T-Mobile US ditches streaming for aggregator TV play

After T-Mobile acquired Layer123 back in 2017, the US has been holding its breath for another Uncarrier move to disrupt the content world, but its not going to be as glitzy as some would have hoped.

Speaking on the latest earnings call, the management team indicated there will be a foray into the content world, but it appears to be leaning more onto the idea of aggregation than creation and ownership.

“It’s subscription palooza out there,” said COO Mike Sievert. “Every single media brand is, either has or is developing an OTT solution and most of these companies don’t have a way to bring these products to market. They’re learning about that. They don’t have distributed networks like us. They don’t have access to the phones like we have.

“And we think we can play a role for our customers as I’ve been saying in the past at bringing these worlds of media and the rest of your digital and social and mobile life together. Helping you choose the subscriptions that makes sense, building for those things, search and discovery of content. We think there’s a big role for our brand to play in helping you.”

The T-Mobile US management team might be antagonistic, aggressive and disruptive, but ultimately you have to remember they are very talented and resourceful businessmen. A content aggregation play leans on the strengths of a telco, allowing the business to add value to a booming industry instead of disrupting themselves culturally trying to steal business.

Content streaming platforms have been an immense successful not only because of our desire to consume content in a completely different way, but also due to the companies who are leading the disruption. The likes of Netflix, Hulu and Amazon are agile, creative and risk-welcoming organizations. Such a disruption worked because the culture of these businesses enabled it. Telcos are not part of the same breed.

However, this is not a bad thing. The basic telco business model is connecting one party to another and this can be of benefit to the content segment. Telcos own an incredibly valuable relationship with the consumer as most people have an exclusive relationship with a communications provider (not considering the broadband/mobile split) and a single device for personal use. The telcos own the channel to the consumer.

Sitting on top of the content world, providing a single window and, potentially, innovative billing services and products could be immensely valuable to the OTTs, as well as securing diversification for the spreadsheets internally. The content aggregation model is one which is functional and operational, perfectly suited to the methodical and risk-adverse telcos.

Specifics of this Uncarrier move are still yet to emerge, but the T-Mobile US management team are promising to do something with the Layer123 acquisition sooner rather than later. It might not just look like what most had imagined initially.

AT&T just misplaced 267k DirecTV Now subs, but it’s OK

The AT&T earnings call was somewhat of a mixed bag of results, with gains on mobile but it somewhat irresponsibly managed to misplace 267,000 DirecTV Now subscribers; its ok says CEO.

Digging down into the numbers always tends to lead to many twists and turns, but the big one is DirecTV Now, the telcos attempt to blend into differentiation and get ahead of the cord cutting generation. This has not exactly been a rip-roaring success for the business so far but losing 267,000 subscribers in three months is a headline which will take some beating.

So where did they go? According to the business, they were basically just allowed to leave. With $10 a month promotional subscriptions biting down hard on profitability, the powers-that-be seemingly decided to cut the losses. The company scaled back promotions and the number of customers on entry-level plans declined significantly, however on a more positive note, the number of premium subscriptions remained stable.

Unfortunately for AT&T, stable will not cut the grade anymore. Having made the questionable decision to acquire DirecTV for $67 billion in mid-2015, some would have hoped the outcome would be more than ‘stable’ three years later. With another whopper of an acquisition taking place during this three-year period, AT&T will be hoping to scale up success before too long if it is to reduce the debt weighing down the spreadsheets.

“Our top priority for 2018 and 2019 is reducing our debt and I couldn’t be more pleased with how we closed the year,” said CEO Randall Stephenson. “In 2018, we generated record free cash flow while investing at near-record levels.”

The other acquisition, WarnerMedia, seems to be having a better time of it than DirecTV. Total WarnerMedia revenues were $9.2 billion, up 5.9% year over year, primarily driven by higher Warner Bros revenues, consolidation of Otter Media and higher affiliate subscription revenues at Turner. What remains to be seen is whether this can continue. WarnerMedia is a media company which is awaiting the full integration and transformation wonders from AT&T. What impact this risk-adverse, lethargic and traditional business will have on the media giant is unknown in the long-run.

Elsewhere in the business, things were a little more positive. The team added 134,000 valuable post-paid subscriptions in the wireless business, though this remained below expectations, with the total now up to 153 million. Total revenues were up15.2% to $47.99 billion though this was also below analysts’ estimates of $48.5 billion. A bit more positive, than DirecTV’s car crash, but still not good enough according to Wall Street as share price declined 4.5%.

