Budget is good start, but don’t get too excited – National Infrastructure Commission

The National Infrastructure Commission has given the UK’s Autumn Budget the thumbs up, but will the shiny new roads take much needed funding away from the country’s quest towards the digital economy?

While it might be a boring topic, roads and railways received a lot of attention during the budget announcement. But this is one of the bigger concerns for the NIC, which is wondering whether the a lack of private investment in such schemes would detract from government investment in other areas, most notably, next generation technologies for communications and energy.

“Today’s Budget includes a number of welcome measures for infrastructure – but the real test will be next year’s Spending Review and, crucially, the National Infrastructure Strategy that the Chancellor has promised,” said Sir John Armitt Chairman of the National Infrastructure Commission.

“This strategy should bring together the roads funding from this Budget with longer-term funding for cities and projects like Northern Powerhouse Rail and Crossrail.  And it should include access to full fibre broadband and greater use of renewable sources for our energy.”

The budget, which was unveiled on Monday, featured plans to hold the internet giants accountable to pay more tax in the UK, as well as a £1.6 billion commitment to support the Industrial Strategy and R&D funding, including technologies from AI, future manufacturing, nuclear fusion and quantum computing. An additional £200 million from the National Productivity Investment Fund will also be pointed towards various schemes to encourage the rollout of fibre infrastructure throughout the UK, most notably in rural regions with primary schools to be the first to get special attention.

Looking specifically at the National Productivity Investment Fund, investments in fibre and 5G will increase to £715 million between 2019 and 2021, though whether this is enough to keep the UK on track in the global digital economy remains to be seen. The ambition set out in July in The Future Telecoms Infrastructure Review targets a nationwide full fibre network by 2033. Alongside the Budget, the government is publishing consultations to mandate gigabit‑capable connections to new build homes.

The consultation, which is being led by the Department of Digital, Culture, Media and Sport, will aim to amend the Electronic Communications Code (EEC) to place an obligation on landlords to facilitate the deployment of digital infrastructure when they receive a request from their tenants, while also enabling telcos to use magistrates courts to gain entry to properties where a landlord fails to respond to requests for improved or new digital infrastructure. The EEC is starting to look like a very large stick for the telcos to swing around and force people to do anything they want.

What is slightly concerning is a lack of attention for 5G. In the budget document on the HM Treasury website, 5G is actually only mentioned once.

What is worth noting is this budget might actually mean nothing in a couple of months. Hammond has given himself adequate breathing room with a no-deal Brexit scenario looking increasingly likely, stating it would be back to the drawing board should the worst-case scenario become a reality.

Chip division continues to carry Samsung

Samsung has released its quarterly numbers, and while it is an improvement on the last quarter, the business is seemingly being propped up by a surging semiconductor unit.

Total revenues for the three months stood at roughly $57 billion, a 5.5% increase from the same period in 2017, while operating profit came in at roughly 15.5 billion, a year-on-year increase of 20.9%. The earnings were largely in line with the expectations the management team floated a few weeks back.

“In the third quarter, operating profit reached a new quarterly high for the company driven mainly by the continued strength of the Memory Business,” the team said in a statement. “Total revenue increased YoY and QoQ on the back of strong sales of memory products and OLED panels.

“The Korean won remained weak against the US dollar, resulting in a positive QoQ effect of approximately KRW 800 billion, experienced mainly in the components businesses. However the Korean won rose against major emerging currencies, which weighed slightly on the set businesses.”

Looking at the individual business units, the chip team rose to the top of the rankings once again. Revenues came in at roughly $22 billion for the quarter, with profit standing at $12 billion. Although demand is set to be weaker for the next quarter, the team anticipate slight increases over the next twelve months as demand for public cloud market, and mobile storage expands.

