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.

German Gov told to sell DT stake

The Chief of the Monopolies Commission in Germany has suggested the German government should sell its stake in Deutsche Telekom over conflict of interest fears.

Achim Wamback, the President of the Monopolies Commission, has made the call on the grounds the German government is currently sitting in a suspect position on both sides of the fence, according to local newspaper Wirtschafts Woche. Although there is no suggestion this position is currently being abused, owning a notable share of a major telco, while simultaneously exercising regulatory power over the industry could lead to market abuse. With the 5G auction set to take place in the immediate future, Wamback’s call will make for awkward reading in the Bundestag.

As it stands, the German government owns roughly 31% of DT, the profits of which will contribute to national coffers, meaning there is less of an emphasis on taxing the general public to raise funds. This will only be a minor impact on the taxation strategies, but every little helps for a governing party which has struggled to maintain power and influence in recent years.

If you try to take a purely impartial approach to the situation, you can see Wamback’s point; this is a conflict of interest. Nationalised businesses are always a talking point for the more left-leaning members of society, but they are deeply unpopular when things are going well in the economy.

This is not the first time the German government’s position in DT has been called into question however. During 2017, when Chancellor Angela Merkel’s grip on government was starting to loosen following federal elections, two potential coalition partners pushed for the sale as well. The Freedom Party and the Greens were unsuccessful with their ambition then, though the idea was never quashed.

Part or fully state-owned telcos are certainly not an unusual fixture on the global telco scene, though you have to question whether it aligns with the pro-competition sensitivities of the European Union.

Aussie watchdog sniffs around TPG and Vodafone merger

The Australian Competition and Consumer Commission (ACCC) is having a closer look at the AUS$15 billion TPG and Vodafone merger, with the signs looking rather ominous for the pair.

After initially being rumoured in August, the merger was confirmed with the pair targeting convergence trends to source fortunes down-under. Neither telcos has been tearing up trees in the market, TPG’s recent financials revealed 0.5% growth over 2018 while Vodafone posted a first-half net loss of AUS$92.3 million in July, though this merger could have been viewed as a means to become more profitable.

However, the ACCC is citing competition concerns in both the mobile and the broadband business units. When the watchdog starts to get twitchy, it doesn’t necessarily bode well.

“Our preliminary view is that TPG is currently on track to become the fourth mobile network operator in Australia, and as such it’s likely to be an aggressive competitor,” ACCC Chair Rod Sims said.

“Although Vodafone is currently a relatively minor player in fixed broadband, we consider it may become an increasingly effective competitor because of its high level of brand recognition and existing retail mobile customer base.”

As separate companies, TPG has the broadband heritage with ambitions in the mobile game, while for Vodafone it is the opposite. Any regulator or competition authority which is starting to see organic diversification will start to get excited, though this merger will effectively kill off any promise of additional players in the individual connectivity segments, as they would lean on the new partners strength. The promise of four separate mobile and broadband telcos is disappearing in front of the ACCC’s eyes.

The question which remains is whether Australia needs a fourth player in the mobile and broadband segments for the market to remain competitive? There are of course pros and cons to both sides of the argument, though risk-adverse public sectors bodies tend to believe more providers means a better outcome for the consumer due to competition.

This is certainly what appears to be happening in Australia, though this is a country which needs to operate its own rules.

In markets like the UK, fewer providers might not mean less competition. The land mass which needs to be covered is comparatively small, therefore it is not out of the question to have genuine national providers, which can offer 90% or greater coverage. This means choice for the consumer and the providers have to scrap for attention and subscriptions.

However, Australia is massive, incredibly varied and contains some very hostile environments; not exactly the perfect playing field for telco expansion and greenfield investment. The risk of localised monopolies emerging are greater, due to the final burden of increasing coverage or entering into new segments. With this in mind you can see why the ACCC is getting a bit twitchy.

