Parliamentary Intelligence Committee piles pressure on Huawei decision

The Parliamentary Intelligence and Security Committee has unveiled a statement to rubbish delays put on the Supply Chain Review, demanding a decision ASAP.

In the same week as the Chair of the Science and Technology Committee suggested there are no technical reasons to ban Huawei, the Intelligence and Security Committee has demanded a sharp decision or risk losing a strong position in the digital economy.

“5G will transform our day to day lives – if it meets its full potential – and it could be key to our future prosperity,” a statement from the Committee reads. “Such an important decision therefore requires careful consideration. However, the extent of the delay is now causing serious damage to our international relationships: a decision must be made as a matter of urgency.”

While the UK fell drastically behind the norm when it came to adopting 4G, progress has been much more promising for 5G. While calling oneself a global leader usually means little coming from the mouths of groomed politicians, in this case the UK is a genuine leader in the 5G race. There are only a handful of nations who launched ahead of the UK and the opportunity to scale nationwide rapidly is certainly is present.

However, the Intelligence and Security Committee, chaired by Dominic Grieve, feel this is a position which is becoming increasingly vulnerable. The longer this review continues, the slower 5G expansion plans will be, and the greater the opportunity for fast-followers to catch-up.

That said, perhaps the biggest revelation from the Intelligence and Security Committee seems to be the implications to national security.

“However, the telecoms market has been consolidated down to just a few players: in the case of 5G there are only three potential suppliers to the UK – Nokia, Ericsson and Huawei,” the reports states. “Limiting the field to just two, on the basis of the above arguments, would increase over-dependence and reduce competition, resulting in less resilience and lower security standards.”

Despite many critics of Huawei suggesting inclusion of the firm in critical infrastructure would compromise national security, Grieve’s opinion is that reducing the number of available vendors would create more problems. Not only would the networks be more expensive to build, but resilience would be dampened as well.

As you can imagine, Huawei are relatively pleased with the report from the Committee.

“We agree that diversity improves resilience in networks,” said Victor Zhang, Vice-President of Huawei. “We’ve been a part of UK networks for 18 years. 5G is critical for the UK and is the foundation of tomorrow’s digital and mobile economy. Quite simply, it will improve people’s lives. Our priority has only ever been to deliver world-leading technology to our customers.”

This is the problem the Department of Digital, Media, Culture and Sport (DCMS), the National Cyber Security Centre (NCSC) and the wider Government, is facing. Not only does DCMS have to recruit a new Digital Minister after the resignation of Margot James, deal with Brexit and select a new Prime Minister, it has to come to decision on the role of Huawei in the 5G era.

This statement and the report from the Science and Technology Committee is piling up the pressure. The message is relatively clear, these distractions should not undermine the importance of coming to a conclusion on Huawei.

At some point, the UK Government is going to have to hurt someone’s feelings. Either the relationship between the UK and the US or China is going to be impacted. With Brexit around the corner, the UK needs to nurture relationships outside of the European Union, but unfortunately it is unavoidable here.

The pressure is mounting and soon enough the Government will have to make a decision. It has been able to procrastinate, but the more influential groups who press for a conclusion, soon enough the Government will have to show some progress.

S&P prepares to downgrade Vodafone after spending spree

Standard & Poor’s has suggested it will downgrade Vodafone from its current ‘BBB+’ credit rating should the European Commission approve its acquisition of Liberty Global assets.

Vodafone has struck an agreement to buy Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania for €18.4 billion, including debt, though S&P believe this acquisition could put it in a slightly precarious position. With S&P suggesting approval for the transaction could be granted during the next three months, the firm has placed Vodafone on its Creditwatch list.

This acquisition is not the only factor S&P has taken into account, but it seems it will be straw heavy-enough to break the camels back. Aside from this purchase, the financial services firm has also pointed towards spectrum auctions and operational challenges in Spain, weaknesses in South Africa and the re-pricing saga in Italy as contributing factors. India has not been mentioned by the firm, but the on-going difficulties here should also be noted.

In short, S&P believes the firm might be getting a little bit too carefree with its spending.

