SoftBank fire sale could include T-Mobile US stake

Japanese conglomerate SoftBank had a nightmare quarter thanks to massive losses at its Vision Fund investment arm and it might need to raise a few yen quickly.

Most of SoftBank group is doing fine. Its Japanese operations, its stake in Alibaba and ARM have no worries, and it finally managed to complete the merger of its Sprint MNO with T-Mobile US. But boss Masayoshi Son just couldn’t resist getting funny ideas about investing in all kinds of other unrelated stuff and it turns out a lot of those bets were bad ones.

As warned a month ago, WeWork is the major bust in the portfolio, but the whole thing has taken a severe kicking thanks to the business world grinding to a halt coz of coronavirus. The quarterly presentation seemed to essentially amount to an extended apology to shareholders for losing so much of their cash on reckless punts, followed by a plea for them to stay the course to give his unicorns (very large private companies) a chance to fly over the Valley of Coronavirus, to the fertile pastures beyond.

Even if Son’s pleas are well received, SoftBank may well join many other companies in having to manage a cashflow crisis until things start to pick up again. For that reason it seems possible that it will flog some of its stake in new, improved TMUS to Deutsche Telekom in order to bolster its working capital. A WSJ report speculated that such a move would give DT the majority share in the company and relegate SoftBank to relatively silent partner. On current form, that might not be such a bad thing for all concerned.

Silver Lake pays a premium for a chunk of Jio Platforms

Private equity firm Silver Lake has shelled out $750 million for a 1.15% stake in the Indian telco, which represents a 12.5% premium on the price Facebook recently paid.

In the baffling Indian numbers, Silver Lake is handing over ₹5,655.75 crore at an equity value of ₹4.90 lakh crore (~$65 billion). When Facebook bought 10% of the company a fortnight ago, the valuation was more like $57 billion. While we don’t doubt Jio has had a cracking couple of weeks, something else must be going on for the price to shoot up so.

“I am delighted to welcome Silver Lake as a valued partner in continuing to grow and transform the Indian digital ecosystem for the benefit of all Indians,” said India’s richest man Mukesh Ambani, Chairman of Reliance Industries, Jio’s parent. “Silver Lake has an outstanding record of being a valuable partner for leading technology companies globally. Silver Lake is one of the most respected voices in technology and finance. We are excited to leverage insights from their global technology relationships for the Indian Digital Society’s transformation.”

“Jio Platforms is one of the world’s most remarkable companies, led by an incredibly strong and entrepreneurial management team who are driving and actualizing a courageous vision,” said Egon Durban, Silver Lake Co-CEO. “They have brought extraordinary engineering capabilities to bear on bringing the power of low-cost digital services to a mass consumer and small businesses population. The market potential they are addressing is enormous, and we are honored and pleased to have been invited to partner with Mukesh Ambani and the team at Reliance and Jio to help further the Jio mission.”

The reason for the premium remains unclear. It could be that the mere fact Facebook got involved made Jio Platforms 12.5% more attractive as an investment. Then again, as Tech Crunch speculates, Silver Lake could have bought a lower class of share, or is anticipating an imminent IPO. From Jio’s perspective, these infusions of cash could be contingencies against the depressed global economy or could be a war chest for further investment.

UK Gov carves out £1bn to save struggling firms

The UK Treasury has announced a new scheme which will see as much as £1 billion made available to UK SMEs who are struggling financially during the COVID-19 outbreak.

The news will certainly provide some relief for companies which might be placed under notable strain thanks to decreased cash flow in recent weeks, but there are some strings attached to the cash.

“Britain is a global leader when it comes to innovation,” said Chancellor of the Exchequer Rishi Sunak. “Our start-ups and businesses driving research and development are one of our great economic strengths and will help power our growth out of the coronavirus crisis.”

“This new, world-leading fund will mean they can access the capital they need at this difficult time, ensuring dynamic, fast-growing firms across all sectors will be able to continue to create new ideas and spread prosperity.”

The £1 billion will be broken into two pots, the first of which will be known as the Future Fund. This fund comprises of £250 million put forward by the Treasury for high-growth companies impacted by the crisis, with relevant companies able to apply for 36-month loans between £125,000 and £5 million.

