Qualcomm’s share price nosedives after FTC antirust loss

Qualcomm might have some of the most battle-hardened legal experts in the technology world, but it can’t win every fight.

In a ruling coming out of the District Court for the Northern District of California, Judge Lucy Koh has ruled the chipset giant had violated the Federal Trade Commission Act. The judgment could have a significant impact on the Qualcomm business model, with Judge Koh suggesting it used its dominant position to impose excessive licensing fees.

While this certainly won’t be the end of Qualcomm dominance in the chipset market, the firm houses too much competence and smarts, it might have a drastic impact on the spreadsheets. And investors seem to be fearing the worst also, with Qualcomm’s share price declining almost 12% in pre-market trading at the time of writing.

“Qualcomm’s licensing practices have strangled competition in the CDMA and the premium LTE modem chip markets for years, and harmed rivals, OEMs, and end consumers in the process,” Judge Koh said in the ruling.

In a filing made in 2017, the Federal Trade Commission argued Qualcomm was employing anticompetitive tactics, using its dominant position in certain segments of the semiconductor market to hamper competition and effectively hold customers to random. The FTC suggested some components licenced by Qualcomm were standard essential parts, meaning they would have to be licenced on ‘fair, reasonable and non-discriminatory terms’. In short, Qualcomm should not have been charging such a handsome premium on the licences.

The FTC also claimed it was not reasonable for Qualcomm to enter into an exclusive agreement for some components with Apple, shutting other smartphone manufacturers out of the equation.

The Qualcomm business model has been under fire for some time, with the business facing numerous legal challenges in different markets worldwide. Although this is only a single ruling, it remains to be seen whether this sets a precedent and a subsequent domino effect around the world. Qualcomm is on the ropes here, though it will be interesting to see how the firm reacts to this latest antitrust blow.

DoJ doesn’t share FCC enthusiasm for T-Mobile/Sprint – report

The FCC might have a skip in its step after securing concessions from T-Mobile US and Sprint ahead of the proposed merger, but the Department of Justice is not convinced.

Following the approval from FCC Chairman Ajir Pai, and the vote of support from Commissioner Brendan Carr, Sprint share price rose almost 19%. The long-awaited merger to create a genuine challenger to AT&T and Verizon on a national scale looked to be heading in the right direction, only for the DoJ to be the fly in the ointment.

According to Bloomberg, the DoJ believes the concessions made by the pair do not go far enough. This is a move which breaks with tradition, generally the FCC and the DoJ sing from the same hymn sheet when it comes to acquisitions and mergers, though it appears antitrust investigators are still concerned over the threat to competition.

This is perhaps the nuance between the two departments. The DoJ, and various Attorney Generals throughout the US, are primarily concerned with competition, while the FCC rhetoric has been more focused on securing a more efficient and broader 5G rollout.

The concessions have taken the form of three commitments. Firstly, T-Mobile suggests 97% of the population could be covered by 5G within three years. Secondly, Sprint’s prepaid brand Boost would be sold to preserve competition. And finally, there would be no price increases while the 5G network is being deployed.

Of course, there is a very real risk to competition. Taking the number of national telcos from four down to three will mean less choice in the market. Less choice means less opportunity for disruption, even if the hatred from T-Mobile US CEO John Legere towards AT&T and Verizon is effectively teemed from his ears. There are too many examples through history of abuses when it comes to competition for some to be completely comfortable.

You also have to weigh up the current cost of mobile connectivity in the US. Although much has been done to help the consumer, ARPU is still notably more than in Europe, where competition is significantly higher. According to Moneysavingpro.com, the average postpaid contract in the US is as much as $80.25 compared to $30.06 in the UK. US consumers are already feeling the sharp end of the competition stick, and few would want to risk this difference to increase further.

The question is how much pain the consumer can tolerate in pursuit of leadership in the 5G race. Carr has spoken of his primary role at the FCC being focused on creating a leadership position for the US in the 5G era and part of this will depend on getting 5G in the hands of the consumer as quickly as possible. The sooner consumers have 5G, the sooner US firms can scale new services and products before assaulting the international markets. This is a playbook taken from the very successful 4G era.

With the US taking a leadership position in the 4G world, companies like Google, Amazon, Uber, AirBnB and Lyft thrived. These are companies which would have existed without the 4G euphoria, but success was compounded because of the connectivity gains. We are likely to see the same trend in the 5G world, with new products and services being designed for 5G connectivity. The question which remains is where they will call home.

