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.

Government claims UK cybersecurity sector is surging

Government figures suggest the UK cybersecurity sector is thriving, employing more than 43,000 individuals and estimated to be worth £8.3 billion.

With new regulations forcing companies to invest more in cybersecurity and consumers becoming increasingly aware of the dangers of the digital society, the conditions are right for the sector to thrive. As this is an area which has largely been ignored to date, this is an open opportunity for the aggressive to capture, and it seems the UK has been very successful in doing so.

“It’s great to see our cyber security sector going from strength to strength. It plays a vital role in protecting the country’s thriving digital economy and keeping people safe online,” said Digital Minister Matt Warman.

“We are committed to seeing it grow and are investing £1.9bn over five years through our National Cyber Security Strategy to make sure we lead the way in cyber innovation, develop and attract the best talent.”

Annual revenues for the sector are estimated to have grown 46% over the last two years to £8.3 billion, with the number of cybersecurity firms increasing by 44% to more than 1,200 at the end of 2019. The total number of full-time employees, 43%, has increased by 37% during the same period, with revenue-per-employee reaching an average of £193,500 a year.

Looking at the industry, demand for cybersecurity services is certainly on the rise. A recent report from IDC suggests worldwide spending on security-related hardware, software, and services will be $106.6 billion in 2019, an increase of 10.7% year-on-year. Managed security services, integration services, consulting services, and IT education and training, will see some of the biggest growth, though software, such as identity and digital trust products or security analytics, will also see a significant surge.

With new regulations threatening some very steep fines, GDPR punishments could be as much as €20 million or 3% of global revenues, attitudes are changing as wallets become threatened. For those who are aggressive and innovative enough, there are certainly profits to be made.

One question which some might ask is why the cybersecurity sector is thriving in the UK? There will of course be numerous contributing reasons, but a simple answer might be that the UK is an excellent incubator for start-ups and SMEs.

The UK is often cited as one of the most attractive nations for start-ups in Europe, but also worldwide. Various factors contribute to this image, such as access to a good workforce (both experienced and graduates), excellent transport links, the 6th largest economy in the world, good communications infrastructure and a thriving professional services industry. But in London, businesses have access to one of the worlds most prominent financial centres.

Roughly 30% of Europe’s venture capitalists are based in the UK, accounting for a significant amount of investment funds across the bloc. According to PitchBook, the UK and Ireland accounted for 44.4% of total European fundraising volume through to the end of the third quarter. This accessibility to cash is critical in the early days of a business.

The cybersecurity sector is one which is primed for disruption and start-ups could well find themselves scaling very quickly. Not only is there more regulatory pressure, such as GDPR, to enhance security, but the consumer is becoming increasingly aware of the risks posed by the digital economy. It might not be mainstream yet, but digital security might be factored into buying decisions in the future; businesses will have to invest in this underappreciated sector before too long.

Xiaomi makes big noises with $7bn 5G, AI and IOT plan

In an open letter from its CEO, Xiaomi has promised to increase its R&D investments in 5G, AI and IOT to $7.18 billion.

In years gone, Xiaomi was a backwater Chinese brand which hoovered up the scraps of mid- and low-tier smartphone shipments. But such is the momentum the Chinese technology industry is generating, Xiaomi is now a major force across the world, and this investment is further evidence of the success.

“2019 was significant year for our global expansion, our overseas revenue now accounts for almost half of our total group revenue,” CEO Lei Jun said in the letter.

“Xiaomi is now truly global technology leader. Our internet business also became more diversified and our AIoT business retained its global leadership. Xiaomi is now widely known as a ‘true AIoT leader’ in the industry.”

The Xiaomi strategy has been focused acutely on the convergence of 5G, AI and IOT. All of the components mean something important to somebody individually, but with Xiaomi’s broad portfolio of consumer products, it is in an interesting position. From smartphones, to home appliances, security products and scooters, if Xiaomi can nail the ‘AIoT’ proposition it can enter into an entirely new world, moving into the ‘software and services’ segments.

For many, AI and IOT are two technologies which work hand-in-hand. They can of course work separately, but the greatest value is achieved together. The consumer world is where Xiaomi can slip into naturally, but the emerging segment of Industry 4.0 is also open to the ambitious Chinese OEM.

What is worth noting is this is not a new investment but supercharging an existing one. Xiaomi had already committed $1.43 billion over the next five years, though this has now been aggressively pushed up to the $7.18 billion over the same period. Throwing cash at an opportunity is no guarantee of success, but it does certainly shift the odds.

2020: convergence, divestment, disappointment and political posturing

With 2020 drawing to a close, it’s only fair to have a look at how the industry has been shaped over the last few months, and what to expect in the build up to Mobile World Congress.

