Infracapital secures SSE Enterprise Telecoms stake

Infracapital has become the latest investment firm to secure a stake in the increasingly popular connectivity industry with a £380 million investment in SSE Enterprise Telecoms.

The deal will see Infracapital secure a 50% stake in the SSE Enterprise Telecoms business, with £215 million to be paid on completion of the transaction, the end of June, and up to £16 million in a series of instalments depending on the performance of the business in the future.

“Infracapital’s investment in SSE Enterprise Telecoms shows the confidence it has in the future growth of the business,” said Colin Sempill, SSE Enterprise Telecoms MD. “It recognises the success we have achieved to date, building out a great network, winning notable contracts and being relentlessly focused on customer satisfaction. Both parties see this as an opportunity to help develop the network infrastructure that this country needs to turn the vision of the UK’s digital economy into reality.”

“High-speed connectivity is vital to economic growth and prosperity and we are delighted to announce this partnership with SSE plc.,” said James Harraway, Infracapital Director. “SSE Enterprise Telecoms is an established telecoms infrastructure provider and is well positioned to support growth in this critical sector. Infracapital has considerable expertise of investing in digital infrastructure and we look forward to working closely with our new partners as the business continues to grow, deliver new projects and expand its networks.”

While SSE Enterprise Telecoms is not necessarily a heavyweight on the UK’s connectivity scene, this investment is just another example of financial firms becoming increasingly interested in alternative network providers, or Alt-nets. Hyperoptic is another example, having secured £250 million from eight international banks to extend its full fibre optic network, while CityFibre secured a debt package of £1.12 billion last month, after being bought by a Wall Street investment consortium in April.

More than anything else, this is an indication that perhaps things are not going as badly in the telecommunications as some would have you think. It might be going through a rocky time competing with the OTTs, regulations might not be going all the right directions and revenues are not growing at a rate of knots, but such investments show there is confidence in future success. The industry has demonstrated consumers are willing to pay for larger data bundles and fibre connectivity, and now the financial industry is listening more acutely.

For the Alt-nets and the consumer, it is a great sign. Securing more investments in the business, especially from those organizations which are not necessarily chasing the short-term pay out, will provide more security around CAPEX and deployment plans. It might not be the most exciting news from today, but it perhaps some of the most reassuring.

CityFibre bags £1.1bn for nationwide fibre rollout

During yesteryear, CityFibre was known for moaning for the sake of moaning, but in securing a debt package of £1.12 billion, the firm’s ambitions are starting to look very real and very interesting.

Seven banks have financed the transaction, ABN AMRO, Deutsche Bank, Lloyds Bank plc, Natixis, NatWest, Santander and Société Générale, which will serve as the first installment of CityFibre’s £2.5 billion commitment for a nationwide fibre rollout. CityFibre has given itself a target of providing fibre to five million homes, a third of the Government’s target of 15 million, by 2025.

“The appetite from these institutions to support our financing is further evidence that CityFibre’s strategy is the right one for the UK,” said Terry Hart, CityFibre’s CFO.

“As our networks are rolled out, this will benefit everyone, driving innovation and increasing fibre penetration across the UK, providing the future-proof digital connectivity the UK needs. CityFibre’s target to reach five million homes by 2025, as well as thousands of businesses and public-sector sites, will catalyse huge economic growth in regional towns and cities across the country.”

CityFibre made it abundantly clear in its statement that this is an endorsement of the firm’s business model from heavy hitting financial institutions, and perhaps it does indicate a change in attitudes from investors.

Back in October, we attended an investor panel session at Broadband World Forum featuring the likes of the European Investment Bank and also Amber Infrastructure, a specialist venture capitalist firm. The message was clear from this panel session; investors are increasingly happy to fuel fibre rollouts as the business case has been justified and consumer demand has been validated.

This is where CityFibre sits. It doesn’t want to be a telco but become a serious infrastructure player. Owning the relationship with the consumer is of zero interest but creating a nationwide alternative to Openreach and becoming a connectivity wholesaler is the big picture. However, to be considered a viable alternative, there needs to be more of a presence than there is today.