To be eligible for these loans, companies would have to fit the following criteria:

  • Must be an unlisted UK registered company
  • Raised at least £250,000 from private parties in previous funding rounds within the last five years
  • Can match the Government loan with funds raised from the private sector

Although the Government is boasting of a ‘£500 million’ future fund, it is only providing the cash for half of this. The remaining £250 million will be provided by the private sector, and loans will be void if the applicant is not able to match the Government cash with private investment.

This condition does make it a bit more difficult for companies to apply for the funds, though at least the Treasury is dipping into the bank accounts to aid SMEs during this period. This is of course a segment which is under-threat.

The SMEs are an interesting segment of the economy, as while they are certainly big enough to cause disruption, when cash-flow is compromised, these are companies which potentially look very fragile. In some areas of the economy, this could have a significant impact to competition, as bigger corporations are much more secure thanks to bigger bank accounts, as well as investors and lending facilities to fall back on.

For example, as a multinational corporation with a very large corporate finance division, the Vodafone Group can access €13.6 billion in cash and other lending facilities during difficult periods (Annual Report – Page 51). Smaller companies would not have these facilities and/or security, while few (if any) organisations could have predicted there would be a crisis of this nature to prepare for.

Should these SMEs not be protected by the Government, there is a risk of bankruptcy or acquisitions. Both outcomes could dent the competitive landscape, or impact the UK’s ability to lead the way to the next digital economy.

The second pot of cash will be directed towards R&D firms who are likely to be burning through cash at a much faster pace.

“We are the tech and creative capital of Europe, and it’s crucial to maintain our place,” said Secretary of State for Digital, Culture, Media and Sport, Oliver Dowden. “This funding will protect high growth businesses and enable the unicorns of tomorrow to thrive so that tech is in pole position to drive our post COVID recovery.”

This £750 million fund will be carved into several different categories, but ultimately is aimed at supporting SMEs who work in the R&D world.

Starting with Innovate UK, the UK’s innovation agency, £200 million of grant and loan payments will be made immediately available for the 2,500 firms it counts as customers. An additional £550 million will soon be offered to the same firms, while this secondary pot will also provide £175,000 loans to the 1,200 (roughly) R&D firms not currently in receipt of Innovate UK funding.

“techUK welcomes the support being made available today by Government,” said Julian David, techUK CEO. “The businesses that will be supported by these schemes represent the innovative companies of tomorrow. techUK will continue to work with Government to clarify how the schemes will work in practice to ensure the broadest range of companies can benefit from this lifeline.”

The SME and start-up community has been calling for additional support from the UK Government for weeks and this is a good starting point. It will not be perfect, as some firms will slip through the bureaucratic cracks, but as this is an unprecedented crisis mistakes will be made. This is a positive step forward, however.

With 5G on the horizon, a new digital economy will emerge. 5G is much more than doing things faster than 4G, as it will give rise to new products and services which are not imaginable today. New companies and new fortunes will be created, but if a nation does not protect the start-up community and the innovators who are working on these ideas, the profits will of course be captured elsewhere.

Facebook reportedly close to buying 10% of Reliance Jio

Social media giant Facebook seems set to continue its push into telecoms with a major stake in India’s dominant operator group.

The rumour comes courtesy of the FT, which knows some people who know some people. According to only one of them Facebook was about to close a deal in which it would buy 10% of Reliance Jio when the coronavirus pandemic caused the world to grind to a halt. Presumably Zuck doesn’t fancy sealing such a big deal over Facebook Messenger video chat.

While Jio is owned by the richest man in India, it has had to borrow heavily to fund its nationwide rollout and give connectivity away for free to millions of Indians. At current estimated valuations 10% of the company is worth around $6 billion, which would pay off a few bills.

Facebook’s sudden interest in buying chunks of operators on the other side of the world is less obvious. The most likely reason would be to get its services – Facebook, WhatsApp, Instagram, etc – to the front of the queue when it comes to preinstallation on Jio phones.

$6 billion is a lot of cash to blow on a bit of queue-jumping, however, so Facebook must be pretty confident of a healthy return in the form of advertising to what will soon be the world’s most populous country. As Vodafone is discovering, the Indian telecom market is a minefield, but having said that, if you were going to invest in anyone there, it would have to be Jio.

