday, that have nothing to do with T-Mobile.
So, doesn't seem like there's any intrigue, seems like he just wanted a new challenge. I think there's every possibility he knows where he's going even though we don't know where he's going. He absolutely took a company that was basically on death's door and made it, weirdly still, the No. 3 wireless carrier even with Sprint, but a much closer No. 3.
So, this goes from [things] like Coke, Pepsi, RC Cola to Coke, Pepsi, Pepsi. It's really a lot closer. And Mike Sievert who is, you know, I think it's probably fair to say his protégé, he's been working under John Legere. I think you could kind of see this was happening, because Sievert became a more public figure, he would be the person quoted in a press release a little bit more often, he'd be giving the response. So, you could see him being groomed for this role, but he is a more traditional CEO business leader. That's probably fine, but I do want to see, sort of, as they integrate Sprint, what is the next bold un-carrier move, what's the next free thing? I think the next free thing is they're giving us Quibi for a period of time, but that was probably in the works with John Legere still there. So, I want to see that Mike Sievert can keep the spirit of T-Mobile alive. He doesn't have to become a bad parody of his predecessor.
Lewis: Yeah, I think it will also be really interesting to see what happens with John Legere, I think that's going to be a very interesting storyline with all this, because, you know, you could think of John Legere as kind of the Tom Brady of the CEO world right now. You know, he was --
Kline: It's better than that. It's like the 32-year-old Tom. You know, I'm a huge Tom Brady fan, but Tom Brady is going to be 43 when the season starts. There's a reason only a couple of teams are interested. Imagine if he was having this at 32 where he still had, he would say, 13 good years ahead of him, but others would probably say, 8.
This is absolutely amazing, sort of, the position Legere is in, because as a CEO, you obviously can play into your 70s; in some cases, maybe even your 80s. So, he is the name for any major job. And any turnaround, any situation that's salvageable in an industry, he's going to be on the list. So, it's really interesting to see where he's going to go.
Lewis: Yeah, I think that he is going to be at the top of anyone's hiring list. And he's certainly going to have his pick of where he winds up going. I don't think we're done hearing about John Legere; I don't think he would allow for that with his personality.
One of the, kind of, big things that is immediately facing T-Mobile with this merger is the fact that they have a 5G network to deliver on. And everyone knows that this is where the industry is going. Now that this is done, I think that that's kind of the focus.
Kline: So, Dylan, let me bring up something I've talked about with Emily, with Nick, with lots of people. I forget what's on air and what's not on air. But T-Mobile is advertising 5G. And, one, their definition of 5G is still impressive, but below what AT&T and Verizon consider 5G. 5G just means fifth generation, it's not actually a standard, but it's essentially giving you a faster internet where you could stream and do all the things you might do to your home internet connection comfortably on tablets, phones, other devices; maybe even replace your home internet.
T-Mobile is running ads, has been since the Super Bowl, that sort of imply it has a nationwide 5G network. And it has a nationwide 5G network the way a restaurant chain that has 12 locations that are split around the country has a nationwide chain of restaurants. This is not good coverage. And I've spent a lot of time coming up with different ways to say that, because I don't love that a company I really believe in, for its marketing is running, what I would call, somewhat deceptive marketing.
Also, there are not a lot of 5G phones out there. Your iPhone is not 5G, the next, sort of, release of phones is probably going to include a lot more 5G compatibility. So, there is no benefit to you if you live in New York City or someplace that might have pockets of 5G if you don't have one of the small handful of devices that take advantage of it.
So, T-Mobile has a huge task, they promised their customers, they promised regulators a 5G network. That is a massive overhaul. They have to balance that against the fact that Sprint operates on a different standard than what T-Mobile does. So, there is a long-term question of: Do you migrate everyone to the T-Mobile network? Do you operate both but maybe under the T-Mobile name? So, depending which type of phone you have, you might be a T-Mobile subscriber but you're actually using the Sprint network. Or, do you run both names? Like, I don't think it makes a ton of sense to be marketing for two brand names, that's very expensive. Maybe Sprint becomes, you know, some sort of sub-brand, a business brand or a pay-ahead brand or maybe it just goes away.
And that's usually what happens, there has not been a great history of integrating two separate brands under one mobile phone banner. I'm forgetting the name of it, but remember when Sprint bought the one, the walkie-talkie one. [laughs] You know, that brand went away, and it went away so fast, I don't remember it even though I was a customer, we used them in the factory I was running at the time, it was a really cool product. But pretty quickly that went away and became a very, very bad deal that sort of led Sprint to where it is now, which is, no longer a company.
