TIM follows Orange into the finance fracas

Telecom Italia and Spanish bank Santander have entered into a joint venture to offer consumer banking products to Italian customers.

The joint-venture, 51% owned by Santander and 49% Telecom Italia, will start rolling out financial services through TIM’s retail footprint in the coming months, beginning with financing plans for devices and progressing into consumer loans, credit and insurance in the future.

Like Orange in France, it appears TIM has spotted an opportunity to disrupt the traditional banking industry with a digital-native finance service for Italian customers.

Launched in 2017, following the acquisition of Groupama Banque, Orange Bank now has more than 500,000 customers, offering a full range of consumer banking products from current accounts to personal credit and insurance. Part of the success of this venture has been attributed to cross-selling opportunities created through the telcos retail footprint. The team aim to have 5 million customers by 2023.

Although diversification is a key trend in the telecommunications industry, the more drastic ventures have more often than not dwindled into obscurity. However, Orange Bank is the poster child of successful diversification, and it appears TIM wants to get in on the act.

Like Orange, TIM will start with simple financing products. Once the relevant authorisations and licenses have been secured, the team will aim to move into additional products such as credit cards and consumer loans.

Perhaps the most interesting element of this story is the potential for success. Digital banking services are becoming increasingly popular with consumers, especially with digital natives taking over society, though the traditional banking companies have been unable to most appropriately capitalise on the trend. Digital products and applications have been largely cumbersome, opening the door for digitally native alternative to gain traction.

Monzo, Revolut, Starling Bank and Doconomy are examples of companies who have adapted the financial services industry for the digital consumer, though there is still plenty of room for disruption. One thing which Orange has shown is that a trusted brand can be translated into a completely unrelated industry.

TIM is of course in a strong position in the Italian market with 31 million mobile subscribers and 7.5 million broadband customers, offering plenty of opportunity to cross-sell services. For Santander, it certainly offers an interesting opportunity to branch out into a market where it has no consumer presence currently. Should TIM and Santander be able to replicate the success of Orange it would certainly be welcomed by the battered financial spreadsheets at the telco.

World Bank continues mission to make Africa more investable

The World Bank has selected Progressus to head-up the second phase of its ambitious African Regulatory Watch Initiative (RWI).

The African RWI is an interesting and unique project, aiming to tackle some of the more unique challenges faced across the African continent. Despite progress being made in the connectivity field, there are still some very difficult hurdles to overcome to close the digital divide on the continent, as well as place Africa on a level playing field with more developed regions.

The RWI will aim to tackle some of these challenges, such as licensing, spectrum allocation, taxation and tariffs, as well as appropriate regulatory oversight and accountability.

“This is an extremely exciting project,” said Olivier Jacquinot, who heads up RWI at Progressus. “RWI Phase 1 managed to identify some key regulatory levers that pushed forward the development of broadband in some countries. Phase two will deliver an even greater level of analysis – and help keep the African telecoms industry moving forward.”

Despite being managed by the World Bank, the financiers are staying pretty quiet regarding their own drivers and ambitions. That said, it might not be difficult to guess, these are moneymen after all and have some very obvious objectives.

One objective might simply be confidence. Bankers and venture capitalists are always looking for new investments, and the telecommunications industry is proving to be increasingly popular. An initiative which provides an improved and standardised regulatory environment across the continent might well be an important step to providing confidence to invest in the African telecoms and infrastructure industries.

Despite there being great potential for investors on the continent, Africa has several unique challenges. Accessibility, both financial and technological, is a significant one, though an incredibly fragmented and varied regulatory landscape across the continent is an issue.

At AfricaCom in November, MTN CEO Rob Schuter used the acronym CHASE to indicate the major challenges on the continent; Coverage, Handsets, Affordability, Service bundles and Education. Some of these challenges can be addressed through industry initiatives, such as the RWI, though others need much bigger thinking. Making the economics of network deployment or handset accessibility is a significant barrier.

On numerous occasions, more nefarious challenges such as government and regulatory corruption are raised as barriers also. Such rumours will always make investors nervous.

The first phase of the initiative was launched in 2017, and due to the success, the second phase will be launched imminently. 22 regulators have signed up so far, perhaps demonstrating how desperate some of these nations are for external investment; no-one likes being told how to govern or regulate their own sovereign nations after all.

In the second phase, Progressus will introduce the RWI Index. This ranking system will benchmark each of the nations involved in the RWI. The Index will be based on spectrum management, Universal Service Funds management and other Government support measures and regulatory governance.