The Creditwatch function of S&P effectively informs investors of the firm’s closer inspection of a business which is under-going some sort of change. Inclusion on the list can either be positive or negative, indicating whether the credit rating has the potential to go up or down, and in this case S&P feel Vodafone is heading in the wrong direction.

This is all very complicated, and unless you have an avid follower of spreadsheets, there is a blur of numbers and multiples to get your head around. However, this is not good news for Vodafone and will create a negative perception around the business when engaging investors.

Currently, Vodafone’s credit rating is ‘BBB+’, which isn’t necessarily the worst position to be in. A ‘BBB’ rating, any one of the three measurements included, suggests a company ‘has adequate capacity to meet its financial commitments’, though adverse market conditions could impact its ability to meet financial demands. Cutting through the noise, Vodafone has too much debt and poor performance could put it in financial strife; its spending too much money according to S&P.

Looking at the state-of-play for Vodafone, it could be better. There are of course markets where the trends are heading in the right direction, see the UK, but quite a few where it is facing challenges. These trends combined with financial outlay is not painting the prettiest pictures.

The acquisition of some Liberty Global European assets is a big commitment, while the business has also had to fork out €1.9 billion during the German spectrum auction. The Spanish and Italian auctions were also expensive for the telco, while there is another on the horizon in the UK. This is not the time exposure to spectrum auctions has been highlighted at Vodafone, RBC Capital Markets put out its own negative outlook in January.

That said, spending is not an issue if everything is going well. However, macroeconomic weakness in South Africa is decreasing consumer spending on mobile contracts. Considering this is largely a pre-paid market, this should be seen as a worrying trend. Iliad is continuing to cause chaos with aggressive pricing strategies in Italy and Spain is another operational difficulty after losing the rights for domestic football, hitting TV subs hard. As mentioned before, India has not been mentioned by S&P, but it appears the worst damage is in the past following the merger with Idea Cellular.

Vodafone has of course made effects to limit the negative impact. Dividends have been cut and cost-efficiency strategies have been set into motion, while integration costs of the Liberty Global acquisition should be offset by operational synergies. This is not to say Vodafone is going under at any point in the future, but it is a consideration creditors will have to take into account.

This is not the worst news Vodafone could have expected to hear, S&P has said it does not expect to downgrade the credit rating of the firm further, but it is far from good news. It is a slight dent to confidence in the business.

Ericsson happy to remain on track with Q2 numbers

Swedish kit vendor Ericsson is determined to make life difficult for journalists these days by delivering solid but unspectacular quarterly numbers.

Gone, it seems, are the heady days of quarterly high drama that accompanied the end of the Vestberg era and the start of the Ekholm one. For the past year or so Ericsson has just boringly hit its numbers, sometimes beating them, sure, but never spectacularly so. Where’s the story in that?

We chatted to Head of Networks Fredrik Jejdling, who has stepped into the void left by the departure of Helena Norrman to handle the hacks at quarterly time. His core narrative was that Ericsson is laser-focused on hitting its 2020 target numbers and remains on course to do. We noted that a share-price fall of 5% indicates investors expected more and Jejdling, reasonably, declined to speculate on the workings of investors’ minds.

As ever Ericsson’s numbers are all about the networks division, which we focused on since Jejdling is in charge of it. As you can see from the tables below Networks accounted for the majority of the revenue and pretty much all of the growth. While North America continues to be by far its biggest region, Jejdling was keen to bring attention to North East Asia, which includes China and Korea, as a significant source of growth. He also echoed his CEO’s regular comments that global regulators could do a better job of making more spectrum available.

The big macro driver for this growth was, of course, 5G. Jejdling said client conversations are much more focused on upgrading to 5G than they were only recently and indicated that interest in is more globally ubiquitous than is was for 4G at a similar stage. He did stress however, in classic Ericsson style, that it’s still early days and nobody’s getting too carried away. “As long as we feel we’re meeting the key milestones on the 2020 track then we’re quite happy,” said Jejdling.

We didn’t really get into the other business units, so here’s some of CEO Börje Ekholm’s statement accompanying the quarterly report. “We see strong momentum in our 5G business with both new contracts and new commercial launches as well as live networks. To date, we have provided solutions for almost two-thirds of all commercially launched 5G networks.

