Is Xiaomi filling a Huawei-shaped hole in the smartphone market?

Huawei might be suffering in today’s political climate, but every action gets a positive and negative reaction and could Xiaomi be benefitting from its rival’s misery?

The Chinese challenger brand might have missed on market expectations for revenue, but it is not the worst set of financial results you have ever seen. Looking at the most simplistic measure of a company, it made more money than last year, brought in more profits and sold more products; not too bad.

“Thanks to the Xiaomi relentless efforts, we have managed to achieve solid growth in our businesses, posting a consensus-beating profit and becoming the youngest Fortune Global 500 company in 2019, despite global economic challenges,” said Xiaomi CEO Lei Jun.

“Our performance is testament to the success of our ‘Smartphone + AIoT’ dual-engine strategy and the Xiaomi business model. Looking ahead, we will continue to strengthen our R&D capabilities and investments so as to capture the great opportunities brought by 5G and AIoT markets and strive towards ongoing achievements for the company.”

Financial analysts will be pouring over the spreadsheets to understand why Xiaomi seemingly missed market expectations, but let’s not forget, the smartphone market is in a notable slump right now. Sales are slowing and the 5G euphoria is yet to hit home to compensate. No-one is immune from overarching global trends.

However, there is a glimmer of hope on the horizon for the majority of smartphone manufacturers; there are gains to be made from the Huawei misery.

According to the latest smartphone shipment numbers from Canalys, Huawei’s smartphone shipments in Europe have declined year-on-year by 16%, while Samsung and Xiaomi have grown their numbers by 20% and 48% respectively. Other factors will contribute to the increase, though there will be former-Huawei customers who are seeking alternatives brands at the end of their replacement cycle.

Huawei is in a bit of a sticky situation right now. Firstly, its credibility has been called into question, thanks to President Trump’s trade war, while its supply chain is suffering due to the tariffs from the aforementioned trade war. The supply of critical components is under threat, as are security updates from Google’s Android operating system. Both of these concerns will impact consumer buying decisions.

Looking at Huawei’s financial figures, the consumer business unit is still on the rise, revenues were up 23%, though when you take into consideration the analyst estimates, it would seem these gains are from the domestic market. If Xiaomi can avoid collateral damage, it could benefit from Huawei’s alleged downturn in the international markets.

This does seem to be the case. For the first half of 2019, Xiaomi’s revenues increased 20.2% year-on-year to roughly $13.55 billion. The international markets, an area of significant potential for Xiaomi, accounted for 42.1% of the total, compared to a 36.3% proportion in the same period of 2018.

The gains in Europe have been highlighted above, though the Indian market is looking like a very profitable one. IDC estimates suggest Xiaomi is still leading smartphone shipments in India and has done for the last eight consecutive quarters. Estimates from eMarketer state smartphone penetration will grow to 29% of the Indian population in 2019, year-on-year growth of 12.5%. There is still a massive amount of growth potential in this market which is undergoing its own digital revolution.

Another area which has been highlighted for gains by the Xiaomi management team is the increasing diversity of the product portfolio.

Aside from the Mi 9 series and Redmi Note 7 series, the team launched the new K20 flagship during the second quarter, with shipments exceeding one million in the first month. The CC Series has also seemingly gained traction with female audiences, while the Mi MIX 3 5G was one of the first 5G compatible devices to hit the market. Numerous telcos have partnered with Xiaomi for this device, suggested the team is taking the shotgun approach as opposed to signing exclusive partnerships.

What is clear, Xiaomi is a smartphone manufacturer which is heading in the right direction. However, the gains could be increased should the misery continue for Huawei.

BT streamlining continues with reported £100m Dutch infrastructure sale

UK telco group BT is reportedly flogging £100 million of infrastructure assets in The Netherlands as its new CEO strives to make it a leaner operation.

BT doesn’t seem to have said anything official yet, but the Sunday Times got the scoop regardless. Apparently this is part of an attempt to streamline the struggling Global Services business, as BT currently uses its own infrastructure, such as towers and cables, to connect its Dutch business customers.

There’s not much more to the report other than a claim that, while BT is also looking to streamline its Global Services operations in other regions, including Ireland, Spain and Latin America, it doesn’t plan to completely abandon specific countries.

The report also refers to a previous Sunday Times scoop that BT is also flogging a legal software service called Tikit. It’s reasonable to ask what the hell BT was doing in the legal software business in the first place and if this is indicative of the kind of wild tangents the Global Services business has gone off on in the past, we can expect many more such disposals.