Africa is a unique continent with some very unique challenges, and this initiative should provide a stable route forward. It isn’t the most revolutionary idea, but there is no need to reinvent the wheel sometimes.

Europe says no to stablecoins until grey areas are gone

The European Commission and European Parliament have dealt a blow to the likes of Facebook’s Libra initiative until they can write the appropriate rules.

In a joint statement, the duo has championed the potential benefits of cryptocurrencies, but also warned of the dangers. Under current European regulations, it is not entirely clear how the emerging segment will be governed, therefore the bureaucrats are taking a firm stance before irreversible steps forward have been taken.

“As underlined by the recent report of the G7 working group dedicated to these issues, global ‘stablecoin’ projects and arrangements should not come into operation until all of these risks and concerns are properly addressed,” the statement reads.

“We re-affirm our willingness to appropriately tackle the challenges raised by these initiatives on the basis of an EU common understanding and coordinated approach.

“In view of the above, the Council and the Commission state that no global ‘stablecoin’ arrangement should begin operation in the European Union until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed.”

A stablecoin is a digital current which is pegged against the price of physical assets, such as a commodity. Cryptocurrencies can then be linked to the stablecoin, in an effort to reduce price volatility. With a lack of understanding in the cryptocurrency market today, losses can be extraordinary, evident by the dramatic crash of Bitcoin in early 2018.

In theory, the stablecoin concept is logical. It provides stability to the market as it is pegged against less-volatile assets, thus creating more confidence and safety in digital currencies. But as with everything new, the list of unknowns is far greater than the list of knowns. When dealing with people’s money, bureaucrats tend to side with caution.

Although this will certainly slow the development of cryptocurrency almost to standstill, it is perhaps necessary. The technology industry has demonstrated time and time again it is not responsible enough to manage innovation or self-regulate. The last decade has seen numerous examples of what happens when a technology drives forward too quickly without paying consideration to the ‘law of unintended consequences’; just look at the Cambridge Analytica scandal for evidence.

The European Union and European Parliament are calling for a pause for thought, to create a globalised, evidence-based approach for a regulatory and oversight mechanism. The duo wants to ensure appropriate standards of consumer protection and orderly monetary and financial conditions are in place before the industry is allowed to run free.

The idea of stablecoins are of course a good thing. The potential for convenient, fast, efficient and inexpensive payments, especially cross-border, is evident, though such a sensitive segment as digital finance needs to be managed appropriately.

UK’s Zen Internet gets a £20 million overdraft to take on the incumbents

Independent UK ISP Zen Internet wants to take on the big operators and has secured £20 million in credit from the NatWest bank to help with that.

The announcement is full of fairly vague, generic pledges to invest the money in growth and that sort of thing. Among those investments will be Zen’s network infrastructure, but no specifics were offered. Zen’s ‘independent network’ currently covers less than a third of the country, so the most obvious area of investment would be to increase that coverage, although even £20 mil won’t get you that far.

“This is a very exciting time for everyone at Zen, including our customers and partners,” said Paul Stobart, CEO of Zen Internet. “As an organisation we will continue to focus on sustainable growth, rather than short term profit, ensuring that we do the right thing by our people, customers and partners.

“A portion of the funding will be used to refinance debt, whilst the balance will be reinvested into our network infrastructure, people and product offerings. We believe that through our exceptionally dedicated people, award-winning services and leadership, we are in a great place to do things differently and achieve our ambitious business targets over the next few years.”

Zen also got a few city types to say how great it is that it can now borrow more cash. Around half of it is apparently earmarked to install Zen gear in 250 exchanges, which will bring its total number of exchanges to 700. Some reports have said that will cover 80% of the country but Zen itself only claims to cover 500,000 of the 1.7 million postcodes. Either way it’s good to see indies giving the big four a run for their money.

Samsung looks to wrestle back control of India with financing initiative

With India one of the few markets which is demonstrating positive growth for smartphone shipments, Samsung is reasserting itself in the space with the launch of financing plans.

Launched in 5,000 outlets, the plan is to reach 10,000 by the end of 2019, Samsung Finance+ is a ‘universally accessible’ digital lending platform that provides financing to enable the purchase of Samsung devices. Samsung has also stated the platform is customisable, suggesting almost every Indian customer will be applicable for an offer of some kind.

