Toothless German regulator capitulates during 4G coverage review

German telco regulator, Bundesnetzagentur has let all three mobile network operators escape any punishment for missing coverage obligation deadlines.

While many regulatory authorities might choose to punish telcos for missing coverage obligations, Germany’s Bundesnetzagentur is perhaps offering some colour as to why the country lags behind others in terms of connectivity benchmarking. All three failed to meet commitments made to the regulator in 2015 but have been afforded the opportunity to correct mistakes by the end of 2020.

A regulatory enforcer who does not dish out punishments when telcos fail to meet obligations is as useful as a chocolate teapot in a Saharan Quidditch match.

“Our primary goal remains to ensure that the coverage of mobile broadband is moving forward,” said Jochen Homann, President of Bundesnetzagentur. “We want to see verifiable improvements over the next few months that will ensure that the requirements are fully met by the end of the year. This expressly includes that we may impose fines and fines if necessary.”

A fine might be directed towards the telcos in the future, but that is not the point. If you give these companies an inch, they will take a mile. If this deadline was not actually a deadline, what was it?

This relaxed attitude towards enforcement of obligations perhaps explains why Germany is seen as a laggard in the connectivity stakes.

Looking at OpenSignal’s 4G coverage data, Germany is one of the poorest performing European nations with geographical coverage of 76.9%. These estimates are slightly dated, but the rankings would not have changed that dramatically. But it would be unfair to reserve all the criticism for the MNOs when the broadband service providers are similarly sloppy.

According to the latest estimates from the FTTH Council Europe, Germany has only connected 3.4% of homes to full-fibre broadband, which is only set to increase to 24.8% by 2025. To demonstrate the performance of Germany to date, the UK currently has a higher percentage of full-fibre homes. Being behind the UK today is a pretty embarrassing place to be.

Coverage maps and data does not give the complete picture for a measure on how developed a country’s digital society and economy is, but it is a useful yardstick. As a more traditional country, it would surprise few Germany has been slow to evolve, however when you add into the mix a regulator which does not run a tight ship, it starts to become more obvious as to why.

These telcos are pursuing profits, therefore the urban environments will be favoured in the ROI chase. The regulators have to force telcos to provide connectivity in the most sparsely populated areas, as few telcos care about farmer John or dog walker Jane. This is where Bundesnetzagentur is failing as a regulator; it is not holding the telcos accountable, instead it added some extra slack to the leash.

In the review, Telefónica failed to meet requirements in all 13 federal states and only got to 80% coverage on major transport links. Deutsche Telekom missed the requirements in three states and failed to meet the obligations for main traffic routes with 97% coverage for motorways and 96% for the railways. Vodafone fell short of expectations in four states, while coverage of 96% for motorways and 95% for railways are below the coverage requirement.

The obligations which were agreed were 98% 4G coverage of households nationwide and 97% of households in each federal state with minimum download speeds of 50 Mbps. In addition, all major transport routes would have to be fully covered.

Although some might suggest these obligations were too high, the telcos did have five years to meet the expectations, and they agreed to them in the first place.

Telcos and regulators have to have a working relationship. Collaboration is a buzzword, but it is perfectly suitable and should be appreciated by all markets. However, there also needs to be a bit of fear to ensure the dynamic works effectively. The regulator is a watchdog, not an industry partner, and the prospect of swift and measured punishment needs to be a realistic possibility.

A self-regulating industry almost always fails in some way or another, and that is effectively what situation is created when you have a toothless regulator.

DT CEO ups US ambitions to double down on momentum

Deutsche Telekom CEO Tim Hoettges is looking to close the valuation gap between T-Mobile US and its rivals, as the telco revels following a very positive earnings call.

Share price in the German telco has jumped 3.9% in early morning trading following the financial results which saw revenues increase by 6.4% to €80.4 billion for 2019. Net profit was up by almost 80% to €3.9 billion, while free cash grew by 15.9% to €7 billion.

“The market environment in the European telecommunications sector is far from straightforward. Yet, despite the heavy regulation and inconsistent competitive situation, we emerged from the year just ended even stronger,” Hoettges said his letter to the shareholders.