This news comes just days after it was revealed that BT was forced to hand over a bunch of cash to Ofcom due to its historical accounting incompetence. In addition BT announced last week that it was delisting from the New York stock exchange and earlier in the month decided to flog BT Fleet Solutions. Sadly for CEO Philip Jansen, none of this tweaking seems to have won over investors, with BT’s share price down by over 30% since he took over at the start of the year.

Accenture gets better at telecoms with acquisition of Northstream

Business consulting giant Accenture has decided this is a good time to raise its telecoms game and is doing so by snapping up specialist firm Northstream.

Founded by former Ericsson exec Bengt Nordström (whose surname translates to Northstream in English – see what he did there?) in 1998, Northstream focuses on the business side of telecoms. Its strengths include industry research, technology assessment and business transformation programmes. Nordström himself regularly appears in the telecoms media and occasionally on its defining podcast.

“With our common cultures of collaboration and client-centricity, Northstream and Accenture are a great fit,” said Nordström. “We’re excited to be able to bring the combined deep industry experience and scale of our two organizations to help clients generate new value and succeed in today’s increasingly competitive market.”

“With Northstream now part of Accenture, we’re in an even stronger position to provide our communications clients with the innovation led services they need to address the challenges they’re facing — including digital-driven disruption, changing customer expectations, and competition from new digital natives,” said Mattias Lewrén, Nordic CMT lead and Sweden Country Managing Director at Accenture.

Accenture seems especially excited with the boost Northstream will give its Nordic efforts. But that still didn’t earn Lewrén a place in the official acquisition photo shoot above, with Nordström on the right joined by co-MDs of Accenture’s Communications, Media & Technology group Anders Helmrich and Anna Weissmann instead.

We spoke to Nordström to get a bit more colour on the move. He confirmed that Northstream will remain a separate enitity within the Nordic comms team and that he himself will hang around for at least another three years. He noted that many of the best telecoms business opportunities lie in the overlap with other vertical industries and that Accenture, with its breadth of industry expertise, is in a great position to make the most of those. He also said he’s very happy to have secured the future for his company. Congratulations Bengt, the beers are on you next time you’re in London.

Giffgaff managed to find a way to overcharge prepaid subscribers

UK telecoms regulator Ofcom has fined MVNO Giffgaff £1.4 million for double-charging some of its pay-as-you-go customers.

Giffgaff specialises in prepaid SIM-only mobile phone deals, in which subscribers buy chunks of data, etc, marketed as ‘goodybags’, in advance and then buy more when those are used up. Any data used when a goodybag isn’t active is charged at 5p per MB. It looks like there was some delay in properly recognising when a fresh goodybag had been purchased from a billing perspective, resulting in people continuing to pay the metered rate at the same time.

This resulted in 2.6 million customers being overcharged by a total of £2.9 million, which might seem like a lot but is only a quid per punter. Once Giffgaff realised what it had done it grassed itself up to Ofcom, which proceeded to spend the next ten months ‘investigating’ what it had already been told. This resulted in Giffgaff being fined £1.4 million, which would have been more if Giffgaff hadn’t fessed up and already attempted to refund the overcharging.

“Getting bills right is a basic duty for every phone company,” pronounced Gaucho Rasmussen, Ofcom’s Director of Investigations and Enforcement. “But Giffgaff made unacceptable mistakes, leaving millions of customers out of pocket. This fine should serve as a warning to all communications providers: if they get bills wrong, we’ll step in to protect customers.”

Thanks Gaucho, but didn’t Giffgaff tell you what it had done and hasn’t it already taken remedial measures? What, exactly, have you done to further protect customers other than spend ten months mulling over how much to fine them? Even regulators can never resist an opportunity to self-promote.

Giffgaff seems to have missed a PR trick here too. There is nothing on its website or social media addressing this, so people are largely left to interpret the background to the fine themselves. For a prepaid brand that makes a virtue of transparency and value for money, this apparent shiftiness and surrendering of the narrative could end up being far more harmful than the fine itself.

UK ‘losing momentum’ in pursuit of digital utopia

A scathing report from the House Committee on Science and Technology has suggesting the Government has lost its way on its quest to evolve the UK into a digital society.

There are positive steps being made, though the Committee has pointed to several flaws, including a lack of leadership. The general message from the Committee of one of unstructured, inefficient progress and ineffective programmes. It doesn’t paint the prettiest of pictures for a country which so proudly (and regularly) preaches its leadership position in the global digital economy.