Nokia reportedly has a strategic rethink

Finnish kit vendor Nokia is mulling new ways of improving its bottom line according to a report.

Bloomberg spoke to those ‘people familiar with the matter’ who reckon Nokia is having to explore strategic options in an apparent bid to improve its margins. It’s all a bit vague and generic at this stage, with everything from balance-sheet adjustments to full-blown mergers and acquisitions on the table.

Nokia’s M&A options would appear to be limited. The only company it could realistically merge with is Ericsson, but the obstacles to such a move are so great and numerous that it feels absurd to even contemplate it. Yes, there would be plenty of those cherished synergies but even if Ericsson fancied the idea, surely regulators would have none of it, especially with the Huawei situation developing as it has.

Flogging some non-core business units would raise a few euros, but Nokia has already done a fair bit of that, so there may not be a lot of fat left to trim. Creative accounting might flatter the numbers for a couple of quarters, but would do nothing to address the underlying causes of the situation that has brought about this rethink.

This feels like a trial balloon exercise from Nokia, designed to see what the market thinks of such an idea. They answer seems to be indifference, as Nokia’s share price hasn’t really reacted at all. Alternatively it could be a bit of light flirting with the US state, which has previously mulled the prospect of investing in Nokia and Ericsson in the name of securing its telecoms infrastructure supply.

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.

Attracting investment to Africa is not the issue, keeping the value is

Europe has been rubbing the White House up the wrong way with the diabolical intention of reforming regulation, and now it appears Africa might be heading the same direction.

Digital regulation and policy are turning into sticky topics nowadays. With the likes of Amazon, Google and Facebook generating almost thinkable profits, while playing hide-and-seek with the taxman, numerous nations are hitting back. New regulatory regimes are being created, much to the irritation of the US, to ensure value is retained in the country it is created and this trend is making its way across to Africa.

“We need to dictate the rules to the technology giants if they want to apply their technology,” said Nanjira Sambuli, Senior Policy Manager at The Web Foundation, at AfricaCom.

Founded by Sir Tim Berners-Lee, The Web Foundation has tasked itself with creating a more evenly distributed digital economy, ensuring the benefits and value of the internet are fairly shared across the world. In turn, Sambuli leads the Web Foundation’s policy advocacy to promote digital equality in access to and use of the web.

Herein lies the issue which is challenging regulators and policy makers in Africa currently; attracting foreign investment dollars to African start-ups and incubators is not necessarily an issue, but retaining the value created certainly is.

Although Africa might not be the most attractive of regions to some multi-national corporations, there is certainly plenty of opportunity. With only a third of the continent connected to the internet, there are some 800 million individuals who are sitting outside the digital society. And with 60% of the population under the age of 24, there are profits to be made once the digital revolution generates more momentum.

During the opening keynote sessions at AfricaCom, MTN Rob Shuter highlighted the next three years could see a surge in the adoption internet adoption across the continent, and in turn, profits will be generated as these new users get sucked into the same digital rabbit holes.

But like Europe, Sambuli highlighted the African governments and regulators are keen to see the value, both societal and financial, retained in the economies which create it. Silicon Valley might dictate the speed of the revolution, but it seems it will not wield the financial freedoms of yesteryear.

That is worth noting, is this is not just a Non-profit organisation posturing for attention. Sitting alongside Sambuli on the panel was Stella Tembisa Ndabeni-Abrahams, the Communications Minister for South Africa. Echoing the statement, Ndabeni-Abrahams suggested new policies were on the horizon to ensure South Africa’s entry role in the global digital economy is on South Africa’s terms.

For the moment, this is nothing more than rhetoric. Bureaucrats around the world have found it is incredibly difficult to hold Big Tech accountable, and the Silicon Valley lawyers are as slippery as ever. This is a bold statement though. Ndabeni-Abrahams and Sambuli both highlighted investments to create immediate value will no-longer appease rule makers. The free-wheeling residents of Silicon Valley might have more regulatory headaches to account for.

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.

FCC allocates $20bn to close US digital divide

One of the genuine risks of the accelerated journey towards the digital economy is the widening digital divide, though an extra $20 billion from the FCC could help even the landscape.

