Germany isn’t banning Huawei from its 5G network, but Sweden still could

The German government will not prevent any networking vendor from being used in the country’s 5G network but the Swedes may not be so accommodating.

The German news comes courtesy of Reuters, which attended a press conference in which the government announced the results of its security review. “We are not taking a pre-emptive decision to ban any actor, or any company,” German government spokesman Steffen Seibert is quoted as saying.

As the biggest European economy and effective leader of the European Union, Germany’s decision has a symbolic significance beyond just going against the wishes of the US. Germany and the EU are effectively declaring their independence from the US on geopolitical matters and asserting their desire to make decisions based solely on their own interests.

Opinion is still divided across the broader bloc, however, with Swedish publication SVT reporting on a proposed new law that will allow Huawei and other Chinese vendors to be blocked from the country’s 5G network. The law seems to only be at the proposal stage right now, and all manner of conflicting political interests will be brought to bear on it, but if it goes through the matter of China and 5G could end up being a major schism within the European Union.

Vodafone gets the green light from Europe for Liberty Global acquisition

The European Commission has given the all-clear for Vodafone’s €18.4 billion acquisition of Liberty Global’s cable operations in Germany, Hungary, Czech Republic and Romania.

There are of course conditions which Vodafone will have to adhere to, but the telco is now claiming to be Europe’s largest converged operator, with 116.3 million mobile customers, 24.2 million broadband customers and 22.1 million TV customers across 13 European countries.

“With the European Commission’s approval of this transaction, Vodafone transforms into Europe’s largest fully-converged communications operator, accelerating innovation through our gigabit networks and bringing greater benefits to millions of customers in Germany, the Czech Republic, Hungary and Romania,” said Vodafone Group CEO Nick Reid.

“This is a significant step toward enabling truly digital societies for our customers.”

Of course, Vodafone has not got it all its own way. One of the concessions relates to the German market where Vodafone has agreed to open up the cable network to Telefonica Deutschland, allowing the rival to deliver TV and broadband services. Telefonica Deutschland has been discussing ways in which it can enter into new service segments, though this concession will certainly be welcomed by the bean-counters.

On the broadcasting side, Vodafone has also agreed it will not restrict broadcasters from distributing their content also via OTT services. This concession has been designed to counter fears that the newly merged entity would inhibit the growth of OTT services across the various geographies.

Following the approval, Vodafone expects the transaction to be completed by 31 July, though not everyone will be happy with the deal.

Yesterday, credit rating agency S&P entered Vodafone onto its CreditWatch list in a negative capacity, suggesting the firm has been too adventurous on its recent spending spree. This acquisition is deemed as a significant outlay, though the firm is also exposed to several spectrum auctions in key markets, as well as operating in some areas where trading conditions are less than perfect. S&P has said it will downgrade Vodafone to BBB on approval of the deal.

Elsewhere, other analysts have been pointing to negative performance in the stock markets since the introduction of Reid as CEO and the announcement of the Liberty Global transaction. Since these two news snippets hit the headlines, Vodafone’s share price has declined by more than 30%. Vodafone might be more competitive in some European markets now, but it seems some are worried by the financial commitments.

DT gets slap on wrist for net neutrality naughtiness

Deutsche Telekom has found itself on the wrong side of right after its ‘Stream On’ offering was found to break European net neutrality rules.

After the Federal Network Agency (BNetzA) imposed restrictions on the telco on the grounds of net neutrality, DT took to the courts to fight the decision. Unfortunately, the lower courts and today in the Higher Administrative Court in Muenster, it was confirmed the telco would no-longer be able to offer the ‘Stream On’ value add feature in its current form.

The issue which the telco is facing boils down to the small print. DT customers have found themselves to have traffic throttled and are unable to make use of the ‘Stream On’ feature outside the German borders, violating European rules on roaming.

‘Stream On’ was first introduced to customers in the US, with the German business following suit after witnessing the success. Offering zero-rating benefits on video streaming, the proposition proved to be as successful in Europe, with two million German customers signed up.

It is of course a strategy which will sound attractive to the data-intensive consumers of today. With entertainment and gaming content from selected partners not bleeding the monthly data allotments, it sounds very interesting, however it seems DT is a victim of its own sluggishness.

One of the issues which BNetzA found was on the data throttling side of the offer. For cheaper data tariffs, download speeds were throttled with the critics arguing this violated one of the key principles of net neutrality, irrelevant as to whether the user consented to the downgraded speeds.

