DT CEO ups US ambitions to double down on momentum

Deutsche Telekom CEO Tim Hoettges is looking to close the valuation gap between T-Mobile US and its rivals, as the telco revels following a very positive earnings call.

Share price in the German telco has jumped 3.9% in early morning trading following the financial results which saw revenues increase by 6.4% to €80.4 billion for 2019. Net profit was up by almost 80% to €3.9 billion, while free cash grew by 15.9% to €7 billion.

“The market environment in the European telecommunications sector is far from straightforward. Yet, despite the heavy regulation and inconsistent competitive situation, we emerged from the year just ended even stronger,” Hoettges said his letter to the shareholders.

“Not only that, but we are once again the leading European telco, based on both revenue and market value. That was and remains our overarching goal.”

Deutsche Telekom is one of the largest telcos across the world, but in recent years it is questionable as to whether it is one of the more progressive or future proofed. When looking at the penetration of full-fibre broadband or deployment of 5G infrastructure, the numbers are not as favourable, though the tide does seem to be turning.

The team now suggests 5G connectivity is being delivered in eight cities in its domestic German market, with ambitions to increase this to 20 by the end of 2020. Elsewhere, T-Mobile US launched its 5G offering in December and Austria has 31 5G base stations up-and-running.

Deutsche Telekom is heading in the right direction, but it is moving at a much slower pace than other telcos. It might want to proclaim itself as a leader in the telco arena, but realistically it is a fastish-follower at best, BT for example, has already launched 5G in 50 towns and cities across the UK.

One area where the company is proving to be incredibly aggressive is in the US, and this should continue over the coming months.

“We have the chance to become No.1 in the United States, to overtake AT&T and Verizon. That, at least, is our ambition,” Hoettges said during the earnings call.

With T-Mobile US and Sprint now looking at a clear path to the finish line, after a District Judge ruled in favour of the merger in the face of opposition from 13 Attorney Generals, the team can look further into the future. Following the merger, T-Mobile will be roughly the same size from a subscriber base as AT&T and Verizon, allowing more opportunity for the team to compete on a level playing field.

The US business is one which is once again proving to be very profitable for Deutsche Telekom.

T-Mobile US is the single largest business unit in the overarching business, accounting for just over 50% of the total revenues at €40.4 billion, a year-on-year increase of 10.7%. Momentum is clearly with the business also, the team boasted of 1.3 million branded postpaid net additions during its last financial results.

While the US is looking very positive for the telco, it will have to be careful sluggish activity in Europe does not open the door for rivals to steal market share in the various markets.

US Ambassador to Germany starts making intel sharing threats

Richard Grenell, the US Ambassador to Germany, has starting the intimidation game with his host nation over Huawei, hoping the same tactic used against the UK will reap better yields.

In a series of tweets through the weekend, Grenell made his position on Huawei very clear, aligning himself with the anti-China rhetoric lobby which is beginning to verge on xenophobic. The Ambassador has now reiterated the intelligence embargo which was promised to the UK should it offer Huawei opportunity to do business.

Perhaps one of the most ironic elements of this story is the phone call itself. President Donald Trump has reportedly refused to use encrypted phones, due to the inconvenience, so any conversation he has is completely unprotected.

Irrelevant of whether the concepts of irony gain traction in the US, Grenell is effectively declaring that he has been given permission to take a firm stance against Germany. Although there has been no official confirmation, Germany will most likely be offered an ultimatum; access US intelligence data or have Huawei equipment in the communications network.

Although most of the transatlantic-lobby has been directed towards the UK in recent months, thanks to the now-concluded Supply Chain Review, Germany is another influential voice in Europe which is yet to formalise its position on Huawei. The US might have lost the political battle in the UK, but it still has until the EU Summit in March to convince the Germans China is the enemy.

There might have been some noises that Germany would head the same direction as the UK, but Chancellor Angela Merkel has previously said Germany would not make a decision until the EU Summit in March. Like the UK, Germany has a valuable trading relationship with the US, but it also has one with China. There is also the ambitions of the wider European Union to consider, where Germany is one of the leading voices.