Vodafone blames accounting change for €800mn revenue decline

Vodafone has unveiled its quarterly results for the period ending December 31, and while a year-on-year decline of €800 million might worry some, it’s not as bad as you think.

The team claims it has performed pretty much in-line with expectations and the same period of 2017, however a shift over to the IFRS15 accounting standard, the sale of the Qatar business and FX headwinds caused the decline. In other words, it’s all the fault of the bean counters.

“We have executed at pace this quarter and have improved the consistency of our commercial performance,” said Group CEO Nick Read. “Lower mobile contract churn across our markets and improved customer trends in Italy and Spain are encouraging, however these have not yet translated into our financial results, with a similar revenue trend in Europe to Q2.

“We enjoyed good growth across our emerging markets with the exception of South Africa, which was impacted by our pricing transformation initiatives and a challenging macroeconomic environment. Overall, this performance underpins our confidence in our full year guidance.”

Addressing the elephant in the room, the €800 million decline. While suggesting a change in accounting standards is a primary cause might sound flimsy, it certainly will have contributed. IFRS15 dictates a business cannot recognise all revenues up-front; if a contract has been signed, revenue can only be recognised in the financials when it is collected. For example, if your customer has agreed terms to pay at the end of the contract, once conditions have been fully satisfied, this revenue cannot be reported until that point. In other words, Vodafone cannot claim it has the money until customers have actually paid it.

While this is a perfectly reasonable explanation of why revenues might have declined, it is also important to recognise Vodafone is under pressure in numerous markets. The team have claimed success across the European markets, with improving customer and financial trends in Italy, retail growth in Germany and reduced churn in Spain, but year-on-year revenues were down 1.1%. Again, there will be multiple factors contributing to this decline, but it would be foolish to suggest everything is rosy at Vodafone.

A couple of weeks back, RBC Capital Markets released an investment note suggesting Vodafone is not only in a slightly precarious position because of competition pressures (in Europe, Africa and India), but upcoming auctions as well. Depending on how aggressively spectrum prices continue to inflate, Vodafone could fit itself footing a bill between €4.5 billion and €12 billion.

Looking at the performance in the markets, if you ignore the difficult one’s things are going great. European service revenues declined 2% to €7.496 billion (using a consistent accounting standard), with the Spanish, Italian and UK markets all reporting drops. Germany and the ‘other’ European markets reported year-on-year increases of 1.1% and 4.1% respectively. In Italy, the team has faced the uncomfortable entry of the disruptive Iliad, while the impact of handset financing was the cause in the UK. In Spain, the team restructured various offerings to make the brand more competitive. In theory, all of these markets should stabilise over the coming months.

Across Africa, Vodacom revenues grew by 1.5%, though growth was dampened by the South African market. Here, service revenue declined by 0.9% down to the pricing transformation strategy. The aim here was to reduce exposure to out-of-bundle revenues and improve the performance of more generous promotional summer offers. Over the period, South Africa added 86,000 contract customers, primarily from the business unit.

The other tricky market is India, but we’ll have to wait for a while to see the lay of the land there. Vodafone Idea will report its third quarter results in February, though as the integration of these two businesses is a work-in-progress any results will have to be taken with a pinch of salt. Reliance Jio is running the show in India as it stands, but the Vodafone Idea merger will have to be given time to create a competitive offering.

Overall, these are results which we should have expected. Vodafone is reacting to pressure in various markets, but it is not in the most comfortable position. In the vast majority of its markets, Vodafone would be considered more of a challenger than a leader. There are certainly dominant positions in some of the African markets, but it Europe it is fighting for attention.

The business is not nose-diving, but it certainly isn’t thriving. However, there are proactive measures taking place across the world to cultivate success. The fixed broadband offering in the UK should make an effective convergence business, Vodafone Idea could challenge the momentum of Reliance Jio, while more competitive tariffs in markets such as Spain and Italy should put it is a better position moving forward.

Vodafone is making some interesting, and encouraging, decisions but it is starting to fight bloody battles on a lot of fronts.

Liberty LATAM bails out of convergence ambitions

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

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

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

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

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

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

Nerves jangle as Aussies delay TPG/Vodafone merger decision

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

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

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

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

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

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

Orange steps further into the convergence game

Orange has announced a new partnership with Groupama, adding another branch to the convergence strategy with a home telesurveillance service.

Everyone in the industry is talking about convergence as a means to improve revenues, but few have created quite a splash in the deep-end as the cannon-balling French telco. This latest partnership with Groupama will see the creation of Protectline, a joint platform for the operation and management of home telesurveillance services.