For the tariffs at the bottom end of the scale, download speeds had been throttled to 1.7 Mbps. This might have been sufficient at some point, but at this is not fast enough to deliver a HD quality resolution, the courts decided it was undermining the rules.

Secondly, in limiting the zero-rating offering of ‘Stream On’ to its own borders, DT has also been found to have broken European roaming rules. As the free data stream ended at the border, the courts agreed with regulators that the user was effectively being ‘charged’ for using video and gaming services when in another country. Charging more for services while abroad is a no-no when it comes to the European Union’s rules on roaming.

Although the telco will not be happy with the outcome of this case, it is not the end for the ‘Stream On’ proposition. With two million users signed up, it is clearly at attractive value add for DT, but the telco will have to tweak the small print and update some permissions to ensure it is compliant with current regulations.

DT and Software AG team up to launch IoT FTW

Deutsche Telekom has partnered with fellow Germans Software AG in a bid to boost both company’s IoT offering.

They’re even calling it ‘IoT made in Germany’ as it combines the Teutonic virtues of DT’s enterprise customer unit T-Systems and its Cloud of Things offering, with Software AG’s Cumulocity IoT platform. The resulting combined forces are expected to expand the empires of this business axis to the rest of Europe, the US and who knows where else.

“We’re delighted to be extending the reach and capabilities of our Cloud of Things IoT platform alongside our partner,” said Adel Al-Saleh, CEO of T-Systems and Board Member of Deutsche Telekom. “Software AG’s technology is critical in enabling us to scale an already successful service and introduce new functionality, giving us the confidence to move into new sectors. Our strategic partnership will help us continue to drive innovation and provide the best possible platform and services for clients, both from the enterprise sector and Germany’s world-leading Mittelstand.”

“This is a new way of partnering and co-operating to offer complete IoT solutions for the real-time economy,” said Sanjay Brahmawar, CEO Software AG. “With Deutsche Telekom as our strategic partner, we will offer the most competitive platform. Customers can simplify their IoT and integration needs with self-service analytics and gain insights to accelerate their businesses for the fully connected future. We look forward to scaling this partnership and making it a global success.”

You can see the two of them chatting about their grand plan while sitting on a small sofa, under a tree, by a river, in the video below. As is so often the case with these kinds of corporate partnerships it’s all about scale, synergies, TAM and that sort of thing. It always looks great on PowerPoint but the practicalities of getting two separate organizations to collaborate constructively often lead to disappointing outcomes.

 

DT, Carphone Warehouse and Elisa show their 5G FOMO

The 5G hard launches are coming thick and fast, which is causing fear of missing out for some in the telecoms game.

Today’s big announcement comes from Vodafone UK, on which more from us later. BT has also got involved and now Deutsche Telekom, Carphone Warehouse and Elisa have all rushed out press releases to make sure nobody thinks they’re off the pace.

DT hasn’t hard launched anything yet, but has chosen to detail at considerable length how profound its plans to do so are. Today’s announcement is the start of DT’s 5G network rollout in Germany. Berlin and Bonn will be first, followed by Darmstadt, Hamburg, Leipzig, and Munich and by the end of 2020 DT expects Germany’s 20 largest cities to be 5Ged up.

“We punched our ticket for a 5G future with the spectrum auction,” said Dirk Wössner, MD of Telekom Deutschland. “Our goal now is to get 5G to the streets, to our customers, as quickly as possible. Nearly three-quarters of our antenna locations in Germany are connected with optical fiber – we’re now building on that… At the same time, we need a clear regulatory framework and pragmatism from the authorities – particularly when it comes to questions regarding regional spectrum, local roaming, allocation of the auction proceeds, and the approval procedures – which takes far too long in Germany.”

Despite not having activated 5G anywhere yet DT is generously offering its subscribers to pay for it anyway. You can shell out €900 for a Samsung Galaxy S10 5G as well as a 5G tariff and when DT gets its act together you can be among the first people to get access to its 5G. “Telekom is 5G ready and offers the first 5G devices with suitable rate plans for everyone who wants to be there from the start,” said Michael Hagspihl, MD for Consumers at Telekom Deutschland.