“The potential that digital Government can bring is huge: transforming the relationship between the citizen and the State, saving money and making public services more efficient and agile,” said Norman Lamb, Chair of the Science and Technology Committee. “However, it is clear that the current digital service offered by the Government has lost momentum and is not transforming the citizen-State relationship as it could.

“Single unique identifiers can transform the efficiency and transparency of Government services. The Government should ensure there is a national debate on single unique identifiers for citizens to use when accessing public services along with the right of the citizen to know exactly what the Government is doing with their data.

“In the UK, we have no idea when and how Government departments are accessing and using our data. We could learn from the very different relationship between citizen and the state in Estonia.”

The Government Digital Service is a unit in the Cabinet Office tasked with transforming the provision of online public services. The GDS was set-up in April 2011 with a mantra of ‘Digital by Default’ to create a new culture and baseline for the UK economy and society. Unfortunately for the GDS, the report suggests there is still too much of a reliance on legacy technologies, while a lack of leadership in the department is faltering progress.

For those who are currently in charge of the department, the emergence of this report should be viewed as even more worrying. The Committee suggests that since the departure of former Minister for the Cabinet Office Francis Maude, and the subsequent resignation of several senior civil servants, there has been ‘slowing’ momentum, pointing towards international rankings where several countries have overtaken the UK in digital preparedness.

Another point which has been raised in the report is the absence of a Chief Data Officer. The appointment of such an individual has been a commitment from the Government since 2017, though it seems other issues have taken priority.

There are various other issues raised by the report, including a lack of a centralised strategy to deal with cybersecurity, though the overall tone of the report seems to be focused on a lack of action. The Government has been preaching the benefits of the digital society, promising overhaul of departments and a new relationship with data, though little of this seems to have translated to action in public sector departments.

In proposing the introduction of ‘Digital Champions’ in each department, the Committee are seemingly hoping good intentions and proclamations lead to real-world changes. However, the risk of the ‘Digital Champion’ is one which every business will know. Appointments will have to be made, but appropriate power must be allocated to the individual to ensure changes are forced through. There are too many examples of meaningless job titles which result in zero impact to the organization.

Perhaps the biggest issue which has been highlighted is a shortage of skills in the various departments and a lack of data-sharing between the departments or with enterprise and the general public. Estonia has been used as an example of the success of an open-data model and without this open approach the foundations for a data-economy cannot be created.

Ultimately, this is a report few will be surprised to see. Public sector organizations generally have to be dragged through any transformation strategy, and without driving leadership at the top, change will not filter down through the various departments. New leadership is perhaps needed and new roles with power need to be created; left to create its own fate, the public sector will not change.

What can Western businesses learn from China’s digital innovators?

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this article Angus Ward, CEO, Digital Platform Solutions, BearingPoint//Beyond, takes a look at some of the ways in which China is more innovative than the West.

Over the past five years, China and its internet-born businesses have become a globally recognised force for digital innovation. This year, China’s retail market is set to become the largest in the world, exceeding sales in that of the United States and topping $6 trillion in 2020. Last year, it also had 186 unicorns (i.e.: a privately held start-up company valued at over $1 billion), with a combined valuation of more than USD $736 billion.

So, what’s the secret? What is China’s trajectory as a digital superpower and how far beyond Asia does it extend?

Consumers in Asia are voracious consumers of technology. They’re happy to switch to a new digital service (preferably mobile) if it offers a more convenient solution to a problem. They will concede on data privacy as a price for that convenience. That’s why Asia is a hot bed for innovation with digital players adopting a fail-fast mentality – rapidly taking an idea, launching a product to test the market to see if it flies and then rapidly building.

Through this approach, digital lifestyle app WeChat has grown from a simple messaging platform into an ecosystem of solutions for just about every customer problem – from mobile payments and e-commerce even to transport.

Western companies have a lot to learn from many of the Chinese digital heavyweights. Until recently, these firms were relatively unknown outside China, but this is no longer the case. With the launch of 5G in the UK, new smartphone models from the likes of Oppo and OnePlus are the first handsets to hit the market. US brands are nowhere in sight currently. Huawei is seen by many as a market leader in 5G technology and communications service providers (CSP) like China Mobile have set up European bases from which to expand. This suggests that these Chinese companies are innovative, ambitious and are ready to take the west by storm.

So, what can western players learn from their digital rivals from the east?

Eyes on the prize

For every western tech giant, there is a Chinese equivalent. Given China’s population, it’s on a scale that is pretty similar to the west. In the past 18 months, some of the best-known western technology giants have experienced a breach of trust with customers stemming from their lack of transparency into how the giant tech player actually use – and misuse – customer data. Facebook and Cambridge Analytica scandal are an example. The entire episode has left customers both questioning the integrity of the technology companies they’ve come to rely on for much of their online digital interactions but also it has weakened the bonds tying them to their customers.