Of course, consolidation means a bigger subscriber base, greater revenues and therefore increased CAPEX budgets. Investors and management teams have more confidence in being able to upsell services to existing customers, therefore the risk in investing in new infrastructure or upgrades is decreased.

It is six of one and half a dozen of the other when you look at it, though that will come as little comfort to the TPG and Vodafone executives now facing the scrutiny of the ACCC.

Netherlands falls to three MNOs as Europe approves T-Mobile/Tele2 deal

The European Commission has officially approved Deutsche Telekom’s acquisition of Tele2’s Dutch business, reducing the number of MNOs in the country from four to three.

For many through the continent this will be seen as progress, as the European Commission has previously viewed reducing the number of MNOs in a single market below four as sacrilege. With telcos across Europe looking for ways to justify the vast expenditures expected for 5G and the full-fibre diets demanding by governments in the fixed space, the prospect of market consolidation is an interesting one.

What is worth noting is this is a relatively minor acquisition. Merging DT’s Dutch business and Tele2’s only adds a relatively small increment, roughly 5%, to the newly merged business. T-Mobile NL would still remain in third position with a market share of 25%, while the European Commission has also questioned Tele2 NL’s role as an important competitive force in the Dutch market. Despite these conditions, this will certainly be viewed as progress for those who sit in the pro-consolidation camp.

“Access to affordable and good quality mobile telecom services is essential in a modern society,” said Commissioner Margrethe Vestager. “After thoroughly analysing the specific role of T-Mobile NL and the smaller Tele2 NL in the Dutch retail mobile market, our investigation found that the proposed acquisition would not significantly change the prices or quality of mobile services for Dutch consumers.”

Through the five month investigation, Vestager and her team decided the proposed merger was unlikely to lead to significant price increases due to the limited incremental impact Tele2 would have on the T-Mobile NL business, the transaction would not increase the likelihood of coordinated behaviour between mobile network operators as there is sufficient enough difference between and the business models, and finally, conditions for virtual mobile network operators due to the proposed merger would not have a serious impact on the level of competition. In short, dropping from four to three operators would not negatively impact the consumer.

Here is the question though; will this decision have any material impact on consolidation decisions elsewhere? Perhaps it might, but we suspect the European Commission will stick to the three operator rule where competition is more intense.

In listing its reasons for approving the deal, Vestager effectively said that Tele2’s Dutch business was small and irrelevant enough to the other players that it being swallowed up by one of them would not make any material impact on competition. In most other markets around Europe the fourth players have much more of a foothold in the market.

Take the UK for instance. Here, Three is the smallest of the MNOs, controlling roughly a 15% market share. On its own it can provide suitable competition to the three larger players, though if it was acquired the gain in total subscribers would have a material impact on market share. This alteration in the status quo could lead to the anti-competition doomsday scenario, or at least this is what the European Commission might believe.

Despite consolidation being a positive for the industry, scale means confidence to invest, operational efficiencies, notable procurement benefits and greater ability to generate ROI, we suspect the European Commission will stick to its four operator rule for most markets. The only exceptions will be in cases like this one, where the fourth player controls a minor market share which would have no material impact on a competitors standing in the market.

That said, this is a step forward for the stubborn European Commission.

Apple finds the water is warming up in App Store legal battle

Apple has found itself in court once again, but Qualcomm is no-where to be seen. Instead, a few of its loyal iLifers are challenging the firm over whether the App Store is an illegal monopoly.

The case itself dates back to 2012 and will aim to understand whether Apple is operating an unjustified monopoly through the App Store. Right now the case is in front of the Supreme Court, where the nine judges will decide whether or not to allow the antitrust case to be heard by a District Court. The permission from five of the nine judges are needed for the case to proceed, and currently, it looks like only Chief Justice John Roberts is siding with the iGiant.

For Apple, this case could be a disaster. Permission to take the case to one of the District Courts, likely to be in one of the thirty states where the Attorney General is backing the iPhone users’ antitrust claims, and the door could be opened. Essentially anyone who has purchased an app from the App Store could claim grievances against Apple.