“5G momentum is increasing. Initially, 5G will be a capacity enhancer in metropolitan areas. However, over time, new exciting innovations for 5G will come with IoT use cases, leveraging the speed, latency and security 5G can provide. This provides opportunities for our customers to capture new revenues as they provide additional benefits to consumers and businesses.

“In Digital Services we continue to execute on the plan to reach low single-digit margins for 2020. In Managed Services the strategy is to enhance the customer offering by relying more on automation, machine learning and AI, which will longer-term change and improve the margin profile of the business. Near-term margins are negatively impacted by the increase in R&D investments.

“Organic sales growth in Emerging Business and Other was 24% driven by a continued growth in iconectiv. In this segment we invest in initiatives that aim to scale and help create future business for Ericsson. With the exception of iconectiv, the portfolio is still in an early investment phase.”

Ericsson’s share price was down 6% at time of writing, which seems a bit harsh, but that probably reflects disappointment from investors that all the early 5G hype hasn’t translated into even bigger gains and a more bullish outlook. But 5G was never going to result in sudden massive spikes in investment and, however difficult it may find it to do otherwise, Ericsson is probably sensible to caution against too much exuberance at this stage.

Ericsson q2 19 numbers

Ericsson q2 19 numbers segments

Ericsson q2 19 numbers networks

Ericsson q2 19 numbers digital

Ericsson q2 19 numbers managed

Ericsson q2 19 numbers other

Arm shakes up the IP game

Arm has announced the launch of its flexible licensing model to allow customers to access to its IP without breaking their bank accounts.

It’s a model which has the potential to shift traditional dynamics in the segment as Arm aims to shift its customer base outside its traditional mobile market. With the connected era promising a ridiculous number of devices there are riches available for those who can prove their IP is suitable for this varied plethora. This seems to be the strategy in mind.

In short, customers pay a ‘modest’ fee upfront and then negotiate contracts when the team is moving towards production phase.

“By converging unlimited design access with no up-front licensing commitment, we are empowering existing partners and new market players to address new growth opportunities in IoT, machine learning, self-driving cars and 5G,” said Rene Haas, President of the Intellectual Property Group at Arm.

As it stands, Arm works like many other IP businesses. Customers pay the full-amount for access to licences and agree royalty payments, depending on the potential scale of the devices, upfront. Although this is the traditional way in which business is conducted, it is risky as it is an expenditure irrelevant as to whether the Arm IP is used in production or not.

The Arm Flexible Access model effectively delays payment. SoC design teams will be able to engage Arm and its IP before any licences or royalty payments are agreed. In short, customers will only pay for what they use when they get to production, paying only a trial fee at the beginning of the process.

Arm has said the Flexible Access portfolio includes all the essential Intellectual Property (IP) and tools needed for an SoC design. Prototypes can be designed and evaluated in numerous ways before any significant financial commitments are made. Theoretically, it should offer customers more opportunity to experiment without the fear of irreversibly-expensive mistakes or assumptions.

There are now three ways to work with Arm:

Arm DesignStart Arm Flexible Access Standard Licensing
Cost $0 for Cortex-M0, M1 and M3$75k for Cortex-A5 $75k entry package annual access fee$200k standard package annual access fee Upfront license fees based on license terms
Licensing Simple license agreement for DesignStart Pro Sign one-time access and manufacturing agreements Agreement terms vary to cover single or multiple uses
Support Community-based support Standard support and maintenance for all included products Standard support and maintenance for licensed products
Portfolio Click here Click here Access to the most advanced Arm IPLocked-down system-on-chip (SoC) roadmaps with multiple uses of specific Arm IP products

“We are working on several products to address AI use cases in automotive, IoT gateways and edge computing,” said Nagendra Nagaraja, CEO of AlphaICs, an AI start-up. “For this, we need access to a wide range of IP and the ability to rapidly evaluate, prototype and design. Arm’s Flexible Access model gives us that agile approach to IP for the first time.”