With fingers pointing to increased competition, revenues fell in the IT & Mobile Communications with over smartphone shipments remaining flat due to a decrease in sales of mid- to low-end products. High promotional costs and fluctuating currencies have been blamed for a dip in profitability, with the division only contributing $1.9 billion, despite it claiming pretty much the same revenues as the chip boys.

Another unit worth keeping an eye on will be the Networks unit. While revenues were down year-on-year, owing to decreased investments in 4G and the 5G euphoria yet to kick in, Samsung does seem to be benefiting from the increased scrutiny placed on Huawei in recent months. With many telcos snubbing Huawei, or at least decreasing dependence on the vendor, Samsung could certainly take advantage.

With Huawei and Xiaomi offering a more sustained threat in markets where Samsung traditionally dominates, this might not be the end of the woes for the start-studded division of Samsung.

Analysts increase odds T-Mobile and Sprint’s merger will proceed

Analysts from Wells Fargo have increased the odds that a proposed merger between T-Mobile and Sprint will go ahead.

The analysts have expressed increased confidence in a letter to investors:

“Our checks continue to indicate that S/TMUS regulatory review remains fairly drama-free thus far.

Contacts indicate that the (Federal Communications Commission) review continues to proceed as expected. While the (U.S. Department of Justice) is admittedly a walled garden, most contacts we spoke to have not heard chatter coming out of the agency which would suggest there exist insurmountable barriers in completing this marriage."

Wells Fargo now put the odds at 70 percent, a large rise over the odds touted by other analysts just months ago.

Back in August, analysts from MoffettNathanson LLC and Recon Analytics said the deal had a 50-50 success rate. Walter Piecyk of BTIG LLC set the odds even lower at less than 40 percent.

T-Mobile and Sprint have been arguing their merger, if allowed to proceed, will speed up the deployment of a 5G network.

The race to 5G between the US and China may lead regulators to look upon T-Mobile and Sprint’s proposal more favourably if they believe it will lead to faster deployment.

Some analysts believe the deal will be approved by the end of Q1 2019.

Interested in hearing industry leaders discuss subjects like this? Attend the co-located IoT Tech Expo, Blockchain Expo, AI & Big Data Expo and Cyber Security & Cloud Expo World Series with upcoming events in Silicon Valley, London, and Amsterdam.

Shareholder attitudes on fibre are shifting – investor

Some telcos might have been afraid of committing to fibre deployment due to the vast expense and potential shareholder backlash, but attitudes are changing.

Over the last few years the need to invest in fibre has become increasingly evident, though progress is incredibly varied. Forward-looking telcos, Orange for instance, have been pumping cash into fibre deployment for years, while stuttering operators such as BT and Deutsche Telekom has chosen alternative technologies in an incredibly short-sighted move, maybe satisfy the bloodhounds in the annual general meeting, and the rising demands of the consumer.

While technologies such as G.Fast or vectoring might be appealing to the accountants, with the gigabit-economy around the corner, the shortfall is starting to look quite obvious. What was initially sold as a cunning move now looks to be nothing more than delaying the inevitable, with the overall result a net loss. But with attitudes towards fibre changing, the intensity of fibre rollouts might just increase. And it isn’t a moment too soon.

“We’ve seen the evolution of fibre as an asset class which is becoming much more accepted and more confidence in the take up and monetization potential of fibre,” said Chris Hogg, Investment Director at Amber Infrastructure, speaking on a panel session at Broadband World Forum in Berlin. “As an investor, we are getting a lot more confidence in the ability of the market to maintain the uptake level. It becoming a lot more visible and a lot easier to have confidence in these projects.”

Hogg’s position does offer him considerable credibility in making such comments, though he does work for a fund which specifically targets infrastructure projects and companies. This might not be the common attitude amongst the investor community. Kate McKenzie, CEO of wholesale network operator Chorus, does however confirm his position.

“We have definitely seen a change,” said McKenzie. “When we first started investors were sceptical about market adoption, but now investors are asking how they can go faster with the rollout.”

