Ericsson shares drop on disappointing North America numbers

Sales at kit vendor Ericsson barely grew in Q4 2019, with most of the blame being pinned on the protracted merger of T-Mobile US and Sprint.

When adjusted for adjustments total sales increased just 1% year-on-year, thanks to a 9% decline in North America. As you can see from the tables below, Ericsson had plenty of growth earlier in the year in North America, so this is a fairly significant reversal of fortunes. Ericsson would like us to believe it was an aberration brought about by the uncertainty surrounding the TMUS/Sprint merger, but that’s been going for a while so it’s not obvious why it would suddenly have such a profound effect.

“Due to the uncertainty related to an announced operator merger, we saw a slowdown in our North American business in Q4, resulting in North America having the lowest share of total sales for some time,” said Ericsson CEO Börje Ekholm. “However, the underlying business fundamentals in North America remain strong.

“Operating income was impacted by increased operating expenses. The increase is related to the Kathrein business acquisition, increased investments in digitalization and added resources to strengthen security as well as our Ethics and Compliance program. For 2020 we expect somewhat higher operating expenses, which will not jeopardize our financial targets.”

It looks like investors didn’t totally buy the North America narrative either, with Ericsson’s shares down around 8% at time of writing. Ekholm spoke at length about how important it is to continue to build for the long term and not sacrifice that for short-term gains. That’s fine, but many more quarters like this and even that strategy will be called into question.

UK officials reportedly set to recommend a limited role for Huawei in UK 5G

Ahead of his final decision on whether to block Huawei from involvement in the UK 5G network, the PM is being advised that he should allow it to have a presence in the RAN.

There has been no formal announcement, but Reuters was given a leak following a meeting of a bunch of UK officials and security experts. The long and short of it seems to be that the people charged with advising the government on its imminent final decision regarding Huawei have seen nothing to make them change their position.

Last summer the Science and Technology Committee concluded there was insufficient evidence of the claimed security threat posed by Huawei to justify banning it entirely.  For all the US lobbying that has taken place since then, it looks like no significant new evidence has been presented, hence the consistent advice.

The reported advice that the government only permit the use of Huawei gear in the radio access network and not the core somewhat contradicts that finding, however. Either Huawei is a security threat or it isn’t and if it’s not then what’s the problem with using its kit in the core? So these experts appear to be hedging their position, probably as a concession to political considerations.

So, in summary, the recommendation is to try a classic British fudge. Politically, that’s unlikely to be a success, however, as the US has repeatedly made its zero-tolerance for all things Chinese clear and and restriction is likely to draw the ire of said Chinese. This is ultimately a political, rather than a security or technological, decision. Whatever Boris Johnson decides, he’s going to upset a lot of powerful people, but the US is by far our most important ally and he may decide that consideration trumps the rest.

Could Iliad Italia be a victim of Corporate Darwinism?

Iliad’s Italian business unit has lodged complaints with Italian and European regulators regarding network sharing deals, but could these objections be effectively ignored?

While network sharing is a proposition which offers great benefits to cash-strapped telcos in pursuit of the eye-wateringly expensive 5G connectivity dream, it is not without its opponents and critics. Some regulators have become very defensive about the progressive idea, while there are telcos being left out of discussions who are objecting also.

In Belgium, Telenet has raised concerns over a tie-up between Orange and Proximus, while the European Commission prevented O2 and T-Mobile from expanding an existing agreement to include 5G in the Czech Republic. Both of these network sharing partnerships have been halted in the pursuit of maintaining attractive levels of competition, but Iliad’s objections might fall on deaf ears.

Iliad is objecting to network sharing agreements between Wind Tre and Fastweb, as well as another between Telecom Italia and Vodafone Italia. Iliad is the only major telco in Italy not to be in a network sharing discussion. If these partnerships bear fruit, efficiencies will be realised, meaning competitor funds can be redirected elsewhere.

If this is a prediction of the future, Iliad will be in a weakened position to compete in the Italian market, and financial pressures could become too much to justify the venture. Iliad could become a victim of Corporate Darwinism.

The competition versus consolidation conundrum

Competition has been somewhat of a difficult topic of conversation between the regulators and telcos in recent years, primarily because of the polar-opposite opinions on market consolidation. The telcos would like to consolidate to achieve scaled economics, while the regulators want to preserve the number of telcos in each of the markets to maintain competition and encourage investment.

There are pros and cons on either side of the fence, though the regulators do not seem to be shifting. This argument has knock-on effects for network sharing agreements.