This is where the model can be incredibly beneficial for both the ecosystem and Arm. Companies like AlphaICs would have struggled financially to scale under the traditional IP model, it is a 50-strong start-up exploring an embryonic segment of the technology industry. In paying a modest amount up-front, AlphaICs has the opportunity to prove the business case before making any significant financial commitments.

This approach obviously helps the start-ups who are exploring unproven ideas, but it also gains Arm traction in currently unprofitable segments which could scale extraordinarily quickly. AlphaICs is aiming to create the next-generation of AI compute for autonomous edge and data centre applications, not a traditional stomping ground of Arm, but there are certainly growth opportunities.

Three UK claims 5G-ready cloud core first ahead of August launch

Even though it won’t be flicking the 5G switch until next month, Three UK has decided to bang on about its new virtualized core once more.

We first heard about this whizzy new core, that has been built in partnership with Nokia, back in February. At the time we assumed that would be the last we’d hear about it until the formal launch of Three UK’s 5G network, but Three seems to think we need just one more teaser first.

So, once more for those at the back, this is all about actually using this virtualization tech we’ve been hearing about for so long to make a secure, scalable, flexible core that is capable of fully delivering the 5G dream. It will be housed in 20 dedicated data centres scattered around the country to deliver edge computing benefits such as lower latency. This is also a good case study for Nokia to show how good it is at this sort of thing.

“Our new core network is part of a series of connected investments, totalling £2 billion, that will provide a significant step change in our customers’ experience,” said Dave Dyson CEO of Three UK. “UK consumers have an insatiable appetite for data as well as an expectation of high reliability.  We are well positioned to deliver both as we prepare for the launch of the UK’s fastest 5G network.”

“This is an exciting time for both Nokia and Three UK, as together we work towards the future of telecommunications networks,” said Bhaskar Gorti, President of Nokia Software. “This project delivers a joint vision that has been forged from the catalyst of Three’s strategy for complete business transformation. The project will deliver a flexible 5G core network, enabling the next generation of mobile services and cementing Three UK as a true leader of 5G in the UK.”

Three was careful to give shout-outs to some of its other partners in this project, which include Affirmed Networks for traffic management, Mavenir for messaging and Exfo, Mycom and BMC for OSS. Not only will this core network be central to Three UK’s strategy for the next decade, it will also provide a good live test of the kinds of technology everyone will be reliant upon before long. No pressure then, see you in August.

Vodafone UK enters the 5G FWA fracas

Vodafone UK has debuted its 5G Gigacube to further expand its connectivity portfolio, perhaps gaining more of a foothold in the broadband market.

Although Vodafone is primarily associated with the mobile segment in the UK, it has been making positive moves in the broadband market over the last twelve months. Having signed a partnership with CityFibre last year to deliver fibre broadband services, the 5G Gigacube offers another twist to the portfolio.

Vodafone claims the 5G Gigacube can offers speeds of up-to 1 Gbps, the dreaded conditional statement which been suggested to mislead customers, while 64 devices can be connected simultaneously, and the range can be as great as 90 metres. There are still a lot of unknowns and nuanced language in these statements, but it does seem to be priced competitively as you can see below:

Data allowance 100 GB 200 GB Unlimited
12-month contract £25 (£83 upfront) £33.33 (£42 upfront) £41.67 (£42 upfront)
30-day contract £25 (£271 upfront) £33.33 (£271 upfront) £41.67 (£271 upfront)

Interestingly enough, there have also been some clues into the way in which it will be marketed.

Due to the offering being mobile by nature, there aren’t geographical limitations, in theory. If you are a small business without a fixed office, the plug and play feature allows you to effectively carry connectivity wherever you are. This could be applied to a variety of situations, such a pop-up restaurants or bars, and could potentially open-up new markets for broadband products.

It also tackles another interesting challenge in the consumer broadband market. When a customer moves home, there is no guarantee that customer will be retained; it depends on offers which are available wherever that customers actually moves to. With a plug and play, mobile driven, broadband solution, contracts can be retained irrelevant as to where the customer lives.

Although we have been teased with the launch of the 5G Gigacube over the last couple of weeks, its debut today completes the puzzle when it comes to convergence.