The case itself is relatively simple on the surface. As the App Store is the only place to download apps without breaking rules, should the 30% commission charged by Apple be viewed as the company unjustly profiting from a monopoly? One could argue prices are inflated due to the commission received by Apple, though its own counter-argument is based on legal precedent which dictates only those who have a direct billing relationship with a company can sue the firm.

In the Supreme Court’s 1977 decision in Illinois Brick Co. v. Illinois, the court stated only consumers who are direct purchasers of a product can bring a lawsuit seeking damages available for violations of federal antitrust laws. As customer purchase apps from developers, who in turn pay Apple the commission, Apple has argued there is no legal basis for iPhone users to sue the company, with the developers being the only ones who could make such claims. Chief Justice Roberts believes this argument, though spectators of the case have stated five of the judges are leaning the other direction. This could well develop into a very serious headache before too long.

On the other side of the aisle, the iPhone users, led by chief plaintiff Robert Pepper, argue prices would be lower if there were greater choices of app stores. This is a perfectly logical conclusion, though the developers might not like it. As it stands they have a captive audience with all iPhone users in one marketplace. Yes, they do have to pay Apple a premium, but this might well be a pill worth swallowing compared to the complications of working with multiple partners and a disaggregated audience.

As with many lawsuits in the digital economy, this is the first time such arguments are being considered by the courts. Precedent will be set which is what makes this case particularly interesting. Should the courts side with the iPhone users, the doors could be opened for lawsuits against other eCommerce giants such as Amazon or Facebook. Anyone who takes a commission based on a percentage could be viewed as falsely inflating prices in the pursuit of profit, or so the argument would be.

Apple has argued opening this door could stifle the growth of the burgeoning eCommerce sector, which is a negative consequence of course, but not an adequate reason for the case to be dismissed. Just because there is significant consequence does not mean unjust activities should be allowed to continue.

The App Store has started to generate some considerable income for Apple. On the financial side of things, over the last three months the services division, which include the App Store, produced revenues of $9.9 billion, up 17% year-on-year. With smartphone growth slowing globally, and the iPhone not proving the success some might have hoped in emerging markets, the services segment will become ever more important to the iChief.

A decision on whether the case can be heard by one of the District Courts will be made in the near future, though there will be quite a few eye balls on this one. The splash could be quite considerable for Apple, though the ripples through the rest of the digital ecosystem will be just as concerning.

Mobile data could get even costlier after T-Mobile and Sprint merger

Report by Rewheel showed Americans already have the most expensive mobile data among all four-operator markets. A move to reduce the number of them could make it worse.

According to the 2H2018 release of its mobile data price monitoring report, the Finland-based research firm Rewheel focused on the US market, which is likely to see the proposed merger of T-Mobile and Sprint closing in the first half of 2019. The report showed that among the 41 countries it analysed (OECD34 + EU28, with seven EU countries not being OECD members), the median gigabyte price of a smartphone deal (nominal price + VAT) in the US is among the highest. Rewheel told Telecoms.com that Greece and Cyprus topped the table, followed by Korea and Canada. The median gigabyte price of a mobile broadband deal in the US is the most expensive among all.

Rewheel mobile data prices

The research compared two groups of markets, those with effectively four mobile operators and those with three. The mobile data price in the four-MNO markets is shown to be about half as expensive as the three-MNO markets, but the US is an outlier. The median US mobile data price per gigabyte is four times higher than the EU four-MNO markets, and sixteen times higher than the big EU markets with four MNOs.

To look at it from another angle, a 30€ monthly deal comes with unlimited data plans (and at least 1000-minute talk time) on smartphones in 13 markets (Korea, Mexico, and 11 EU countries) but can only buy 6GB in the US. Similarly, a 30€ monthly wireless broadband deal can buy unlimited data in 11 EU markets but can only get 40GB in the US.