Looking at the relationship with China, Germany’s highly influential automotive sector will not want to lose out because of issues with the telecoms industry. In 2018, almost one-quarter of all cars sold in China were German. In the first nine months of 2019, BMW delivered more than 500,000 vehicles to China, its largest single market.

As it stands, the automotive industry in China is not in the greatest of positions, sales have slumped over the last 18 months, while the US/China trade war has impacted the ability for these automotive giants to source some parts. The conflict between the US and China is not good for the German automotive trade, and this is a very powerful organisation in the German economy.

Germany may not want to say no to Huawei and anger the Chinese, but then again it might not have to.

The US, and Secretary of State Mike Pompeo, had been very aggressive towards the UK in the weeks leading up to the conclusion of the Supply Chain Review. When the carrot didn’t work, promising a favourable trade agreement, the stick was favoured. The threat of an intelligence data embargo for security agencies was pushed towards the UK, like Grenell is doing today.

The issue that Grenell might face here is that the US didn’t follow through on that threat to the UK.

The conclusion of the Supply Chain Review saw a 35% limitation placed on the telcos for Huawei equipment in the different segments of the network. This has proven to be awkward for some, having to reconfigure deployment strategies, though it is far from the apocalypse scenario of an all-out ban which was being demanding by the US.

The UK defied the US, but the US is yet to cut off the UK from valuable intelligence data for security and enforcement agencies. Considering this outcome, some in Germany might not take the US threat as seriously as before.

Germany set to follow UK on Huawei conundrum – report

Huawei looks to have survived another European scare as Germany closes in on a deal which would offer the company restricted freedoms, similar to the position of the UK.

According to reports in Reuters, the leading political parties in Germany are set to agree on a strategy paper which would allow Huawei a restricted role to participate in the deployment of 5G networks. It might be considered a bit of a snub to the US, but like the UK this would appear to be a pragmatic approach to delivering the next generation of connectivity.

“State actors with sufficient resources can infiltrate the network of any equipment maker,” the agreement states. “Even with comprehensive technical checks, security risks cannot be eliminated completely – they can at best be minimized.

“At the same time, we are not defenceless against attempts to eavesdrop on 5G networks. The use of strong cryptography and end-to-end encryption can secure confidentiality in communication and the exchange of data.”

Although this is not a confirmed position yet, it is believed the new position will be voted in later today (February 11). There are still aggressors who are pursuing an all-out ban, namely the Social Democratic party, a junior coalition partner to the Christian Democratic party, though it appear Huawei will survive, albeit in a limited function.

The paper would outline a similar approach to managing Huawei as the UK has taken. As you can see from the statement above, the German authorities seem to be taking the approach that as it is impossible to guarantee 100% safety, irrelevant of the equipment manufacturer, it is not logical to target one specific company.

The paper apparently states the network would be split into the three different components (radio, transmission and core), and different procedures for handling Huawei equipment dependent on its designation. This is a risk-management approach, similar to the one taken in the UK.

The issue which the Germans are facing is also similar; German telcos are all existing customers of Huawei and have signed agreements to work with Huawei going forward. Should a ban be implemented, not only would this create a problem in terms of time (negotiating new commercial agreements, testing equipment etc.) but there might also have to be expense incurred as ‘rip and replace’ projects are kicked off to ensure backwards compatibility.

In the UK, BT has said it will cost £500 million to become compliant with the Huawei restrictions in the RAN. This might sound like a significant investment, but it would have been considerably worse if a complete ban had been introduced.

Other elements of the strategy which could impact the telcos are potential demands to enforce a multi-vendor supply chain, and security checks on equipment which all vendors would have to adhere to. This is an idea which has been raised in the past, paying homage to the complexity and variety of supply chains nowadays; as 100% security cannot be guaranteed by everyone, every vendor would be forced to demonstrate security credibility.

It is not yet guaranteed that Germany will take this approach, but it does appear the German Government will try to mitigate risk and compensate for the current status quo.

Despite all the lobbying and threats which have been passed across the Atlantic from the White House, it does appear US delegates were unable to present evidence of a ‘smoking gun’ which would have turned European governments against Huawei and other Chinese vendors. This is a win for the US, it has demonstrated it has influence over Europe after all, but its ability to dictate policy is becoming weaker.