Convergence is one of the most consistent buzzwords over the last couple of years, but that is for a very good reason. Not only are convergent customers more likely to be retained year-on-year, it increases the profitability of subscriptions. Most telcos would rather have one million customers taking two services than two million taking one, and this product offers Vodafone another opportunity to make the most of the buzz.

Announced earlier this month, as the telco switched on its 5G networks, Vodafone will offer a convergence connectivity product, combining a home wifi solution with mobile for £50 a month. And to sweeten the deal, customers will also receive an Amazon Alexa speaker for free.

Vodafone has largely been viewed as an ‘also-ran’ over the last decade, O2 and EE have built a considerable leadership position, though the former-market leader has been rebuilding over the last few years.

The turnaround in the business does seem to coincide with the introduction of Vodafone UK CEO Nick Jeffery. During his tenure, the team has built a converged network, Redstream, addressed customer service with the introduction of chatbots, the retirement of legacy IT systems, reinvigorating the brand and creating a business which is contextually relevant. Although this is not mission complete, you can see the progress which has been made.

Vodafone feels like a new business at the moment and it couldn’t have happened at a better time. The world is about to enter into a new era of connectivity with 5G and FWA challenging traditional home broadband. Vodafone is positioning itself very well.

Swisscom, SK Telecom, Elisa and BICS claim world’s first 5G roaming services

The very small number of people who are capable and inclined can now roam between the 5G networks of Swisscom and either SK Telecom or Elisa.

Swisscom has over 6 million mobile subscribers but hasn’t revealed how many of them have upgraded to 5G. Since Swisscom only started to roll out its 5G network in April of this year, it seems safe to assume its 5G subscriber base is struggling to hit six figures. Of those, owners of Samsung Galaxy S10 5G smartphones can now fly from Zurich to Seoul confident of maintaining their newly-won boosted download speeds. The converse is true of SK Telecom’s 5G punters.

“SK Telecom once again proved its leadership in advanced roaming technology with the launch of world’s first 5G roaming service” said Han Myung-jin, Head of the MNO Business Supporting Group of SK Telecom. “We will continuously expand our 5G roaming service to enhance customer experience and benefits.”

“We want to offer our customers the best network – both in Switzerland and abroad,” said Dirk Wierzbitzki, Head of Product and Marketing at Swisscom. “So we are proud to be one of the world’s first providers to offer 5G abroad. We will continue to expand 5G availability abroad with additional partners.”

Swisscom has struck up a similar deal with Finnish operator Elisa, which is also claiming the world first, so it looks like SK Telecom has a fight on its hands. We were amongst the first countries to start building 5G networks in Finland,” said Elisa’s Director of Consumer Handset Subscriptions Jan Virkki. “Now that Swisscom has opened their 5G network, we are more than happy to be able to provide the ultrafast 5G to our consumer and corporate customers travelling to Switzerland.”

Roaming specialist BICS also wants a piece of the action, having got involved in the SK Telecom gig. “Today’s successful implementation of a trans-continental 5G data roaming relation further endorses our position at the forefront of global mobility for people, applications and things,” crowed Mikaël Schachne, CMO and VP Mobility & IoT Business at BICS. We couldn’t find any other corporate chest-beating over this bit of news but there probably was some.

Qualcomm makes its flagship chip a bit better

Just when you thought the Snapdragon 855 was as good as it gets, Qualcomm has only gone and put a plus on the end of it.

As its name implies, the Snapdragon 855 Plus is a bit better than the Snapdragon 855 chip, which Qualcomm launched amid much fanfare in Hawaii late last year. The marketing top-line for this launch is that it’s all about mobile gaming, with both the CPU and GPU being a bit faster than in the boring old vanilla 855. As with its predecessor the 855 Plus also plays nice with the 5G X50 modem.

“Snapdragon 855 Plus will raise the bar for elite gamers with the increase in CPU and GPU performance and elevate experiences for 5G, gaming, AI and XR, which is something our OEM customers look to us to deliver,” said Kedar Kondap, VP of product management at Qualcomm. “Snapdragon 855 Plus is our most advanced mobile platform to date and will build upon the success of the 2019 Android flagship Snapdragon 855 5G mobile platform.”