Ovum’s Dario Talmesio points out, network sharing could be viewed as consolidation through the backdoor. Combined assets reduces the number of independent networks in the market, and potentially reduces investments and competition.

In the Czech O2 and T-Mobile case, the European Commission suggested as there were only three major players in the market, further combination of assets between two of the parties would present too much of a risk of the third being squeezed out. The same case has been presented by Telenet to the national regulator in Belgium.

Regulators are sensitive to any propositions which would negatively impact competition in a market, but what about markets where the number of telcos could actually be reduced?

How much is too much competition?

While there is no official stance on the number of telcos in a market, the European Commission does not generally approve activities which would reduce the number of telcos below four. Vetoing the O2/Three merger in the UK, or Telia/Telenor in Denmark are two examples, but this might not be the case in Italy.

If regulators were to allow the network sharing agreements to proceed, Iliad would certainly be in a very precarious position, though there would still be four mobile service providers in the country; Telecom Italia, Vodafone Italia, Wind Tre and a Fastweb proposition enabled by its agreement with Wind Tre. This might be deemed enough competition in Italy to maintain a healthy market for the consumer and a financially sustainable one for the telcos.

The four telcos named above are venturing into untested waters here. This presents a new question for the regulators to answer on competition. Theoretically, suitable levels of competition are being sustained, and this network sharing dynamic has been approved by regulators in the past.

In the UK, Three and EE have formed MBNL, while Vodafone and O2 have CTIL. These are passive infrastructure sharing joint ventures, focusing on the rural environments. It is a similar situation which would be created in Italy, and the UK does have a sustainable telco industry. It is evidence that the dynamic could work, with or without Iliad in the mix.

Could this be a case of Corporate Darwinism?

Corporate Darwinism occurs when a market evolves to such a degree that players are either irrelevant or uncompetitive, and therefore go out of business.

The best example of this is Blockbusters. Once a dominant player in the movie rental business, as the distribution of content moved online the proposition of Blockbusters was no-longer relevant, therefore the company did not survive. This is an example of a market evolving to such a degree that the business was no-longer relevant.

The Iliad example is perhaps one where the market evolves to such a degree that the business is no-longer competitive.

If the four remaining mobile service providers have network sharing initiatives driving network deployment, investments can be more intelligently spend (a) on the network, or (b) in other areas of the business.

The shared networks might have a greater geographical footprint, have future-proofed technology and higher performance specs. Theoretically, Iliad would churn subscribers to higher quality rivals. Also, as less money is being spent on network deployment, tariffs could be lower, but profitability could be maintained. Or, more cash could be invested in value-add propositions for products. Rival offerings could look more attractive than Iliad products.

If regulators approve the network sharing agreements between Telecom Italia and Vodafone Italia, alongside Wind Tre and Fastweb, Iliad would find itself in a very difficult position. It become difficult to see the telco surviving in the long-term.

Unfortunately for Iliad, there is a coherent argument to approve the partnerships to drive towards a more sustainable telecoms industry, allowing the telcos to realise efficiencies ahead of the vast expenditure of 5G. The consumer would benefit, as would enterprise customers and the Italian economy on the whole. It might be a case of letting Iliad die out for the greater good of the Italian telecoms sector.

Vodafone snubs Libra in favour of M-Pesa

Vodafone has withdrawn from Facebook’s digital currency initiative Libra, as regulators and bureaucrats circle overhead.

While Facebook might have become accustomed to sitting in the regulatory spotlight, it seems other companies are not as accepting of the attention. In an increasing tsunami of regulatory scrutiny, Vodafone has become the latest company to withdraw from the Libra initiative, joining the likes of Paypal and Mastercard.

“Vodafone Group has decided to withdraw from the Libra Association,” a Vodafone spokesperson said.

“We have said from the outset that Vodafone’s desire is to make a genuine contribution to extending financial inclusion. We remain fully committed to that goal and feel that we can make the most contribution by focusing our efforts on M-Pesa. We will continue to monitor the development of the Libra Association and do not rule out the possibility of future co-operation.”

After work on Libra initially started in 2017, Facebook plans to launch the digital currency this year. The plan is to peg the Libra token to the financial performance of commoditised assets in an attempt to avoid the volatility of other digital currencies. The likes of Bitcoin and Ethereum have dented confidence in the currencies to date, as while the idea is sound, the 2018 cryptocurrency crash, where the value of Bitcoin dropped 65%, shows the dangers.