Telcos don’t want to have a patchwork of relationships across a country to meet the connectivity demands. Multiple relationships create more overheads and more opportunity for something to go wrong. CityFibre has made good progress in rolling out fibre spines in numerous areas across the UK, but the gaps will have to be plugged if it wants to be a viable and realistic alternative to Openreach.

That said, CityFibre is looking like a business which has the right ingredients for a market which is primed for disruption. Aggressive ambitions, a head-strong CEO and the confidence of being owned by one of the world’s most powerful businesses. CityFibre is a very strong contender to make a genuine and permanent dent in the connectivity infrastructure game.

And a £1.1 billion investment from seven major financial institutions is a very good place to start.

Europe is missing the tech trick

Technology is constantly being billed as the saviour of sluggish economies, but as the industry continues to grow Europe appears to be struggling to evolve.

The claim comes in the form of Atomico’s latest report, The State of European Tech. The venture capitalist firm has been producing the report for a number of years now, though with the 5G bonanza creeping closer and closer, the importance of this edition is perhaps compounded. Companies and governments need to have a technology-first mentality to realise the potential, though it appears Europe is slow off the mark.

The research itself is very in-depth, and we would encourage those with a bit of spare time to have a proper investigation, as we are only going to focus on a couple of key data points. The two images below set the scene for us quite effectively:

Graph One

Graph Two

As you can see, growth in the technology industry is outpacing traditional industries, though economies on the whole around Europe are still heavily dependent on more traditional segments. This might not necessarily be the worst landscape, though as you can see from the image below, the reliance is being placed on the industries which are slumping at best, and declining at worst. Unfortunately, the telcos are some of the worst hit, owing to the disruption poured all over the industry by the OTTs in recent years.

Graph Three

There will of course be numerous reasons for the failure to capitalise on the opportunities which are being laid out in front of us, the skills gap is one, digital divide another and perhaps government policy should shoulder some of the blame, though the situation isn’t as bad as some would think. There are shoots of potential emerging across the continent.

Starting on the investment side, Atomico points to the depth of investments being made across the continent in technology businesses. So far in 2018, $23 billion has been invested in Europe’s technology ecosystem, a $5 billion boost compared to 2013.

Looking at the workforce, Atomico claims there are now 5.7 million professional developers in Europe, up by 200,000 on 2017. What might surprise some is this number easily surpasses the 4.4m in the US, a number that stayed flat year on year. With the US the historical leader of the technology world, but facing a challenge from China, the workforce is certainly there for Europe to make a dent in this increasingly profitable bonanza.

Both of these facts will perhaps create more opportunity than is evident on the surface. Being heavily reliant on traditional industries is not a perfect position, though should there be an ambitious attitude the burgeoning technology world can of course enhance these businesses. This does depend on what most would consider risk-adverse managers, business leaders and policy makers spreading their wings, but the potential for disruption, evolution and growth is certainly there.

Nokia bags €250mn loans from NIB

The Nordic Investment Bank (NIB) has agreed to write Nokia a €250 million cheque in the pursuit of 5G riches.

The loan, which has an average maturity of approximately five years after disbursement, will be used to fuel the 5G ambitions of Nokia in Europe in 2018-2020, with a particular focus on new 5G-related end-to-end product offerings for different verticals.

“The business opportunities of 5G are numerous, as it will be the first mobile generation designed from the beginning for machine-type communication,” said Henrik Normann, CEO of NIB. “Nokia’s research and development is likely to benefit not just the telecom sector, but also several high-technology operators in our member countries.”

“We are pleased to receive this financing commitment from the NIB, which shares our view of the revolutionary nature of 5G,” said Kristian Pullola, CFO of Nokia. “This financing will further support 5G research and development in Europe and it bolsters the momentum we have already seen this year as the era of 5G begins.”

Nokia’s most recent talking points and press packs have focused primarily around network slicing and 5G, and it looks like this is where this investment surge will be directed. While this might look like some favouritism from the NIB, Ericsson has in the past received a very similar loan from the European Investment Bank (EIB). With the 5G bonanza seemingly just around the corner, both these businesses will have to prove they are in better shape than Huawei to capitalise on the opportunity.

