US influence on Europe failing as France resists Huawei ban

The White House might have felt banning Huawei was an appropriate measure for national security, but France does not agree with the drastic action.

Speaking at a conference in Paris, French President Emmanuel Macron has confirmed the country will not ban Huawei. This is not to say it won’t in the future, but it appears Europe is remaining resolute against the demands of the US. The burden of proof might be a concept easily ignored in the US, but Europe stands for more.

“Our perspective is not to block Huawei or any company,” Macron said. “France and Europe are pragmatic and realistic. We do believe in cooperation and multilateralism. At the same time, we are extremely careful about access to good technology and to preserve our national security and all the safety rules.”

President Donald Trump is most likely a man who is used to getting his own way, and upon assuming office as head of the most powerful government worldwide, he might have thought this position of privilege would continue. However, Europe is being anything but compliant.

In direct contradiction to the Executive Order banning Huawei from supplying any components, products and services to US communications networks, Macron has declared France open is for business. France won’t use the excuse of national security to beat back the progress of China but will presumably introduce mechanisms to mitigate risk.

Germany has taken this approach, increasing the barrier to entry for all companies, not just Huawei. Vendors will have to pass more stringent security tests before any components or products can be introduced to networks, though Chancellor Angela Merkel has also made it clear she intents to steer clear of political ties to the decision.

“There are two things I don’t believe in,” Merkel said in March. “First, to discuss these very sensitive security questions publicly, and second, to exclude a company simply because it’s from a certain country.”

The UK is seemingly heading down a similar route. Alongside the Huawei Cyber Security Evaluation Centre (HCSEC), run by GCHQ with the objective of ensuring security and privacy credentials are maintained, the long-awaited supply chain review is reportedly going to place higher scrutiny but stop short of any sort of ban. The official position will be revealed in a few weeks, but this position would be consistent with the UK political rhetoric.

Over in Eastern Europe, governments also appear to be resisting calls to ban the company, while Italy seems to be taking the risk mitigation approach. Even at the highest bureaucratic level, the European Commission has asked member states to conduct an assessment for security assessments. Unless some drastic opinions come back in October, we suspect the official position of the European Union will be to create higher security mechanisms which offer competitive opportunity for all vendors in the market.

For the moment at least, it appears the Europeans are immune to the huffing and puffing making its way across the Atlantic. That said, the trade war with China is set to escalate once again and it would be fair to assume more US delegations will be attempting to whisper in the ears of influential Europeans. At some point, the US will get tougher on Europe, but it does appear those pesky Europeans are stubborn enough to resist White House propaganda and pressure.

Iliad flogs a bunch of towers to reduce debt pile

French telecoms conglomerate Iliad is selling most of its tower assets in France and Italy to Cellnex for €2 billion.

Iliad has debts in excess of €4 billion and seems to think paying some of them off might be an idea. Fellow French giant Altice has recently had to do a bunch of debt refinancing but it apparently had to pay a premium to do so. European telcos are increasingly inclined to sell and lease back assets like towers to free up cash for 5G investments and that sort of thing.

In France Iliad will be selling 70% of the company that manages 5,700 cell sites to Spanish infrastructure specialist Cellnex, while in Italy it’s offloading the whole company that takes care of 2,200 sites. Right now the whole process is at the ‘exclusive negotiations’ stage but that seems like a formality.

“This transaction is part of a long term industrial strategy allowing us to accelerate rollout of our 4G and 5G networks and to increase Iliad’s investment leeway,” said Thomas Reynaud, Iliad’s CEO. “This transaction supports the group’s new growth and innovation cycle. It enables more efficient infrastructure roll-outs in the future while meeting the challenges of further increasing territory coverage.”

On top of this Cellnext is acquiring 90% of the company that owns 2,800 sites in Switzerland from Salt.

“[These deals] allow us not only to reinforce our position as the main independent infrastructure operator in France, but also to decisively strengthen our platform in Italy, a key a strategic market, and significantly expand our foothold in Switzerland,” said Cellnex CEO Tobias Martinez.

“Furthermore, Cellnex strengthens its role as a neutral host by having two major anchor tenants within its sites network. The combined effect of these agreements is an increase of our current  portfolio across six European countries by more than 50% –to 45,000 sites in total. The latter allows us to properly assess the very quantum leap nature of these deals.