In the UK Carphone Warehouse has joined the 5G pre-order party by announcing the availability of a few 5G smartphones. The ubiquitous Samsung Galaxy S10 5G will cost you £1099 SIM-free and is available today. We’re told the Oppo Reno 5G is also available today but you can’t can’t get it online for some reason. The Xiaomi Mi MIX 3, OnePlus 7 Pro 5G and LG V50 ThinQ will all be available for pre-order tomorrow.

“Retailing the largest range of the newly announced 5G compatible phones means those looking to upgrade to the new offering will have the biggest choice in terms of device and networks to best suit their needs across an impressive range of smartphones, deals and trade-in offers,” said John Coleman, Director of Connectivity at Carphone Warehouse.

Lastly Finnish operator Elisa is proud to announce it was the seller of the first 5G phone bought in any Nordic country. The lucky punter was one Harri Hellström, who strolled into Elisa Kulma in Helsinki unaware of how his life was about to change. Moments later, amid streamers and rapturous applause, Hellström was handed his phone by Elisa CEO Veli-Matti Mattila and held aloft by exuberant Elisa staff.

“I have always been into cutting-edge technology, and I have often been among the first to buy new devices,” said Hellström, once he had composed himself. “I feel wonderful about having the first 5G phone in the Nordic countries. I travel a lot in Finland and abroad, and I often rely on my mobile device for communication on the road. This is why fast connections are essential.” Words so fitting they could almost have been written by Elisa itself.

“Demand for 5G devices and subscriptions will increase as network coverage expands,” said Antti Ihanainen, VP of Elisa’s consumer subscription business. “5G will revolutionise the way we use mobile devices beyond anything we have seen during previous technological evolutions. Fully utilising the benefits of a 5G network requires the use of 5G devices, which means demand will inevitably rise. We are continuously developing innovative 5G services and exploring ways of utilising 5G technology.”

As more operators around the world activate 5G networks and get to bang on about how much better life is for their subscribers as a consequence, the FOMO for those operators that have yet to get involved will increase. If those subscribers start openly wondering what the fuss is all about once they start using 5G, however, being late to the game might not be such a bad thing.

Pompeo reiterates intelligence threat over Huawei

US Secretary of State Mike Pompeo is on another European road trip just to make sure those rational and pragmatic Europeans understand the threats from the US.

Speaking at a press conference with German Foreign Minister Heiko Maas, Pompeo underlined the US stance with the thickest of marker pens and reiterated the US threats with serious authority.

“We also had part of conversations about other elements of China,” said Pompeo. “We’ve been pretty clear about how we view the risk connected to Huawei and 5G infrastructure. The internet of the future must have Western values embedded in it.”

Pompeo’s first mission is to address the Chinese threat, of which Huawei is considered a major cog, but that is not taking up all of his time.

“We have a second mission which is to educate our friends about these risks as well,” said Pompeo. “We talk to them plainly and openly. They’ll make their own decisions, Germany is thinking about it, but we will speak to them openly about the risk we see and how we think they can be mitigated. In the case of Huawei, our concern it that it is not possible to mitigate those [risks] anywhere inside of a 5G network.”

Pompeo clearly feels his European counterparts do not comprehend the severity of the Huawei threat, and he has taken it upon himself to lead the crusade in educating the world on the risk.

And if the world doesn’t understand, access to US intelligence will be withdrawn.

One of the issues which might cause further friction is the inability for the US Government to distinguish between core and non-core elements of the network. This is what Europe is basing its decisions on, allowing Huawei to operate in the ‘dumb’ parts of the network but not the core. For the US, this is not good enough, and never will be.

We expect a lot more huffing and puffing from the White House propaganda machine and the fear-mongering puppets of Trump over the next couple of weeks, though it will be interesting to see whether the US follows up on threats to reduce visibility of its intelligence data.

German regulator promises light-touch on fibre

In an effort to force German telcos onto a fibre diet, regulator Bundesnetzagentur has promised a light-touch regulatory environment for the last-mile.

In the draft regulations, the German regulator is suggesting it would play a relative hands-off role when it comes to driving fibre deployment in the last mile, assuming market leader Deutsche Telekom plays nice with alternative connectivity providers, providing non-discriminatory access to wholesale services.

“Fiber is the technology for the gigabit world, and the successful regulation of Deutsche Telekom’s existing copper network is not transferable to fiber optic networks, and our analysis lays the foundations for a differentiated regulation of copper and fiber,” said Jochen Homann, President of Bundesnetzagentur, the German Federal Network Agency.