This is the equation the FCC and the DoJ have to balance. The need to protect the consumer against the drive towards future economic success on the global stage. There is not going to be a perfect answer for this one, the US is gambling on the future success of the economy after all.

FCC Chairman convinced by T-Mobile/Sprint concessions

FCC Chairman Ajit Pai has publicly stated he believes the concessions made by T-Mobile US and Sprint are enough to ensure the merger would be in the public interest.

Over the course of the weekend, rumours emerged over concessions the pair would have to make to get the support of the FCC, though rarely are sources so spot on. The merged business will now have to commit to a nationwide 5G deployment within three years, sell Sprint’s prepaid brand and promise not to raise prices during the rollout years, if it wants the greenlight of the FCC.

What is worth noting is this is not a greenlight just yet. Pai has said yes, though he will need a majority vote from the Commissioners. Commissioner Brendan Carr has already pledged his support, and we suspect Michael O’Reilly will in the immediate future also. The Democrats might want to throw a spanner in the works, but this would be largely irrelevant with O’Reilly’s support.

“In light of the significant commitments made by T-Mobile and Sprint as well as the facts in the record to date, I believe that this transaction is in the public interest and intend to recommend to my colleagues that the FCC approve it,” Pai said in a statement.

“This is a unique opportunity to speed up the deployment of 5G throughout the United States and bring much faster mobile broadband to rural Americans. We should seize this opportunity.”

As you can imagine, T-Mobile US CEO John Legere certainly has something to say on the matter.

“Let me be clear,” Legere stated in a blog entry. “These aren’t just words, they’re verifiable, enforceable and specific commitments that bring to life how the New T-Mobile will deliver a world-leading nationwide 5G network – truly 5G for all, create more competition in broadband, and continue to give customers more choices, better value and better service.”

The first commitment made by T-Mobile US and Sprint is a nationwide 5G network. Considering Legere has been claiming his team would be the first to rollout a genuine 5G network for some time, it comes as little surprise the FCC will want to hold him accountable.

Over a three-year period, presumably starting when the greenlight is shown, the new 5G network will cover 97% of the population. 75% of the population will be covered with mid-band spectrum, while the full 97% will have low-band. This is a very traditional approach to rolling out a network, as it meets the demands of capacity and efficiency, though there is a sacrifice on speed.

Perhaps more importantly for the FCC, the plan also covers objectives to bridge the digital divide. 85% of the rural population will be connected during this period, increasing to 90% after six years. This is not to say all the farmers fields will be blanketed in 5G, though it does help provide an alternative for the complicated fixed broadband equation in the rural communities.

Moving onto the divestment, selling Sprint’s Boost prepaid brand seems to be enough to satisfy the competition cravings of Pai. What is worth noting is this will not be a complete break-away from the business as it will have to run on the T-Mobile US network. Unfortunately, MVNOs in the US are not as free to operate as those in Europe, as switching the supporting network would mean have to change out all the SIM cards.

This becomes complicated as you do not necessarily know who your customers are in a prepaid business model. The situation certainly encourages more competition, it will after all not be part of the T-Mobile US/Sprint family anymore, but it is far from a perfect scenario.

Finally, Legere has promised tariffs will not become more expensive during the deployment period, another worry for the FCC should the duo want to meet the ambitious objectives to compete with AT&T and Verizon. However, it does appear Legere is promising 5G tariffs will not include a premium either.

And now onto the other side of the aisle. Commissioner Jessica Rosenworcel has tweeted her opinions on the concessions and it appears she is not convinced.

“We’ve seen this kind of consolidation in airlines and with drug companies. It hasn’t worked out well for consumers. But now the @FCC wants to bless the same kind of consolidation for wireless carriers. I have serious doubts.”

Rosenworcel has also suggested the decision should be put out for public consultation. We suspect Pai will want to avoid this scenario, as it would be incredibly time-demanding; the Chairman will want the merger distraction off his desk as soon as possible.

Commissioner Geoffrey Starks is yet to make a comment, but DO NOT, I repeat, DO NOT go on his Twitter page if you haven’t watched the latest Game of Thrones episode.

We understand the Democrat and Republican Commissioners are going to be at each other’s throats over pretty much every decision, however trolling any innocent individual with a GoT spoiler is a low blow.

Starks and your correspondent are going to have some issues.

FCC reveals glacial progress on the resale of location data by operators

US operators have been reselling the location data they accumulate about their subscribers and have been slow to deliver on promises to stop.