Apart from the faster processors there is talk of something called the Snapdragon Elite Gaming Experience, which includes the Vulkan 1.1 Graphics Driver, which Qualcomm compares favourably to Open GL ES and the ‘Game Jank Reducer’, a must-have for anyone whose game jank has reached troublesome levels. As if that’s not enough this SoC features the fourth generation of Qualcomm’s AI engine and some VR/AR features.

Huawei reshuffles its global deck

Chinese vendor Huawei is reportedly doubling down on Italy while scaling back what little presence it has in the US even further.

Thomas Miao, Huawei’s Italian boss, announced the company will invest over a billion bucks a year for the next three years in Italy, according to a Reuters report. No such pledge can be made without a few strings attached, however, and Miao apparently called on the Italian state to ensure a level playing field for Huawei in the country, though its ‘golden power’ that allows it to poke its nose into the telecoms sector if it feels like it.

We’re told Italy recently augmented this power in apparent response to security concerns over the involvement of Huawei and ZTE in the country’s 5G network and Miao wants to make sure those powers will be used with equal vigour towards Ericsson and Nokia too. There were no overt conditions attached to the investment, but it seems clear that it might suddenly disappear if the Italian political environment deteriorates for Huawei.

Meanwhile the WSJ reports that Huawei plans extensive layoffs in the U.S. Specifically this refers to some Huawei research labs called Futurewei, that employ around 850 people. The source is the usual people who reckon they know a thing or two, but it’s totally believable considering how hostile the political climate in the US is towards Huawei. Well-known hedge fund manager Kyle Bass seemed to welcome the news on Twitter.

Having said that Reuters, once more, reports that the US government is set to start some limited trade between US companies and Huawei within weeks. This development comes in the face of considerable domestic opposition to President Trump’s minor concessions and serves to further illustrate what a good move it will probably be for Huawei to clear off from that country entirely.

Israel takes the ‘Vickrey’ approach to 5G auctions

The Israeli telcos have taken a bit of a battering over the last 12-18 months and it seems the Government has a sympathetic ear with its new approach to auctioning 5G spectrum.

According to Globes, the Government will make use of an auction technique known as the Vickery method to divvy up the precious 5G frequencies. It is an interesting approach, and bundled together with other incentives, should create a much more investment friendly environment for the telcos.

A Vickery auction is a blind auction where the highest bidder wins the prize, but the second-highest value is actually paid. Although this approach is uncommon, for some it is believed to be fairer as it attempts to attract bids closer to the value of the asset but does not punish competition for inflated prices. Whether this proves to be true remains to be seen, though it certainly is an interesting approach.

This auction might turn some heads, but context is key. The Israeli telcos have had somewhat of a difficult period in recent years thanks to the introduction of aggressive new players and an on-going price war which has driven down profits. The Israeli Government has suggested revenues declined in telco by 5.6% in 2018, leading some to the assumption the telcos would struggle to fulfil the financial commitments of 5G networks.

“The financial state of the companies at this time has not escaped us, and the tender also takes this situation into account,” said Minister of Communications David Amsalem. “I congratulate my friends and participants in the tenders committee for their professional work. The dedication and responsibility exercised is what made it possible to lay the cornerstone today for the next era of technology.”

To attract further interest in the 5G bonanza, the Israeli Government will also introduce a number of incentives to lessen the burden of network investment. Payments for spectrum licenses can be delayed until 2022 for example, while there are also rebates being offered to those parties who meet geographical coverage expectations set over a four-year period.

Another interesting aspect of the auction is the shared network element. Some of the assets will only be offered to those telcos who agree to participate in the creation of shared infrastructure, a strategy the Government hopes will increase the efficiency of investments.

Looking at the frequencies available, the Government will attempt to ensure all telcos have a slice of the most desirable bands, 700 MHz for example, while a series of other lots will be available. The assets bought in the 2.6 GHz to 3.8 GHz frequencies will only be useable for 5G, while the other frequencies can be used to bolster 4G.

Only time will tell whether this approach will lead to a net-gain in terms of investment and network rollout, but the Israeli Government should be applauded for taking an alternative approach which is potentially better suited to local market dynamics.