One question which does remain is the impact this will have on the German-US relationship. President Trump has not been on the greatest of terms with Merkel over the years and considering the influence Germany has on the European Union bureaucracy, the White House find itself more irritable.

On the other side of the coin is the relationship between Germany and China. China is an important trade partner of Germany, especially the automotive industry which has such a powerful lobby in the country. Irritating this relationship with the Chinese would not be something many would want, and it does appear a snub to the US is tolerable.

While the UK and Germany are only two nations, it does appear the US is losing the political influence game in Europe. Other European countries pay attention to the opinions and actions of these Governments, and it might be a case of the first dominoes to fall, especially with the likes of France and Italy also leaning towards a Huawei-friendly environment

1&1 Drillisch trials with ZTE seemingly up-and-running

ZTE might not get much media attention nowadays, though some might think of this as a blessing, but it seems to be getting along just fine with Germany’s newest telco, 1&1 Drillisch.

With reports being traced back to a YouTuber named Tobias Dirking, 1&1 Drillisch is seemingly trialling 5G technology with the lesser criticised but arguably more controversial Chinese vendor ZTE. While this is only a trial for the moment, ZTE equipment has been spotted on the roof of the telcos offices in Karlsruhe and Montabaur.

According to Dirking’s video, the network technology has been supplied by ZTE, while the 4×4 MiMo antenna is from CommScope. No LED lights can have seen flickering from the equipment, so it would be fair to assume it is not yet switched on.

1&1 Drillisch has said this is not an indication of a decision for its 5G suppliers, but it is working to trial all available options.

While ZTE is a well-known name in the industry, success in the European markets has been relatively low-key. The firm has a relationship with Wind Tre in Italy, as well as several smaller telcos such as JT in Jersey, though it has not experienced the triumph of its domestic rival Huawei.

Interestingly enough, if the more successful ZTE becomes in the European market, the more enflamed the relationship between European nations and the US might become. If the White House is enraged by tenuous claims of a link between Huawei and the Chinese Government, Senators are now calling it the ‘intelligence-gathering arm of the Chinese Communist Party’, it is hardly going to be enthralled by a state-owned entity supplying RAN equipment.

After being founded in 1985 as the Zhongxing Semiconductor Company, the firm now describes itself as ‘state-owned and private-run’. Xi’an Microelectronics and Aerospace Guangyu are two of the largest shareholders of the business, controlling five of the nine board seats, and are subsidiaries of state-owned organisations in China. This is a much more obvious link than what has been suggested between Huawei and the Chinese Government.

ZTE has largely escaped the spotlight in recent months, perhaps due to the fact it does not dine at the top table like its domestic rival Huawei does. The ZTE business sees greatest success in Asia and Africa, though if it does start to gain traction in Europe, we can imagine White House aggression would be expanded.

What is worth noting is this is simply one of a seemingly endless list of unknowns at 1&1 Drillisch. Right at the top said list is the launch date, but before that can be established, the telco needs to sort out its spectrum portfolio.

Having acquired two blocks of 10 MHz in the 2 GHz band and five blocks of 10 MHz in 3.6 GHz during the spectrum auction last June, 1&1 Drillisch has also confirmed it has entered a relationship with Telefonica to lease two separate frequency blocks of 10 MHz in the 2.6 GHz band. This lease will run until 31 December 2025, though the remaining unknown is for the lower frequency spectrum.

Although the spectrum which has been collected is attractive for 5G services, there is still a requirement for the low-band spectrum, more suitable for coverage and propagation. 1&1 Drillisch is drawing a blank for these valuable assets, so will have to enter into a national roaming agreement with one or more of its rivals. This is far from ideal and will have to be sorted before any commercial services can be launched.

1&1 Drillisch is a very interesting company to keep an eye on, primarily because of the regulatory leg-up it has been offered by Germany, but its choices on the supplier side could cause some ripples in the political arena.

Germany to wait until March for Huawei decision – report

German Chancellor Angela Merkel might ask German lawmakers to wait until the conclusion of the March EU Summit before making a Huawei decision, reports suggest.