The main issue with digital currencies is that this is a segment which is largely unregulated, leading to the challenge which is being faced by Libra today. The European Commission and European Parliament has said no to the likes of Libra until rules have been written, while other regulatory bodies have expressed similar disapproval.

PayPal, Mastercard, Mercado Pago, eBay, Stripe, Booking Holdings and Visa are some of the names to have withdrawn support, seemingly due to the regulatory pressure. With support dwindling and regulatory expectations an unknown for the moment, it remains to be seen whether Libra will continue on its current launch trajectory.

Although Vodafone has left the door open for the future, it will drive its efforts towards M-Pesa, the highly success digital currency which is setting the tone in Africa.

Founded by Vodafone in 2007, M-Pesa is a mobile phone-based money transfer, financing and microfinancing service. Initially launched for Vodacom and Safaricom in Kenya and Tanzania, the initiative has spread across several markets in Africa, to India, the Middle East and Eastern Europe. There is momentum for the M-Pesa initiative, so it hardly comes as a surprise Vodafone has dropped the controversial Libra.

Many would view M-Pesa as an underexploited asset for the Vodafone Group, though this is likely to change over the coming months. The team plan on expanding the service in the seven African markets it currently operates in, and even plans to launch in Ethiopia, a market where it does not currently manage a mobile network.

M-Pesa can already be used to pay salaries, settle invoices and pay for bus tickets today, but Vodafone is aiming to fill the void of traditional banking services, a major issue across much of the African continent.

The ‘unbanked’ challenge in Africa is not necessarily new news, the World Bank Global Findex suggest 62% of sub-Saharan Africans do not have a bank account, and digital currencies could fill the void. There is of course competition to be wary of, Orange Money or MTN Mobile Money for example, but M-Pesa has credibility in the market few could compete with.

With new infrastructure solutions gaining traction, OpenRAN, and a wave of new smart feature phones being released, the digital world is becoming increasingly accessible. M-Pesa is in an excellent position and Vodafone has a genuine opportunity to be a trailblazer for diversification into financial services alongside Orange. Perhaps it should come as little surprise the telco wants to distance itself from the increasingly under-fire Libra initiative.

Iliad calls on courts to block Wind Tre and Fastweb sharing deal

Wind Tre and Fastweb have been attempting to take network sharing in Italy to a new level in recent months, but once again, Iliad has its objections.

While there will always be objections to network sharing agreements from some corners of the telecoms industry, Iliad is making a habit of it. As the only telco without a partnership to share communications infrastructure, the Italian disruptor is seemingly attempting to make sure it isn’t left on its lonesome.

According to Reuters, Iliad has submitted documents to an Italian court seemingly in an attempt to obstruct the partnership between Wind Tre and Fastweb. A first hearing will take place on February 12 to access whether Iliad should have access to the deed, though this follows objections made by to Italian courts for a similar deal between Vodafone and Telcom Italia.

The agreement between Wind Tre and Fastweb was originally signed in June 2019. The pair would deploy a shared 5G radio access and back-hauling network across Italy, and also Wind Tre and Fastweb macro and small cells, connected through dark fibre from Fastweb. The aim is to cover 90% of the Italian population with 5G connectivity by 2026.

Wind Tre will also provide Fastweb roaming services on its existing mobile network, while Fastweb will provide Wind Tre wholesale access to its FTTH and FTTC network. It is a very complementary deal for the pair, with the opportunity to realise genuine cost savings when looking forward at 5G.

However, Iliad seems to want to put a stopper on the partnership before it gets going in earnest. This is not the first time it has rejected the network sharing momentum in the country either.

The European Commission is also investigating whether plans to merge Telecom Italia and Vodafone Italia tower assets into a single operating company violate antitrust laws. Iliad has reportedly complained about this deal to regulators also. A decision on this dispute is set to be given on February 21.

The tie-up between Telecom Italia and Vodafone Italia is built along similar lines to the Wind Tre and Fastweb partnership. Firstly, the tower assets of both companies would be merged within telco neutral infrastructure company INWIT, with each telco taking a 37.5% stake. The next stage would be sharing active infrastructure, testing first on the existing 4G network with the intentions of realising efficiencies on 5G deployment plans.

But perhaps the most interesting aspect of both these partnerships is the validation of network slicing. While other agreements have focused on the passive infrastructure, this extends the sharing model to active equipment. Both of these parties would effectively be running virtualised networks over the shared infrastructure, a major validation of network slicing if it works.