While Facebook and its fellow FAANG companies face criticism over data privacy, the likes of Baidu, Alibaba and Tencent – known as the BAT companies – go from strength to strength in China. Thanks to investment and other support from the Chinese Government, Baidu dominates online search in China: Tencent is the country’s biggest gaming firm and is also behind the WeChat messaging and payments app: and Alibaba has used its success in China’s e-ecommerce market to invest billions in Artificial Intelligence (AI). With China’s plans to build a USD $1 trillion AI industry by 2030, the country is on track to overtake the US as the world’s leader in use of this technology.

And it’s not just in AI where China wants to claim the top spot. The country’s “Made in China 2025” strategic plan aims to move the country away from large-scale manufacturing and transition into high value product and services. China is also striving to take the lead in robotics, IT and clean energy, among other sectors.

Undoubtedly the real winners of 4G were the FAANG companies who dominated in handsets, social media, internet search, advertising revenues, content streaming and e-Commerce alongside gaming. But in the race to 5G, it’s China now ready to claim a material share of global revenues. With Government sponsored focus on the new technologies like AI and robotics, and a massive home market of tech savvy consumers with a voracious appetite, Chinese digital players will be much faster at innovating the new applications that will power technology adoption such as for 5G

Without as many areas of interest, and lacking the same levels of capital, customer base and support of national governments behind them, it’s difficult to see how Western players will enjoy the same success as Chinese firms. But while they can’t draw on the same resources as their Chinese peers, there is no reason why Western firms cannot adopt the same approach.

There is no “I” in team

Chinese companies’ willingness to work closely with global partners has played a significant part in the success of its tech start-ups. China’s decision to invest heavily in the tech sector, both at home and abroad, means that it is slowly but surely working its way up the value-added ladder. Western companies can learn much from this collaborative approach in order to innovate and better compete.

In sectors like e-commerce and the Internet, Chinese firms create ecosystems that drive innovation because of their size and also the advantages and benefits they offer to third-party partners, in terms of access to new markets.

For example, Chinese ride-hailing app DiDi outperformed its rival Uber in China on everything from marketing to speed to market, before finally acquiring Uber’s China assets. DiDi regularly introduces new features and services from its partner ecosystem, such as sending a driver for your car when you’ve had too much to drink: and an SOS feature to improve customer safety.

Partner ecosystems help to innovate new ideas, expand offerings, increase reach and grow revenue. An effective partner ecosystem solves customer problems through the exchange of ideas and combining contrasting capabilities to create new more functional, multi-faceted and compelling solutions. Nevertheless, ecosystems are complex to manage and so must always be underpinned by a digital business platforms to automate operational processes to bring governance, efficiency and control but also to secure and share the benefits across the parties. This is why both FAANG and BAT are also digital business platform companies.

According to a May 2018 study by consulting firm BearingPoint, 60 percent of Communication Service Providers (CSPs) expect partner ecosystems to drive cost-effective innovation, 59 percent expect ecosystems to help them remain competitive, 51 percent believe ecosystems will help them improve customer experience and 48 percent believe that ecosystems will create direct relationships with customers. This picture was replicated across almost every other industry covered by the survey from automotive to financial services.

The reality is that very few innovations – whether it’s an entirely new service or improving an existing one – are created solely in-house anymore. For CSPs to thrive in the expanding, fast-moving and hugely competitive digital market, cultivating and actively participating in a partner ecosystem is now essential.

 

Angus WardAngus is the CEO of BearingPoint’s digital platform solutions arm, BearingPoint//Beyond, appointed in September 2017. Angus brings 30 years of consulting and solutions experience to his role, supporting organisations across multiple industries in shaping strategies and adopting platform-based business and operating models with differentiating partner ecosystems.

BT to close 90% of UK office locations

BT’s cost-efficiency strategy has managed to avoid the headlines in recent months, but today it has announced it will be shutting down 270 of its 300 office locations around the UK.

Unions have been very vocal opponents of the strategy, suggesting it is the telco’s way of spring cleaning, taking the opportunity to shepherd out old bodies. This announcement might be one of the first steps in the consolidation plan, as new CEO Philip Jansen looks to shore up the spreadsheets and finally realise the potential of the £12.5 billion acquisition of EE.

Snuck in with an announcement about modernising eight offices, BT will close 270 of its 300 office locations around the UK in pursuit of a more attractive profit column. If it is any consolation for the members of staff involved in the re-shuffle, these eight refurbed offices will have 5G connectivity.

