Liberty LATAM bails out of convergence ambitions

Liberty Latin America has terminated its conversations regarding a potential acquisition of Millicom International.

Details are relatively thin on the ground, though the pair has been in discussions over a possible acquisition which would have made Liberty LATAM the largest convergence player in the Americas. What this means for the Liberty business, which has targeted growth in Latin America in recent years, remains to be seen.

“The Company remains focused on its growth strategy to deliver value for shareholders and provide market leading products and services to its customers,” Liberty said in a statement.

The acquisition talks only emerged in the last couple of weeks, though it would have been a complete takeover from Liberty Latin America. While the Liberty business is certainly in a stable position in the region, competitors have bought into the convergence buzz in recent years, with Telefonica and America Movil offering what would be considered in today’s terms as a more complete connectivity offering.

Operating in 21 countries across Latin America and the Caribbean, Liberty offers consumer and B2B cable and fixed internet services, as well as operating a subsea cable network. On the other side of the coin, Millicom commands mobile operations in eight markets, in most of which it is a market share leader. Theoretically, there was a very handy dovetail between the pair.

Latin America is certainly a market which can offer significant rewards, albeit there are notable risks as well, but it seems the convergence dream was a short-lived dalliance for Liberty LATAM. At least for the moment.

Nerves jangle as Aussies delay TPG/Vodafone merger decision

The Australian regulator has pushed back the deadline for its decision on whether Vodafone Australia and TPG can move forward with the proposed £8.2 billion merger.

While this far from a definite sign the merger will be blocked by the watchdog, the longer the evaluation process goes on for, the stronger the feelings of apprehension will get. If the Aussies were happy with the plans to create a convergence player, they would have said so, but perhaps the regulator is just making sure it effectively does its due diligence.

The tie up between the pair is supposed to be an effort to capitalise on convergence bounties and reinvigorate the competitive edge of the business. That said, last month the Australian Competition and Consumer Commission (ACCC) weighed into the equation raising concerns a merger would de-incentivise the market to offer low-cost services.

According to Reuters, the ACCC has extended its own self-imposed deadline to evaluate the merger by two weeks to April 11. If the watchdog cannot build a case to deny the merger by that point it probably never will be able to, but you have to wonder whether the additional time is being used to validate its position of opposition.

All regulators are supposed to take a balanced and impartial position when assessing these transactions, though its negative opinion last month suggests the agency is looking for a reason to deny as opposed to evaluating what information is on the table. Giving itself an extra couple of weeks will only compound this theory in the mind of sceptics.

To be even handed though, the consolidation argument is perfectly logical and completely absurd depending on who you are. There are benefits and negatives on both sides of the equation, irrelevant as to how passionately supporters and detractors preach to you. For all the arguments and evidence which are presented, a bucket-full of salt will probably be required.

4G roaming traffic doubled globally last year – BICS

Regulatory changes and increased competition continue to drive massive growth in LTE roaming around the world, according to new data from BICS.

The precise increase is 95%, with a major catalyst still being the European Union’s regulation that banned European operators from charging a premium for roaming within the bloc. While we’re not seeing the ridiculous increase in European roaming that took place in 2017, the first full year after roaming was abolished, growth is still pretty steep.

“European subscribers have enjoyed being able to ‘Roam Like at Home’ and now seek high quality, affordable roaming services, wherever they travel,” said Mikaël Schachne, VP of Mobility Solutions at BICS. “This is forcing operators in other regions outside of the EU to match the European offering by coming together to offer more cost-effective packages to subscribers, while optimising traffic flow at the back-end.”

We had a chat with Schachne to get some further insight into this trend. He reckons that changes in the regulatory environment have forced operators to rethink their approach to roaming. This more competitive environment has been self-reinforcing and it looks like operators worldwide are now inclined to offer much more attractive roaming packages than they did a few years ago.

Another major reason for them to curtail their roaming profiteering is the growth in dual-SIM as a smartphone feature. This makes it much easier for people to buy a local SIM when they’re travelling and this circumvent roaming entirely. On top of that public wifi is improving all the time so the simple fact is that if roaming is too expensive, most people just won’t use it.