“A greater density and capillarity of our sites networks means a differential added value that enhances Cellnex’s role as a natural partner for all mobile operators in Europe, meeting their densification needs in the current 4G roll-out while accelerating that of 5G.”

French council gets sick of waiting for MNOs so goes it alone

The local government in Eure-et-Loir has seemingly got tired of waiting for the MNOs to end not-spots in the countryside, deciding to construct its own masts in the region.

Announced via Twitter, the local authority approved funding for the ‘Eure-et-Loir Mobile Networks’ project in an effort to bridge the digital divide. The scheme will create a new company, which will have a budget of €10 million and aim for 100% geographical 4G coverage, through building its own mobile infrastructure.

“The @eurelien department is the first in France to create a project company to accelerate the deployment of the #4G throughout its territory, for 2021,” Eure-et-Loir Department Advisor Remi Martial said on Twitter.

In claiming to be the first Department in France to take such action, with the move somewhat undermining government plans to tackle the rural connectivity problem. Announced back in January 2018, the ‘New Deal Programme’ was designed to tackle not-spots across the country, though it appears the Eure-et-Loir local authority has little confidence in the scheme.

Two firms bid to be part of the project, with ATC winning. ATC will now enter into a public-private-investment scheme with the Eure-et-Loir authority to improve mobile coverage. Reports have previously suggested the region is short of 100 mobile masts to provide adequate 4G coverage.

When you consider the environment, it starts to make sense why the Eure-et-Loir region is not necessarily a priority for the MNOs. With a population of 432,967 (2013) it is the 55th largest region across France, with a population density of 74 citizens per km2. Compared to Paris, 21,234 per km2 or Hauts-de-Seine, 9,042 per km2 the business case is less convincing.

That said, should the hard work be done for the MNOs, renting space to place mobile equipment is a small price to pay for meeting government demands and improving coverage. With the vast majority of capital being allocated into civil engineering aspects of the project, few will complain, even if it does give the impression of mediocrity.

 

France and Britain are embracing state control of the internet

France has appointed a new minister for digital, while the UK wants to set up a new regulator for the internet. Both governments want to play more active roles in controlling the online world.

Emmanuel Macron, the French President, nominated his political advisor Cédric O to the position of Secretary of State for the Digital (Secrétaire d’État chargé du Numérique), a post vacated when the predecessor quit to prepare for next year’s municipal election. O has been instrumental in running the president’s agenda to engage the digital heavyweights, including arranging the meeting for Zuckerberg, and organising the French senior civil servants to observe in Facebook’s headquarters.

O opened his story to the journalists from AFP and L’Express by claiming that he was in “100% agreement” with Zuckerberg regarding the stronger role the states should play in regulating the internet. “There is the demand from citizens, ‘please guarantee that when I’m on the Internet, my right is respected’. But the right should not be defined by the platforms (e.g. Facebook, Google, etc.), ” O said. The government will also update laws to give it the legal foundation to play such a role, including bringing the current regulations on audio-visual sectors to the digital age, O told the interviewers.

The French government has recently revived the traditional measures to play a more assertive role in the economy, and has extended the approach into the digital domains in particular. Recently it decided to go ahead with the 3% tax on the internet heavyweights, the nicknamed “GAFA tax”, without waiting for the EU to reach consensus on the common digital market.

On the other side of the Channel, the British government, already having a department overseeing digital as its portfolio, is mulling over the set-up of a new regulator, either being part of the existing government structure or a new government body altogether.

This is necessary to consider the current problems surrounding the internet giants. On one hand, these companies have not been regulated properly either as a platform or content publisher. On the other hand, these platforms have been used to facilitate crimes including terrorist attacks. However, there is also the danger that the government is overstepping the lines to become a moral arbiter. The first “problem” of internet identified in the “Online Harms White Paper”, jointly endorsed by the Digital Secretary and the Home Secretary, states that “illegal and unacceptable content and activity is widespread online”. While “illegal” can be properly defined, “unacceptable” is a subjective judgment and a judgment that should not made by the government.

To couple such subjective assessments with the government’s demand that ISPs and ICPs should have the obligation to block content or face heavy fines smells similar to the measures adopted by the censorship regimes of China, Russia, Iran, and a few other countries. A side effect of such assertive measures could be driving some internet users down the route to evading government monitoring, for example this could be a boost for the VPN business.