“Samsung Finance+ is a testimony of our consumer-centric innovation,” said Mohandeep Singh, SVP of the Mobile Business at Samsung India. “It is also a ‘Make for India’ initiative towards financial inclusion and Digital India. We are confident that Samsung Finance+ will touch the lives of millions of consumers in India.”

Developed at the Samsung R&D Institute India-Bangalore, the process is an entirely paperless journey, while DMI Finance has partnered with the team for the initiative.

This appears to be a means for the business to wrestle back market share in one of the fastest growing technology markets.

Looking at India over the last couple of years, this is a region which has been fruitful for Samsung. Up until recently, Samsung had enjoyed a market leading position though this has been challenged by Xiaomi in recent quarters.

As it stands, Xiaomi is currently leading the market share rankings, controlling 28% of the shipments into the country during the second quarter, according to estimates from Couterpoint Research. 6% year-on-year sales increases were driven through portfolio expansion and aggressive offline expansion in the budget segment. Xiaomi usurped Samsung as leader of the market over the course of 2017/18 and is remaining in a strong position.

For Samsung, this couldn’t really have come at a worse time. India is under-going its own digital revolution thanks largely to the efforts to democratise connectivity by Reliance Jio.

Prior to the entry of Jio, the India telco market was stagnant. There was little enthusiasm from the incumbents to drive aggressive network expansion or evolution, while tariffs were prohibitively expensive for large swathes of the popular. Jio entered with a simple business plan; scale the adoption of affordable tariffs and bundle on digital services in the future.

Not only has the Jio disruption opened up the connectivity market to millions of new customers, it has also forced the likes of Bharti Airtel and Vodafone Idea to invest heavily in their networks, rethink pricing strategies and create new products. Jio has not only brought more customers into the connectivity fray, but it is quickly increasing the appetite of Indian consumers for digital services.

With the likes of Jio offering a wide-range of digital services, Netflix driving original content and Google creating an ecosystem which has been customised to the demands of India, the growing digital economy is only going add more momentum to smartphone sales. The more of a consumer’s life which is digitised, the more they are inclined to spend on smartphones. These are all positive developments for Samsung and its rivals.

With the India market surging towards the digital economy, Samsung could not have lost its leadership position at a worse time. Indian consumers are decreasing their refreshment cycles and increasingly looking to spend more on devices.

The fastest growing segment for devices in India is the $200-300 price range, and while there is still a huge space for feature phones, this is likely to shift over the coming years as more manufacturers alter the focus of their portfolio. Although this is a market which has been growing healthily over the last few years, due to the previously under-developed position and the sheer size of India, there is still plenty of room north.

As it stands, Samsung has slipped to second-place in the market share rankings, however it is recapturing some progress. During the second quarter, shipments declined by 7% year-on-year, however the numbers did increase 30% quarter-on-quarter. Analysts have suggested this growth is driven by refreshed A series and M series, price cuts of older J series and higher channel incentives. The financing element could offer a bit more breathing room for Indian consumers who are looking to step-up the smartphone tiers. Theoretically, it should aid the recovery.

Samsung is not in the worst position, though momentum is gathering behind competitors more readily. Apple is one company which has yet to crack the Indian market, though it is poised to open itself up more to consumer through offline purchases and the establishment of a branded retail footprint. Vivo is another Chinese brand which has been making strong progress thanks to its portfolio of cost-effective devices.

There are of course many markets around the world which can offer smartphone manufacturers significant growth when it comes to 4G devices, though India is one where momentum is gathering very quickly through an increasingly wealthy and digitally-defined society.

Apple credit card is up-and-running

As promised by CEO Tim Cook during the last earnings call, the Apple Card is set to debut this month, with the team already taking applications from consumers.

To start with, randomly selected Apple customers who signed up months ago have gotten access, though the team is now building a list of iLifers who would like to receive the card upon full-launch. To start with, the credit card will only be available to US citizens, though we can’t imagine it will be too long before the ambitious Applers spread their wings internationally.

For Apple, this is another step towards decreasing reliance on the iPhone, a product which has dominated the profitability column for quite some time. In the years of gluttony, few would have complained about this reliance, but nowadays, with smartphone shipments slowing down globally, the desire for diversification has intensified.

Working alongside Goldman Sachs, Apple has said customers can register their interest in the card in less than a minute, which perhaps seems irresponsible considering the seriousness of applying for credit. This little dose of reality will create little concern for either partner, both of whom will be relying on consumer over-indulgence to fuel profits.

That said, there are some interesting gimmicks being included with the service.