Although the US is one of the most advanced digital nations in the world, the difference between the haves and have nots is quite staggering. If you were to compare the connectivity options for a millennial in San Diego to a farmer in rural Ohio, you wouldn’t assume it was the same country. Some might see it as a first world problem, however with the benefits of connectivity being applied to areas such as education and healthcare, it is irresponsible to allow this divide to continue.

This is the conundrum which the FCC has faced in recent years. It is of course commercially attractive to drive connectivity options in the densely populated urban areas, but such are the sparse and environmentally challenging regions across some of the US, vast numbers of people are being left behind.

Here, the FCC is proposing the establishment of the Rural Digital Opportunity Fund, which will direct $20.4 billion towards closing the digital divide.

“In short, we’re proposing to connect more Americans to faster broadband networks than any other universal service program has done,” said FCC Chairman Ajit Pai.

“I’m excited about what this initiative will mean for rural Americans who need broadband to start a business, educate a child, grow crops, raise livestock, get access to telehealth, and do all the other things that the online world allows. And I look forward to kicking off this new auction next year.”

This fund will have a broader scope than the previous Connect America Fund (CAF), and will aim to assist regions which are not currently able to access download speeds of 25 Mbps and upload speeds of 3 Mbps, significantly higher than the caps placed on the CAF funds.

The funding will be allocated in two phases. Firstly, using data which has already been collected by the FCC, a reverse auction will be implemented to hand out the funds. Alongside this auction, a new data collection tool will be implemented to offer greater depth to the insight. In the second phase, the intelligence gathered through this tool will help allocate funds as well as to those communities which missed out in the first phase.

With what will be known as the Digital Opportunity Data Collection initiative, the FCC will aim develop more granular broadband deployment data. This initiative will aim to collect geospatial broadband coverage maps from fixed broadband ISPs, and also develop crowd-sourcing portal that will gather input from consumers as well as from state, local, and Tribal governments. Through crowd-sourcing the data, the FCC will hope to validate the information put forwards by the ISPs.

This is a sensible approach from the FCC, as while the ISPs will have the biggest treasure troves when it comes to data, they have also shown themselves to be misleading in the past. With such a tool at its disposal, the FCC can become a more intelligent organization, taking proactive steps towards fixing the digital divide as opposed to simply signing blank cheques for the telcos to cash.

“I appreciate the hard work that went into this item to fix the Commission’s broken mapping process,” said FCC Commissioner Michael O’Reilly.

“Like some of the very laudable mapping bills being considered by Congress, including those by Chairman Wicker and Senator Capito, this item takes important steps in creating a more accurate and useful picture of broadband coverage, which should allow the Commission’s universal service policies to better focus on those millions of Americans left behind without access to broadband service today.”

And while this might sound like a positive step-forward, Commissioner Jessica Rosenworcel, a political opponent of Pai and O’Reilly, has found something to be irked about. Rosenworcel fears the maps might be replaced by a difficult to find URL and handing control of data collection to the administrator of the funds is not the best way forward.

Although we should not be surprised by the objections, they are incredibly weak. Rosenworcel has said she likes the idea, though her objections are seemingly just trying to be awkward, playing the childish role of political opponent wherever possible. While we rarely have anything positive to say about Pai and his cronies in the FCC, this is a sensible move forward and Rosenworcel seems to be finding objections purely because it adds to the theatrics of politics.

What is incredibly difficult to understand is how severe the digital divide actually is in the US. The FCC suggests there are 21 million US citizens who cannot access acceptable broadband speeds, though Rosenworcel has quoted a report which claims the digital divide is as high as 162 million.

This outlandish claim pays homage to a report from Microsoft which should be taken with a bucketful of salt. Let’s not forget, Microsoft is a firm which will benefit from stoking the fire and attracting additional funds to fuel connectivity deployments in the rural community.

This in itself is one of the significant problems when attempting to tackle the digital divide; no-one actually knows what the starting point is. Depending on your commercial aims and political allegiance, the number of underserved citizens will vary wildly. How can one address a problem when the variables remain unknown? It is nothing more than shooting in the dark, hitting the mark occasionally but likely to miss the most important targets.

