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.

Infracapital secures SSE Enterprise Telecoms stake

Infracapital has become the latest investment firm to secure a stake in the increasingly popular connectivity industry with a £380 million investment in SSE Enterprise Telecoms.

The deal will see Infracapital secure a 50% stake in the SSE Enterprise Telecoms business, with £215 million to be paid on completion of the transaction, the end of June, and up to £16 million in a series of instalments depending on the performance of the business in the future.

“Infracapital’s investment in SSE Enterprise Telecoms shows the confidence it has in the future growth of the business,” said Colin Sempill, SSE Enterprise Telecoms MD. “It recognises the success we have achieved to date, building out a great network, winning notable contracts and being relentlessly focused on customer satisfaction. Both parties see this as an opportunity to help develop the network infrastructure that this country needs to turn the vision of the UK’s digital economy into reality.”

“High-speed connectivity is vital to economic growth and prosperity and we are delighted to announce this partnership with SSE plc.,” said James Harraway, Infracapital Director. “SSE Enterprise Telecoms is an established telecoms infrastructure provider and is well positioned to support growth in this critical sector. Infracapital has considerable expertise of investing in digital infrastructure and we look forward to working closely with our new partners as the business continues to grow, deliver new projects and expand its networks.”

While SSE Enterprise Telecoms is not necessarily a heavyweight on the UK’s connectivity scene, this investment is just another example of financial firms becoming increasingly interested in alternative network providers, or Alt-nets. Hyperoptic is another example, having secured £250 million from eight international banks to extend its full fibre optic network, while CityFibre secured a debt package of £1.12 billion last month, after being bought by a Wall Street investment consortium in April.

More than anything else, this is an indication that perhaps things are not going as badly in the telecommunications as some would have you think. It might be going through a rocky time competing with the OTTs, regulations might not be going all the right directions and revenues are not growing at a rate of knots, but such investments show there is confidence in future success. The industry has demonstrated consumers are willing to pay for larger data bundles and fibre connectivity, and now the financial industry is listening more acutely.

For the Alt-nets and the consumer, it is a great sign. Securing more investments in the business, especially from those organizations which are not necessarily chasing the short-term pay out, will provide more security around CAPEX and deployment plans. It might not be the most exciting news from today, but it perhaps some of the most reassuring.

Options are running out for net neutrality supporters

FCC Chairman Ajit Pai has released a gloating statement after Democrats failed to invalidate the pompously named ‘Restoring Internet Freedom’ order, making the path for net neutrality much rockier.

In June last year, net neutrality was officially struck from the FCC rulebook as the ink dried on the aforementioned order. There has been much protest and opposition to the rules, and while there are still routes to restore the Tom Wheeler-era rules, the number of options are getting smaller. With a new Session of Congress now in play, the path of invalidation is now closed.

As the rules were passed during the previous Session, the Democrats had a limited amount of time to try and invalidate the ‘Restoring Internet Freedom’ order passed by Pai and his Republican Commissioner cronies. Unfortunately for the net neutrality supporters, the 218 votes required in the Senate was a step too far. By close of play on January 2, only 182 votes, the majority of whom where Democrat, were mustered.

“I’m pleased that a strong bipartisan majority of the US House of Representatives declined to reinstate heavy-handed Internet regulation,” said Pai. “They did the right thing – especially considering the positive results for American consumers since the adoption of the Restoring Internet Freedom Order. Over the past year, the Internet has remained free and open.

“In short, the FCC’s light-touch approach is working. In 2019, we’ll continue to pursue our forward-looking agenda to bring digital opportunity to all Americans.”

What does this mean for net neutrality? There is still a route back for the rules, though it is becoming increasingly difficult.

Invalidating the rules was the simplest option, though the Democrats only had one shot at this. A new Session sets the rules in play, though there are other routes, both legal and regulatory.

On the legal side of things, there are still challenges being made to the ‘Restoring Internet Freedom’ order by numerous companies, consumer groups and Attorney Generals throughout the US. While many of the lawsuits are fundamentally arguing the same point, albeit with various different nuances, the courts will be asked to rule on one area in particular; whether the individual States can enforce their own localised legislation on net neutrality.