When using the card, all purchases will appear in the customers app, as is norm for the industry, but graphics will offer greater insight into spending habits. As you can see below, the distribution of colour on the card image and the graphs below detail how you are spending your money. Pink is for entertainment, yellow for shopping and orange for food, it is an interesting way to display purchasing patterns.

Apple Card

Other features include cash back and lower interest rates, though it is missing some of the perks which are so heavily hyped with traditional credit card providers.

What will be interesting to see over the next couple of months is the receptiveness of customers to a smartphone manufacturer entering into the financial world. Apple has one of the most admired brands worldwide and a cult-like following of customers, but whether this translates into something as important as financial services remains to be seen.

BoJo’s 2025 fibre promise has no basis in reality

Being ambitious is all well and good, but most would hope the ambitious are living in the world of reality. Unfortunately, with Boris Johnson’s Fibre-to-the-Home objectives, he’s operating in dreamland.

Perhaps this is a situation which we should have come to expect. Theresa May has one foot out the door and the jostling to inherit 10 Downing Street is starting to ramp up. This weekend saw the first televised debate, with one obvious omission, and soon enough the big promises to woo the Conservative Party membership are going to be dominating the headlines.

Politicians tend to exaggerate when it comes to promises on the campaign trail, and Tory leadership hopeful Boris Johnson (BoJo) certainly has history; who could forget the £350 million we were going to save the NHS every day by leaving the European Union.

The latest promise from BoJo is his government would deliver full-fibre broadband to every single person in the UK by 2025. This target would wipe off eight years from the current strategy set up by the Government in the Future Telecoms Infrastructure Review (FTIR).

Just to emphasise this point. The current objective is seen as ambitious and would see the full-fibre rollout complete in just over 13.5 years, but BoJo is suggesting it can be done in less than half that time.

The feedback from our conversations with industry is simple; what planet does BoJo think he is on?

However, what is worth bearing in mind is that the ambitious always have been criticised. When someone comes out with a bold idea, sceptics will beat them back. It is easy to criticise BoJo with this claim, because it is almost impossible to imagine how it is going to be done, but on the other hand, it is almost impossible to criticise the ambitious because there is no substance, no detail and no plan. It’s not something which should be taken that seriously because there are no details in place to actually make it happen.

One of the questions you have to ask is when did BoJo become a telco guru? We’re struggling to think of any examples of when he has contributed in any meaningful manner to the connectivity debate. If BoJo has had these telco smarts all along, able to solve one of the biggest challenges the industry has faced in decades, he certainly was playing the long-game in keeping them to himself.

Openreach has of course been perfectly politically correct when asked for comment. “It’s hugely ambitious, but so are we,” said an Openreach spokesperson. “We agree that full fibre can be the platform for the UK’s future prosperity and no company is investing more, building faster or aiming higher than Openreach. We aim to reach four million homes and businesses by March 2021 and up to 15 million by mid 2020s if the conditions are right.

“We’re already in decent shape when it comes to ‘superfast’ broadband, which is more widely available here than in almost any other comparable nation on earth – and has led the UK to have the leading digital economy in the G20.

“But building full fibre technology to the whole of the UK isn’t quick or easy. It requires £30 billion and a physical build to more than 30m front doors, from suburban terraces to remote crofts. We’re determined to lead the way and there’s a lot that Government could be doing now to help us go further and faster.”

But let’s assume BoJo is the master of telco, as we don’t have to be as nice as those in the industry; we have a couple of questions. Firstly, where is the money coming from? Secondly, where are the scissors to cut through the red-tape maze? Thirdly, where are the new employees going to emerge from? And finally, how did he actually come to this figure without actually speaking to anyone in the industry?

Starting with the money, the big query from our contacts was where is the cash coming from? The telcos are working as fast as they are commercially capable of, but BoJo believes they can go faster should the right incentives be put in place. The industry suggests full-fibre infrastructure would cost in the region of £30 billion, and it won’t be stumping all of that cash up. That’s not how investment strategies work.

A sensible and scalable capital investment strategy is focused on gradual rollouts, with an emphasis on ROI as the deployment progresses. You need to reclaim the investment as you are continuing to spend otherwise you are making yourself vulnerable to seesaw of market trends through over-exposure.

If BoJo is suggesting massive government funding projects, fair enough, but considering the NHS is underfunded, schools are overcrowded and there aren’t enough coppers on the beat, we’re not too sure where he is going to find this cash to fix what is fundamentally a first-world problem.