In some markets, the work is being done for them, though neither Nokia or Ericsson can rely on the increasingly frowned upon Huawei reputation to win business. Despite collecting some high-profile bans around the world, Huawei would still be deemed by some as the leader in the 5G race, collecting momentum from the bumper pay day which was 4G.

5G is not far away anymore, and both Ericsson and Nokia have been keeping investors happy with the lure of profits. It wouldn’t be too long before they have to deliver on the promise.

Qualcomm pumps $100mn into AI start-up fund

US mobile chip giant Qualcomm has created a $100 million investment fund to support artificial intelligence (AI) startups in an effort to put mass-market devices, rather than the cloud, at the heart of AI activity.

The Qualcomm Ventures AI Fund will “focus on startups that share the vision of on-device AI becoming more powerful and widespread, with an emphasis on those developing new technology for autonomous cars, robotics and machine learning platforms,” the company announced.

“As a pioneer of on-device AI, we strongly believe intelligence is moving from the cloud to the edge,” said Steve Mollenkopf, the CEO of Qualcomm, in a company statement about the new investment fund, which was unveiled at Qualcomm Ventures’ 5G & AI Summit in San Francisco. “Qualcomm’s AI strategy couples leading 5G connectivity with our R&D, fuelling AI to transform industries, business models and experiences.”

Qualcomm has already picked one lucky recipient of its largesse: Qualcomm Ventures has participated in a Series A funding round for AnyVision, a “face, body, and object recognition start-up”, though there are no details about how many greenbacks the chip giant deposited in AnyVision’s bank account. That $28 million funding round was announced in July this year: It was led by German multinational Bosch, but no other investors were named at the time.

Qualcomm, of course, isn’t the only industry giant backing the AI trend in the communications device world: Chinese behemoth Huawei Technologies has been banging the AI drum for quite some time.

For more on this story, check out the full details at our sister site, Light Reading.

UK Gov reserves £6.8bn to realise 5G dream by 2027

The UK Government has released a report which outlines £600 billion investments in national infrastructure, including £6.8 billion to make 5G a reality by 2027 and nationwide full fibre coverage by 2033.

The National Infrastructure and Construction Pipeline 2018 is much more than digital infrastructure, though it is nice to see a hefty chunk of change being directed towards tomorrow’s connectivity challenges. Over the next three years, the plan is to fund 11 digital infrastructure projects and programmes with a total value of £6.8 billion nationwide full fibre coverage by 2033 and 5G deployment to the majority of the country by 2027.

What is worth noting is not all of this cash will be coming from the public coffers. Of the total, it appears the government will be providing £700 million of new investment, while the rest will be sourced from private investment and public-private partnerships, or has already been allocated.

Some of the projects noted in the pipeline include Virgin Media’s Project Lightning (which won’t receive any public funding), BDUK’s rural full-fibre programme will receive £200 million across the three years, while £529 million will be directed towards 700 MHz Clearance Programme, which is expected to be completed by May 2020.

It might also be worth noting these are not new projects, and not all of them will be receiving additional funding. This report seems to be an effective summary of the major programmes and initiatives the government is involved in.

“We are committed to renewing our infrastructure to drive economic growth in all parts of the United Kingdom,” said the Exchequer Secretary to the Treasury, Robert Jenrick. “Over the course of this Parliament, investment in economic infrastructure will reach the highest sustained levels in over 40 years. And as the pace of technological change accelerates, we are stepping up our commitment to digital infrastructure, use of data to drive greater productivity and embrace new methods of construction.”