BICS is forecasting global 4G roaming growth of around half the rate of 2018 this year, which is hardly surprising considering how extreme it was previously. Another major driver is expected to be IoT over cellular networks, for which global roaming is a key feature, with billions of embedded SIMs expected to hit the market in the near future.

Loon bolsters connectivity credentials with advisory board signings

Alphabet’s latest X graduate Loon has added industry heavyweights to its advisory board as the business searches for commercial credibility in the world of connectivity.

As the ludicrous dream starts to become a reality, Loon has added three industry veterans to its ranks. Former McCaw Communications CEO Craig McCaw, Evernote CEO Ian Small and Verizon EVP Global Media & New Business Marni Walden will all be added to the roster, bringing with them years of experience and, perhaps more importantly, connections in the telco space.

“As Loon transitions to a commercial business and looks to partner with MNOs worldwide, we’re adding some serious expertise to our ranks with a new Advisory Board that brings together top wireless innovators with decades of experience in the industry,” Loon CEO Alastair Westgarth wrote in a blog post.

For those who have missed out on this blue-sky thinking idea, Loon is Alphabet’s latest attempt to branch into the connectivity segment. Previous efforts might have been a flop, just have a look at the success brought through Google Fiber, but this is something slightly different; its attempting to create a new segment rather than steal business from established players.

By floating these massive balloons 18-23km above the earth for periods of up to 100 days, the Loon team claims each balloon can create a connectivity cone with coverage to a ground area 80km in diameter. The balloons are fitted with a broad-coverage LTE base station and a high-speed directional link used to connect between balloons and back down to the internet infrastructure on the ground.

In an industry which has constantly struggled to bridge the digital divide due to the expense of deploying infrastructure, this is a genuinely innovative approach to providing connectivity. It helps lessen the financial pressures of delivering the internet, adding to the connectivity mix.

Back in November at AfricaCom, Westgarth gave some insight into the business on the main conference stage. At the time he announced the beginning of a commercial relationship with Telkom Kenya, as well as outlining the wider ambitions of the business. This is an idea which has big commercial potential, most of which will be in the developing markets. These are after all areas where ARPU is low and deployment is staggered. It would appear to be the perfect mix for Loon’s proposal to bring the internet to the masses.

These appointments however perhaps suggest Loon is not a firm satisfied with the developing markets alone. These are three US executives who have considerable experience in the domestic market. Of course, there will be connections in the international space with telcos in the developing nations, but perhaps Loon has spotted an opportunity in the US. These executives would certainly help pave the way for conversations across the homeland.

Of course, this is just a theory and the PR team have been, just as you would expect, pretty evasive when asked the question. However, the digital divide is certainly a challenge in the US. For those who are lucky enough to live in the cities, they’ll have no concept of connectivity challenges, but the vast expanses and challenging terrain of the US open up numerous, huge not-spots, despite what the telcos actually tell you.

Loon has been touted as an innovation for the developing markets but seeing as the US telcos are clueless as how to solve the domestic digital divide, why not. These executives will certainly know the right people in the right places.

Helios Towers expands footprint into South Africa

Helios Towers has entered into a partnership with Vulatel to form a joint venture to build out wireless and fixed line open-access infrastructure in South Africa.

Helios will take a 66% slice of the venture as the firm readies itself for the 5G revolution. While it might seem strange to talk about 5G on a continent which has constantly struggled to bridge the enormous digital divide, South Africa is certainly a different landscape than what would be expected as the norm.

“I am thrilled to announce our entry into South Africa, which delivers against our stated strategy of providing MNOs with open-access infrastructure to meet the growing demands of their customers in Africa for fast, stable and available networks,” said Kash Pandya, CEO of Helios Towers. “We are delighted to be partnering with Vulatel, a business with impeccable telco sector expertise and deep local credentials in South Africa.”

For Helios, expansion into the South African market makes perfect sense and partnering with a local business will provide suitable foundation. Helios’ footprint currently covers four markets across the African continent, while Vulatel came to existence in 2017 on the back of acquiring Dimension Data’s fibre and wireless division. Helios brings the international experience and capital, while Vulatel holds its own with contacts and relationships in the South African market.