The issues from yesteryear were relatively simple. With profits being squeezed at the telcos thanks to the intervention and disruption of the OTTs, shareholders asked whether such vast expenditure on fibre was necessary. Firstly, did the network need such a facelift when it is dealing with the demands of the 3G and 4G world, and secondly, would the consumer appetite for fibre be there? Some investors doubted the business case, and these are the telcos who are falling behind when it comes to fibre rollout.

But what has changed over the last couple of years? Firstly, the consumer has demonstrated he/she is prepared to pay more for fibre connectivity. Secondly, new services emerged (Netflix for example), and new segments grew substantially (gaming) pushing the networks to the limit. Finally, 5G. The first point demonstrated there would be buyers for the new products, while the latter two suggested telcos would not even be able to offer adequate services unless the money was spent.

The takeaway here is simple; spend or die. Unfortunately for those who are late to the party, expenditure will squeezed into a smaller timeframe, while they’ll be playing catch-up in the time consuming task.

With 5G emerging, the investments in fibre become a little bit more palatable for investors however. With the incredible data rates promised with 5G, fibre is a necessity to ensure network performance. And while it might be able to act as a replacement for the last mile for broadband, fixed wireless access, the sites still need to be fibered up. It is as much an opportunity for connectivity as it is a threat to traditional broadband products.

“We’ll always need fibre to service the base stations,” said Dana Tobak, CEO of Hyperoptic, a UK fibre-to-the-premises broadband provider. “Some people think they’ll only need one connectivity technology in the future, but as our appetite grows, we’ll need more routes to the internet.”

For those investors who back fibre deployment plans over the years, well done. Those who were too timid, bad bet, there’s catching up to do now.

Ofcom officially releases BT from its Openreach undertakings

Measures BT undertook in 2005 to placate Ofcom over its wholesale operations are officially no longer relevant, so it doesn’t need to bother.

This seems to be a bit of a formality, since the legal separation of Openreach from BT is supposed to mean BT has no direct influence over the fixed line wholesaler. But at the very least it marks a milestone in BT’s relationship with Ofcom and gives Philip Jansen one less thing to worry about when he takes over next year.

The previous milestone was the official transfer of 31,000 staff from BT Group to Openreach at the start of this month. “This is an important day for Openreach as we’re fulfilling the commitments to Ofcom under the Digital Communications Review,” said Openreach Chairman Mike McTighe at the time. “Openreach now has its own Board, greater strategic and operational independence, a separate brand and an independent workforce – and we’re ambitious for the future.”

The long and short of it seems to be that Openreach now has a separate and distinct relationship with Ofcom and will be assessed solely on its own merits, with no BT baggage. This is probably good news for everyone and is ultimately what all this ‘legal separation’ business is supposed to be about. It should also protect Openreach from accusations of favouring BT. You can read the full statement here.

A possible manifestation of this new, unfettered Openreach may have been the announcement last week that it is dropping the price of full fibre broadband infrastructure to new homes by 75%. Openreach got a nice lot of kudos from public figures for doing its bit to improve fibre coverage, so job done there.

Q3 validates O2 indifference towards convergence

Telefonica’s UK business O2 has continued a strong 2018 performance with a 7.9% increase in revenues in the third quarter, while it greedily captured an additional 120,000 subscribers.

The results perhaps justify the businesses decision not to enter into the convergence fight. Back in July, CEO Mark Evans confirmed the business would continue to focus on its mobile-only proposition, and wasn’t convinced entirely by the idea of bundled services. This statement is certainly contradictory to many telcos across the world, including its own cousin, Telefonica Germany, which plugged 5G FWA at Broadband World Forum. That said, the numbers speak for themselves.

Over the last three months, total revenues stood at £1.5 billion, up 7.9% year-on-year, while mobile service revenues grew by 3.4%, thanks to customers choosing larger bundles and MVNO growth. The O2 network now has 32.3 million customers, including MVNOs such as Lycamobile, making it the busiest network in the UK. Churn was also down to 1%, which O2 claims is the best in the UK.