This is the sort of partnership which telcos will be very keen to see work, while network infrastructure vendors will pray to see fail. Validation of network slicing could revolutionise the way in which rural networks are deployed and managed, allowing consolidation of CAPEX between national telcos through a single point for both passive and active infrastructure. It could drastically reduce overbuild and save the industry billions.

“Completion of this transaction is key for the country’s infrastructure and technological development and will enable us to further accelerate the deployment of 5G, with Italy already among the countries taking a lead in trials of this new technology,” TIM CEO Luigi Gubitosi said at the time.

Despite the clear benefits of network sharing agreements, there are still concerns in the industry. Regulators are worried over the impact of competition, most notably as to whether non-participants in the sharing trusts will be squeezed out of the market. One means to counter this would be to have an independent or nationalised wholesale party, with all mobile service providers effectively becoming MVNOs, but it is highly unlikely telcos would want to move in this direction, effectively diluting their influence on the industry.

That said, the industry is gradually heading that direction as telcos search for funds to fuel the 5G expansion.

Infrastructure companies such as Cellnex are hoovering up passive infrastructure assets across the European continent, while infrastructure investment funds are also seeking out deals. In both of these instances, the acquirers recognise the telcos need money desperately; there are good value acquisitions to be made for those who have a long-term view on ROI in the passive infrastructure game.

The next step is network slicing, which will be taken forward during with 3GPP’s Release 16. Should network slicing be validated, it will only be a matter of time before owners of passive infrastructure start to put their own active infrastructure on the assets and sell slices to the mobile service providers. It certainly won’t happen overnight, but it is a very feasible outcome.

The telecoms industry is at somewhat of a crossroads. 5G is on the horizon, and the realities of funding this expansion are hitting home. The telcos have seen revenues eroded over the last decade but are now being asked to underwrite the most expensive infrastructure project to date. The equation is not balanced, so new ideas are needed.

Italy is a country which is perhaps under more pressure than most. Aside from the drastic reduction in pricing thanks to the introduction of the disruptive Iliad, few spectrum auctions have pushed the financial capabilities of telcos as much as the Italian’s. This is a market which is under pressure.

Network sharing agreements, both passive and active infrastructure, are interesting ways to generate more with less, though it does appear Iliad will attempt to derail progress. As the mobile player in the country without a deal, it does appear the firm fears being squeezed out of the market.

Interestingly enough, the question remains whether authorities will care? If Fastweb is to introduce its own mobile products, Italy would have four mobile service providers fuelled by the efficiencies of network sharing agreements. This might be deemed sufficient competition in the market, therefore the needs of Iliad might be sacrificed in pursuit of benefits for the greater good.

CityFibre buys FibreNation from debt-laden TalkTalk for £200 million

CityFibre has announced it will acquire FibreNation from TalkTalk for £200 million, as the latter has struggled to source funds to help it meet the three million FTTH connections it targeted.

As part of the deal, TalkTalk will become a wholesale customer across both consumer and business markets. Work has already begun on the full-fibre network, offering services to more than 100,000 premises in York and Dewsbury, and even with projects set to break ground in Harrogate, Knaresborough and Ripon, reaching the 3 million objective was becoming more difficult to imagine.

With cash-rich backers in the form of Goldman Sachs, CityFibre can more realistically deliver on these promises. The firm has upped its target to 8 million FTTH homes-passed by 2025, up from 5 million.

“Today’s announcement establishes CityFibre as the UK’s third national digital infrastructure platform allowing millions more consumers and businesses to benefit from access to faster, more reliable services,” said CityFibre CEO Greg Mesch.

“The UK is a service-based economy, and this runs best on full fibre. Ensuring national coverage is critical and this can only be achieved by driving infrastructure competition at scale. This deal demonstrates the appetite from industry to see it established.”

Rumours of this transaction has been swirling through the industry for some time now, though it appears the talks were put on hold following the free-broadband-for-all pledge made by the Labour party ahead of last months’ General Election. Nationalisation of Openreach would certainly undermine investment decisions, though the duo now believe the deal should be complete by March.

For CityFibre, this is a page from the playbook of old. This is a firm which was founded after purchasing and merging several, independent distressed financial assets.

FibreNation was founded in 2018 as an independent company to deliver the TalkTalk fibre rollout strategy. Under the leadership of CEO Tristia Harrison, TalkTalk has evolved into a much more combative telco, attempting to disrupt the connectivity status quo and regularly criticising its more established rivals. Harrison’s management and PR approach seems very similar to CityFibre CEO Greg Mesch.