This practice was already well-known by the time it was highlighted in an expose at the start of this year. At the time operators were quick to stress that they’re pulling out all the stops to protect their customers’ personal data but Federal Communications Commissioner Jessica Rosenworcel was apparently skeptical. Frustrated by their deafening silence on the matter she wrote to the four US MNOs at the start of the month to ask them what they were playing at.

Rosenworcel received relatively prompt responses from those operators and decided to publish them alongside a mea culpa that was probably directed more at other FCC Commissioners than herself. “The FCC has been totally silent about press reports that for a few hundred dollars shady middlemen can sell your location within a few hundred meters based on your wireless phone data. That’s unacceptable,” she said.

“I don’t recall consenting to this surveillance when I signed up for wireless service—and I bet neither do you. This is an issue that affects the privacy and security of every American with a wireless phone. It is chilling to think what a black market for this data could mean in the hands of criminals, stalkers, and those who wish to do us harm. I will continue to press this agency to make public what it knows about what happened. But I do not believe consumers should be kept in the dark. That is why I am making these letters available today.”

You can read the contrite and exculpatory responses here, but in case you can’t be bothered here’s a summary. AT&T said it started phasing out this sort of thing in June 2018, while still making location data available in emergencies. Additionally the letter attempted to distance AT&T from the reports in question and said it had stopped sharing and data with location aggregators and LBS providers on 29 March 2019.

Sprint said it current works with just one LBS (location based services) provider but will pack that in by the end of this month. T-Mobile said it had terminated all contracts with LBS types by 9 March 2019 and went on at considerable length to correct what it considers to be flawed reporting on how it used to handle this sort of thing. Verizon said it had terminated all location deals by the end of March 2019.

So that would appear to be that. All the operators have said they don’t deal with location data aggregators anymore and presumably Rosenworcel is a happy Commissioner. But the fact that they’ve only just stopped reselling their customer’s personal data, and even then only after persistent nagging and bad publicity, is a further illustration of how cavalier the tech industry has been with personal data to date.

China Mobile somehow surprised at FCC snub

There was no squabbling over party-politics here; both the Republicans and the Democrats agree China Mobile should not be allowed a licence to operate telco services in the US.

Making an entry for the least surprising decision ever made, the FCC has announced it will deny China Mobile, the Chinese state-owned telco, a licence to operate in the US. Despite the outcome being glaringly obvious, China Mobile is irritated at the decision, suggesting there is no reason to deny the application.

“CMI (China Mobile International) complies with and adheres to the local laws and regulations in every country it operates. In the spirit of openness and free trade, CMI applied to obtain International 214 License from the Federal Communications Commission (FCC), aiming to support telecommunication needs to customers in both countries, enhancing connections between the two markets,” the company said in a statement.

“After 7 years and 8 months of application, FCC now denies CMI’s bid to operate in the U.S. without apparent reasons and basis. It is out of market economy principles and contradicts the trend of economic globalization.”

Made back in 2011, China Mobile filed an application under Section 214 of the Communications Act and section 63.18 of the Commission’s rules to provide international facilities-based and resale services between the US and abroad. It might have taken almost eight years to make a decision, but it is exactly what you would have expected.

“Simply put, granting China Mobile’s application would not be in the public interest,” said FCC Chairman Ajit Pai. “China Mobile ultimately is owned and controlled by the Chinese government. That makes it vulnerable to exploitation, influence, and control by that government.”

“As a fierce supporter of promoting competition, permitting foreign ownership, and facilitating open markets, I nonetheless find the situation confronting us to be extremely serious, and the action we take today to block China Mobile from accessing the US telecommunications market to be a necessary step, drastic though it may be,” Commissioner Michael O’Reilly said.

This is a decision which has the full support of the FCC as well, with all Commissioners voting the same direction. Unsurprisingly, all of the Commissioners spoke of national security, the importance of communications networks in today’s society and the lack of trust in China Mobile. Simply put, the FCC doesn’t want a puppet of the Chinese state poking around its telco infrastructure.

The Huawei case is slightly nuanced as the ties back to the Chinese government are largely based on a piece of legislation and founder Ren Zhengfei’s time in the People’s Liberation Army. Here, there is no murkiness or grey areas; China Mobile is owned by the state, directly.

US official overseeing country’s frequency strategy has resigned

David Redl, heading National Telecommunications and Information Administration (NTIA), responsible for the US’ strategy on frequency and 5G, abruptly resigned from his post.

The circumstances of his resignation were not disclosed, but the Wall Street Journal reported that Redl has had conflicts with other political appointees at the current administration, including officials at the FCC. Redl, together with the Commerce Secretary, was tasked by President Trump to develop the country’s “National Spectrum Strategy” last October.