Although the headlines have been continually dominated by friction between the worlds’ two most dominant super-powers, there have been other trends to pay attention to. Here, we are going to dissect four of the trends we feel will make a mark over the coming months in the build up to Mobile World Congress in Barcelona, most notably:

  • Continued political posturing as decision day looms large
  • Convergence as the new status quo for telecom operators
  • 5G delivers, but delivers very poorly
  • Telcos gradually hand their fate over to the money men

The Huawei white-noise will reach deafening levels

2019 has been a year defined by political conflict. Almost everywhere you look there is collateral damage from more extreme and absolutist politicians wielding the power afforded to them by public vote (or not in some cases). The concept of tolerance and compromise almost seems to have disappeared as bullying tactics and misleading statements are the go-to plays in politics.

In the telecoms industry, this political friction has been concentrated to the fate of Huawei. Huawei is somewhat of a proxy, representing the rise of China’s influence in the technology world and a loosening grip from the US. Some might believe the US is acting as the champion of the world, countering the espionage threat of China through its telco champion, but a lack of evidence presented to the industry will always undermine these claims.

And while the continued barrage of political propaganda, from both sides might we add, was stuttering towards intolerable at times, perhaps we should brace ourselves for an onslaught in the New Year.

Italy has recently made noises about greenlighting Huawei, Germany’s incumbents are already reliant on the firm and soon enough someone in the UK will have to make a concrete decision regarding the Supply Chain Review. These are three very influential nations and could dictate the fate of Huawei throughout the rest of the European bloc.

But final decisions have not yet been made.

In each of these markets, the telcos are chomping at the bit to drive forward with 5G deployment, but without the certainty of a Huawei decision only stuttering progress can be made. If these national economies are to compete in the digital economy, scaled 5G networks will need to be present soon enough; a decision needs to be made.

If a decision is on the horizon, expect some hardcore lobbying over the next couple of weeks, especially as we build towards the annual bonanza in Barcelona. The Huawei noise is perfectly poised to reach deafening levels.

Convergence is King

The idea of convergence, the bundling together of products and services into a single bill, is not new but it is starting to gather momentum.

It does seem like we have been talking about it for years, though it is only today the telcos have finally aligned all the relevant pieces to make a competent offer. This is a strategy which is expensive to develop, but the rewards do appear to be significant.

What is worth noting is that there are telcos who bought into the trend very early and are reaping the benefits today, Orange is a prime example. This forward-looking telco has been building towards the convergence dream for years and now looks as far away from the commoditised business model as possible.

This is a business which should be envied. It has a solid mobile and fixed business, a banking brand, fingers in the content pies and is even starting to make headway in areas like consumer security. Convergence is one reason for this as it has driven loyalty and trust through creating products which people want to buy and at a price which is tolerable.

Convergence works both ways. For the consumer, bundling two services into the same bill is cheaper in the long-run, and for the telco, it reduces churn, increases ARPU and creates opportunity to sell additional services. Theoretically, everyone benefits.

More telcos are driving towards the convergence dream, though some are not. What may emerge in the future, is a two-tiered telco industry (although it arguably already exists today). At the top, you have the telcos who have embraced convergence early, and at the bottom, the pure-play companies who believe there is nothing to the hype.

Convergence works. And those companies who have ignored it, will be the also-rans of the telco community.

Be surprised if people are happy with 5G

5G will be a lot of things, and above all else, we suspect it will be a disappointment.

This might sound incredibly negative and counter-intuitive, but it is being realistic. Today’s consumer is demanding, impatient and cash-conscious. 5G has been launched by numerous parties across the world, though the geographical footprints of these networks are minimal.

Realistically, the telcos have done an excellent job in delivering 4G connectivity. In most advanced nations, coverage is almost guaranteed, unless you are a farmer. Unfortunately for the telcos, this experience will count against them as we push into the 5G era, as the consumer will expect the same. Few will have been educated to understand that emulated the scale of 4G in 5G will take years to achieve.

This is a challenge the telcos will have to address over the next couple of months. Consumers will have to be upgraded to 5G tariffs, but they will not want to pay anything extra, irrelevant of the geographical coverage. Telcos might well have to introduce a premium on these tariffs to raise the funds to continue deployment, as the efficiency gains of 5G connectivity over 4G are highly unlikely to be enough to fund the required investments.

Enterprise customers will of course provide a lot of stimulus for the industry to drive forward with 5G deployment, though everyone in the industry should brace themselves for an unhappy consumer as the sparse 5G connectivity gets negative reviews.

Money men start to erode telco influence in telco industry

2019 has already seen numerous money men get more actively involved in the telco industry but it looks like this is only the tip of the iceberg.

Goldman Sachs bought CityFibre, Elliott Management has been wrestling for control of Telecom Italia and Brooking Infrastructure is hoovering up assets throughout the industry. These are only a few examples, but the financial and investment industry is looking much more attentively at telecoms.

But why?