In terms of the programmes which have been identified, they are as follows:

  1. Virgin Media’s Project Lightning, a project to extend the firm’s fibre-rich network to approximately four million additional premises over the next five years. This project will receive £1.8 billion in funding over the three years, though none will come directly from public coffers
  2. The 700 MHz Clearance Programme, which aims to clear this important frequency band for mobile broadband and compensate current license holders for the loss of spectrum, will have £529 million, all of which will come from direct government investment
  3. BT’s FTTP and 4G expansion plans will receive $3 billion, all of which will come from private investment or public-private partnerships
  4. Various alt-nets, such as CityFibre or HyperOptic, will receive funds through private investment or public-private partnerships totalling £1.5 billion
  5. Mobile upgrade work has been highlighted, costing a total of $4 billion from 2017-2021, though the government will only be contributing £34 million
  6. BDUK’s superfast broadband programme will receive £337 million across the three years, though it is worth noting this is a longer-term programme which has been receiving funding since 2012
  7. The Digital Infrastructure Investment Fund, has already received £400 million, which will be matched by private bodies, to invest in new fibre networks over the next 4 years
  8. BDUK’s local broadband programme has been included but it will not receive any additional funds through the next three years
  9. As with above, BDUK’s rural programme will not receive any additional funds
  10. The 5G test beds and trials have also been included in the list, though it seems the £200 million already allocated is deemed sufficient
  11. CityFibre’s full fibre programme will receive £2.5 billion in funds, though this is through private investment or public-private partnerships, and this investment has already been accounted for in previous years

The report is essentially a report card to hand out to various stakeholders to give greater transparency into how the government is spending tax-payers cash. With the Future Telecoms Infrastructure Review unveiled in July, and promising great things for this small island, it is nice to get a bit more clarity on how the grand connectivity ambitions are going to be realised.

Germany green lights 5G plans despite industry protest

German regulator Bundesnetzagentur has said it will move ahead with the proposed 5G auction plan, despite German telcos and industry lobby group GSMA slamming the plans as a commercial nightmare.

The auction, which will take place in early 2019, requires minimum data rates of 100 Mbps available by the end of 2022 in 98% of households in each state as well as along all major transport paths. Each of the telcos must also install 1000 5G base stations and 500 other base stations, and by 2024, the data coverage must be extended to seaports, main waterways and other minor roads.

While data rates for the longer-term targets will be lower, this is still a big ask for a country which currently does not meet the standard for 4G coverage. For the GSMA, the conditions placed on the spectrum are unreasonable and not commercially viable for the telcos. The risk is Germany will be left behind as the rest of the world progresses into the 5G economy.

“The mobile industry is essential to delivering on Germany’s vision for 5G leadership,” said said Mats Granryd, Director General of the GSMA. “We are alarmed that – despite real and substantial concerns raised by the mobile industry on the original proposals – the proposed terms make the situation worse by doubling down on unrealistic conditions that puts Germany’s 5G future at risk.

“Operators in Germany have invested billions in the country’s networks and have proven through history that they are committed to investing and providing innovative services. German consumers and businesses will be the ones to lose out from unreasonable obligations that make investment in 5G rollout uneconomical.”

One of the concerns surrounds the 3.6 GHz band, which can deliver on the high capacity demands though it does not offer the same advantages for coverage. To meet the 98% coverage conditions, the economics do not match, especially when you take the huge transport network into account. The GSMA also considers the roaming and wholesale obligations attached to the 3.4 to 3.7 GHz band as suspect, perhaps creating a critical level of legal uncertainty and will could deter investment in 5G networks. This is also where some of the telcos have found complaint.

“Our decision sets vital preconditions for the digital transformation of industry and society,” said Bundesnetzagentur President Jochen Homann. “Through the award of frequencies, we are creating planning and investment certainty, and contributing to a fast, needs-based rollout of the mobile radio network in Germany.”

Another issue with the auction requirements, which will certainly have the incumbent players up in arms, are the lighter conditions placed on new market entrants. As it stands, new comers could pick and choose their markets, as national roaming requirements could be negotiated with the regulator. It is creating a unfair environment, with the incumbents forced to provide coverage in the less commercially attractive regions while new comers could focus resources on the more profitable urban environments.

While telco moaning is usually taken with a pinch of salt, in this case you have to have a bit of sympathy for the established players. The German regulator seems determined to create an environment which increases the number of telcos in the country, and potentially builds the prospect of furthering the digital divide between urban and rural environments. Not only does this favouritism go against a lot of the independent values supposedly in place at government level, but risks the spread of wealth. This in turn will decrease a telcos ability to invest. Just as the industry is craving consolidation, the German regulator seems to be shooting off in the other direction.