Lewis: Yeah, I think that that's probably the last really big question for us, as you know, we talked about the uncertainty of what will happen to Legere. I think the Sprint brand period is a very interesting idea and what will wind up happening there. I mean, logistically, it sounds very difficult to be maintaining two standards and two different customer bases that possibly have been promised totally different things. I think, just from an efficiency standpoint, you know, when you make these big, big acquisitions you want to experience and enjoy some of the, what they call synergies, right, some of the ability to eliminate shared costs and spread out those more defined and, kind of, centralized cost over the larger base of customers that you have. And if they continue operating both of these networks as is, they're not really doing that.
And so, I think, longer-term you probably have to see them do it, because otherwise they're not going to realize a lot of the synergies that they're probably building into the acquisition case.
Kline: Yeah. And some of this is going to depend on the specs for the next round of iPhones, will all of them be 5G compatible, will they be cross-network compatible? Same thing for the top-tier Samsung phones. Because when you look at what phones people have, the top couple of phones have a pretty big set of market share. It's like 60%, 70%. So, if you can incentivize people to move to those phones, you have the other issue of over-storing.
Sprint and T-Mobile stores are often next to each other, so that's pretty good, because you might be able to negotiate a lease where you take over half of one of the stores that are touching and give up the other piece and create bigger centers, because your customer base more-or-less doubled, so you're going to need more capacity. But you certainly don't need twice as many stores if you can move to a more consolidated network and operating system.
The same thing with customer service. T-Mobile has a very stepped-up customer service. When you call them, it's someone who, sort of, knows your account, follows you through the process. It's a team that works with you. It's not flawless, but it's way better than any other experiences I've had. And obviously, they're going to want to roll that out for Sprint.
There are also some contractual things, T-Mobile gives you Netflix, I think it's Netflix minus a $1, because when they rolled that out, Netflix hadn't raised its prices yet. So, they pay most of your Netflix bill if you have certain plans. Well, that contract is not with Sprint. So, I'm not entirely sure Netflix would want 40 million new customers. They probably do, but I don't know what the deal between those two companies is. It's never been public if T-Mobile is getting a deal on those Netflix subscriptions. I don't think they are. So, Netflix would probably be thrilled.
But there's a lot of logistics, there's a lot of contracts signed with one that probably rollover to the other. This isn't going to be quick. You know, you might see a step-down of Sprint marketing, so I'd be very worried if I was a Paul, the guy in the yellow outfit who used to work for Verizon and say, "Can you hear me now?" Because he's running out of landing spots. So, if T-Mobile doesn't want him, you know, you got to call AT&T, but that seems unlikely. So, you know, his career may be over. [laughs] And maybe he'll do, you know, game shows or something, but his career as a pitchman is probably in its last days. But there are a lot of big decisions that have to be made by Mike Sievert and the T-Mobile team right now.
Lewis: Well, Dan, you know, we're joking that the story is done when it comes to the merger. Clearly, there are still a lot of questions and a lot of things to be sorted out and we'll be there covering the story and kind of providing updates as we get more information. Always love chatting telecoms with you, and it's fun to talk. Zoom, I'm glad we didn't get Zoom-bombed on today's show. [laughs]
Kline: [laughs] Yeah, Dylan, let me throw one more thing out there, because I think it's relevant. John Legere is staying on the Board, so his voice will still be in the room. And obviously, he appears to be very good friends with the incoming CEO. So, one thing you can rest, a little bit, assured as a T-Mobile, if you are a shareholder, is that he's not completely divorcing himself from the company.
Usually, that eventually happens. If he takes a job at, you know, something that's even adjacent or competitive, he probably doesn't stay on the Board, but during this transition period, you know, he didn't all of a sudden disappear. So, that's a little bit heartening I would say.
Lewis: Yeah, I don't think John Legere ever disappears. [laughs] I think that that personality cannot be suppressed. Dan, thanks so much for hopping on today's show. It was great chatting with you.
Kline: Thanks for having me. I'll talk to you soon.
Lewis: Alright. Listeners' that's going to do it for this episode of Industry Focus. If you have any questions or you want to reach out and say "Hey!" shoot us an email over at [email protected] or tweet us @MFIndustryFocus. If you want more of our stuff, you can subscribe on iTunes, Spotify, wherever you get your podcasts.
And as always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear.
Thanks to Austin Morgan for all his work behind the glass today. It's Friday, so we're going to play things out with Checks and Balances by one of our full-time Fools Burke Ingraffia. For Dan Kline, I'm Dylan Lewis, thanks for listening, and Fool on!