Secondly, you also have to wonder whether BoJo has put any thought into the bureaucratic challenges which the industry is facing. This is what our industry insiders were so confused about; has there been any thought to the administrative and bureaucratic challenges which are some of the biggest hurdles to deployment?

The 2033 target is one which has been put in place with these challenges in mind. The Government is considering proposals which would address way leaves, access to new builds or business rates for fibre, but these are still question marks. Perhaps BoJo is going to come in and carve away all the red-tape which is holding deployments back, creating a light-touch regulatory environment.

2033 will only be achieved should the right regulatory conditions be cultivated. If BoJo is going to correct this challenge, he’ll have to take a very large hatchet to the rulebook. This point has also been echoed by the Internet Services Providers’ Association:

“Boris Johnson’s ambitious commitment to achieve full fibre coverage by 2025 is welcome, but needs to be matched with ambitious regulatory change, including reform of the Fibre Tax,” said Andrew Glover, ISPA Chair. “Broadband is a largely privately financed infrastructure and together with outdated planning laws, fibre business rates are holding our members back from accelerating their roll-out plans.”

Another consideration is on the people side of things. Openreach recruited 3,000 engineers last year and is planning to recruit another 3,000 this year. Virgin Media is continuing to recruit to fuel Project Lightning, but you have to wonder how many bodies these companies will need to meet the 2025 target.

Even if there was an aggressive recruitment drive, people with the right skills are not just lazing about on street corners. One person pointed out that it isn’t a case of simply putting a hard hat on Joe Bloggs and asking them to dig a hole; there is a lot of training which goes into the recruitment progress. Another wondered whether there would be enough potential recruits if BoJo achieves another one of his headline promises; Brexit. How much of a talent drain will there actually be?

The speed at which full-fibre networks are being deployed is already pretty quick, the industry is connecting 3-4 million homes a year to meet current objectives. To hit Bojo’s ambitions, this number would have to be north of 5 million a year. Virgin Media’s Project Lightning is adding 400,000-500,000 premises a year, while Openreach is adding more than a million. Add in the alt-nets and progress is promising. Going faster is going to be tricky in today’s world.

We’re not too sure who BoJo has been talking to when he came to the 2025 target, but one thing is pretty clear; he’s not on the same page logistically, bureaucratically or financially as the telcos.

Apple announces original content, a credit card and a news subscription service

Apple’s big services event didn’t disappoint, with a bunch of potentially disruptive launches together with new levels of hyperbole and clapping.

The headline service was Apple TV+, which marks Apple’s first major foray into original content. We were treated to an interminable procession of Hollywood types, starting with Stephen Spielberg and culminating with Oprah Winfrey, all taking it in turns to come onto the stage and hype their projects. Judging by the line-up Apple has realised it needs to spend big if it wants to take on the likes of Netflix.

As ever the audience of media and analysts at the live event were about as objective and sceptical as hungry puppies. Every pause in the polished narrative was filled with rapturous applause and ecstatic whoops. So choreographed was it that we wouldn’t be surprised if there were prompts and the tendency to cheer at the mere mention of a new product without waiting to even find out anything about it was especially jarring.

As was Apple CEO Tim Cook’s toe-curling hyperbole. “TV at its best enriches our lives and we can share it with the people we love,” he pronounced at the start of the TV announcement. The original content bit was preceded with the revelation that “great stories can change the world.” This sort of stuff was pretty hard to stomach when Steve Jobs was delivering it, but his messianic zeal just about pulled it off. Cook offers little such salve.

The other potentially disruptive announcement was a new Apple credit card called Apple Card. This had been rumoured for a while and, as expected, it has been create in partnership with Goldman Sachs and MasterCard. In reference to Apple Pay Cook felt compelled to say “Its growth has been literally off the charts,” for some reason. The most intriguing part of the card is the offer of 2% cash back on every purchase, which makes you wonder how much merchants are going to get stung for its use. There’s also a physical card made out of titanium that only offers 1% for some reason.

Apart from that we got a couple of new subscription services. The more significant one is for news and magazines that will set you back a tenner a month and will be positioned as a potential solution to the cash crisis faced by the media, but let’s see. “We believe in the power of journalism,” said Cook. There was also a teaser for a games subscription service that will offer exclusive titles and make it easier to play across platforms.