“The upcoming launch of our home telesurveillance service is an important part of Orange’s multi-service operator strategy,” said Stéphane Richard, CEO of Orange. “To deliver the best product possible, we have again chosen to work with Groupama to pool our skills and resources, following on from our Orange Bank partnership.”

With Orange owning 51% of the new venture, it’s a very clever way for the telco to diversify revenue streams. Groupama is already a well-established player in this segment, but Orange has something which every business wants; a humongous subscriber base to potentially sell added-value services into. This is where this partnership is a stroke of genius and an excellent foundation for future convergence growth.

Orange has built a successful business and large customer base through doing what it does very well. Until recently it has focused exclusively on markets which it has a pedigree in; connectivity. Recently it has explored banking, cyber-security, entertainment and smart home services, though each has relevant-industry partners under-pinning the venture, as well as a direct tie back to the core business.

Protectline is another example of how the Orange business is embracing convergence in a low-risk, high-reward manner. Groupama has the expertise while Orange has the sales and marketing capabilities. Each is supplemented the other, leaning on the skills which are brought to the table. Its sounds incredibly simple, because it is, but it is effective. Of course, you have to wonder why there aren’t more in the industry doing this and the answer is relatively simple.

When splitting the risk, you have to split the spoils. If Protectline becomes a roaring success, Orange can only collect 51% of the riches. This might not sound attractive to other telcos, some of which have chosen to go solo on diversification to varying success; just have a look at BT’s attempt to rock Sky’s dominance in the premium TV segment.

Sky is another which has proven to be successful in the convergence and diversification game, branching out from the core TV services to offer broadband and mobile connectivity offerings. However, similar to the Orange example, the risk has been somewhat removed as the broadband offering runs over Openreach infrastructure and the Sky Mobile is a MVNO. The high-risk elements of these diversification ambitions, the CAPEX heavy infrastructure, has been removed from the equation. Sky focuses on what it does best, maintaining a relationship with its customers.

The buzz around convergence has been dying down a bit recently, as while it is an effective strategy few has realised the bonanza which was initially promised. Orange is one of those few who are reaping the considerable benefit, but only because it is not going alone.

The question which remains is whether Orange can nail the customer experience element. This would have been the big hurdle for the banking product, though it seems to have passed with flying colours. Groupama can take the operational risk away from the telco, but customer experience is slightly different in every vertical; Orange will have to prove its worth by being engaging and intuitive if this is to be a success.

Orange has realised where its strengths are and by offering this massive subscriber base as leverage is any future partnerships, it is proving the low-risk convergence game can be a very profitable one.

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.

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.

T-Mobile US won’t be rushed on TV proposition

The T-Mobile US TV launch has been anticipated for some time now, but we’ll have to wait until at least mid-2019 for this dream to become a reality.

After closing the Layer3 acquisition at the beginning of this year, it was assumed T-Mobile US would sharply enter the TV market with another ‘Uncarrier’ move. These disruptive plays have formed the foundation of T-Mobile US’ rise through the ranks in recent years, luring customers away from the still dominant duo of AT&T and Verizon.

But for those who were eagerly anticipating the launch of a TV service, don’t hold your breath. The launch has been kicked back, with no concrete commitments made. Why? Because CEO John Legere has high standards.

According to Bloomberg, people working on the project have suggested the wild-eyed CEO has set the bar so high, the team are struggling to meet expectations. This is not necessarily a bad thing and demonstrates Legere has the patience to produce a good product instead of being rushed to market due to the pressure of other players.

The first moments of life for this product could be the beginning and the end. Such is the competition in the ‘cord-cutter’ space, bringing a poor product to market could result in the venture failing before it has even started. If T-Mobile US wants to make a splash in this pond, he’ll have to meet consumer expectations, most of whom are dissatisfied at the moment.

While cable has had a place in the hearts of consumers for years, this trend is ending with the cord-cutting generation of today. Digital alternatives are wanted by the consumer, though with expensive and sub-standard options on the market as it stands, there is the opportunity for disruption. This is a perfect storm for Legere and the magenta army, but only if the proposition is right.

It’ll have to be cheap enough to attract interest, expensive enough to allow for future content investment, stylish enough to meet the visual and experience demands of the digital natives and have the content depth to attract a broad range of customers. This is a complicated equation to get right, but the rewards are potentially massive. We’re pleasantly surprised the team is taking its time and getting the proposition right.