Central to this conundrum is California. Having agreed to delay the implementation of its own net neutrality rules in the State, judges will have to ponder the age-old debate of Federal vs. State. This is where it gets very complicated; as the internet is not a localised ‘service’, can California guarantee it will only impose the rules on traffic which is restricted to its borders? Should traffic traverse the cables elsewhere, the State has no right to implement net neutrality rules. This is a concept which is stated in the US Constitution.

On the regulatory front, the Democrats could attempt to force through new legislation which would supersede the ‘Restoring Internet Freedom’ order, in the same was this order did to net neutrality. This would be complicated as you have to suspect the Democrats to not have enough bodies in the room to drive through a majority.

All of the options remaining for the net neutrality supporters are time coming however, which is a factor which will certainly work against them. Pai can take his time and attempt to prolong the issue, as the longer it takes to resolve the less interest the general public and other politicians will have. We are fickle people, we get bored easily, and politicians are as shallow as we are fickle. If net neutrality is no longer getting the necessary amount of attention in the press, less enthused politicians will find a new cause to champion in pursuit of PR points.

The net neutrality battle is not over, but, unfortunately, Pai is winning.

Jio bags another 10 million – how was your October?

The Telecom Regulatory Authority of India (TRAI) has released the subscription data for October and it’s another familiar story as Reliance Jio grows its subscription base again.

Looking at the market on the whole, India now has 1.17 billion wireless subscriptions, having added another 720,000 during October. Amazingly, market penetration is now up to 87%. While growth has been staggering since Reliance Jio shunted the status quo, if the country follows what would be considered the traditional trend (mobile penetration eventually exceeding 100% of population) there are still a couple of hundred million mobile subscription to realise.

Unsurprisingly, Reliance Jio has greedily devoured almost all of the positive growth.

Subscription growth Market share
Reliance Jio 10,500,227 22.46%
BSNL 386,926 9.7%
Reliance (3,831) 0.002%
MTNL (8,068) 0.3%
Tata (925,299) 1.8%
Bharti Airtel (1,864,065) 29.2%
Vodafone Idea (7,361,165) 36.55%

With only BSNL, India’s state-owned telco, heading upwards Reliance Jio has firmly placed itself in the strongest position across the market. Bharti Airtel is in somewhat of a downward spiral and it’s difficult to see how it will get itself out of this position, therefore eyes will be cast towards Vodafone Idea for resistance to the Reliance Jio tsunami which is sweeping India.

Looking at these figures alone paints a relatively dreary picture, though you have to appreciate the complicated process the business is currently undertaking. The merger between Vodafone and Idea, which was caused by the jittery upstart Jio, is going through the rationalisation period right now. This is a very complex time and will define the firm’s ability to tackle the Reliance Jio headache in the months to come.

On the money side, we do not foresee this being a massive issue. Vodafone and Idea are merging two massive networks and will soon enough realise the benefits of scale. The subscriber base is massive, providing security for any future investments, and the sale of various different assets (such as the respective tower businesses) provides a hefty war-chest. Taking these factors into account, money should not be an issue, so we have to wonder whether the right people will be put into the right roles and if the right (and flexible enough) strategy will be put in place.

Vodafone Idea is now clearly the market leader in India, but it will only take a couple more months of Reliance Jio continuing on its current path for this lead to be eroded. The momentum is gathering behind Reliance Jio and new products and services (such as fixed broadband) will only add more as convergence ambitions are realised; the emphasis is certainly on Vodafone Idea to prove this isn’t turning into a one-man market.

The biggest stories of 2018 all in one place

2018 has been an incredibly business year for all of us, and it might be easy to forget a couple of the shifts, curves, U-turns and dead-ends.

From crossing the 5G finish line, finger pointing from the intelligence community, the biggest data privacy scandal to date and a former giant finally turning its business around, we’ve summarised some of the biggest stories of 2018.

If you feel we’ve missed anything out, let us know in the comments section below.

Sanction, condemnation and extinction (almost)

ZTE. Three letters which rocked the world. A government-owned Chinese telecommunications vendor which can’t help but antagonise the US government.