As we said when Zuckerberg asked the governments to share his burden and blame, having governments control internet content, be it French or Chinese, would be a double-edged sword, and one edge would run against the internet’s spirit of liberating access to information and freedom of expression, and against what Sir Tim Berners-Lee demanded that governments should “keep all of the internet available, all of the time; and respect people’s fundamental right to privacy.”

This almost rolls back the years to what the late Christopher Hitchens once called “an all-out confrontation between the ironic and the literal mind: between every kind of commissar and inquisitor and bureaucrat and those who know that, whatever the role of social and political forces, idea and books have to be formulated and written by individuals.” (“Siding with Rushdie”, 1989) It would be the biggest irony of internet’s brief history if, after beleaguering the Chinese government for its heavy-handed approach towards internet, the western governments are all going down the China route, albeit 20 years later.

Could Orange’s CEO end up in prison?

Orange CEO Stephane Richard is widely respected throughout the telco industry, but he is also currently embroiled in a legal battle which could land him behind bars.

For his alleged role in the misuse of public funds while he was working for the Finance Ministry, French prosecutors have called for Richard to be sentenced to three years in jail. He would only spend half this time in prison, but this would be 18 months too long for almost everyone you ask.

The trial itself is drawing to a close, but this is hardly news, dating back to the 90s and the financial affairs of businessman Bernard Tapie. After making millions and eventually an 80% stake in German sports brand Adidas, Tapie faced debts and instructed state-owned Crédit Lyonnais to sell his stake. After the sale, Tapie was unable to settle said debts and challenged Crédit Lyonnais, suggesting the bank sold shares at a depressed rate.

This is where Richard steps into the fray. Tapie backed Nicolas Sarkozy in the presidential election, which he went onto win. After this victory, the Sarkozy Government set up an independent arbitration panel to settle the case between Tapie and Crédit Lyonnais, instead of challenging the legal case brought against the bank which was the previous rhetoric.

After Tapie was awarded €403 million by the panel, the French Finance Ministry came under extreme criticism. At this point, Richard was serving as Chief of Staff for Christine Lagarde, Finance Minister at the time and now the head of the International Monetary Fund.

The players in this game are accused of creating this panel, and the subsequent settlement, as a convert reward for the support Tapie gave Sarkozy during the election campaign. This is the gloomy side of politics which causes so many to groan at the moral fibre of today’s politicians; there is always someone to thank one way or another. Since this point, a Paris court annulled the panel’s decision and ordered Tapie to repay the funds.

It’s all very nefarious, grimy and complicated, however Richard is tied up due to his position and alleged action during the latter stages of the affair.

What is clear, however, is that Richard is potentially facing prison time for his role.

As we understand it, Richard’s team is confident he will not end up on the losing side, though there is always a chance one of Europe’s leading telcos could be thrown into disaster as its CEO is locked up. Aside from a prison sentence, prosecutors are also pursuing a €100,000 fine and a ban from working for any organization where the French Government has a stake for five years. Currently, the Government owns around 13% of Orange.

Orange has no comment on the saga at this point, as this is a personal issue for Richard not the telco’s business. However, we suspect there must have been some whispered conversations behind closed doors discussing contingency plans; it would be irresponsible of the Orange management team if they were not.

The trial will likely conclude this week, though this does not mean we will be any closer to a decision. Richard will be left on the edge of his seat for the next couple of months, with a decision expected after the summer.

Altice still under pressure to make Europe work

Revenues are down across the continent, but telecoms group Altice is pointing to healthy mobile acquisitions in France as a glimmer of hope.

With France accounting for almost 2/3 of total revenues across the now separated European business, Altice could use some good news. Promotions might have taken a bite out of the spreadsheets, but with 1.3 million subscription gains in 2018, the management team is suggesting there might be an end to the gloom.

“In 2018, we have completed the reorganization and simplification of Altice Europe’s structure, with the separation of Altice USA from Altice NV effective on June 8 and a drastic management change,” said Patrick Drahi, founder of Altice. “Altice Europe has achieved all of its FY 2018 guidance, with the successful operational turnaround leading to very strong subscriber trends.