“If the non-discriminatory access of competitors to the fiber is guaranteed, we can confine ourselves to a ‘light’ regulation and the draft was future-proof, also with regard to the EU’s legal framework and the right of veto.”

In short, as long as Deutsche Telekom does not try to milk the profits unfairly, the regulator will allow it to conduct business as it sees fit. There is a slight risk in taking this approach, such is the dominant position of DT, but it seems to have weight this danger against the benefits of an accelerated fibre rollout. Perhaps this is done to progress made thus far.

According to the latest statistics from the Fibre to the Home Council Europe, Germany is currently one of the laggards when it comes to fibre deployment. The Council estimates only 2.3% of subscribers across the country have signed up to a fibre connectivity package, considerably below the 13.2% European wide average, and miles off bloc leader Latvia at 50.3%.

While it might be a leading political and economic voice across the continent, from a connectivity perspective Germany is currently one of the ‘also -ran’ category. With digital offering so much to future societies and economies, it will be hopeful to lose this tag sooner rather than later.

In the market definition presented by the regulator for consultation, distinctions between competitive conditions have been claimed between copper and high-performance fibre optic networks. With this in mind, the Bundesnetzagentur has said it would not be sensible to regulate the fibre market in the same way as it provides pricing conditions with copper.

Keeping regulation in the fibre to an absolute minimum should theoretically provide more incentive for private investment. There are of course risks, corporations on numerous occasions have shown them untrustworthy in a self-regulatory environment, but other nations will eagerly anticipate the mid- to long-term outcome of this move. Balancing the regulatory equation is an incredibly difficult task.

US drives solid Deutsche Telekom numbers but German 5G auction is a drag

German operator group Deutsche Telekom has reported solid Q1 revenue growth, driven largely by T-Mobile US.

As you can see from the table below, revenues and EBITDA all grew nicely in Q1 2019. Profits, however, went in the opposite direction, apparently due to one-off things like the cost of trying to get the merger between TMUS and Sprint approved. Speaking of the US the second table shows just how much of the revenue growth is attributable to TMUS.

Q12019

millions of

Q12018

millions of

Change% FY
2018
millions of

Revenue 19,488 17,924 8.7 75,656
Proportion generated internationally in % 69.0 66.6 2.4p 67.8
EBITDA 6,461 5,269 22.6 21,836
Adjusted EBITDA 6,901 5,549 24.4 23,333
Adjusted EBITDA AL 5,940 5,487 8.3 23,074
Net profit 900 992 (9.3) 2,166
Adjusted net profit 1,183 1,190 (0.6) 4,545
Free cash flowa 2,370 1,382 71.5 6,250
Free cash flow ALa 1,557 1,318 18.1 6,051
Cash capexb 3,827 3,139 21.9 12,492
Cash capexb(before spectrum) 3,682 3,076 19.7 12,223
Net debtc 71,876 50,455 42.5 55,425
Number of employeesd 214,609 216,926 (1.1) 215,675

 

Q12019

millions of

Q12018

millions of

Change% FY
2018
millions of

Germany
Total revenue 5,357 5,325 0.6 21,700
EBITDA 1,946 1,915 1.6 8,012
Adjusted EBITDA 2,114 2,082 1.5 8,610
Adjusted EBITDA AL 2,108 2,058 2.4 8,516
Number of employeesa 62,358 64,695 (3.6) 62,621
United States
Total revenue 9,796 8,455 15.9 36,522
US-$ 11,124 10,394 7.0 43,063
EBITDA 3,210 2,360 36.0 9,928
Adjusted EBITDA 3,309 2,332 41.9 10,088
Adjusted EBITDA AL 2,679 2,331 14.9 10,084
US-$ 3,042 2,865 6.2 11,901
Europeb
Total revenue 2,891 2,811 2.8 11,885
EBITDA 1,035 905 14.4 3,757
Adjusted EBITDA 1,059 911 16.2 3,880
Adjusted EBITDA AL 945 898 5.2 3,813
Systems Solutions
Order entry 1,609 1,506 6.8 6,776
Total revenue 1,630 1,665 (2.1) 6,936
Adj. EBIT margin (%) (0.2) (2.3) 2.1p 0.5
EBITDA 79 19 n.a. 163
Adjusted EBITDA 125 57 n.a. 429
Adjusted EBITDA AL 92 60 53.3 442

“We got off to a successful start to the year,” said Tim Höttges, CEO of DT. “Deutsche Telekom has much more to offer than just our sensational success in the United States. We are seeing positive trends throughout the Group.”