It might seem like decades ago now but cast your mind back to April. A single signature from the US Department of Commerce’s Bureau of Industry and Security (BIS) almost sent ZTE, a company of 75,000 employees and revenues of $17 billion, to keep the dodo company.

This might have been another move in the prolonged technology trade war between the US and China, but ZTE was not innocent. The firm was caught red-handed trading with Iran, a country which sits very prominently on the US trade sanction list. Trading with Iran is not necessarily the issue, it’s the incorporation of US components and IP in the goods which were sent to the country. ZTE’s business essentially meant the US was indirectly helping a country which was attempting to punish.

The result was a ban, no US components or IP to feature in any ZTE products. A couple of weeks later manufacturing facilities lay motionless and the company faced the prospect of permanent closure, such was its reliance on the US. With a single move, the US brought one of China’s most prominent businesses to its knees.

Although this episode has been smoothed over, and ZTE is of course back in action, the US demonstrated what its economic dirty bombs were capable of. This was just a single chapter in the wider story; the US/China trade war is in full flow.

Tinker, tailor, Dim-sum, Spy

This conflict has been bubbling away for years, but the last few months is where the argument erupted.

Back in 2012, a report was tabled by Congressman Mike Rogers which initially investigated the threat posed by Chinese technology firms in general, and Huawei specifically. The report did not produce any concrete evidence, though it suggested what many people were thinking; China is a threat to Western governments and its government is using internationally successful companies to extend the eyes of its intelligence community.

This report has been used several times over the last 12 months to justify increasingly aggressive moves against China and its technology vendors. During the same period, President Trump also blocked Broadcom’s attempts to acquire Qualcomm on the grounds of national security, tariffs were imposed, ZTE was banned from using US technologies in its supply chain and Huawei’s CFO was arrested in Canada on the grounds of fraud. With each passing month of 2018, the trade war was being cranked up to a new level.

Part of the strategy now seems to be undermining China’s credibility around the world, promoting a campaign of suggestion. There is yet to be any evidence produced confirming the Chinese espionage accusations but that hasn’t stopped several nations snubbing Chinese vendors. The US was of course the first to block Huawei and ZTE from the 5G bonanza, but Australia and Japan followed. New Zealand seems to be heading the same way, while South Korean telcos decided against including the Chinese vendors on preferred supplier lists.

The bigger picture is the US’ efforts to hold onto its dominance in the technology arena. This has proved to be incredibly fruitful for the US economy, though China is threatening the vice-like grip Silicon Valley has on the world. The US has been trying to convince the world not to use Chinese vendors on the grounds of national security, but don’t be fooled by this rhetoric; this is just one component of a greater battle against China.

Breakaway pack cross the 5G finish line

We made it!

Aside from 5G, we’ve been talking about very little over the last few years. There might have been a few side conversations which dominate the headlines for a couple of weeks, but we’ve never been far away from another 5G ‘breakthrough’ or ‘first’. And the last few weeks of 2018 saw a few of the leading telcos cross the 5G finish line.

Verizon was first with a fixed wireless access proposition, AT&T soon followed in the US with a portable 5G hotspot. Telia has been making some promising moves in both Sweden and Estonia, with limited launches aiming to create innovation and research labs, while San Marino was the first state to have complete coverage, albeit San Marino is a very small nation.

These are of course very minor launches, with geographical coverage incredibly limited, but that should not take the shine off the achievement. This is a moment the telco and technology industry has been building towards for years, and it has now been achieved.

Now we can move onto the why. Everyone knows 5G will be incredibly important for relieving the pressure on the telco pipes and the creation of new services, but no-one knows what these new services will be. We can all make educated guesses, but the innovators and blue-sky thinkers will come up with some new ideas which will revolutionise society and the economy.

Only a few people could have conceived Uber as an idea before the 4G economy was in full flow, and we can’t wait to see what smarter-than-us people come up with once they have the right tools and environment.

Zuckerberg proves he’s not a good friend after all

This is the news story which rocked the world. Data privacy violations, international actors influencing US elections, cover ups, fines, special committees, empty chairs, silly questions, knowledge of wrong-doing and this is only what we know so far… the scandal probably goes deeper.