“There is a significant infrastructure gap in South Africa today, which means the demand in data services is not being met,” said Tlhabeli Ralebitso, CEO of Vulatel.

“We are convinced this provides an unrivalled opportunity to build a leading open-access infrastructure platform to address that gap. Our vision has always been to establish a nationwide service network before entering into the open-access telecoms infrastructure market on the back of our trusted relationships with the telecoms operators in South Africa.”

Looking at the South African market, this is a country which is expected to lead the 5G euphoria on the African continent proving this is a good time for Helios to make its move. With 6,500 towers in four markets (Tanzania, Democratic Republic of Congo and Congo Brazzaville), contracted revenues of $3.1 billion and average contract life of 8.4 years remaining across the group, it is certainly in a stable position to make such a bet.

Where is the evidence of Huawei espionage?

Before we get carried too carried away with the recent arrest in Poland, let’s remember something; this is a Huawei employee accused of espionage, not Huawei.

Right now, Huawei is the world’s whipping boy. This is a company which is taking the punishment for the nefarious activities of the Chinese government. In Poland, a Huawei employee and another from Orange have been arrested, accused of espionage. But the condemnation should be directed towards the Chinese government and these individuals, not necessarily Huawei.

For the record, we are not suggesting Huawei is completely blameless. The company might be in bed with Beijing, but as it stands there is no concrete evidence to support this theory. The arrest in Poland is circumstantial, evidence that relies on an inference to connect it to a conclusion of fact. It most judicial systems, reasonable doubt is tied into circumstantial evidence meaning it can contribute to a verdict, but alone it is rarely enough to assign guilt.

Huawei could well be a puppet with strings attached to Beijing, but evidence needs to be produced to ensure ‘democratic’ nations are not presuming guilt, a contraction of their legal principals.

The prospects for Huawei are not currently looking good. Effectively banned from any meaningful work in the US, banned in Australia and Japan, under close watch in the UK, ignored in South Korea, condemned by the European Union and in a very suspect position in New Zealand. Eastern Europe was one area where it looked like business was safe, but now the Polish are talking about a ban as well.

With all this heart-ache and headaches for the Huawei executives you have to question how much evidence there has been of espionage. As far as we are aware, nothing of note.

This is of course not to say there isn’t any but look at the situation. The US government is trying to rally the world against Huawei and China on the whole, it has been for years now, and you have to think it would use evidence to turn the tides if it had any. Back in 2012, a House Intelligence Committee told the US government Huawei was a ‘National Security Threat’, but in the six years since this point no evidence has been produced to support this statement. Yet this report has been used as the foundation of all negative sentiment directed towards China and Huawei.

This report, which was the result of a yearlong investigation by the committee, came to the conclusion Huawei and ZTE were a national security threat because of their attempts to extract sensitive information from American companies and their loyalties to the Chinese government. The report stated it had obtained internal documents from former Huawei employees suggesting it supplied services to a ‘cyberwarfare’ unit in the People’s Liberation Army, but this evidence has never made it to the public domain.

For most, the sustained rhetoric of espionage could be viewed as politically and economically motivated. Chinese companies are making an impression on the world and Silicon Valley’s vice-like grip on the technology industry is loosening. This would be incredibly damaging for the US economy on the whole, which has partly relied on the dominance of this segment for success in recent years. In recent months it has been flexing its muscles and some are bending to its will. Deutsche Telekom is an excellent example.

Only last month, DT suggested it was reviewing its relationship with Huawei to ease concerns from the US government. It just so happens government agencies are reviewing its US businesses potential merger with Sprint. Breaking ties with the Chinese vendor would certainly gain favour with Washington, but is this culture of paranoia and finger-pointing something we should be encouraging?

Again, this is not to say there is no evidence to support the accusations. However, if the US government had the smoking gun, surely it would have shown it to the world. Some might suggest it had an obligation to inform its allies of such nefarious activities. Some even more sceptical individuals might also suggest that if there was classified evidence, it would have been leaked by someone over this period. In today’s world it is impossible to keep big secrets secret. Just look at Edward Snowdon’s revelations.