“Not only that, but we are once again the leading European telco, based on both revenue and market value. That was and remains our overarching goal.”

Deutsche Telekom is one of the largest telcos across the world, but in recent years it is questionable as to whether it is one of the more progressive or future proofed. When looking at the penetration of full-fibre broadband or deployment of 5G infrastructure, the numbers are not as favourable, though the tide does seem to be turning.

The team now suggests 5G connectivity is being delivered in eight cities in its domestic German market, with ambitions to increase this to 20 by the end of 2020. Elsewhere, T-Mobile US launched its 5G offering in December and Austria has 31 5G base stations up-and-running.

Deutsche Telekom is heading in the right direction, but it is moving at a much slower pace than other telcos. It might want to proclaim itself as a leader in the telco arena, but realistically it is a fastish-follower at best, BT for example, has already launched 5G in 50 towns and cities across the UK.

One area where the company is proving to be incredibly aggressive is in the US, and this should continue over the coming months.

“We have the chance to become No.1 in the United States, to overtake AT&T and Verizon. That, at least, is our ambition,” Hoettges said during the earnings call.

With T-Mobile US and Sprint now looking at a clear path to the finish line, after a District Judge ruled in favour of the merger in the face of opposition from 13 Attorney Generals, the team can look further into the future. Following the merger, T-Mobile will be roughly the same size from a subscriber base as AT&T and Verizon, allowing more opportunity for the team to compete on a level playing field.

The US business is one which is once again proving to be very profitable for Deutsche Telekom.

T-Mobile US is the single largest business unit in the overarching business, accounting for just over 50% of the total revenues at €40.4 billion, a year-on-year increase of 10.7%. Momentum is clearly with the business also, the team boasted of 1.3 million branded postpaid net additions during its last financial results.

While the US is looking very positive for the telco, it will have to be careful sluggish activity in Europe does not open the door for rivals to steal market share in the various markets.

DT reportedly tells Nokia to raise its 5G game, prompting a non-denial

A report claiming one of Europe’s biggest operator groups has demanded Nokia get its house in order when it comes to 5G has not really been refuted by either of them.

Reuters grabbed the exclusive with the headline ‘Fearing Huawei curbs, Deutsche Telekom tells Nokia to shape up’. The reporter had not only spoken to the ubiquitous anonymous source who reckons they know a thing or two, but got hold of internal documents too. They paint a picture of DT having a low opinion of Nokia’s 5G offering, resulting in the vendor being ditched by most of the countries in which it operates.

All the fuss around Huawei, however, especially the EU’s recent guidance, seems to have forced DT to have another look at Nokia, albeit with a heavy heart. It looks like DT has put the ball in Nokia’s court and told it there’s business to be had it if can raise its game. This doesn’t seem especially contentious since Nokia openly admits to having dropped the ball on 5G and DT wouldn’t have dropped it as a supplier without good reason, you assume.

But for some reason the two companies felt compelled to address the story nonetheless. “We have been a long-term partner of Deutsche Telekom and have been proud to work with them extensively over the years, providing leading network technology and services,” said Federico Guillén, President of Customer Operations, EMEA & APAC, Nokia. “We continue to work extensively with Deutsche Telekom which is one of our most significant customers, both in Europe and the U.S.”

“As one of the major European manufacturers, Nokia is of strategic importance to Deutsche Telekom,” said Claudia Nemat, Board Member Technology & Innovation, Deutsche Telekom. “It is well known that Deutsche Telekom is pursuing a multi-vendor strategy so that we are not dependent on just one supplier. This is an elementary part of our security philosophy. However, as in the past, Deutsche Telekom will not comment on individual contractual relationships and strategic purchasing decisions.”

So why bother with the announcement at all then? Nothing in either statement comes close to addressing the claims in the story, one way or the other, and the whole thing just comes across as a lame attempt at damage limitation, presumably driven by Nokia. But the good news for Nokia is that it’s first in line to get some scraps off the Huawei table if it can get its 5G act together.

US is a more attractive investment than Europe – DT CEO

Deutsche Telekom CEO Tim Höttges is always a colourful character, but he hasn’t held back in brutally condemning Europe as we enter the digital age.