The effect of the “magic four” driving price down is most telling in Italy: after Iliad launched its mobile service, the price per gigabyte fell by 70% in half a year. On the other hand, the research showed data price stopped falling in the Dutch market after the announced merger of T-Mobile and Tele2, and the price drop has visibly slowed down in Austria after it became a three-MNO market.

The researcher therefore argued that the Americans are already paying more than other four-MNO market users, it could get even worse if the US market became a three-horse race. However we can see in the data that North America is generally more expensive, with Canada, a four-MNO market, is as expensive as the US. Admittedly though, Freedom Mobile is still weak.

An additional angle to examine data price is to look at what is offered to contract users vs. prepaid users, which is excluded from the Rewheel research. The discrepancy is probably most obvious in Africa. According to the analysis published by the research firm Ovum, South Africa’s mobile data is among the highest in the world. This is largely down to the high prices PAYG users face when buying smaller data packages. Rob Shuter, the CEO of MTN, corroborated with his comments at the recent AfricaCom that, despite the average price per gigabyte for postpaid users in Africa is comparable to that of the US (around $3), data prices for prepaid users are prohibitive. The large majority of mobile users in Africa and other emerging markets are on prepaid services.

DoJ appeals AT&T/Time Warner deal on grounds of ignorance

The Department of Justice has attacked a trial judges approach and methods when reviewing AT&T’s much debated acquisition of Time Warner, in it’s against the greenlight for the deal.

AT&T closed it’s $108 billion acquisition of Time Warner two days after District Court for the District of Columbia Judge Richard Leon gave his seal of approval, though the Department of Justice is not done yet. An appeal has been launchedx      , arguing competition would be distorted in the pay TV market as a result as AT&T would have a bargaining advantage over rivals, with the main focus of the appeal seemingly being directed at the Judge Leon.

“The district court held otherwise, but only by erroneously ignoring fundamental principles of economics and common sense,” the appeal document states. “These errors distorted its view of the evidence and rendered its factual findings clearly erroneous, and they are the subject of this appeal.

As you can see from the statement above, the Department of Justice seems to be claiming Judge Leon was not able to consider the long-term economic impact of the acquisition of competition, but also has found issue with the court made the ‘vast majority’ of its evidentiary rulings during sealed bench conferences and declined to release the transcripts of these conferences to anyone during the trial.

“The district court substantially constrained the government’s presentation of evidence showing that the merged entity would have greater bargaining leverage,” the appeal reads.

Part of these discussions included evidence which the government would have wanted access to, AT&T’s own analysis of the potential competitive impact of the acquisition for example, but also that Judge Leon dismissed public FCC filings made by AT&T and DirecTV explaining the potential competitive harm from vertical integration, refusing to treat the documents as relevant submissions. The Department of Justice also argues it was not given enough air-time to question economic experts or evidence presented by AT&T.

The implication seems to lean on the idea of bias. Although it has not been directly said, the Department of Justice seems to be hinting Judge Leon favoured AT&T and was not able to offer an independent evaluation of the saga.

While this is a massive acquisition, vertical deals are not unusual in the technology industry, in fact, some might suggest it is the norm for growth. With big ticket acquisitions becoming more common in the industry, some might suggest the Department of Justice’s opposition to the deal might be more political than economical. President Trump’s distain for Time Warner owned brands are no secret, a public hatred which might be fuelling the theories.

Consumer focused telcos are treading on thin ice – China Telecom

We are paraphrasing with the headline, but the message from Lui Aili, President of China Telecom was very simple; evolve from a consumer focused business or struggle.

To demonstrate this message, Aili used a bowl of soup as an example. At the beginning the bowl of soup is full, but every time it is nudged a little spills out. Keeping the bowl steady is impossible, therefore the volume of soup will always be decreasing. The volume of soup is the total revenues in the telco industry, while the nudging of the bowl is the constant battle for consumer subscriptions.