Taking advantage of the enthusiasm in fibre-connectivity, TalkTalk set out an ambitious target of reaching 3 million homes with full-fibre broadband by 2025. However, attracting investment from third-parties soon appeared to be the only means by which this could be done. This is where TalkTalk has struggled in recent months.

Infrastructure investor InfraCaptial, part of the M&G Group, looked to be the most likely candidate to foot the £1.5 billion bill, though talks fell through. Reports suggest InfraCaptial did not value an 80% stake in FibreNation in the same way as TalkTalk. Since that point, TalkTalk has been in discussions with the likes of iCon and Macquarie, though it seems CityFibre was the best option.

While TalkTalk will become the anchor tenant for the network as it is being deployed, this is far from best-case scenario. TalkTalk has said the funds will be used to ‘strengthen the balance sheet’, which could mean numerous things, though as the team reported net debt of £1.041 billion during the last earnings call, it would be fair to assume it will be used to reduce the burden.

For CityFibre, this is a win. The company was founded by collecting distressed fibre assets and merging into a single entity, and it has spoken about doing the same to fuel growth in the future.

CityFibre has ambitions to challenge the likes of Openreach and Virgin Media on a nationwide, scaled basis, though the number of ‘alt-nets’ is creating a fragmented competitive landscape. This is good for the consumer, as price wars will emerge, though it is not sustainable for the industry. However, if you have a cash-rich parent-company like CityFibre, it is a waiting game; smaller fibre companies will become financially stressed, presenting good value for network growth by acquisition.

Adding FibreNation’s assets into the mix, CityFibre will soon have a fibre footprint in more than 100 towns and cities outside of London. It is quickly achieving the scaled vision the management team have often spoken about and will soon become a much more viable rival to the Openreach wholesale business.

As a result of the agreement with TalkTalk, CityFibre has also had to restructure its partnership with Vodafone. The original agreement offered exclusivity for Vodafone to deliver fibre services for the time which networks were being deployed in each city, though the new agreement offers Vodafone 12-month exclusive basis as homes become available for service in each of the 12 towns and cities covered in phase one of the deployment. CityFibre will now be free to discuss terms with other ISPs.

With Vodafone and TalkTalk confirmed customers of CityFibre, and rumours swirling that it might be about to poach Sky from Openreach, the firm is adding commercial credibility to an extensive bank account. It does appear CityFibre is evolving from the moany, thorn in the side it was a few years back, to a genuine, nationwide alternative to Openreach.

Deep dive: what’s the deal with network sharing?

Information is only as useful as the context you place it in, and for that reason Telecoms.com periodically provides deep dives into industry-defining topics. In this one Jamie Davies explores the opportunities and challenges surrounding network sharing.

Each year brings different trends and talking points to the forefront of the industry, and 2020 is no different. This year, it appears network sharing will be one of the biggest talking points.

5G is on the horizon and it has the telcos scrambling. Upgrading telecoms infrastructure is going to be a very expensive job, ranging from fibering up a nation, to purchasing active infrastructure for sites and even paying for civil engineering jobs; building passive infrastructure is not cheap! Telcos need a way to make the financials of the telecoms future work.

All about the money, money, money

While it might not sound like the sexiest of trends to be assessing, it could turn out to be one of the most impactful. Telcos are scrapping and scraping around to fuel the 5G euphoria which has gripped the industry, and any option to do it more cost effectively would be lovingly embraced.

“Network sharing will be vital to mobile operators still grappling with ways to make the economics of 5G add up,” said Kester Mann of CCS Insight. “Deutsche Telekom for example has projected that the cost to deploy 5G across Europe would come out at between €300 and €500 billion.

“It’s no surprise then to see a growing list of operators partnering with each other in a bid to keep a lid on 5G capex. But these deals may just be the tip of the iceberg; investment models probably need to evolve to become more creative and innovative in the long run. For example, Poland has been considering plans for a single national 5G network at 700MHz. And it would be no surprise to see a European city take the plunge and deploy all 5G mobile infrastructure through a third party.”

Back in October, during a Madrid 5G core conference, Telecom Italia’s Lucy Lombardi outlined the difficulties being faced by the operators. Between 2010 and 2018, Lombardi suggested industry revenues were down $27 billion, but the telcos had invested $250 million in the network. Over 2019-2025, Lombardi suggested another $1.4 trillion would be spend by the industry, 70% of which would be on deploying 5G.