The plans seems incredibly short-sighted, though it reeks of bureaucrats who wanted to clock out on time for the 4pm happy hour stein and bagel.

Three UK talks up its 5G investment plans

The UK’s fourth MNO, Three, has given a public update on its investment priorities and plans for 5G.

The headline figure is £2 billion, which is what Three says it is committed to spend on 5G stuff. Apparently Three customers are more data-hungry than average, so it’s even more important that it drops enough cash to ensure its infrastructure can keep up. The intended message seems to be that Three is for real in the 5G era and the other UK MNOs had better watch their backs.

“We have always led on mobile data and 5G is another game-changer,” said Three CEO Dave Dyson. “Also described as wireless fibre, 5G delivers a huge increase in capacity together with ultra-low latency.  It opens up new possibilities in home broadband and industrial applications, as well as being able to support the rapid growth in mobile data usage.

“This is a major investment into the UK’s digital infrastructure. UK consumers have an insatiable appetite for data and 5G unlocks significant capability to meet that demand. We have been planning our approach to 5G for many years and we are well positioned to lead on this next generation of technology.  These investments are the latest in a series of important building blocks to deliver the best end to end data experience for our customers.”

Dyson also had some stuff to say on the matter of Huawei potentially getting a hard time from UK public bodies which you can read more about here. So where is all this wedge going to end up? Details are thin on the ground right now and it looks like the headline figure includes some investment already made. Three did offer the following highlights of its 5G investments so far.

  • Acquired the UK’s leading 5G spectrum portfolio
  • Signed an agreement for the rollout of new cell site technology to prepare major urban areas for the rollout of 5G devices, as well as enhance the 4G experience
  • Built a super high-capacity dark fibre network, which connects 20 new, energy efficient and highly secure data centres
  • Deployed a world-first – a 5G-ready, fully integrated cloud native core network in the new data centres, which at launch will have an initial capacity of 1.2TB/s, a three-fold increase from today’s capacity, and can scale further, cost effectively and quickly.
  • Rolled out carrier aggregation technology on 2,500 sites in busiest areas, improving speeds for customers

Budget is good start, but don’t get too excited – National Infrastructure Commission

The National Infrastructure Commission has given the UK’s Autumn Budget the thumbs up, but will the shiny new roads take much needed funding away from the country’s quest towards the digital economy?

While it might be a boring topic, roads and railways received a lot of attention during the budget announcement. But this is one of the bigger concerns for the NIC, which is wondering whether the a lack of private investment in such schemes would detract from government investment in other areas, most notably, next generation technologies for communications and energy.

“Today’s Budget includes a number of welcome measures for infrastructure – but the real test will be next year’s Spending Review and, crucially, the National Infrastructure Strategy that the Chancellor has promised,” said Sir John Armitt Chairman of the National Infrastructure Commission.

“This strategy should bring together the roads funding from this Budget with longer-term funding for cities and projects like Northern Powerhouse Rail and Crossrail.  And it should include access to full fibre broadband and greater use of renewable sources for our energy.”

The budget, which was unveiled on Monday, featured plans to hold the internet giants accountable to pay more tax in the UK, as well as a £1.6 billion commitment to support the Industrial Strategy and R&D funding, including technologies from AI, future manufacturing, nuclear fusion and quantum computing. An additional £200 million from the National Productivity Investment Fund will also be pointed towards various schemes to encourage the rollout of fibre infrastructure throughout the UK, most notably in rural regions with primary schools to be the first to get special attention.

Looking specifically at the National Productivity Investment Fund, investments in fibre and 5G will increase to £715 million between 2019 and 2021, though whether this is enough to keep the UK on track in the global digital economy remains to be seen. The ambition set out in July in The Future Telecoms Infrastructure Review targets a nationwide full fibre network by 2033. Alongside the Budget, the government is publishing consultations to mandate gigabit‑capable connections to new build homes.