In China, mobile subscriptions already exceed 100% of the population. It is an incredibly saturated market, with little room to grow. There might be more consumers entering into the dual-SIM lifestyle, but this is already a trend which has been developing for some time. Relating this back to the analogy, the bowl is unlikely to get any bigger any time soon, therefore the volume of soup is also unlikely to increase.

This is the challenge with the consumer facing business. Every time a telco steals a customer (nudges the bowl), the monthly subscription of that user also decreases. When this happens numerous times, the total amount of revenue in the industry gradually decreases (soup spills out of the bowl). Undercutting current providers is the primary way in which telcos gain new subscriptions, and it does not look like there is grounds to justify an increase in ARPU right now. This might change with the introduction of 5G subscriptions, but that remains to be seen.

This is one challenge for the industry, the total revenues are getting smaller, but parallel to this, the demands of the consumer are also increasing. Aili points to global trends of increased data consumption as a worrying sign. Delivering on these expectations, limitless data tariffs are starting to become the norm nowadays, is an expensive business. With this in mind, focusing on the consumer connectivity business is a slow erosion of revenues.

The ambition of China Telecom is a simply one; as it stands it owns the pipeline of connectivity, but the future is all about owning the platform and content as well. In the household, this looks like delivering connectivity, but also the smart home platform which manages applications and products, but also content in the entertainment world. While it might seem like a simple point to make, there still are telcos out there striving to dominate consumer connectivity alone; with the soup bowl gradually emptying, and increasingly becoming more expensive to maintain, should this be deemed a sensible business model?

China Telecom doesn’t want to be a telco anymore, the ambition here is to be an intelligent services company, sounding very similar to cousins in the OTT world.

Will the UK ever agree on the internet?

This week Telecoms.com has 16 year-old Shannon O’Connor joining the team for work experience, and today’s ‘thrilling’ task is to join Jamie at the Connected Britain event in London. Here are her thoughts. 

With the Connected Britain event bringing together executives from TalkTalk, CityFibre and Openreach, as well as government representatives, the question still remains as to whether they will be able to work collaboratively to progress?

As the speakers continue to roll out their plans for an accelerated investment in high capacity networking across the UK, there still seems to be a lot of busywork.

“If you could rollout out connectivity through reports and investigations, Britain would have faster broadband than Japan and Korea,” said Matthew Howett of Assembly, the chair at this year’s event.

But is there any action?

Minister for Digital and the Creative Industries, Margot James highlighted the inequality of connectivity not being reached within the rural areas of the UK. As major towns and cities continue to prosper and develop, those living in the outskirts face difficulties in sustaining accessible, basic broadband. Something which interested attendees intently as plans begin to emerge for infrastructure collaboration.

However, in the following panel it was clear that collaboration would not only create conflicting ideas between competitors but also allow those to question whether proper competition could ever come while working hand in hand.

Emerging from what the speakers said at the conference was quite simply uncertainty. There had been too much discussion and not enough action in developing fibre broadband within the public sector and beyond in the UK. There doesn’t seem to be any consistency or coherence; it seems asking adults to be mature and agree on a logical path is too much (and that’s coming from a teenager – Ed.).

As our Europe counterpart continues to prosper both economically and industrially, the UK continues to fall further behind because of an inability to agree.

Sprint CEO steps aside to keep Legere away from the grown-ups

Sprint CEO Marcelo Claure has undertaken a new role at Softbank, heading up the acquisition team, in what we can only imagine was a calculated more to keep the eccentric T-Mobile boss John Legere away from the suits.

Taking on the role of Executive Chairman at of SoftBank Group International and COO of SoftBank, Claure will head up the team designed to woo regulators and agonise through the cumbersome process of navigating the red-tape maze. Claure has taken a bullet for Legere here.