It all started with the Cambridge Analytica scandal, and a Russian American researcher called Aleksandr Kogan from the University of Cambridge. Kogan created a quiz on the Facebook platform which exposed a loop-hole in the platform’s policies allowing Kogan to scrape data not only from those who took the quiz, but also connections of that user. The result was a database containing information on 87 million people. This data was used by political consulting firm Cambridge Analytica during elections around the world, creating hyper-targeted adverts.

What followed was a circus. Facebook executives were hauled in-front of political special committees to answer questions. As weeks turned into months, more suspect practices emerged as politicians, journalists and busy-bodies probed deeper into the Facebook business model. Memos and internal emails have emerged suggesting executives knew they were potentially acting irresponsibly and unethically, but it didn’t seem to matter.

As it stands, Facebook is looking like a company which violated the trust of the consumer, has a much wider reaching influence than it would like to admit, and this is only the beginning. The only people who genuinely understand the expanding reach of Facebook are those who work for the company, but the curtain is slowly being pulled back on the data machine. And it is scaring people.

Big Blue back in the black

This might not have been a massive story for everyone in the industry, but with the severe fall from grace and rise back into the realms of relevance, we feel IBM deserves a mention.

Those who feature in the older generations will remember the dominance of IBM. It might seem unusual to say nowadays, but Big Blue was as dominant in the 70s as Microsoft was in the 90s and Google is today. This was a company which led the technology revolution and defined innovation. But it was not to be forever.

IBM missed a trick; personal computing. The idea that every home would have a PC was inconceivable to IBM, who had carved its dominant position through enterprise IT, but it made a bad choice. This tidal wave of cash which democratised computing for the masses went elsewhere, and IBM was left with its legacy business unit.

This was not a bad thing for years, as the cash cow continued to grow, but a lack of ambition in seeking new revenues soon took its toll. Eight years ago, IBM posted a decline in quarterly revenues and the trend continued for 23 consecutive periods. During this period cash was directed into a new division, the ‘strategic imperatives’ unit, which was intended to capitalise on a newly founded segment; intelligent computing.

In January this year, IBM proudly posted its first quarterly growth figures for seven years. Big Blue might not be the towering force it was decades ago, but it is heading in the right direction, with cloud computing and artificial intelligence as the key cogs.

Convergence, convergence, convergence

Convergence is one of those buzzwords which has been on the lips of every telco for a long time, but few have been able to realise the benefits.

There are a few glimmers of promise, Vodafone seem to be making promising moves in the UK broadband market, while Now TV offers an excellent converged proposition. On the other side of the Atlantic, AT&T efforts to move into the content world with the Time Warner acquisition is a puzzling one, while Verizon’s purchase of Yahoo’s content assets have proved to be nothing but a disaster.

Orange is a company which is taking convergence to the next level. We’re not just talking about connectivity either, how about IOT, cyber-security, banking or energy services. This is a company which is living the convergence dream. Tie as many services into the same organisation, making the bill payer so dependent on one company it becomes a nightmare to leave.

It’s the convergence dream as a reality.

Europe’s Great Tax Raid

This is one of the more recent events on the list, and while it might not be massive news now, we feel it justifies inclusion. This developing conversation could prove to be one of the biggest stories of 2019 not only because governments are tackling the nefarious accounting activities of Silicon Valley, but there could also be political consequences if the White House feels it is being victimised.

Tax havens are nothing new, but the extent which Silicon Valley is making use of them is unprecedented. Europe has had enough of the internet giants making a mockery of the bloc, not paying its fair share back to the state, and moves are being made by the individual states to make sure these monstrously profitable companies are held accountable.

The initial idea was a European-wide tax agenda which would be led by the European Commission. It would impose a sales tax on all revenues realised in the individual states. As ideas go, this is a good one. The internet giants will find it much more difficult to hide user’s IP addresses than shifting profits around. Unfortunately, the power of the European Union is also its downfall; for any meaningful changes to be implemented all 28 (soon to be 27) states would have to agree. And they don’t.

Certain states, Ireland, Sweden and Luxembourg, have a lot more to lose than other nations have to gain. These are economies which are built on the idea of buddying up to the internet economy. They might not pay much tax in these countries, but the presence of massive offices ensure society benefits through other means. Taxing Silicon Valley puts these beneficial relationships with the internet players in jeopardy.