Over in Germany, the Federal Office for Information Security (BSI) has said it would take this very approach. Arne Schoenbohm, President of BSI, said that for his agency to consider banning Huawei from the country he would have to see evidence. This statement came at the same time a US delegation had been meeting with officials from the Foreign Ministry to discuss a ban. As no ban has emerged, it would appear the US delegation was unable to table any evidence.

Going back to the arrest in Poland, some might suggest this is enough evidence to ban Huawei from operating in the nation. However, governments have been catching spies for decades and punishing individuals. There is little (or any) precedent to ban the company than individual works for unless there is a direct link between the organization and the nefarious government. Over in the UAE, 31-year-old PhD student at Durham University has been arrest for espionage also, but the University has not been punished. MI5 and MI5 catch spies and potential terrorists every year, but the companies they work for are not accused of espionage.

We suspect the Chinese government is obtaining information through reprehensible means, but if the world is to hold China accountable, ‘western’ governments need to stand by their principles and not undermine the foundations of fair society. The principle which is being forgotten today is the assumption of innocence until a party has been proven guilty.

Two wrongs do not make a right, and we have to ask ourselves this question; are we any better than the oppressive governments if we forget this simple principle of a fair and reasoned judicial system; innocent until proven guilty.

Bharti Airtel exploring acquisition of Telkom Kenya – report

Indian telco Bharti Airtel is reportedly in discussions to expand its presence in the Kenyan market through the acquisition of Telkom Kenya.

According to Reuters, the under-pressure Indian telco is meeting with Telkom Kenya executives to acquire the business, merging the number two (its own brand Airtel) and three players in the country. This is not the first time such a transaction has been discussed, though it is claimed London-based Helios Investment, which owns 60% of the business, is attempting to cash-out of the market.

While agriculture still remains the leading sector across the country, Kenya’s growth has been steady and diversifying in recent years. The country is the economic, financial, and transport hub of East Africa, and real GDP growth has averaged over 5% for the last decade, according to statistics from the CIA World Factbook. Mobile growth in the country is growing quickly, while the economy is increasingly looking mobile-first. This could be a very useful acquisition for Bharti Airtel.

In terms of market share, this is a country which is heading the right direction for Bharti Airtel. Safaricom is the market leader with a 67% share but declining, according to Ovum’s WCIS, Airtel has 23% market share and increasing while Telkom Kenya currently has 9% but is also increasing, albeit at a slower rate than Airtel. Supplementing the gathering Airtel momentum in Kenya with the Telkom Kenya footprint would certainly be a sensible business strategy to tackle the dominant Safaricom.

Another interesting factor to this deal would be the fixed line business. As it stands, Airtel does not have a fixed line offering in Kenya while Telkom Kenya does, and this is a segment which has been targeted for growth by the government. The National Broadband Strategy intends to deliver reliable fixed line broadband to as many as 30% of the Kenyan population, though you should always remember this is a mobile-first country. Fixed line might be a useful addition, but with mobile money dominating the economy (48% of Kenya’s GDP was processed over M-PESA between July 2016 and July 2017), this is very much a mobile-first society.

For Bharti Airtel, the team needs a win to report back to investors before too long. The emergence, and continued success, of Reliance Jio has been a nightmare for the former market leader, while an end to the misery seems unforeseeable right now. Profits at the firm have been impacted, subscriptions are going south, and the newly-merged Vodafone Idea business might cause more upset as it readies its own attempt at market disruption. Bharti doesn’t seem to have done much to combat the threat at home, though it does have a successful African business to bolster the numbers.

Looking at the most recent financial results, revenues across the group grew by a miserly 0.5%, though the revenue decline in India (which accounts for roughly 66% of the group total) was 3.6%. Africa on the other hand contributed 10.8% revenue growth and almost three million net additions in subscribers. The consolidated East Africa region brought in an additional 1.2 million customers over the period, while revenues in both voice and data have been steadily increasing over the last year. This is a stark contrast to the failures at home.

Bharti Airtel has lost the number one spot in India thanks to the Vodafone Idea merger, and should trends continue, it won’t hold onto number two for very long either. Catalysing the promising African market is certainly a sensible way forward, but onlookers should not be distracted from the chaos in Bharti’s domestic market.