“We continue to put the customer at the heart of our business, delivering leading propositions and unique customer experiences, as demonstrated by the launch of our revolutionary O2 Custom Plans, exclusively available in our direct channels,” said Evans. “O2 Custom Plan offers customers real choice, by giving them control, flexibility and transparency, and has once again driven the O2 point of difference in the market.

“Our on-going commitment to invest in our network includes enhancing 4G connectivity and preparing the ground for 5G. As champions of mobile we continue to build for the future, where mobile is one of the most powerful opportunities to strengthen the UK economy and enrich our society.”

This laser like focus on mobile is probably best for everyone involved. Despite O2 leading in the market share race, it has consistently been condemned for having the worst network in the UK. This has been confirmed quarter after quarter, by a variety of different sources. Some might come to the conclusion the consistency of poor performance simply suggests the management team does not care that much. However, efforts are being made to improve this record.

In the most recent spectrum auction, O2 claimed all the available 2.3 GHz spectrum to enhance its 4G offering. This spectrum has already been put to use, while most recently O2 suggested it was going to improve connectivity in 339 rural communities throughout the UK. The business is investing in its network, with the financial results indicating O2 spent £192 million on CAPEX over the quarter, which works out at roughly 12.5% of total revenues. This is not the highest around, but it is a healthy number.

O2 is the first of the UK MNOs to release its financial results for the third quarter, so there isn’t a fair comparison to make at the moment. However, 7.9% growth is going to be a very tough number to beat. Perhaps there is something in this ‘do what you know how to do’ mentality from O2.

Facebook says sharing is increasingly going private

While announcing another solid set of numbers, Facebook revealed that sharing is increasingly moving to private channels.

This presents some business challenges for Facebook as monetising services such as instant messaging has proven to be more difficult than just slapping ads in the middle of public streams. As a consequence Facebook’s share price fluctuated a fair bit during the earnings call on the back of knee-jerk reactions from investors.

“Public sharing will always be very important, but people increasingly want to share privately too — and that includes both to smaller audiences with messaging, and ephemerally with stories,” said Facebook CEO Mark Zuckerberg in a public Facebook post. “People feel more comfortable being themselves when they know their content will only be seen by a smaller group and when their content won’t stick around forever. Messaging and stories make up the vast majority of growth in the sharing that we’re seeing.

Now, it’s worth noting that one of the main reasons people prefer our services — especially WhatsApp — is because of its stronger record on privacy. WhatsApp is completely end-to-end encrypted, does not store your messages, and doesn’t store the keys to your messages in China or anywhere else. This is important because if our systems can’t see your messages, then that means governments and bad actors won’t be able to access them through us either.”

It’s very interesting that Zuck chose to attribute such importance to privacy. There have, of course, been all sorts of panics this year around data privacy, with the Cambridge Analytica scandal still clearly fresh in Zuck’s mind. People are rightly more aware than ever of the implications of publishing their personal stuff on the internet and it’s possible that we may have reached peak social media sharing.

Another contributing factor may be the increasing likelihood of being permanently banned from social media platforms for posting content that falls fowl of increasingly broad censorship parameters. Most recently Facebook has taken down accounts associated with conservative activist group The Proud Boys and it seems likely that the move to private messaging is influenced by fear of being banned.

Zuck noted that a lot of this private sharing happens over platforms he owns – Facebook Messenger and WhatsApp – but censorship attention has now moved to his other main property: Instagram. The Daily Beast, NYT, and Verge have all written recently about how much horridness there is on Instagram and how shouldn’t be tolerated. As public sharing becomes increasingly risky, this move to private is likely to accelerate.

Microsoft recognises AI might screw over some employees

Artificial intelligence has been hyped as the technology which will drive profits in the next era, though few in the technology want recognise how painful the technology will be for some segments of society.