In short, the old ways of telecommunications are not going to cut it in the digital world of tomorrow. There are plenty of opportunities for the telcos to make money as everything and anything gets connected to the internet, but new business models need to be created to ensure these companies do not go bust in the pursuit of profits.

As Mann highlights, various different countries and regulators are pursuing different approaches to create value and efficiencies in the deployment of next-generation communications infrastructure. The Poland example is an excellent one, though the UK is pushing forward with its own innovative approach.

“In the UK, the recent confirmation of plans to introduce a shared rural network is rare example of successful collaboration between mobile operators more often engaged in cut-throat competition to attract and retain subscribers,” Mann continued.

“It aims to curb costs and accelerate timelines to bring more people on online who live in remote areas. It will also help overcome the perennial challenge of tough planning and access restrictions that has hindered network roll-out in the past.”

The UK Shared Rural Network could be described as both an innovative initiative and a business compromise.

As part of the initiative, £530 million will be contributed by the telcos with another £500 million being put forward by the UK Government. The plan will include reciprocal agreements between the telcos to share existing infrastructure and also joint investments to build telco-neutral sites for total not-spots.

This is an innovative approach to deliver connectivity to the most difficult to reach places in the UK, but it is also a compromise. To secure agreement from the telcos for the Shared Rural Network, the Government and the regulator will have to agree to drop the deeply unpopular coverage commitments attached to the 700 MHz and 3.6-3.8 GHz spectrum auctions.

However, what is worth noting is this is not necessarily a new idea. EE (or what was T-Mobile at the time) and Three formed MBNL in 2007, initially to operate and deliver 3G networks, while O2 and Vodafone teamed ahead of the 4G rollout to form CTIL in 2012. Both of these organisations offer financial benefits to the telcos.

“From a cash perspective it’s broadly 50/50 on the usual operating expenditures – so site rental, rates, field operations, etc. We then have the option of sharing the build of networks – we don’t do that for 4G or 5G, but we did that in the 3G build and that saved 50% of the initial capital expenditure, including on capacity and transmission costs by usage,” said Tom Bennett, Networks Director at EE

We’re not alone…

Elsewhere around the world, regulators have taken their own approach to encourage cooperation in the industry. In Malaysia, for example, the Malaysian Communications and Multimedia Commission (MCMC) has outlined another unique approach.

Licenses for the 700 MHz and 3.5 GHz spectrum bands will be given to a consortium rather than the individual telcos. Investment in infrastructure will be shared, as will the spectrum resources to deliver commercial services, though it is unclear how the telcos will play with each other.

For Malaysia, this is an important initiative. 5G is an expensive technology to deploy, but the regulator is also keeping an eye on 4G. In Western markets 4G investments are not front of mind as coverage is wide and deep, however in countries like Malaysia, the digital divide is a lot more apparent. 4G investments need to continue, and this approach to shared infrastructure is partly to ensure enough money is still directed towards 4G.

However, what is also worth noting is that not it is not a given regulators will be accepting of shared network initiatives.

Earlier this month, the Belgian Competition Authority (BCA) put the brakes on a joint-venture between Orange and Proximus which would create a shared network. The regulator is investigating whether this would negatively impact competition, after Telenet complained over the tie-up.

The issue in Belgium seems to be focused on the number of telcos which are currently present and the breadth of the agreement between the pair. As there are only three mobile players in the market, and the JV would span across all generations from 2G to 5G, the complaint focuses on the idea that it would reduce the number of infrastructure players from three to two. This might have an impact on deployment, as well as placing an unreasonable stranglehold on Telenet.

This is not the first time this issue has been raised either.

Last August, the European Commission informed O2 CZ and T-Mobile CZ that the proposed network sharing agreement in Czech Republic would breach the Commission’s rules on competition. The duo have been in a network sharing agreement since 2011, which incorporating 2G, 3G and 4G for 85% of the country, though the European Commission has now prevented this expanding further.

As is the case in Belgium, the Czech Republic only has three material telcos investing in mobile communications infrastructure. Although there are benefits for scale deployment, the European Commission suggested:

“…the network sharing agreement is likely to remove the incentives for the two mobile operators to improve their networks and services to the benefit of users.”

The European Commission and national regulators are generally open to ideas on how the telecommunications industry can be more efficient, though they are particularly sensitive to competition. Anything which would hint at removing competition would be quashed almost immediately, which is the tricky path which telcos tread. This is particularly notable in markets where there are only three operators, and one has been left out of the network sharing agreement.