But that isn’t good enough for the likes of the UK and France. In the absence of any pan-European regulations, these states are planning to move ahead with their own national tax regimes; France’s 3% sales tax on any revenues achieved in the country will kick into action on January 1, with the UK not far behind.

What makes this story much more interesting will be the influence of the White House. The US government might feel this is an attack on the prosperous US economy. There might be counter measures taken against the European Union. And when we say might, we suspect this is almost a certainty, such is the ego of President Donald Trump.

This is a story which will only grow over the next couple of months, and it could certainly cause friction on both sides of the Atlantic.

Que the moans… GDPR

GDPR. The General Data Protection Regulation. It was a pain for almost everyone involved and simply has to be discussed because of this distress.

Introduced in May, it seemingly came as a surprise. This is of course after companies were given 18 months to prepare for its implementation, but few seemed to appreciate the complexity of becoming, and remaining compliant. As a piece of regulation, it was much needed for the digital era. It heightened protections for the consumer and ensured companies operating in the digital economy acted more responsibly.

Perhaps one of the most important components of the regulation was the stick handed to regulators. With technology companies growing so rapidly over the last couple of years, the fines being handed out by watchdogs were no longer suitable. Instead of defining specific amounts, the new rules allow punishments to be dished out as a percentage of revenues. This allows regulators to hold the internet giants accountable, hitting them with a suitably large stick.

Change is always difficult, but it is necessary to ensure regulations are built for the era. Evolving the current rulebook simply wouldn’t work, such is the staggering advancement of technology in recent years. Despite the headaches which were experienced throughout the process, it was necessary, and we’ll be better off in the long-run.

Next on the regulatory agenda, the ePrivacy Regulation.

Jio piles the misery on competitors

Jio is not a new business anymore, neither did it really come to being in 2018, but this was the period where the telco really justified the hype and competitors felt the pinch.

After hitting the market properly in early 2016, the firm made an impression. But like every challenger brand, the wins were small in context. Collecting 100,000s of customers every month is very impressive, but don’t forget India has a population of 1.3 billion and some very firmly position incumbents.

2017 was another year where the firm rose to prominence, forcing several other telcos out of the market and two of the largest players into a merger to combat the threat. Jio changed the market in 2017; it democratised connectivity in a country which had promised a lot but delivered little.

This year was the sweeping dominance however. It might not be the number one telco in the market share rankings, but it will be before too long. Looking at the most recent subscription figures released by the Telecom Regulatory Authority of India (TRAI), Jio grew its subscription base by 13.02 million, but more importantly, it was the only telco which was in the positive. This has started to make an impact on the financial reports across the industry, Bharti Airtel is particularly under threat, and there might be worse to come.

For a long-time Jio has been hinting it wants to tackle the under-performing fixed broadband market. There have been a couple of acquisitions in recent months, Den Networks and Hathway Cable, which give it an entry point, and numerous other digital services initiatives to diversify the revenue streams.

The new business units are not making much money at the moment, though Jio is in the strongest position to test out the convergence waters in India. Offering a single revenue stream will ensure the financials hit a glass ceiling in the near future, but new products and aggressive infrastructure investment plans promise much more here.

We’re not too sure whether the Indian market is ready for mass market fixed broadband penetration, there are numerous other market factors involved, but many said the initial Jio battle plan would fail as well.

Convergent business models are certainly an interesting trend in the industry, and Jio is looking like it could force the Indian market into line.

Redundancies, redundancies, redundancies

Redundancy is a difficult topic to address, but it is one we cannot ignore. Despite what everyone promises, there will be more redundancies.

Looking at the typical telco business model, this is the were the majority have been seen and will continue to be seen. To survive in the digitally orientated world, telcos need to adapt. Sometimes this means re-training staff to capitalise on the new bounties, but unfortunately this doesn’t always work. Some can’t be retrained, some won’t want to; the only result here will be redundancies.

BT has been cutting jobs, including a 13,000-strong cull announced earlier this year, Deutsche Telekom is trimming its IT services business by 25%, the merger between T-Mobile and Sprint will certainly create overlaps and resulting redundancies, while Optus has been blaming automation for its own cuts.