The propaganda mission from the technology world was incredibly present at Microsoft’s UK event Future Decoded. Of course, there are benefits from the implementation of AI. Business can be more productive, more intelligent and more proactive, tackling trends ahead of time and gaining an edge on competitors. There is a lot of buzz, but it might just turn out to be justified.

Despite this promise, Microsoft has seemingly done something this morning few other technology companies around the world are brave enough to do; recognise that there will be people screwed by the deployment.

“There is a risk of leaving an entire generation behind,” said Microsoft UK CEO Cindy Rose.

The risk here is the pace of change. While previous generations might have had time to adapt to the impact of next-generation technologies, today’s environment is allowing AI to disrupt the status quo at a much more aggressive pace than ever before. Rose pointed towards the explosive growth of data, pervasiveness of the cloud and much more powerful algorithms, as factors which are accelerating the development and deployment of AI.

One question which should be asked is whether the workforce can be re-educated and reskilled fast enough to ensure society is not being left behind? Yes it can, but Rose stated the UK is not doing enough to keep pace with the disruption.

Looking at statistics which support this statement, Microsoft has released research which found 41% of employees and 37% of business leaders believe older generations will get left behind. Now usually when we talk about older generations and a skills gap, retirees comes to mind. However, those in the late 40s or early 50s could be the more negatively affected. The ability or desire to reskill might not be there due to the individuals entering the final stages of their career before retirement, though the risk of redundancy will be present. How are the people who might be made redundant 3-4 years short of retirement going to be supported? This is a question which has not been answered or even considered by anyone.

To help with imbalance, Microsoft UK has announced the launch of its AI Academy, which is targeted on training 500,000 people on AI skills. This is not just a scheme which is aimed at developers, but also IT professionals, those at risk of job loss and executives in both the business and public sector world.

As the technology industry has pointed out several times, there will be jobs created as part of the AI enthusiasm. But here is the risk, are those who are victims of job displacement suitably qualified to take these jobs? No, they are not. Uber drivers who fall victims to the firms efforts in autonomous driving, or how about the bookmaker who will be made redundant by SAPs powerful accounting software. These are not data scientists or developers, and will not be able to claim a slice of the AI bonanza which is being touted today.

But perhaps the risk has been hyped because there is too much focus on the negative? KPMG’s Head of Digital Disruption Shamus Rae suggested too much attention has been given to the dystopian view of AI, instead of its potential to unlock value and capture new revenues. Comfused.com CEO Louise O’Shea said one way her team implemented AI was to pair technical and non-technical staff to, firstly, allow front line employees to contribute to development and make an application which is actually useful, and secondly remove the fear of the unknown. The technical staff educate the non-technical staff on what the technology means and why it can help.

These are interesting thoughts, and do perhaps blunt the edge of the AI threat somewhat, but there will be those who use AI for purely productivity gains, not the way the industry is selling it. These are not businesses which will survive in the long-term, but they will have a negative impact on employees and society in the short-term. When you are lining up in the dole queue, the promise of an intelligent, cloud-orientated future is little comfort.

Microsoft UK CEO Cindy Rose is right. AI will power the next-generation and create immense value for the economy. But, no-where near enough is being done to help those at risk of job loss to adapt to the new world. The aim here is not to hide the negative with an overwhelming tsunami of benefits, but to minimise the consequences as much as possible. Not enough is being done.

White label, sub brands and MVNO, what is the right model?

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Lynda Burton, Director of Wholesale at Three UK, discusses white labeling, operator’s MVNO and diversification strategy.

There will be many interesting debates happening at MVNOs Europe this November. One of the most fascinating will be on the future of sub brands and the value they will bring to an operator’s MVNO strategy over the next three to five years.