Another factor to consider is the increased competitive threat from Disney. Disney has already shown its intention to go toe-to-toe with Netflix on the content battlefield, though should this entertainment heavyweight get its own OTT service right upon launch next year, the content gains for everyone else will get considerably smaller.

With a host of services already on the market, and more to come in 2019, T-Mobile US will have to make this Uncarrier move perfect if it wants to cash in on the content bonanza. Consumers are fickle and un-loyal enough to mean late-comers to the market can make a splash, so don’t expect Legere to be rushed with this challenge to the status quo.

Orange plans banking profitability by 2023

With many commentators expressing doubt over Orange’s banking venture, it might come as somewhat of a surprise the team are planning to be profitable by 2023.

After launching the financial business last year, the company is collecting customers increasingly quickly and is currently in the planning stages of its pan-European assault. Spain is next on the list, but it is the profitability and larger revenue growth contributions to the Orange Group business which are capturing attention.

“The entry of Orange into the non-telco services, should be viewed as defensive and pre-emptive actions,” Ramon Fernandez, Executive Director of Finance, Performance and Europe at Orange told Telecoms.com. “It’s a key lever to stimulate growth beyond what the mature telco business can offer.”

This is seemingly how Orange is viewing the banking services. With profitability and growth in the traditional telco segments constantly eroding, any operator which wants to seek bumper returns will have to search elsewhere. In the Orange business, this has taken the form of cyber security solutions, entertainment, the enterprise cloud segment and finally, banking.

Mobile finance might seem like a significant step away from the traditional telco business, though there are common factors which all each to function and grow. This isn’t just a case of grabbing entirely new revenues, the convergence strategy is winning through again.

As it stands, the banking product in France currently has 200,000 customers, though ambitions are to have two million by 2026. Of those customers, 60% are opening accounts in the stores across France. This is a significant opportunity for Orange, as while there are certainly cross-selling benefits from telco to finance and vice-versa, the finance business does not exist without the retail footprint across the country. Fernandez described this as the ‘phygital’ world, which gives Orange an advantage over other digital challenger banks, of which there are quite a few in France.

That said, the retail footprint isn’t the only benefit. Brand awareness is now up to 45% thanks to the strong position of the Orange business in France, though the data which the banking team can lean on is critical. With services being launched in the loans and credit world, telco customer billing data can be used to understand the risk profile of customers. Identifying the right customers, with an acceptable level of risk, is key for the business and this is where the telco business can really drive benefits as well.

The important factor from a marketing perspective, which Fernandez and Paul de Leusse, the bank’s CEO, have been keen to emphasise is this is not being sold as a traditional bank; they aren’t selling a traditional banking relationship, they are selling the way to use a banking application on the phone. Orange doesn’t want to innovate on products, this is viewed as dangerous, but instead focus on user experience. AI is being pushed heavily, with digital interactions being preferred. This will mean not all customers relevant, but those who are demonstrate a desire for AI-interactions. de Leusse claims 45% of current customers prefer this route, and with a median age of 42, it isn’t just the digital natives who are adopting.

For the moment, the team are still in aggressive customer acquisition mode, this will continue through year two before a few years of stabilizing OPEX. Scalability is obviously critical here, and is set to start making an impact as the team has already negotiated a reduction in manufacturing costs for cards this month. This will make a notable impact on the launch of the Spanish finance business which will launch early next year with Romania to follow quickly afterwards.

This is where profitability will come from. By 2023, the team plan to break even, projecting revenues of €500 million with four million customers spread through seven countries. Only five of these countries will have a fully-functioning bank, though Orange Money services will plug the gaps elsewhere. While many telcos would shirk at the prospect of going into finance, Orange is approaching it as a convergence opportunity. The simplest way to look at this is regimented loyalty.

In years gone, telcos used to use the complicated process of switching providers as a means to enforce loyalty. With regulators now tackling this frustrating part of customer engagement, new ideas are needed. Convergence is one of those, as while there are pricing benefits to the customer, tying as many services as possible into one provider makes leaving a nightmare. If you were to take all of Orange’s services now, upon leaving you would have to search for providers for mobile, broadband, banking, entertainment and security. Having all of your bills in one place is nice when you’re happy, but leaving is a disaster; it is essentially enforced loyalty.

This might sound negative, and it is slightly nefarious, but this should not detract from an interesting and ambitious move from Orange. Telcos are searching for new revenues to compensate from the OTT assault, and this is proving to be a successful venture.