“I have 50%, 50% businesses in Europe and the US,” said Höttges at the FT-ETNO Conference in Brussels. “I would love to invest patriotically, but it is better to invest in the US. They want 5G for every citizen as soon as possible, they are bringing a lot of spectrum to the market.”

Europe is a market which has grand ambitions for the digital age, but it is struggling to keep pace with the likes of the US, China and Korea. As it stands, some could argue there is parity for control of digital economy, but it is questionable as to whether this will be the case moving forward.

“I would like to say the future is Europe, but I can’t, at least not unconditionally,” said Höttges.

Governments and regulators are demanding rapid deployment of infrastructure, but consolidation is the dirtiest of words. Scale is critical, but no assistance is being offered. There are positive noises about spectrum harmonisation, but fragmentation is rife. This valuable asset is becoming increasingly expensive with every passing auction. And the legal framework for digital services does not line-up between the telcos and the cloud players.

This is of course yet another example of a telco moaning about regulation, but if the moaning leads to investment being directed elsewhere regulators cannot ignore it for much longer. Höttges is a very honest CEO and today saw a statement which should seriously worry authorities across the continent.

Investors demand DT invests in areas which return the greatest profits, Höttges has a fiduciary responsibility to ensure this is the case. If the US landscape is more likely to generate the required returns, this is where the company will drive investment.

“I invest where I see the biggest opportunity,” Höttges stated.

US authorities and consumers will be thrilled to hear such proclamations. Over the course of 2018, DT investments totalled more than €12.2 billion worldwide. If the US is creating a more investment friendly landscape, regulators are arguably doing their job. This means more money being pumped into T-Mobile US, a company which is already forcing the hands of rivals with disruptive strategies. More money could mean more disruption. Theoretically, this will only benefit the US telecoms industry.

What is worth noting is that DT is not alone in its criticism. Telecom Italia Chairman Salvatore Rossi suggested there has not been enough attention paid to industrial policy. Altice Portugal CEO Alexandre Fonseca complained about market consolidation resistance from authorities when the fourth player accounts for less than 3% market share. Telefonica Chief Finance and Control Officer Laura Abasolo bemoaned shifting regulations; inconsistency is the enemy of investment after all.

These are only a few of the frustrations which were aired today. Some very senior people said some very condemning things, but this is of course not new.

Telcos will always complain about regulation. From their perspective, there are always too many rules, never enough subsidies and spectrum is consistently too expensive. The majority of the time these companies are trying to get more for less, profit is the ultimate goal after all, but occasionally you have to listen to the moaning. The outcome is arguably more important than the process, and this outcome is not beneficial for Europe or DT’s customers.

If investment is being directed elsewhere because the regulatory framework is not working for the continent’s largest telco, the dynamic needs to change, and change quickly.

A Deutsche Telekom merger with Orange is unlikely for many reasons

Rumours of corporate courtship between Deutsche Telekom and Orange have resurfaced by they seem as implausible as ever.

The bringer of the rumour this time is German publication Handelsblatt, which witters on for several paragraphs before getting to the point that DT CEO Timotheus Höttges is wargaming how a merger with French operator Orange would play out. Even allowing for the idiosyncrasies of Google Trnaslate, the piece seems to be thin on substance, but they presumably got the goss from somewhere so we thought we’d do a spot of war gaming of our own.

The first major impediment to such a deal would be ownership of the combined entity. You might think two former state monopolies from similar-sized countries might be roughly the same size, but that’s not the case. DT has a market cap of around €73 billion, while Orange is worth a mere €40 bil.

The last time this came up this was apparently the main deal breaker but surely shareholders should just get a stake in the combined entity in proportion to the market caps at time of deal. This would give DT shareholders roughly two thirds of the merged company and Orange one third. It’s presumably a lot more complicated than that, but it’s not immediately obvious to us why.

Then there’s the not inconsiderable matter of regulation. The European Commission isn’t a big fan of M&A because it reckons the consumer always ends up getting ripped off as a result. However in the case of telecoms this has tended to be focused on keeping at least four MNOs in each country. If the EC focuses solely on national considerations then the fact that two of the world’s largest operators merging has broader competition implications may be overlooked.