Alongside the evolving landscape, automation is another area which will result in a headcount reduction. The telcos will tell you AI is only there to supplement human capabilities and allow staff to focus on higher value tasks, but don’t be fooled. There will be value-add gains, but there will also be accountants looking to save money on the spreadsheets. If you can buy software to do a simple job, why would you hire a couple of people to do it? We are the most expensive output for any business.

Unfortunately, we have to be honest with ourselves. For the telco to compete in the digital era, new skills and new business models are needed. This means new people, new approaches to software and new internal processes. Adaptation and evolution is never easy and often cruel to those who are not qualified. This trend has been witnessed in previous industrial revolutions, but the pace of change today means it will be felt more acutely.

Redundancy is not a nice topic, but it is not always avoidable.

CityFibre bags £1.1bn for nationwide fibre rollout

During yesteryear, CityFibre was known for moaning for the sake of moaning, but in securing a debt package of £1.12 billion, the firm’s ambitions are starting to look very real and very interesting.

Seven banks have financed the transaction, ABN AMRO, Deutsche Bank, Lloyds Bank plc, Natixis, NatWest, Santander and Société Générale, which will serve as the first installment of CityFibre’s £2.5 billion commitment for a nationwide fibre rollout. CityFibre has given itself a target of providing fibre to five million homes, a third of the Government’s target of 15 million, by 2025.

“The appetite from these institutions to support our financing is further evidence that CityFibre’s strategy is the right one for the UK,” said Terry Hart, CityFibre’s CFO.

“As our networks are rolled out, this will benefit everyone, driving innovation and increasing fibre penetration across the UK, providing the future-proof digital connectivity the UK needs. CityFibre’s target to reach five million homes by 2025, as well as thousands of businesses and public-sector sites, will catalyse huge economic growth in regional towns and cities across the country.”

CityFibre made it abundantly clear in its statement that this is an endorsement of the firm’s business model from heavy hitting financial institutions, and perhaps it does indicate a change in attitudes from investors.

Back in October, we attended an investor panel session at Broadband World Forum featuring the likes of the European Investment Bank and also Amber Infrastructure, a specialist venture capitalist firm. The message was clear from this panel session; investors are increasingly happy to fuel fibre rollouts as the business case has been justified and consumer demand has been validated.

This is where CityFibre sits. It doesn’t want to be a telco but become a serious infrastructure player. Owning the relationship with the consumer is of zero interest but creating a nationwide alternative to Openreach and becoming a connectivity wholesaler is the big picture. However, to be considered a viable alternative, there needs to be more of a presence than there is today.

Telcos don’t want to have a patchwork of relationships across a country to meet the connectivity demands. Multiple relationships create more overheads and more opportunity for something to go wrong. CityFibre has made good progress in rolling out fibre spines in numerous areas across the UK, but the gaps will have to be plugged if it wants to be a viable and realistic alternative to Openreach.

That said, CityFibre is looking like a business which has the right ingredients for a market which is primed for disruption. Aggressive ambitions, a head-strong CEO and the confidence of being owned by one of the world’s most powerful businesses. CityFibre is a very strong contender to make a genuine and permanent dent in the connectivity infrastructure game.

And a £1.1 billion investment from seven major financial institutions is a very good place to start.

CMA backs super complaint against loyalty penalties

The Competition and Markets Authority (CMA) has backed a ‘super complaint’ raised by Citizens Advice which suggests UK consumers are being ripped off by loyalty penalties on services such as broadband.

The super complaint was raised by in September by Citizens Advice, asking the CMA to investigate whether customers were effectively being punished by service providers, so called stealth price rises for example. The areas being called into question were cash savings, mortgages, household insurance, mobile phone contracts and broadband.

The CMA agrees with the points raised by Citizens Advice, suggesting the segments in question gain £4 billion a year through ripping off loyal customers.

“Our work has uncovered a range of problems which leave people feeling ripped off, let down and frustrated,” said Andrea Coscelli, CEO of the CMA. “They shouldn’t have to be constantly ‘on guard’, spending hours searching for or negotiating a good deal, to avoid being trapped into bad value contracts or falling victim to stealth price rises.”