Alongside these changes in funding connectivity, the FCC has also released a statement which will address how funding for telehealth services is allocated.

This is where the idea of connectivity can be more than simply a means to access entertainment, taking the digital divide beyond the realms of first world problem. There are communities in the US who are underserved by medical services thanks to doctor shortages and hospital closures. The Rural Health Care Programme aims to address these challenges, making use of connectivity to ensure all US citizens have access to medical services as and when they need them.

The latest proposal is another reform to how funds are allocated, attempting to identify the regions which are most severely underserved. Funding will be increased by 43% to $571 million.

Toob joins the UK alt-net revolution

Portsmouth start-up Toob is the latest to cash in on the consumers fibre appetite with £75 million of initial funding, backed by Amber Infrastructure.

Focusing on Portsmouth, the firm will aim to build a network to support 100,000 fibre connections by 2021, with the first to be hooked up by the end of 2019. The start-up was founded by former Vodafone executives Nick Parbutt, who will act as CEO, and Mike Banwell, CFO, while experienced executive Charles McGregor will act as Chairman.

“We are delighted to be partnering with Amber Infrastructure and to have secured Charles as Chairman. toob now has the right people, the right plan and the right funding in place to capitalise on the exciting opportunity ahead of us,” said Parbutt. “We want to enable families, businesses and communities to live, work and play in ways which are only made possible with the advent of gigabit broadband.”

“The amount of internet data used by people in the UK is growing by around half every year,” said Jonathan Oxley, Ofcom’s Competition Group Director. “So, we’ll increasingly need full-fibre broadband services like this to provide faster, more reliable connections and capacity to our homes and offices. These plans are another example of full-fibre being used to build broadband that can support the UK’s digital future.”

The alt-net revolution is starting to roar, and the signs are looking much more positive for fibre-enthusiasts across the UK. Although the UK is currently one of the least equipped to handle the blossoming digital economy, despite what politicians say to you, the industry is starting to get itself into shape. The alt-nets can claim some of the plaudits for this progress.

Although CityFibre developed a reputation for being a bit of a victim in years gone, the proposition was ahead of its time. Few other operators in the UK considered fibre as a priority, though CityFibre focused on developing fibre spines in large towns and cities across the country and is now reaping the benefits. The success has spurred confidence in other alt-nets such as Hyperoptic and Gigaclear, though more are emerging every year.

The issue some of these businesses might face in the future is scale. Fibre is an expensive segment to operate in, and the demanding nature of the UK consumer is forcing the price of connectivity down each year. CityFibre is in a strong position, the tie up with Vodafone is important as are other enterprise relationships, while Hyperoptic and Gigaclear also have established businesses now. Those who are late to the party, might have trouble achieving scale when the price and civil engineering complications are considered.

While the alt-nets are critical in accelerating the pace of change and rollout of fibre across the UK, there might need to be some consolidation should more small providers emerge in the future. This of course will not matter to the UK Government however, which has been searching for ways to entice the industry onto a fibre diet.

Back in 2015, the then Chancellor of the Exchequer George Osborne floated the idea of a new fund for alt-net providers, perhaps realising there was a need to force change through competition and the threat of loss. What should be worth noting is Openreach’s decision last week to launch an industry consultation on the switch to full-fibre, the first step in retiring the legacy copper network.

The alt-nets have been a contributing factor to the changing of the status quo, demonstrating there is a consumer appetite for fibre connectivity, but also highlighting the poor position of Openreach.

There are of course those who would suggest fibre connectivity is not necessary, though a decade ago who would have said we would have been craving the speeds of today. The issue is not whether we need the speeds fibre promises, but readying business and people for the usecases of tomorrow. Who knows what wonderful ideas will emerge, but when the creatives and innovators get their hands-on fibre connectivity speeds, but they will design products and services for these speeds. Fibre connectivity today is more about readiness.

For those who are desperately preaching the case for fibre connectivity, the alt-nets seem to be a perfectly suitable catalyst for change. The UK is still miles behind the rest of Europe, data from IDate suggest fibre penetration in the UK is only 1.3% compared to 44% in Spain, but there does seem to be progress being made.