With the telecommunications industry chomping at the bit for clarity and certainty in the supplier ecosystem, such rumours will offer nothing but frustration, if the sources are to be believed. Taking place on 21-22 March, Germany might have to wait another two months before delivering the 5G era start in earnest.

According to Reuters, sources close to the German premier are suggesting a delay. It might be a play for time from Merkel, hoping for clarity from the highest bureaucratic office across the European lands. If politicians wait long enough, perhaps they can avoid making a decision altogether, and simply point critics towards orders from above.

While much attention has been paid to the Huawei predicament which is facing the UK Government, it can be easy to breeze past similar decisions which are being made elsewhere. Germany might not be facing the same external pressures as the UK currently, but there are certainly some very interesting storylines in play here.

First and foremost, you have to look at the competitive environment. Deutsche Telekom has been a customer of Huawei for years, as does Vodafone Germany and O2. A ban would impact the relationships already in place, not to mention the testing and validation work which has been conducted over the last few years.

Secondly, the political environment is quite interesting. Germany’s Social Democrats (SPD), the junior partner in the country’s governing coalition, has been considering proposals to ban Huawei equipment from being used in telecommunications infrastructure. This is just one party, but it is an influential one.

Third, the T-Mobile US and Sprint merger has been a factor. The US Government has been casting an eye very broadly when looking at this merger, and the fact that the parent company of ones of the parties works closely with Huawei is not something which will get the White House enthused.

Finally, the automotive industry is incredibly important to the German economy and China is incredibly important to the German automotive industry. China is BMWs single largest export market, while Audi has a very prominent position in the premium-end of the Chinese market. Germany will not want to cause too much friction because of the automotive industry’s joy in China.

While a decision has to be made in Germany, there will be critics irrelevant. Merkel will almost certainly know she will be unpopular with some depending on which way the voices swing, but perhaps stalling to March can deflect some of the impending outcry.

In the near future, the UK will make a decision on Huawei. This could have some influence on other nations in the European bloc, but perhaps more importantly, the European Commission will table security guidelines for telecommunications infrastructure. The stronger the stance from the Brussels bureaucrats, the more easily Merkel can deflect any criticism.

US Senator tables bill to ban intelligence sharing with Huawei friendlies

The Republican Senator for Arkansas, Tom Cotton, has tabled a bill which would ban US agencies from sharing data with countries do not ban Huawei.

With the UK reportedly on the verge of making a decision on whether Huawei should be allowed to sell network infrastructure equipment to its telcos, the US has once again piled on the pressure. Cotton, one of the more actively-aggressive politicians towards China, has introduced a bill which would ban US agencies from sharing information with Governments which have given the greenlight to Huawei.

“The United States shouldn’t be sharing valuable intelligence information with countries that allow an intelligence-gathering arm of the Chinese Communist Party to operate freely within their borders,” Cotton said.

“I urge our allies around the world to carefully consider the consequences of dealing with Huawei to their national interests.”

While there has been numerous promises to end intelligence sharing agreements to those governments who do not follow the US lead, this is the first official step towards making the threat a reality. This is the strongest statement made by the US to date directed towards European allies who have thus far refused to ban Huawei from providing equipment for 5G networks.

With many European telcos having already signed memoranda of understanding (MOU) or commercial contracts with the under-fire Chinese firm, this proposal from Cotton will certainly raise a few eyebrows.

Country Telcos with relationship with Huawei
UK Three, Vodafone, EE
Germany Deutsche Telekom, Telefonica Deutschland
Switzerland Sunrise
Bahrain VIVA
Austria T-Mobile Austria
Spain Telefonica
Indonesia Maxis
South Korea LGU+
UAE Du
Finland Elisa

Huawei has stated it has now signed more than 50 commercial 5G contracts with telcos around the world, though not all customers have been named to date. The firm has said 60% of these contracts are with European telcos. This will present numerous headaches from an intelligence and national security perspective.

Alongside the named customers, various countries have also suggested they would not ban Huawei. India, Italy, France and Norway are amongst these countries without having a telco in a named 5G relationship with Huawei.

Interestingly enough, the proposed bill only mentioned 5G equipment. Those telcos who have purchased equipment from Huawei for their 3G and 4G networks will not necessarily have to go through the expensive rip and replace process, unless the wording of the bill is changed as it progress through the various branches of US Government. There might be requirements from a backwards compatibility perspective, but this has not been included in the wording of the bill.