Looking at the rules in question at a European level, Article 101 dictates the state of play. These rules effectively look to prevent:

  • Price fixing
  • Production, development or investment limitations
  • Supply scarcity
  • Placing a competitive disadvantage on other parties

The maintenance of a fair and reasonable market is of course a noble pursuit, but the European Commission and national regulators do have to be careful in applying these rules. The telcos do need to apply new models to ensure the feasibility of the 5G business model.

Consolidation is still the enemy

“Regulators will clearly be vigilant, as they want to make sure that sharing does not turn into mobile-to-mobile consolidation, which they don’t like,” said Dario Talmesio, 5G Practice Leader at analyst firm Ovum.

“They could see that sharing can be consolidation through the backdoor.”

The European Commission and its regulators are very sensitive to consolidation. Despite the industry begging for attitudes to change in the pursuit of scale economics to ease the burden of deployment, the regulators have stood their ground to refuse consolidation. The attempted merger between O2 and Three in the UK during 2016 was blocked on the grounds of competition, as was an effort by Telia and Telenor to merge their Danish businesses in 2015.

The rationale for both of these mergers was to create a single-entity where the economics of running a telco at scale were more attractive. As Talmesio points out, network sharing initiatives are very important to ensure the industry progresses in a manner which keeps pace with the consumer and enterprise.

“CSPs have for very long been sharing some elements of their networks, and every G has pushed them to share a bit more, mainly because of the cost and time it would take to build new sites,” said Talmesio.

While it will never be the case that the network is finished, the widespread upgrades which are demanding with every new ‘G’ is what makes the telco industry unique and eye-wateringly expensive to play in. This is where the economics of scale are critically important and why European telcos are perhaps on the backfoot.

European nations are small, and some are drastically smaller than say China or the US. While larger countries present their own challenges in terms of coverage, the benefit of a scaled subscriber base gives more confidence to make bigger investments. Some European telcos will never have this advantage so will have to look for alternative means to fund network deployment.

Although the estimates vary quite considerably, one thing is for certain; network sharing initiatives ease the financial burden of network deployment.

There are of course financial benefits to network sharing, though the estimates do vary. A report from the Body of European Regulators for Electronic Communications (BEREC) suggests the following:

  • Passive sharing cost saving of 16-35% on CAPEX and 16-35% for OPEX
  • Active sharing cost saving 33-35% on CAPEX and 25-33% for OPEX

Efficiencies are increased when spectrum costs are also shared, though this is unlikely to be a common practice as spectrum assets are often considered a differentiator. If this was to be removed, the industry would start the precarious walk towards utilitisation.

Looking at the proposed joint-venture between Orange and Proximus, the duo will of course be saving money, but another interesting opportunity is in scaling the network. The shared network initiative would increase coverage by 20% in comparison to the combined footprint if the teams are to pursue network deployment independently. We suspect 20% is a comfortable number, and this could be increased should a partnership want to deploy more aggressively.

The financials of the telecoms industry is not working in conjunction with the demands of the consumer and authorities. Cheaper tariffs, faster speeds, greater coverage, better reliability. All of these factors weigh one side of the equation making it difficult for the telcos to continue.

Another factor to build the case for network sharing initiatives is somewhat more bureaucratic.

Telcos are being asked to improve both outdoor and indoor coverage in both the rural and urban environments, but in some cases the biggest problems can be accessing or procuring new sites to deploy infrastructure, both passive and active. It might make sense to share these sites as there is limited availability, or it would at least make more sense to share the transmission lines to ease the burden of civil engineering costs. Another factor you have to consider is the rental fees charged by landowners, some of which are deemed unnecessarily high by the telcos. This has been frequently highlighted under the term ‘ransom rent’ as the telcos have little option if they are to expand coverage.

In some towns there is another bureaucratic nightmare to consider; listed and historical buildings. In Cambridge, UK, for example, so many of the structures are deemed historical or protected, the number of potential mobile cell sites is substantially smaller; share infrastructure is a creative solution.

Its not all plain sailing

What is worth noting is that there are also drawbacks to network sharing agreements.

Firstly, more cooks spoil the broth. With shared assets in operation, especially active assets, require consent and coordination between the sharing parties. There are numerous challenges here, most notably aligning commercial objectives of the parties and more signatures to acquire. Evolution of these sites could certainly take longer in the future.

Another challenge arises when something goes wrong. Debugging the issues could be much more complicated, though this is entirely dependent on how much the two operations are entwined.

BEREC has also noted shared networks could also increase the electromagnetic field emissions. Each regulator imposes limitations on electromagnetic field emissions therefore bureaucratic revision might well be needed should more of these initiatives bear fruit.