Looking specifically at the telcos, this is a frustrating point for many consumers. UK telcos show very little desire to reward customers, setting in processes and systems which make it impossible to leave. Many will give up on trying to navigate the red-tape maze as the poor experience proves to be favourable to the frustrations of trying to leave. By making this process as difficult as possible, the telcos don’t have to worry that much about retention and can instead focus on luring new customers.

The CMA has pointed this out during its own investigation, ensuring that one of the recommendations made to government and regulators will be to simplify the exiting process. This will intend to tackle the process, systems and the fees which customers face when attempting to secure a better deal.

It appears the telcos are much better at scaring customers away from exiting than enticing them to stay with positive customer service. Your correspondent can confirm this is the case after trying to end a Vodafone contract last year. It took a ridiculous amount of time, engagement with several staff who had no idea what they were doing (or was this trained in to make the process as painful as possible?) but the mission was stubbornly completed.

“We know that the better deals are often found by switching provider,” said Richard Neudegg, Head of Regulation at uSwitch.com. “But many companies make this more difficult by not being transparent enough about the options available or how to take your custom elsewhere. We are pleased to see the CMA identify this as an area for improvement, to ensure the power to get better deals is placed firmly in the hands of consumers.”

One specific complaints which has been firmly aimed at the telcos concerns subsidized handsets. The CMA highlights telcos should not be allowed to charge the same amount per month once the handset has been fully paid for. This will be a frustration from the consumer, but like the ridiculous nature of roaming fees, because the industry has stuck together little progress has been made.

Above all else, the CMA opinion adds to the already well-known position that telcos are not at all customer-centric organizations and have a lot to do if they want to be considered relevant for the digital economy.

Openreach talks fibre in Edinburgh

With fibre becoming an increasingly politicised topic, fixed infrastructure wholesaler Openreach decided to hang out with a couple of Scottish politicians.

Ian Murray MP and Daniel Johnson MSP got to hang out with some engineers in Liberton, a suburb of Edinburgh, where Openreach has been laying some serious fibre down. Specifically this is of the FTTP variety, which enables Openreach to use emotive phrases such as ‘ultrafast broadband’ and ‘future-proof technology’.

“Good connectivity is vital for a strong local economy, so it’s been great to hear about the progress that’s being made and what that means for constituents,” said Edinburgh South MP Murray. “The fact that Edinburgh is one of the first places in the UK to benefit from Openreach investment in full-fibre will help make sure that our historic city remains at the forefront of technology.”

“It was particularly interesting to hear about the huge difference a full fibre connection will make to residents’ broadband speed, reliability and capacity,” said Edinburgh Southern MSP Johnson. “It was also useful to hear about developments at Openreach’s training centre in Livingston where a new fibre school will be launched next year. Engineering is a vital part of Scotland’s economy and skills learned there will benefit the nation.”

Jim Wylie, Openreach’s fibre operations manager for Edinburgh, said: “We know good broadband is really important to local people and we’re delighted to be building our first fibre city here in Edinburgh.

“Ian and Daniel share our ambition to make sure everybody in Scotland has access to a quality broadband service,” said Jim Wylie, Openreach’s Fibre Operations Manager for Edinburgh. “We appreciate that they were able to make time to come and learn about the challenges and realities of delivering digital technology. For example, a specific issue in Edinburgh is getting access to put new equipment on telephone poles, which are often sited in people’s back gardens!”

So this looks like a win-win; politicians get to be seen to be championing next-generation infrastructure for their constituents, while Openreach gets to lobby them for a few juicy concessions. Result.

Germany takes an innocent until proven guilty approach to Huawei

Germany’s Federal Office for Information Security (BSI) has made a bold statement, bucking global trends, saying it will not ban Huawei from its borders unless someone can table some evidence of espionage.

With the world turning against Huawei, and China on the whole for that matter, the statement is surprising, unsurprising and somewhat reassuring as well.

Western governments tend to follow each other in terms of regulation and legislation, therefore this stance from Germany might sound surprising. However, when you consider German telcos are somewhat dependent on Huawei kit, an explanation might be found. On the reassuring side, we appreciate this might be somewhat of a controversial statement, though it does make us feel a little bit better that at least one country is taking the ‘innocent until proven guilty’ approach to judgement.