“We’re honoured that the absolute best line-up of storytellers in the world — both in front of and behind the camera — are coming to Apple TV+,” said Eddy Cue, Apple’s SVP of Internet Software and Services. “We’re thrilled to give viewers a sneak peek of Apple TV+ and cannot wait for them to tune in starting this fall. Apple TV+ will be home to some of the highest quality original storytelling that TV and movie lovers have seen yet.”

“Apple Card builds on the tremendous success of Apple Pay and delivers new experiences only possible with the power of iPhone,” said Jennifer Bailey, VP of Apple Pay. “Apple Card is designed to help customers lead a healthier financial life, which starts with a better understanding of their spending so they can make smarter choices with their money, transparency to help them understand how much it will cost if they want to pay over time and ways to help them pay down their balance.”

“We’re committed to supporting quality journalism, and with Apple News+, we want to celebrate the great work being done by magazines and news outlets,” said Lauren Kern, Editor in Chief of Apple News. “We think the breadth and quality of publications within Apple News+ will encourage more people to discover stories and titles they may never have come across before.”

Note Apple News has an Editor in Chief. Cook made it clear that Apple would only serve up the right kind of news for its subscribers and he has been clear about his willingness to impose a moral filter on everything Apple does. You have to wonder how empowered to interfere with the content published on Apple News this Editor in Chief will be.

“This represents a landmark moment for Apple with a major event solely focussed on services,” said Analyst Paolo Pescatore, who was at the event. “It underlines a growing and strong focus on services as a future source of revenue growth. In essence Apple is seeking to become a Netflix of everything in services; music, news and magazines, video and games.

“Netflix has done a great job to date. However, more content and media owners will pull programming off its offering. This represents a significant opportunity for the likes of Apple who has scale and greater resources. There are too many players chasing too few dollars. The market will evolve towards a handful of players in the future.”

Apple idiosyncrasies aside this felt like a fairly solid  launch event. The company has an amazing track record of disrupting industries and seems likely to do so again with original TV content and consumer finance. The scene is set for a content arms race with only the biggest spenders likely to survive and Apple has a deepest pockets of all. Game on, here are some vids.

 

SingTel saw Q4 profit drop by 14%

SingTel reported almost flat revenues and 14% decline in net profit in the quarter ending 31 December 2018, blaming negative influence from its investments in Australia and India.

In its quarterly results announcement, SingTel reported a 1% year-on-year growth in revenues to S$ 4.626 billion (1 Singapore $ = 0.74 US$), or 4% in constant currency, but 11% decline in EBITDA, and 14% decline in net profit. The first nine months of FY2019 saw revenues almost unchanged (up by 0.2%) of the same period the previous year, EBITDA down by 8%, and net profit down by 51%. The total free cash flow is still solid at S$2.5 billion although it went down by 10% from a year ago.

“We have stayed the course despite heightened competition and challenging market and economic conditions. We’ve continued to add postpaid mobile customers across our core business in both Singapore and Australia while making positive strides in the ICT and digital space,” said Chua Sock Koong, Singtel Group CEO. “We remain focused on investing in networks and building our digital capabilities – areas that are important to our customers and our future success. We will also step up on managing costs, growing revenues and driving efficiencies through increased digitalisation efforts.”

The key factor that impacted the results was the return on its investment in regional associates. The total profit before tax (PBT) in its regional associate portfolio went down by 35% to S$342 million. The worst hit was Airtel, which suffered a S$167 million decline in PBT and registered a pre-tax loss of S$129 million. When broken down to different markets, Airtel fared better in Africa but came under “continued pricing pressures” (from Jio)

In Australia, SingTel’s subsidiary Optus has delivered a healthy growth of 16% in total revenues  to A$1.64 billion (1 Australian $ = 0.71 US$). The mobile operator also switched on Australis’s first commercial 5G network in January. The slower than expected migration to NBN by broadband users, however, has brought in a 9% decline in mass market fixed revenue.

Despite lowering its outlook for the full financial year (ending 31 March) from stable EBITDA to single digital decline, SingTel was still confident in its long-term prospective. “Our long-term view on our regional associates remains positive as they continue to ride the growth in data and execute well against the challenges and competition,” added Chua, the CEO. “We expect the regional markets to revert to more sustainable market structures and deliver long-term profitable growth. Meanwhile, we are working closely with them to build a regional ecosystem of digital services that leverages the Group’s strengths and unlocks the value of our joint mobile customer base of over 675 million.”

 SingTel 3QFY2019 results

Orange plans banking profitability by 2023

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

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

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

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

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

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

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

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

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

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

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

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