Belfast, Birmingham, Bristol, Cardiff, Edinburgh, Ipswich, London and Manchester have been identified as key locations for the business moving forward. In some cases, the same office will be used, though details have not emerged on which staff will be moving into a new space.

“The Better Workplace Programme is about bringing our people together in brilliant spaces, and transforming the way we work,” said Jansen.

“Revealing these eight locations is just the first step; we have dedicated teams working on identifying the best buildings to move into and which ones to redesign for the future. As a result of this programme, BT people will be housed in inspiring offices that are better for our business and better for our customers.”

In all honesty, this is a process which BT has been forced into more than making a choice. The telcos is one of the least profitable in the larger segment, while difficulties in managing the relationship with regulators.

Redundancies and restructuring strategies are never pleasant topics to discuss, however BT does need to ensure it is a business built for the next generation of connectivity. The world has changed dramatically and at an astonishing pace over the last decade, forcing telcos to make some difficult decisions.

13,000 redundancies were announced in May last year, and there have been rumours Jansen might be preparing for another announcement in the future. The last financial results passed without any new cuts, but that is not to say there won’t be more in the future. Most of these cuts will be made in the back-office and middle-management functions, with the UK workforce taking the sharpest part of the blade.

Closing offices and consolidating operations is a sensible business decision, few companies will be blamed for making such financial decisions, though it seems to be more of a material development here. The restructuring strategy of BT is becoming very real.

Telstra confirms 6000 jobs to be cut by the end of this year

Australian telco Telstra has announced steady progress for its T22 restructuring plan, allowing it to retire AUS$500 million of legacy IT equipment and bring forward 6,000 job cuts to 2019.

The restructuring plan, T22, was introduced during June 2018 in an effort to simply the structure of the business and improve profitability. The plan is to remove 8,000 roles in total from the business, through replacing legacy systems, digitising certain processes and simplifying the management structure of the business.

According to Telstra executives, who’s jobs are seemingly secure, the firm had become a burdensome beast and needed streamlining. This plan was set in motion not only to reduce the complexity of the organization, but also deliver AUS$2.5 billion in cost efficiencies by 2022.

In today’s announcement, 6,000 of the planned redundancies have been brought forward from 2020 to 2019, increasing the restructuring costs for this financial year by AUS$200 million and introducing a AUS$500 million write down of the value of its legacy IT assets. Investors might not have expected such a hit in 2019, but the news should not have come as a surprise.

“We understand the significant impact on our people and the uncertainty created by these changes,” said CEO Andrew Penn. “We are doing everything we can to support our people through the change and this includes the up to $50 million we have committed to a Transition program that provides a range of services to help people move into a new role. We expect to have announced or completed approximately 75 percent of our direct workforce role reductions by the end of FY19.”

According to Penn, plans are on track and the majority of the work is behind the team. Employees are yet to discover their fate, however the consultation is expected to finish in mid-June

Headcount FY 2018 total revenue Revenue per employee
Telstra 32,293 $20.05 billion $620,877
BT 94,800 $30.01 billion $316,561
Telefonica 120,138 $54.33 billion $452,229
Verizon 144,000 $130.863 billion $908,770

All figures in US Dollars

While Telstra executives might not like the balance of the spreadsheets as it stands, you can clearly see from the table above it is not in the worst position worldwide. Restructuring plans are certainly having more of an impact at some telcos, take BT for example, though some might be aggrieved when being forced into redundancy.

That said, NPAT (net profit after tax) for 2018 was AUS$1.2 billion, 4.1% of total revenues. When compared to Verizon, where profits represented 8.1% of total revenues, or Telefonica where it was 7.4% for 2018, you can begin to see why the management team is under pressure to find efficiencies across the business.

Redundancies, while never pleasant to talk about, are commonplace in the telco industry and will continue to be so. As businesses evolve, more processes become automated and more technology becomes redundant. This will have an impact on any workforce, but when you consider the complexities of managing a network or securing the digital lives of customers, the demand of digitisation becomes more apparent for the telcos.

Unfortunately for Telstra, it also happens to operate in an environment which makes delivering connectivity incredibly challenging and expensive (i.e. the scale of Australia and the geographical isolation of some communities). Add in the fact it will now longer be able to work with Huawei or ZTE, the vendor pool becomes smaller, adding more financial risk to the procurement channels. All of these factors add up to more financial outlay when it comes to the business of delivering connectivity, and pressure to improve operational efficiencies.