This is not to say China is not up to no good, making use of its influence over industry to forward its own nefarious agenda. We suspect there are some very disturbing activities taking place in Beijing, which would validate the anti-China sentiment, but taking the guilty-first, find evidence later approach as many governments seem to be, undermines the reasoned foundations on which these countries are built. We’re yet to see any concrete evidence which justifies the reprehensible claims being made against Huawei.

“For such serious decisions like a ban, you need proof,” Arne Schoenbohm, President of BSI, told German daily Spiegel.

Having just opened a new research centre in Bonn, Germany looks to be a safe market for the battered and bruised Huawei. This lab will serve a number of different purposes in the country, including due diligence. Customers, or potential customers, will be able to check the source code of various products, just to make sure all is above board.

As it stands, Schoenbohm and his team are yet to see any credible evidence which would suggest working with Huawei or other Chinese companies would present a risk to industry or Germany as a nation. Until this evidence has been presented, Huawei will be allowed to operate as it has for years. What impact this statement will have on other countries assessing the risk of Chinese vendors remains to be seen.

The US is still taking the stick approach to dealing with China and the threat it poses to the US dominance in the global economy. It isn’t difficult to imagine US diplomats and representatives leaning in to whisper in the ears of powerful people conveying a message of fear and aggression. Numerous countries have already handed out their own bans, Japan and Australia are two who have made it official through legislation, though there does seem to be numerous other governments heading the same direction.

What is worth noting is that just because evidence has not been presented to the public does not mean it is there. It might of course be classified, though this would surely have been leaked by now, or it might not have been found yet. That said, Germany is taking the right approach to the saga. It is relying on the values which have served democratic nations well for centuries; innocent until proven guilty.

Ofcom reckons we’re clueless about broadband pricing

UK telecoms regulator Ofcom thinks consumers are ill-informed about the best broadband deals and wants ISPs to help rectify that.

As with many other utilities, UK punters often don’t shop around when it comes to broadband deals and often don’t even get the best service their current ISP offers at the price they’re paying.  Ofcom thinks that’s bang out of order and wants ISPs to be a lot more proactive about communicating this stud to their customers.

It’s kind of depressing that a regulator needs to get involved in this sort of thing at all. How difficult would it be for an ISP to notify their customers of the best deals on offer once their contract comes to an end? Not only is it underhand to conceal such things, but it’s presumably in the ISP’s interest to keep their customers happy so they don’t moan, churn or harm their precious net promoter score.

Yet here we are. Ofcom is proposing new rules that will oblige all UK communications service providers to flag up the best deals to their customers when discounted deals come to an end and also annually regardless of what kind of deal they’re on. “We’re concerned that many loyal broadband customers aren’t getting the best deal they could,” said Ofcom Chief Exec Sharon White. “So we’re reviewing broadband pricing practices and ensuring customers get clear, accurate information from their provider about the best deals they offer.”

The hook in Ofcom’s accompanying press release is a factoid that only half of the country is on ‘superfast’ broadband, while nearly everyone has access to it. What’s that all about? Ofcom puts the blame squarely at the feet of ISPs, as we’ve already explored, and it certainly seems like poor form for them not to even give their customers the best service at a given price point. Surely that should happen automatically.

Having said that it shouldn’t be beyond us to shop around every now and then. “While it’s true that half the battle in finding the most suitable and cost-effective broadband deal for your household is the availability of information, there must also be the will to find a better deal on the part of the customer,” said Dan Howdle of Cable.co.uk. “Thanks to the ‘stickiness’ of bundled TV packages, physical equipment such as dishes, set-top boxes and cable installations, along with no small amount of apathy when it comes to shopping around, too many stick with what they have and as such pay more than they should.”

Just in case CSPs were thinking of brushing this stuff off, Ofcom has thrown in an extra angle around ‘vulnerable’ people to ensure that wouldn’t be a good look. Additionally it’s launching a consumer campaign called Boost Your Broadband, fronted by consumer champion celeb Gloria Hunniford and designed to make it easier for punters to shop around.