Not included in his canned comments, but picked up by Reuters, was Höttges inevitable irritation at the amount of cash DT is having to drop on the interminable German 5G spectrum auction. We’re on round 305 of the bidding, believe it or not, and the total pledged has now reached €5,687,520,000. Expect to hear persistent muttering about how that’s money they can’t spend on infrastructure, etc, before long.

Vodafone Germany tries to placate regulators via wholesale cable deal with Telefónica

Telefónica Deutschland will be able to sell services that run on the combined Vodafone and Unitymedia cable network in Germany, as a remedy measure taken by Vodafone to satisfy EU’s competition concern over its proposed acquisition of Liberty Global.

The two companies announced that they have entered into a definite “cable wholesale agreement” in Germany, whereby Telefónica Deutschland will offer its customers broadband services that use both the Vodafone fixed network and that of Unitymedia. The combined networks cover 23.7 million households and represent a significant upgrade to whatever Telefónica Deutschland customers are currently getting.

“The cable agreement will enable us to connect millions of additional households in Germany with high-speed internet in the future,” said Markus Haas, CEO of Telefónica Deutschland. “By adding fast cable connections, we now have access to an extensive infrastructure portfolio and can offer to even more O2 customers attractive broadband products – including internet-based TV with O2 TV – for better value for money.”

Vodafone’s plan to acquire Liberty Global in Germany (where it trades under the brand Unitymedia), the Czech Republic, Hungary, and Romania, has run into difficulty at the European Union, which raised competition concerns at the end of last year. The Commission was particularly worried that the combined business would deprive the consumers in Germany of access to high speed internet access, and the OTT services carried over it. Vodafone expressed its confidence that it would be able to satisfy the Commission’s demand. Opening its fixed internet access to its competitor is clearly one of the remedies. Also included in the remedy package Vodafone submitted to the Commission was its commitment to ensure sufficient capacity is available for OTT TV distribution.

“Our deal with Liberty Global is transformational in many ways. It is a significant step towards a Gigabit society, which will enable consumers & businesses to access the world of content & digital services at high speeds. It also creates a converged national challenger in four important European countries, bringing innovation & greater choice,” said Nick Read, CEO of Vodafone Group. “We are very pleased to announce today our cable wholesale access agreement with Telefonica DE, enabling them to bring faster broadband speeds to their customers and further enhancing infrastructure competition across Germany.”

Vodafone believed the remedial measures it put in place should sufficiently reassure the Commission that competitions will not suffer after its acquisition of Liberty Global. The company now expects the Commission to undertake market testing of the remedy package it submitted, and to give the greenlight to the acquisition deal covering the four countries by July 2019. It plans to complete the transaction by the end of July. The merger between Vodafone’s and Liberty Global’s operation in The Netherlands was approved by the EU in 2016.

US slightly winds its neck in over 5G security

Having previously tried to play hardball with Germany over 5G security the US now says its allies should follow its example.

This sudden change of heart was expressed by Robert Strayer, Deputy Assistant Secretary for Cyber, International Communications and Information Policy at the U.S. State Department in an interview with a few US hacks. But it’s even less substantial than it seems as the only reason the US has warmed to Germany’s approach is that it thinks it will result in the Huawei ban it has been seeking all along.

“We have encouraged countries to adopt risk-based security frameworks,” said Strayer. “And we think that a rigorous application of those frameworks will lead inevitably to the banning of Huawei. At this point we’re looking for governments to adopt security standards like we’re seeing in Germany. We think it was a very positive step forward in the German standards.”

Surely all security frameworks are largely risk-based. What is a security framework if not an attempt to mitigate risk? Apparently Germany is asking its operators to only work with ‘trustworthy’ vendors, which once more seems somewhat redundant as that was presumably already a priority. As ever the critical matter seems to concern Chinese law, which apparently compels Chinese companies to cooperate with the government, thus rendering them intrinsically untrustworthy.

Ultimately this seems to be a totally cosmetic concession by the US. Germany had previously made it clear that the US was overstepping the mark when it came to direct pressure over 5G security so now it’s saying Germany can do what it wants… so long as that results in Huawei getting banned. This leaves us where we’ve been for months – the US thinks everything Chinese is dodgy and expects its allies to publicly agree.