InterDigital says Huawei is setting a dangerous precedent with patent lawsuit

Huawei has filed a lawsuit challenging the royalties it’s charged, but InterDigital CEO thinks the saga could have a much more damaging and wide-ranging impact on the industry.

Lawsuits in the telco industry are not uncommon, while they are pretty much part of the daily routine for anyone who deals with patents. According to InterDigital CEO Bill Merritt, the dispute is not the problem, it’s the way that Huawei is hoping to get a resolution, heading towards localised judicial systems as opposed to international, and standardised, arbitration.

“Standards have done a great job at breaking down national walls, creating a single playing field, and we think pricing should be the same,” said Merritt.

As it stands, Huawei has filed a lawsuit with the Shenzhen Intermediate People’s Court (January 2) accusing InterDigital of not licensing patents on fair and non-discriminatory terms. The lawsuit follows the expiration of a prior licensing agreement (December 31) with the pair not able to come to an agreement on future terms.

Long story short, Merritt pointed out Huawei wants to pay less for the patents. It’s a simple dispute, based on the success of Huawei smartphones and devices over the last year or so. As Huawei is shipping more units, it feels it should be offered a more competitive rate due to economies of scale. InterDigital however, feels it is offering a fair and reasonable price. The court case will decide royalty payments for the next four years (2019-23).

From Merritt’s perspective, the issue is not the dispute but the lawsuit itself. In the past, with Huawei and other customers, InterDigital has chosen to go down the route of arbitration, an option which Merritt feels is best in this situation as well. In most arbitration cases, each party selects a professional arbitrator, before the pair jointly select a third independent one. The idea is that the trio would assess all the information in the contract, look at market precedent as well as future developments, to decide a competitive and reasonable price for the transaction. It’s (in theory) an independent and neutral way to resolve conflict.

In this case, arbitration was offered as a possible resolution, but Huawei declined, instead electing to head to the regional court. This is where the danger lies; the Shenzhen Intermediate People’s Court is a localised institution which has influence in China. The risk is regionalised rate setting which would cause chaos considering how many jurisdictions there are around the world.

To compound the issue of regionalised rate setting, not only are you likely to have varied approaches and opinions, an international supply chain does not lend itself well to this scenario. The majority of devices and products which are sold today are manufactured in a variety of different countries and regions; the economy has been globalised. Merritt said if you are having to factor in several different regionalised rates for production of devices, the whole supply chain could turn into a disaster.

“The number of disputes could easily be reduced if parties committed to arbitration,” said Merritt.

Unfortunately for Merritt and InterDigital, the two technology powerhouses of the world are increasingly promoting more nationalised agendas and policies which encourage isolationist thinking. It seems we can’t go a day without referring to the trade conflict between the US and China, but the idea of regionalised rate setting, which this lawsuit encourages, is another step away from the international ecosystem, the healthiest option for a profitable and sustainable telecommunications industry.

This is a case which might be worth keeping an eye on over the coming months, it might just lead the patent segment down a worrying and complicated red-tape maze of regionalised price setting.

Investment bank thinks Vodafone could be in trouble

RBC Capital Markets has released an investor note warning Vodafone might be in a spot of bother following years of restructuring, M&A, as well as the risk associated with up-coming spectrum auctions.

RBC Capital Markets, the investment bank arm of Royal Bank of Canada, has suggested Vodafone might be in a suspect position, with very little financial headroom despite synergies and cost cutting strategies over the last few years. The telco might be offering investors a strong dividend right now, though RBC believes this position is ‘unsustainable’ when you look at the bigger picture.

“Vodafone’s frenetic portfolio restructuring has left the company more European and converged, but also vulnerable,” RBC stated in the note. “Its underlying markets remain ‘challenging’ and it has very little financial headroom despite synergies and cost cutting. Vodafone has options with its towers but faces a threat from 5G spectrum. The dividend is unsustainable even before we consider a macro downturn. Downgrade to Underperform with 125p PT (was 260p).”

The last couple of years have been an interesting time for Vodafone, as while former CEO Vittorio Colao certainly shook up the business during his tenure he left at a time where Vodafone is sitting on a knife’s edge. There are certainly some success stories across the group, though the potential for disaster is just as prominent.