The combination of or joint-funding of assets also decreases the resilience of communications infrastructure in a country. Fewer independent mobile networks or infrastructure might well make a country more vulnerable as it reduces the number of points of failure and robustness.

It is also worth bearing in mind that there is only so much space available on masts for active equipment. These concerns were raised in Bulgaria, Cyprus and Croatia, amongst other nations. Networking planning is another concern, as each MNO has its own unique requirements, while technical issues in relation to existing suppliers and protocols could mean MNOs are not compatible with each other.

It would be unfair to suggest network sharing is an uncomplicated path forward.

Despite there being momentum for network sharing, not all of the regulators share the enthusiasm. Aside from Belgian scepticism, Hungary believes non-participating MNOs would face a risk of being squeezed out of the market, while Austria has suggested incentives for investment will decrease in the long term.

There will be pros and cons on both sides of the equation, but it does look to be the fairest and most reasonable compromise to ensure a healthy and sustainable telecommunications industry. The traditional way of deploying networks does not look to be financially feasible, therefore new ideas are needed.

Network sharing is one of the most prominent trends during the early days of 2020 for good reason, and it is safe to assume more of these initiatives will emerge as we progress through the year.

SK Telecom claims multi-vendor 5G transmission first with Ericsson and Samsung

Korean operator SK Telecom says it has managed the world’s first standalone 5G data session on a multi-vendor commercial 5G network.

Single vendor set-ups are increasingly out of fashion in the telecoms world, with the traditional wariness about vendor lock-in compounded by geopolitical uncertainty that threatens to compel the exclusions of certain vendors that shall remain nameless. So this is an important step for 5G as well as another opportunity for South Korea to virtue-signal about how cutting-edge it is when it comes to 5G.

“With the successful standalone 5G data call on our multi-vendor commercial 5G network, we are now standing on the threshold of launching standalone 5G service, a key enabler of revolutionary changes and innovations in all industries,” said Park Jong-kwan, Head of 5GX Labs at SK Telecom. “SK Telecom will offer the best 5G networks and services to realize a whole new level of customer experience in the 5G era.”

The two vendors in question were Ericsson and Samsung. SKT wasn’t inclined to go into great depth on how this pivotal feat was achieved. We do know it involved applying SA NR radio to existing NSA base stations and, hey presto, it all worked a treat. While it was at it SKT decided to dabble in a spot of network slicing and edge computing, which frankly seems like showing-off, but then again if you’ve got it, flaunt it, innit.

Pelosi rips into Facebook for ‘shameful’ behaviour

Democrat Speaker of the US House of Representatives Nancy Pelosi has sent a tsunami of abuse towards Facebook, suggesting the social media giant has zero interest in serving its users.

Speaking during her weekly press briefing, the defacto leader of the Democrat party tore into Facebook’s policies of refusing to factcheck statements made by politicians, facilitating the sponsored misleading of voters by Russian parties during the last election, and cosying up to the current political administration for no other reason than for financial gain.

“I think the Facebook business model is strictly to make money,” said Pelosi. “They don’t care about the impact on children, they don’t care about truth, they don’t care about where this is all coming from, and they have said even if they know it’s not true, they will print it. They have been very abusive of the great opportunity which technology has given them.

“All they want are tax cuts and no anti-trust action against them, and they smooze this administration in that regard.”

Pelosi isn’t necessarily saying anything which numerous people are thinking. Facebook is a profit-making machine and has demonstrated on numerous occasions its executives put money before the privacy rights of customers or the experience of the platform. Pelosi coming out in such an aggressive stance against the social media giant is certainly an interesting twist though.

As a company, Facebook should be a bit nervous about any Democrat momentum heading into the November General Election. Although the Democrat candidate has not been named yet, there are plenty who have been very critical of Big Tech in general and Facebook in particular.

The bookies currently have Joe Biden as the favourite to win the Democrat nomination for the General Election, a man who recently said he would get rid of Section 230, the law that shields Facebook from liability for what their users post. Elizabeth Warren is another who is attracting attention, and she launched her campaign for nomination under the promise she would break-up Big Tech. Bernie Saunders and Pete Buttigieg, two more front-runners, has echoed Warren’s desire to dismantle Silicon Valley.

In years gone, the Democrat party was traditionally the side of the political sphere which would favour Silicon Valley and its disruptive residents. This is far from the truth today, as Big Tech is finding it has few friends sitting on either side of the aisle.