“The significant and continued investments in both fixed and mobile networks, as well as the consistent improvements in customer care, led to a material reduction in complaints from customers and significantly lower churn rates on all technologies. We already see a tangible inflection in Portugal and France, paving the way for growth in 2019, underpinned by our strategy in infrastructure and content.”

While Altice is still not out of the woods, the 1.3 million adds across 2018 surpasses the customer churn the business has been swallowing since its acquisition of SFR in 2015. The management team is also bragging about a 30% reduction in churn, Q4 2018 vs. Q4 2017, and an improvement in network quality metrics, customer satisfaction increased 20% year-on-year for the final quarter.

The company does seem to be heading in the right direction, but you have to place some context on the situation. Debt currently stands at €28.8 billion, more than double the annual revenues of the business, suggesting there might be a few divestment quests over the short- to medium-term future.

France creates new 3 percent tax for internet giants

Unable to convince the EU to impose a special tax on US tech giants, France has decided to go it alone.

Today the French Finance Minister, Bruno Le Maire announced the introduction of a bill that will grab 3% of all revenues deemed to have been generated in France by digital companies with sales in excess of €25 million in France and €750 million globally. This seems to cover around 30 companies, but especially Google, Apple, Facebook and Amazon, which is why it’s being called the GAFA tax.

“This is about justice,” Le Maire reportedly said. “These digital giants use our personal data, make huge profits out of these data, then transfer the money somewhere else without paying their fair amount of taxes.” Funny how new taxes are always in the name of fairness isn’t it?

Said tech giants are unlikely to take this new tax lying down and will presumably threaten some kind of strop in retaliation, but if they want to make money in France they will have to abide by its tax rules. A bigger danger for them will be if France manages to pull this move off as that will presumably give the rest of Europe, and even the world, some funny ideas.

France has been planning something like this for a while but it’s not obvious exactly how it will claim the tax, especially as it expects to tax revenues derived from advertising, which is the main business model of Google and Facebook. France reckons it will trouser at least €500 million a year from this, which will come in handy since its own population doesn’t seem too keen on paying tax these days.

France continues charge against Silicon Valley

The City of Paris has joined the overarching French battle against Silicon Valley, suing Airbnb for publishing 1,000 illegal rentals adverts.

Over the last couple of weeks, France has become increasingly irked with Silicon Valley. This quest is not from the French government alone, but the anti-internet sentiment seems to be spreading throughout the country.

Here, the City of Paris has lodged its complaints against online marketplace and hospitality firm Airbnb, suggesting the website is illegally advertising properties. According to Reuters, home owners are allowed to rent out their properties for 120 days a year, but the home owner must be registered to ensure compliance.

Several countries around the world have expressed concerns over the impact of Airbnb on local markets, suggesting locals are suffering as profiteers increase housing prices while the traditional hospitality industry is being cripple, but this seems to be one of the first and most aggressive complaints. Paris is suing Airbnb for missing registration details on more than 1,000 adverts. With new national legislation in 2018 provisioning €12,500 per illegal posting, the fine could certainly go north very quickly.

“The goal is to send a shot across the bows to get it over with unauthorized rentals that spoil some Parisian neighbourhoods,” said Paris Mayor Anne Hidalgo.

While this might be a headache for Airbnb, this is just one example of France taking a more aggressive stance against Silicon Valley. Aside from this case, the French tax administration recently managed to get Apple to pay €500 million in back-taxes, data protection regulator CNIL has fined Google for GDPR violations, the country is also attempting to rollout ‘right to be forgotten rules’ worldwide and the French government is pressing ahead with plans to hold internet companies accountable to fair and reasonable tax rates.

The final one is perhaps one of the most interesting cases as it demonstrates a break from Europe. The tax strategies of the internet giants have now become infamous, though Europe wanted to tackle these regulatory oversights as a bloc. With the 28 members states not being able to come to any form of agreement, it had seemed the Silicon Valley lobbyists had won, but France was not done, deciding to go alone with its own 3% sales tax on revenues derived within its borders; the internet giants might be able to hide profits, but they haven’t found a good way to hide IP addresses yet.

While the world is certainly turning against the internet players, thanks mainly to data breaches and privacy scandals over the last 18 months, few countries are taking such an aggressive stance as the French. Considering how friendly some nations are to the internet players (see Ireland and Luxembourg) we can’t see this trend spreading everywhere across the European Union, but it will be interesting to see how many member states are buoyed on by the French foray.