A few days before his resignation, Redl used his speech at Satellite Industry Association’s annual dinner to voice his concerns. “We don’t have to choose between making more spectrum available for the private sector and sustaining our critical government systems. We also don’t have to choose between terrestrial 5G and satellite services,” Redl said on that occasion. “To start with, satellite will play an important role in 5G connectivity, but perhaps more to the point these uses are not mutually exclusive; it’s just going to take hard work for them to continue to coexist in a more contentious spectrum environment.”

Meanwhile, FCC would not wait to have the “comprehensive, balanced and forward-looking” spectrum strategy in place before it pressed ahead with the auction of the mmWave frequencies, including the 24GHz and 37GHz bands that are also being coveted by the satellite industry. “I can’t recall ever in the past watching two different arms of an administration get into this kind of public disagreements,” FCC Commissioner Jessica Rosenworcel commented.

In other cases, Redl’s opinions often carried a lot of weight in FCC’s decision making. Before the decision was taken to deny China Mobile the operation licence, Redl’s earlier note had already set the tone. Ajit Pai, the FCC Chairman, in his statement called Redl “a longtime colleague, who served with distinction during his 18 months at NTIA.  He was a vocal advocate within the Department of Commerce for repurposing federal spectrum for commercial use and fostering the private sector’s lead in 5G deployment.  I thank David for his service and wish him all the best in his future endeavors.”

It may or may not be related, but Redl’s resignation also coincided with fresh pressure from the US on the UK to join the alliance to ban Huawei from the country’s 5G networks. The DC-based news outlet The Hill reported that Diane Rinaldo, Redl’s former deputy, would be taking over as acting administrator.

The FCC unanimously concludes China Mobile can’t be trusted

The Federal Communications Commission was never going to let China Mobile set up in the US market and now it’s official.

Last month FCC Chairman Ajit Pai made it clear he was against China Mobile USA’s application to provide telecommunications services between the United States and other countries and that he hoped his fellow commissioners agreed. Often there is dissent among the five commissioners, usually along partisan political lines, but this time nobody dared stick up for China Mobile.

“After an extensive review of the record in this proceeding, the Commission finds that due to several factors related to China Mobile USA’s ownership and control by the Chinese government, grant of the application would raise substantial and serious national security and law enforcement risks that cannot be addressed through a mitigation agreement between China Mobile and the federal government,” said the FCC announcement.

The long and short of it is that the US state doesn’t trust the Chinese state and therefore doesn’t trust anything owned by it. This is pretty similar to the Huawei argument, with the difference that in this case they seem to see even closer ties with the state. At time of writing the commissioners had yet to publish their statements on the matter, but one of them apparently wants the FCC to take another look at China Telecom and China Unicom too.

T-Mobile/Sprint merger approval is still hanging in the balance

The US DoJ’s anti-trust chief has not made up his mind on the T-Mobile/Sprint merger case, saying the deal must meet key criteria.

Speaking on CNBC (see below) Makan Delrahim, Assistant Attorney General for the US Departments of Justice’s Antitrust Division, said he has not made up his mind yet. Although he refused to comment on if his staff resisted the deal, as was reported by the media, Delrahim did allude to more data being requested from the two parties.

Delrahim also dismissed the notion that there is any magical number of competitors to deliver optimal competition in a regulated market like telecom. Any proposed deal needs to deliver efficiency, but the efficiency needs to be both merger specific, that is the efficiency cannot be achieved through other means, and verifiable.

With regard to the effects of the merger on consumers, Delrahim listed two items, price effect and coordinated effect. The first is related to the potential price move up or down after the merger. The second refers to if the merged company has the incentive to continue to compete with the existing competitors on price, in this case AT&T and Verizon. 5G will also factor in the DoJ’s decision making consideration, Delrahim said. But, instead of being positioned as a counteract against China, in this interview Delrahim was treating 5G in the framework of service offer to consumers, and the merger’s impact on it.

When being asked on the timeline, Delrahim said there is no deadline on the DoJ side, except that the deal cannot be completed before a certain date. This timeline can be extended if more deliberation is needed.

On the FCC front, another hurdle that the two carriers need to overcome before they can become one, they continued to play the offensive. Last week representatives from the two companies, including John Legere, the CEO of T-Mobile, and Marcelo Claure, Executive Chairman of Sprint, called on the FCC commissioner Jessica Rosenworcel and her Legal Advisor. The team presented the updated merger case, including their pledge to deploy home broadband, drive down prices, deliver more benefits to prepaid customers, and create, instead of cutting, jobs.