For countries like the UK or Germany, allegiances and confidences will be tested, as the US once again attempts to bully allies into line.

Although this could be viewed as the most serious threat to Huawei’s business to date, it is always worth noting that this could backfire quite spectacularly for the US. Although Governments will rely on the US for intelligence, the same dynamic works the other direction. Should the bill pass to law and should the US’ allies continue to ignore its demands, the US will find itself very isolated in the intelligence community.

One of the differences between the US and other nations seems to be the way the network is viewed. Some countries, the UK and Germany for example, view the network as having intelligent segments (the core) and ‘dumb’ ones (radio and transmission). One possible solution to the Huawei conundrum has been to allow Huawei products in the ‘dumb’ segments of the network but not the intelligent ones.

Some might believe that risk can be mitigated should Huawei be allowed to contribute to the ‘dumb’ segments of the network, though these semantics are largely irrelevant if the US views the network as a single entity. If this bill passes, it is Huawei or no Huawei, no compromises.

China threatens Germany over Huawei

At the Handelsblatt industrial summit, Chinese Ambassador Ken Wu said that any decision by the German government to exclude Huawei from its 5G network would have consequences.

Wu presumably wouldn’t make such a direct threat without sign-off from the political elite so it now seems to be official Chinese policy to directly retaliate against any countries that move to restrict Huawei. Until now any such threats would have been conveyed through diplomatic back-channels or merely implied in public, so this represents a major escalation from the Chinese.

The whole interview was conducted in German, but plenty of media that have a greater command of that language than we do have reported on it. One of those was Zero Hedge, which provided the following transcript of the key statement from Wu.

It is important to the Chinese government that Chinese companies in Germany are treated the same as others, without discrimination. If the German government made a decision that led to the exclusion of Huawei from the German market, it will have consequences – the Chinese government will not stand idly by. See, last year, 28 million cars were sold in China, 7 million of those were German. Can we just declare German cars unsafe, because we can make our own cars? No, that would be pure protectionism.

And China would never indulge in pure protectionism, right? Despite that last statement this seems to be a clear threat of tit-for-tat action by China. If not the whole car industry then maybe just one manufacturer or another industry. There are already reports that China has ordered its entire public sector to switch to Chinese IT gear, such is its dislike of protectionism, and it seems to be moving more towards a ‘two can play at that game’ policy.

While such a policy would seem to have some justification, it’s unlikely to be helpful to Huawei. While some countries may be cowed by such direct threats, the more powerful ones may be inclined to push back to demonstrate their own strength. Banning individual companies without any evidence of their wrongdoing would also undermine the legal appeals to due process Huawei is currently making in North America.

Nokia gets German train automation gig

German rail company Deutsche Bahn is really keen on automation and ha picked Nokia to help it take humans out of the equation.

Deutsche Bahn has a project called S-Bahn, which is all about automation. As part of that Nokia has won the work to test and deliver what it claims will be the world’s first 5G SA system for automated rail operation. At this stage it’s all about proof-of-concept and finding out whether 5G is mature enough to be used as the connectivity layer for digitalized rail operations.

The time parameters for all this seem to be somewhat vague as, even if it’s not mature enough now, it may be in a year or two, so this is presumably a rolling (see what I did there) exercise. The fact that the standard for 5G-powered rail is simply called Future Railway Mobile Communication System implies this whole area is very much in its infancy, but you have to start somewhere.

“We are very pleased to be Deutsche Bahn’s partner, bringing digital technology to the forefront of the Hamburg S-Bahn network and rail system,” said Kathrin Buvac, President of Nokia Enterprise and Chief Strategy Officer. “Together, we have worked to research, develop and deliver the world’s first 5G-based communication system for automated rail operation, an important milestone towards the Future Rail Mobile Communication System and a major step in making Industry 4.0 a reality.”

This comes hot on the heels of the announcement that SK Telecom and Samsung are doing similar work to automate ships, as 5G initially shows more promise on the B2B than consumer side. It should be stressed that the plan is still to have human beings on-board, keeping an eye on things, but it’s still unnerving to see how quickly we’re relinquishing control of all kinds of vehicles.