We’ve seen two significant launches this year: SMARTY by Three and Vodafone’s Voxi. It’s evidence that operators still need ways to diversify through multiple brands if they are to appeal to customers they wouldn’t otherwise attract. It’s an extension of the widely held belief that MVNOs are crucial for stretching a network’s assets. Of course, the case for sub brands remains simple and compelling – create a brand you control as an operator, and target specific customer segments. It limits the risk of cannibalisation and provides economies of scale as the sub-brand operates within the operator.

All of the best practice, systems and commercial relationships can be easily harnessed and exploited. SMARTY exists for this very reason and has been a commercial success as a result. But success is always hard fought. Launching a new brand requires precision marketing, and well-negotiated channels to market. These are overheads that don’t come cheaply and can potentially undermine the savings and aspects of control that such a ‘parental’ arrangement has.

It’s why traditional MVNOs still have their place in our market. Granted the argument that revenues are naturally lower does exist, but people often overlook the fact that the marketing costs are lower too.

iD by Carphone Warehouse is an example of an MVNO getting the balancing act of investment in infrastructure and marketing spend right. Its customer numbers show that there is room for MVNOs in the market, announcing 800,000 customers with plans well underway to hit 1 million. All healthy incremental customer numbers for Three.

CPW knows what its customers need inside out and has built a service that is differentiated and targeted. It’s taken full advantage of its existing distribution strength and combined it with Three’s award winning network, and ability to deliver innovative MVNO services such as VoLTE and voice and text over wifi.

But the setup and ongoing investment in the infrastructure to support an MVNO can be high, and Three has seen that there is a better way…

What is it? White labeling.

The best example is Superdrug, which launched 3 months ago and  is leading the way on the win/ win of a a white label platform.  In this new white label model, the systems and technical relationships are managed by the operator. It takes the heat out of the expense of set up, and frees up the cash to get the proposition and marketing just right. In short, the risk diminishes.

As such, Superdrug was in a strong position to take full advantage of our experience of taking new brands to market and combine it with its very powerful customer loyalty programme and distribution network.

Superdrug understood what its customers wanted from its wealth of customer insight and developed a service it knew people would buy, and rewarded them when they did. And in turn, it gave the board assurances that the business case could and would work.

Is there a retail board that would turn down the chance to extend its well-loved brand in such an economical way? White label MVNOs are a very interesting and exciting way to compete in the current tough trading circumstances.
It’s these pressures brands face to improve revenue and keep customers loyal that will drive the MVNO market over the coming year. In particular, we’ll see brands realise that they can achieve their goals via a white label partnership. Brands, which have all the kudos but struggled to make the MVNO numbers work before now, will see there is a viable way to make their brand work harder.

We’ll see the existing MVNO brands re-evaluate their approach to running a network and switch their models to white label services to cut costs.That’s where the real debate will be and it’s the operators who are most in tune with these evolving dynamics that will win out.

 

A headshot of Lynda Burton, Director of Wholesale at Three Mobile UK and speaker at MVNOs Europe 2018Lynda Burton is Director of Wholesale for Three UK, she owns MVNO, white-label partnerships, bulk messaging, carrier services and international roaming functions. Lynda has led Three’s rapid growth strategy in wholesale which has included delivering the UK’s fastest growing postpaid MVNO, iD Mobile, winning B2B MVNO Gamma Mobile and providing the connectivity solution in the UK for Google’s Project Fi MVNO. She has also driven the delivery of innovative new services including OTT virtual numbers that allow appVNOs, high bandwidth IOT solutions and supporting Three’s Feel at Home roaming proposition with unrivalled cost economics.In June 2018 Lynda announced a new white label partnerships model that allows brands to launch MVNOs simply and with limited investment in technology, the first brand to launch was Superdrug Mobile.Prior to heading up the Wholesale division, Lynda was Director of Programme and Operations. She has extensive experience in the telecommunications market across both the UK and Australasia.

Hear from Lynda at the MVNOs Europe 2018, taking place in London, 6 – 7 November 2018. Book your tickets now.