They’re not totally in the clear, however, as both have significant operations in Poland, Romania and Slovakia. They would presumably have to do that manoeuvre when they hand over a bunch of their combined assets in each country, which in turn would be made available for a new entrant to the market to ensure the magic MNO number is maintained.

But lastly, and most importantly, we have the resulting colour scheme. Unless you have an irrational love of 60s psychedelia, pink and orange have no business appearing on the same sheet of paper. If they chose to combine them, possibly in proportion with the respective market caps, we’d be left with some kind of smoked salmon abomination that would surely spell disaster for the resulting company. For this reason alone we can’t see the deal happening.

DT in legal battle over ownership of the colour magenta

Deutsche Telekom is testing out the resourcefulness of its lawyers in an attempt to own the colour magenta as it battles with Israeli insurance start-up Lemonade.

Shortly after launched the online-only insurance brand in the German market, a court injunction was filed by the telco with Lemonade being told to remove all branding with the offending colour. It does seem quite remarkable a company can ‘own’ a colour, but that it was the German courts have ruled.

Although the ruling is limited to the German markets for the moment, Lemonade is escalating the legal fracas to the European Union Intellectual Property Office to invalidate the decision. As with many legal decisions of this nature, there is the risk of precedent being set, with this ruling being used as a basis for future decisions in additional markets, though Lemonade wants to cut the monopoly down before any momentum can be gathered.

“At first we thought it was a joke,” Lemonade co-founder Shai Winiger said on Twitter.

“Turns out its anything but funny. So, we’re doing the one thing they least expect, by launching a legal attack against the ability of corporations to own things that should belong to humanity as a whole – like colours.”

What is slightly baffling about this case is the free-reign Deutsche Telekom has been handed by the courts. The patent doesn’t seem to be related to the use of magenta with certain letters, a concept, design or services, it apparently ‘owns’ magenta in Germany.

Launching the hashtag #FreethePink, the Lemonade team is challenging what seems to be a remarkable decision. The legal challenge is also generating a handy amount of PR for the business, which has its eyes set on international expansion after a positive start to life in Israel.

And as one would imagine, support on social media is gathering behind Lemonade with several users suggesting new targets for the telco to chase after. Perhaps the Pink Panther will be tackled next, or the hideous and slightly terrifying Troll Doll should start quaking it its boots. Maybe even Barney might be hauled out of retired to defend his tone, or if Deutsche Telekom fancies bullying children, it could take-on the Power Puff Girls.

Of course, this is not the first time Deutsche Telekom has attempted to use its legal weight to bully start-ups who dared to cross its colour palette. Dutch IT firm Compello felt the legal stick over the use of pink in its own logo, while dataJAR in the UK was also a victim.

Interestingly enough, in the case with Lemonade, the firm has not even been using the shade of pink Deutsche Telekom holds the patent for.

DT currently owns the patent for RAL 4010, a shade which is incredibly similar to the one being used by Lemonade, but not exactly the same. Following the ruling out of Germany, Lemonade has received a colour wheel from the telco, pointing out the colours it cannot use, one of which would be more readily described as Purple.

Although it might seem baffling a corporation can ‘own’ a colour outright, hopefully there will be some common sense shown by the European Union Intellectual Property Office and DT will be put in its place.

We want to build a network where failure is impossible – Telefonica CTIO

If you consider 5G is not 5G without a 5G core, why have we not been talking about the 5G core more when 5G is being deployed and the 5G economy is just around the corner.

If you hadn’t figured it out, this article might be about completing the 5G puzzle.

In Madrid, telco executives are gathering to talk about a topic which has not grabbed many headlines to date. The evolution, or perhaps revolution, of the core. And whilst it might be a very complicated project, one thing is very clear; the 5G core will not look very similar to the 4G core.

“We are not building infrastructure for the customer,” Telefonica CTIO Enrique Blanco said at the 5G Core conference.

“We are building it for society. How can we build a network which will not fail? 5G Core is a key topic for us.”

There are two interesting elements to this statement from Blanco. Firstly, the network is fundamentally different in its application. And secondly, if connectivity is going to central to society moving forward, failures cannot be tolerated, irrelevant of severity, location or impact.