The consultation, which is being led by the Department of Digital, Culture, Media and Sport, will aim to amend the Electronic Communications Code (EEC) to place an obligation on landlords to facilitate the deployment of digital infrastructure when they receive a request from their tenants, while also enabling telcos to use magistrates courts to gain entry to properties where a landlord fails to respond to requests for improved or new digital infrastructure. The EEC is starting to look like a very large stick for the telcos to swing around and force people to do anything they want.

What is slightly concerning is a lack of attention for 5G. In the budget document on the HM Treasury website, 5G is actually only mentioned once.

What is worth noting is this budget might actually mean nothing in a couple of months. Hammond has given himself adequate breathing room with a no-deal Brexit scenario looking increasingly likely, stating it would be back to the drawing board should the worst-case scenario become a reality.

Shareholder attitudes on fibre are shifting – investor

Some telcos might have been afraid of committing to fibre deployment due to the vast expense and potential shareholder backlash, but attitudes are changing.

Over the last few years the need to invest in fibre has become increasingly evident, though progress is incredibly varied. Forward-looking telcos, Orange for instance, have been pumping cash into fibre deployment for years, while stuttering operators such as BT and Deutsche Telekom has chosen alternative technologies in an incredibly short-sighted move, maybe satisfy the bloodhounds in the annual general meeting, and the rising demands of the consumer.

While technologies such as G.Fast or vectoring might be appealing to the accountants, with the gigabit-economy around the corner, the shortfall is starting to look quite obvious. What was initially sold as a cunning move now looks to be nothing more than delaying the inevitable, with the overall result a net loss. But with attitudes towards fibre changing, the intensity of fibre rollouts might just increase. And it isn’t a moment too soon.

“We’ve seen the evolution of fibre as an asset class which is becoming much more accepted and more confidence in the take up and monetization potential of fibre,” said Chris Hogg, Investment Director at Amber Infrastructure, speaking on a panel session at Broadband World Forum in Berlin. “As an investor, we are getting a lot more confidence in the ability of the market to maintain the uptake level. It becoming a lot more visible and a lot easier to have confidence in these projects.”

Hogg’s position does offer him considerable credibility in making such comments, though he does work for a fund which specifically targets infrastructure projects and companies. This might not be the common attitude amongst the investor community. Kate McKenzie, CEO of wholesale network operator Chorus, does however confirm his position.

“We have definitely seen a change,” said McKenzie. “When we first started investors were sceptical about market adoption, but now investors are asking how they can go faster with the rollout.”

The issues from yesteryear were relatively simple. With profits being squeezed at the telcos thanks to the intervention and disruption of the OTTs, shareholders asked whether such vast expenditure on fibre was necessary. Firstly, did the network need such a facelift when it is dealing with the demands of the 3G and 4G world, and secondly, would the consumer appetite for fibre be there? Some investors doubted the business case, and these are the telcos who are falling behind when it comes to fibre rollout.

But what has changed over the last couple of years? Firstly, the consumer has demonstrated he/she is prepared to pay more for fibre connectivity. Secondly, new services emerged (Netflix for example), and new segments grew substantially (gaming) pushing the networks to the limit. Finally, 5G. The first point demonstrated there would be buyers for the new products, while the latter two suggested telcos would not even be able to offer adequate services unless the money was spent.

The takeaway here is simple; spend or die. Unfortunately for those who are late to the party, expenditure will squeezed into a smaller timeframe, while they’ll be playing catch-up in the time consuming task.

With 5G emerging, the investments in fibre become a little bit more palatable for investors however. With the incredible data rates promised with 5G, fibre is a necessity to ensure network performance. And while it might be able to act as a replacement for the last mile for broadband, fixed wireless access, the sites still need to be fibered up. It is as much an opportunity for connectivity as it is a threat to traditional broadband products.

“We’ll always need fibre to service the base stations,” said Dana Tobak, CEO of Hyperoptic, a UK fibre-to-the-premises broadband provider. “Some people think they’ll only need one connectivity technology in the future, but as our appetite grows, we’ll need more routes to the internet.”

For those investors who back fibre deployment plans over the years, well done. Those who were too timid, bad bet, there’s catching up to do now.