On the positive side, the UK business is returning to the position of strength under UK CEO Nick Jeffrey. You don’t have to look too far into the past to discover Vodafone used to be the number one player in the UK, though time and sloppy management eroded this position. The last couple of years have seen a turnaround in the mobile business, while the introduction of a fixed line offering certainly creates the opportunity to grow revenues through the much-desired convergence play.

As RBC notes, with no legacy business to protect and a strong partnership with CityFibre, the fixed line potential is certainly noteworthy. Digitisation strategies also seem to be paying off, while its tower business also gives it at opportunity to raise more funds through a divestment if necessary. This is a strategic asset Vodafone would not want to get rid of completely, though a minority sale could raise between €3 billion and €5.5 billion, offering suitable security should it be needed. With the Liberty Global deal set to complete in a couple of months’ time, there is potential for further convergence wins in Eastern Europe also.

Of course, there are substantial risks as well. Competition in the Italian, Spanish and German markets are ramping up, with new entrants such as Iliad and United-Drillisch causing all sorts of problems, while national expansion of Euskaltel in Spain will not be welcomed. These are markets where Vodafone has a notable presence and disruption is rife.

And then you have the spectrum auctions. Vodafone might have already participated in some, but there are still many on the horizon. In Germany, the pre-conditions set on established players look to be commercially unreasonable, and that is even before the auction has taken place. The prices being discussed at each auction are increasing each time and RBC estimates the remaining licences could cost Vodafone between €4.5 billion and €12 billion. Some might suggest the Italian auction was inaccurately inflated, though the premiums paid in Australia and Sweden also confirm the auctions are going to be expensive business moving forward.

Finally, you have India. Vodafone currently owns 45% of the newly created Vodafone Idea telco, the teams answer to the Reliance Jio disruption, though what this is actually worth is unknown for the moment. None of the strategies used to tackle Jio have actually worked yet and it is unknown whether Vodafone Idea will be able to slow the momentum behind the upstart. This market could be great for Vodafone, or it could be a disaster; no-one knows for sure.

As it stands, there are certainly possibilities for the telco moving forward, but the risks and dangers in certain markets are huge. Vodafone has shown itself to be a pretty sound business in recent years with the digitisation and convergence shifts, but RBC doesn’t feel it is in a particularly strong position.

AT&T rebrands LTE-A as 5Ge

AT&T customers might have noticed a new symbol appearing in the top corner of their devices and for those who aren’t paying attention, they might be duped into thinking the telco is offering 5G connectivity.

AT&T has now switched on its ‘5G Evolution’ service meaning a ‘5Ge’ symbol will appear in the corner of Samsung Galaxy S8 Active, LG V30, and LG V40 devices. For everyone else in the world, ‘5G Evolution’ is 4G LTE-Advanced, though AT&T feels the need to intentionally try to mislead customers, fooling them into believing they are receiving 5G data services.

Why AT&T feels it is appropriate to deceive its customers so blatantly is beyond us.

AT&T might well be one of the first to offer 5G services through a portable hotspot device, albeit in a very limited area, but compatible smartphones are still months away. There will of course be various different leaks and promotions over the next couple of weeks leading up to MWC, but the first devices able to make use of the 5G euphoria will not be available until Spring at the very earliest.

With this in mind, AT&T is simply taking advantage of customers who do not know any better.

While this might seem like an underhanded and putrid act from the telco, it’s all about the marketing war which is about to kick off in the US. Verizon can claim to have broken its 5G duck first with the launch of a fixed-wireless access solution, but AT&T has the bragging rights for the first 5G mobile device. This ‘5G Evolution’ deception from AT&T is just another move in the battle for the consumer’s attention.

What is worth noting is that the portion of AT&T’s network offering ‘5Ge’ or LTE-A to call it by its proper name, has received a speed boost. The telco claims speeds of 400 Mbps could be achieved with the connection, though who knows whether this is actually true. AT&T isn’t making itself out to be the most honest brand around here, and perhaps we should start questions the legitimacy of any claim the telco makes.

The long and short of it is AT&T is intentionally, directly and disgustingly misleading its customers, a move that could well blow back in its face.