FCC’s unofficial 180-day consultation period was reopened early this month, after being halted three times, and is now on day 147.

Makan Delrahim’s CNBC interview is here:

 

 

FCC is likely to deny China Mobile’s licence application

Ajit Pai, Chairman of FCC, has called on his colleagues to vote against granting a licence to China Mobile, citing national security concerns.

In a public statement tilted “FCC Chairman Opposes China Mobile’s Telecom Services Application”, Pai said that he believed, after reviewing the relevant evidence, “China Mobile’s application to provide telecommunications services in our country raises substantial and serious national security and law enforcement risks.  Therefore, I do not believe that approving it would be in the public interest.” He went on to request the Commission team to “join me in voting to reject China Mobile’s application.”

This should not come as any surprise. One piece that stood out among the “input provided by other federal agencies” Pai referred to in his statement already set the tone. It was a brief statement issued by David J. Redl, Assistant Secretary for Communications and Information, U.S. Department of Commerce. “After significant engagement with China Mobile, concerns about increased risks to U.S. law enforcement and national security interests were unable to be resolved. Therefore, the Executive Branch of the U.S. government, through the National Telecommunications and Information Administration pursuant to its statutory responsibility to coordinate the presentation of views of the Executive Branch to the FCC, recommends that the FCC deny China Mobile’s Section 214 license request.” The statement was released through the National Telecommunications and Information Administration (NTIA), a part of the Department of Commerce.

China Mobile Limited, the world’s largest mobile operator by subscriber numbers, is partially listed (27.28%) on the Hong Kong Stock Exchange. The Chinese government, through the parent company China Mobile Communications Group Co., Ltd., controls the rest of the company. Its US subsidiary, China Mobile USA, registered in Delaware, filed an application in 2011 to offer international telephony service between the US and other countries. But it had remained dormant until it was reviewed by the Trump administration last year.

China Mobile would have to operate as a virtual network anyway as it lacks the infrastructure. That worries the US officials that the operator, ultimately the Chinese government, would be able to exploit the American telecommunication networks for intelligence gathering purposes, therefore compromise the security of the government and the public. “There is a significant risk that the Chinese government would use the grant of authority to China Mobile USA to conduct activities that would seriously jeopardize the national security and law enforcement interests of the United States,” an FCC official told the reporters, quoted by Reuters.

The vote by the FCC Commissioners will take place at the May 2019 Open Commission Meeting to be held on 9 May. The result will likely go Pai’s way if the commissioners vote along party line. Three out of the five commission seats are occupied by Republicans, as is Pai himself.

Trump calls for US 5G leadership once more

At a press conference the US President endorsed FCC plans to improve the country’s position in the global 5G race.

President Trump likes to cherry-pick the people who stand behind him when he is public speaking and, as well as FCC Chaiman Ajit Pai, on first glance he had what appeared to be a Village People tribute band in attendance. As you can see from the video below, however, they turned out to be telecoms engineers and some kind of rural broadband lobby group.

The main theme of Trump’s introduction to the latest 5G initiatives was the need for the US to be the world leader in 5G technology. He apparently views 5G as a key component in his geopolitical tussle with China and had previously tweeted his enthusiasm for the technology, even going so far as to bring up 6G in the process, a step too far he seemed to acknowledge in this speech.

He then made way for Pai, who announced a bunch of initiatives designed to make Trump’s 5G dreams come true. This wouldn’t be the US if the plan wasn’t encapsulated by a forced acronym and in this cast we have FAST, which stands for Facilitate America’s Superiority in 5G Technology. Here are the essentials of the FAST plan, which you can read more about here as well as watching Pai’s presentation below.

Spectrum

Later this year, the FCC will auction the upper 37 GHz, 39 GHz, and 47 GHz bands. There were only vague aspirations offered about mid and low band spectrum as well as unlicensed spectrum

Infrastructure Policy

They’re trying to make infrastructure investment more attractive as well as reducing the bureaucratic hassle around deploying small cells.

Modernizing Outdated Regulations

This includes the net neutrality dispute, ease of access to cell sites, investment in fibre and of course the ongoing matter of keeping Chinese companies out of the network.

Since you have all the footage below we won’t bother extracting any written quotes, noting only that Trump moves on to troll critics of his immigration policy towards the end of the speech, which is quite amusing. The most substantial criticism of the FAST plan seems to be the lack of activity around mid band spectrum which will, initially at least, be much more useful for 5G than all that millimetre wave stuff they’re currently focused on.