Starting with the application of the network, while 4G was built for the mass market and appeasement of the increasingly digitally-native consumers, 5G is much more than that. Increased download speeds are an added bonus, but the value of 5G is realised through the creation of new services and engagement with enterprise.

Walter Wang of Huawei illustrated this nuance very well. The 4G network has been built for a single purpose, however the 5G core needs to be built in a way which allows for the creation of customisable connectivity services for enterprise. For example, a customer in the energy sector will be demanding low-latency. In manufacturing, reliability and resilience are key. And for broadcasting, its speed and availability.

The ‘one-size-fits-all’ 4G network cannot deliver on these demands. If 5G is to offer an opportunity to engage enterprise customers, the 5G core needs to be created in a way which allows for the creation of these services. It’s multi-layered, regionalised and distributed and multi-vendor. Which leads us very nicely onto the next area.

The 5G network cannot fail. The same could be said of the 4G network, however the impact is very different. If 4G networks go down, the general public can’t watch cat videos on the bus. If a 5G network fails, enterprise customers are irked and SLAs (service level agreement) come back to haunt the telco. Critical services fail and there is a very real impact to society.

As Blanco highlighted, operating through multiple layers, distributing the core over several regions and engaging with multiple vendors adds resilience. If there is a failure at one point in the network or ecosystem, it is a case of damage limitation not everyone to panic stations.

This is a perfectly reasonable approach to business, though there are certainly some risks to bear in mind.

A multi-vendor environment is all well and good for resilience, reliability, competition and innovation, however as Veon CTO Yogesh points out, the more variables in the ecosystem, the points of failure. Franz Seiser of Deutsche Telekom also echoed this point; the future network is impossible without automation and automation is very difficult.

This is the challenge with the 5G network of tomorrow; if it is multi-vendor, with telcos selecting components which have been deemed best-in-breed, this is not necessarily a guarantee they will complement each other. The ingredients might be perfect, but if the recipe doesn’t work, neither will the network. In some case, it might be worth sacrificing some quality because the components complement each other.

What is worth noting is that all of these discussions are very much in the early days. The 3GPP Release 16, due in the early part of 2020, will pay more specific attention to the 5G core, and at this point we might see work accelerate.

That said, always bear in mind that 5G is not really 5G until the core is 5G. And the nuances of delivering a 5G core are a lot more complicated than 4G.

T-Mobile staff start getting twitchy over Sprint merger

A letter has emerged from T-Mobile Workers United, with the union asking Deutsche Telekom executives to confirm jobs will be safe following the merger between T-Mobile US and Sprint.

According to Reuters, the union, representing around 500 employees from the telco, have seemingly decided to skip out T-Mobile US CEO John Legere and gone straight to group boss Tim Hoettges. The union is seeking assurances jobs will be safe should the merger between the two telcos survive legal challenges which are emerging.

Although there have been several assurances from Legere the merger will be a net creator of jobs, this is under the assumption growth can be achieved through the union. It might sound like a good headline, but reading into the statements, Legere is suggesting job creation will be down to synergies between the firms and a more assertive challenge to AT&T and Verizon.

However, the issue of business rationalisation has not been addressed head on. Whenever two large businesses are brought together through a merger, redundancies are unavoidable. This is a point which has not been addressed by the management teams, with senior managers simply pointing to the potential for growth.

Irrelevant as to whether there will be job creation through an aggressive network rollout or a taking the combined business into new, regional markets, there will be overlap between the two businesses. Not every lawyer, accountant or HR employee will need to be retained as the team will seek cost efficiencies during the integration process. The other thing you have to think about is the retail presence.

It won’t be in every location, but there will of course be hundreds of jobs at risk as the merged business seeks to rationalise its presence on the high street. There are going to be numerous locations where both Sprint and T-Mobile US have a physical store within minutes of each other; a choice will have to be made and job cuts will be evident. Being a net creator of jobs does not mean there will be no redundancies.

These staff are perfectly entitled to feel nervous, as the issue has not been directly addressed and any logical person would say there will be redundancies.