Legere does not seem to be a man who suffers fools gladly (putting it lightly), therefore asking the wild-eyed, at times almost rabid CEO to be calm and considerate when dealing with bureaucratic busybodies might not have been the best strategy. John Legere is not necessarily offensive, but some might be offended. Referring to AT&T and Verizon as ‘Dumb and Dumber’ might not get the same giggles in the offices of the FCC, and we doubt the FTC suits in Washington will be entertained by the magenta t-shirt or jokes about offering ‘doobies’ in goodie bags at events.

“Let me be clear that while I’m shifting my focus, I’m not leaving,” said Claure, as he confirmed Michel Combes would be moving from the CFO office to take on the CEO role.

“The main reason for effect in this change now is to collaborate with John Legere on securing regulatory approval over the next nine to 18 months. That is the most important goal to optimize in shareholder value. This is going to give me the capacity to focus on securing regulatory approval without compromising the day-to-day operations.”

Combes will now be responsible for the day-to-day operations of the Sprint business, having done such a great job at Altice, however Claure remain responsible for liaising with Softbank, as well as delivering performance and financial results to the parent company. Aside from managing the merger, Claure will also aim to ‘optimize synergies’ across the Softbank portfolio, as well as identifying how the wider group can work with the new, combined entity in the future.

Claure might not have the same flair as his counterpart at T-Mobile, but you have to give the man a bit of credit. Quietly and quite humbly, he spearheaded somewhat of a turnaround at the Sprint business since his appointment in 2014. Sprint is still at the bottom of the rankings when you look at the four major telcos across the US, though the gap is no-where near as monumental. Recent reports have suggested Sprint is quickly improving network performance, while the last few quarters have seen an improvement in the steady flow of customers flocking to the emergency exit. It hasn’t all been glamourous while Claure has been in-charge, but perhaps this is the reason he is the perfect person to liaise with the starch-heavy collars of government.

When announcing the deal, both Claure and Legere seemed to realise the government is going to be a major pothole to negotiate. The announcement, which you can see below, made several references to how it would aid President Trump’s political objectives including job creation, investment and the battle against China. Buttering up the White House from the outset is a tactic here, and quite rightly so; this deal will need all the favour and luck available if it is to have any chance of success.

While this is a merger the telco industry has been eagerly awaiting for some time, Claure will have to muster all his Latin charm to win over regulators who have not been gazing favourably on acquisitions in recent months. The team is confident this deal will improve the lives of consumers, either through an accelerating role out of 5G or a more comprehensive challenge to the AT&T and Verizon duopoly, but there will certainly be resistance.

“Sprint and T-Mobile will be hard pressed to demonstrate how their combination would benefit the public interest,” said Phillip Berenbroick, Senior Policy Counsel at Public Knowledge. “This task proves increasingly difficult when a merger drastically reduces competition in the wireless marketplace, as this combination certainly will.

“If approved, this deal would especially hurt consumers seeking lower-cost wireless plans, as the combined company’s plans would likely increase while competitors AT&T and Verizon would have even less incentive to lower prices. Unless the merging parties can demonstrate clear competitive benefits we have yet to see, we will urge the Department of Justice and the FCC to reject this deal.”

There are arguments for both sides of the case, but one argument which will have to be addressed before too long is Canada. The friendly neighbours to the north of the US have three major carriers, Bell, Rogers and Telus, with tariffs priced almost identically. Some will argue this is primarily due to the reduced levels of competition. Claure will have to make some pretty bold promises to make sure this does not happen in the US, as should this deal go through, it is highly unlikely a fourth player would rise up to take Sprint’s vacant spot; the table stakes are simply too high. Competition is paramount in the eyes of regulators.

This is a deal which will face a very-high level of scrutiny, especially considering previous T-Mobile merger attempts have been quashed by regulators on the grounds of competition, so perhaps the calm, collected and charming Claure is the best man to be sent to Washington.


What do you think?

Following comments from the European Data Protection Supervisor, do you feel the internet giants are taking advantage of the digital economy?

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