You don’t need to understand AI to trust it, says German politician

The minister for artificial intelligence at the German government has spoken about the European vision for AI, especially how to grow and gain trust from non-expert users.

Prof. Dr. Ina Schieferdecker, a junior minister in Germany’s Federal Ministry of Education and Research (Bundesministerium für Bildung und Forschung, BMBF), who has artificial intelligence in her portfolio, recently attended an AI Camp in Berlin (or KI-Camp in German, for “künstliche Intelligenz”). She was interviewed there by DW (Deutsche Welle, Germany’s answer to the BBC World Service) on how the German government and the European Union can help alleviate concerns about AI among ordinary users of the internet and information technologies.

When addressing the question that AI is often seen as a “black box”, and the demand for algorithms to be made transparent, Schieferdecker said she saw it differently. “I don’t believe that everyone has to understand AI. Not everyone can understand it,” she said. “Technology should be trustworthy. But we don’t all understand how planes work or how giant tankers float on water. So, we have learn (sic.) to trust digital technology, too.”

Admittedly not all Europeans share this way of looking at AI and non-expert users. Finland, the current holder of the European presidency, believes that as many people as possible should understand what AI is about, not only to alleviate the concerns but also unleash its power more broadly. So it decided to give 1% of its population AI training.

Schieferdecker also called for a communal approach to developing AI, which should involve science, technology, education, and business sectors. She also demanded that AI developers should consider users’ safety concerns and other basic principles from the beginning. This is very much in line with what has been outlined in the EU’s “Ethics guidelines for trustworthy AI” published in April this year, where, as guideline number one, it is stated “AI systems should empower human beings, allowing them to make informed decisions and fostering their fundamental rights. At the same time, proper oversight mechanisms need to be ensured, which can be achieved through human-in-the-loop, human-on-the-loop, and human-in-command approaches.” As we subsequently reported, those guidelines are too vague and lack tangible measurements of success.

Schieferdecker was more confident. She believed when Germany, which has presumable heavily shaped the guidelines, assumes the European presidency in the second half of 2020, it “will try to pool Europe’s strengths in an effort to transform the rules on paper into something real and useable for the people.”

The interview also touched upon how user data, for example shopping or browsing records, are being used by AI in an opaque way and the concerns about privacy this may raise. Schieferdecker believed GDPR has “made a difference” while also admitting there are “issues here and there, but it’s being further developed.” She also claimed the government is working to achieve a data sovereignty in some shape and “offer people alternatives to your Amazons, Googles, Instagrams” without disclosing further details.

The camp took place on 5 December in Berlin as part of the Science Year 2019 programme (Wissenschaftsjahr 2019) and was co-organised by the BMBF and the Society for Information Technology (Gesellschaft für Informatik, GI), an industry organisation. The interview was subjected to a vetting process by the BMBF before it could be published. As DW put it, “the text has been redacted and altered by the BMBF in addition to DW’s normal editorial guidelines. As such, the text does not entirely reflect the audio of the interview as recorded”.

Telefónica Deutschland picks Huawei and Nokia for its 5G RAN

As part of a broader announcement concerning its 5G plans, Telefónica Deutschland revealed Huawei and Nokia are the chosen kit vendors for its 5G radio access network.

Referring to them as ‘proven strategic partners’ TD indicated that it has an established working relationship with the two vendors and doesn’t see any need to change that. That said, TD also noted that they will have to pass a safety certification as required by German law, the details of which are still being thrashed out.

So TD seems to be saying it has no problem with Huawei, at least in the RAN anyway, but ultimately it can’t fully commit to it until the government makes up its mind whether or not it constitutes a security threat. What will happen if the government does throw a spanner in the works is unclear, but since TD has a multi-vendor policy that might be good news for Ericsson. The decision on the core network will apparently be made next year.

The broader strategic statement made by TD is to significantly accelerate its growth for the next couple of years by spending 17-18% of its revenue on expanding its 4G network and getting its 5G one off to a flying start. As Light Reading notes, this will require a dividend cut, which will upset some investors, but you can’t have it both ways and the money has to come from somewhere.