Firstly, the consumer is increasingly showing a willing to spend more money on connectivity services and products. This sounds strange, but more families are upgrading to fibre, more users are taking up unlimited mobile tariffs and more products are embedded with connectivity. The consumer appetite looks attractive to these companies.

Secondly, governments are setting in place the right policies to encourage investment in connectivity infrastructure. Red-tape is being removing, ransom rents are being killed off, access to public infrastructure is being opened-up and government subsidies are becoming more common place. Return on investment for communications infrastructure is looking much more achievable.

Thirdly, the enterprise segment looks like it will be a cash-bonanza in the future. Digital is finally embedding itself in industry as more companies realise that digital-first is the only way to survive. This opens up huge potential for telcos to make more money from assets which once laid have incredibly life-spans.

Finally, the telcos need cash. The digital dream is one which is very expensive, and these are companies which have taken a beating over the last decade. Despite the promise in the future, the telco industry is a difficult one to make profitable today. This presents a bargain opportunity for the money men to engage the telcos who are desperate for cash injections to drive through 5G and fibre deployments.

As we have said before, 2019 saw a lot more engagement from the financial and investment community, though this is likely to accelerate over the coming months.

32% of start-ups fear a bursting tech bubble is on the horizon

Research from venture capital firm First Bubble suggests 47% of start-up founders believe there is currently a tech bubble, and worryingly, 32% think it is about to burst.

The idea of a tech bubble will strike fear into the hearts of investors and entrepreneurs around the world. An unsustainable rise in market value attributable to speculation in technology stocks and firms could mean financial disaster for millions, you just have to look at the impact of the ‘Dot-com’ bubble for evidence.

The burst of the 2000 bubble saw several prominent internet businesses collapse while others were hit aggressively with a sharp decline in share price. Cisco’s share value dropped by 86%, while the US Securities and Exchange Commission directed heavy fines towards the likes of Citigroup and Merrill Lynch for misleading investors.

One can only hope the founders being interviewed for this research sit more on the pessimistic side of the fence.

Looking at the research, 32.1% of respondents believe there is a bubble and it is close to popping, 15.2% agree about the bubble but they are safe for the moment, while 21.7% dismiss the concept. That said, despite the negative outlook, 92.1% of respondents believe this is still a good time to start a new company.

Understanding where the alleged bubble is centred is of course critical, and the research suggests areas such as cryptocurrency, artificial intelligence and VR/AR are the areas which are being over-hyped. These are of course the segments which are attracting the lion’s share of investments over the course of 2019, which might make for uncomfortable reading for some.

Another interesting snippet is the element of control. Respondents believe (52.1%) over the course of 2019 power has remained in the hands of entrepreneurs, though 68.8% think this will be wrestled away by investors over the next 12 months.

Ironically, the sense of pessimism will be one of the contributing factors to the burst of a bubble which may or may not exist. Confidence is one of the key components for markets to succeed, and the more people talk about a bubble, the more real it becomes in the hearts and minds. The entrepreneurs, some of the people who are under the greatest threat, may well be making a rod for their own backs with such pessimistic attitudes.

Altice bags €2.3bn Morgan Stanley cash in wholesale deal

Altice has struck a deal with US investment bank Morgan Stanley which will see its Portuguese unit create a nationwide wholesale business.

Under the terms of the agreement, Altice will create a nationwide fibre wholesaler in Portugal. While Altice has been quick to suggest innovation in the structural separation, even going as far as to claim a ‘first’ in Europe, the new position looks similar to what is currently in the UK between BT and Openreach.

As reward for the restructure, Morgan Stanley will pay Altice €1.565 billion in 2020, an additional €375 million in December 2021 and a final lump sum of €375 million in December 2026, subject to conditions and performance. Morgan Stanley will take a 49.99% stake in the wholesale business unit.

“I am very pleased that our partnership with Morgan Stanley Infrastructure Partners, initiated in the context of our Portuguese tower transaction in 2018, now continues with a transformational fibre project,” said Altice Group CEO Patrick Drahi.

“Following this transaction, Altice Europe has obtained cash proceeds in excess of €5.7 billion through the transformational SFR FTTH transaction and the various tower sales and partnerships announced in 2018. Altice’s portfolio of infrastructure assets continues to grow. On a 100% proforma basis, SFR FTTH and our towers in France in addition to our fibre and towers in Portugal, already represent more than €0.8 billion of revenues and more than €0.5 billion of EBITDA, effectively constituting one of the largest telecom infrastructure groups in Europe.”

While diluting influence and ownership over valuable assets might be a tough pill to swallow for Drahi, this is an acquisition-addict after all, it is perhaps necessary. The digital era is fast-approaching, and if Altice is to remain competitive, it will have to spend big on its network just like everyone else.

Telecommunications has always been an expensive business to manage, though today’s dynamic presents even more of a conundrum than previous years; telcos have both 5G and fibre demands to satisfy simultaneously. Individually, these are incredibly expensive upgrade jobs to manage, however running in conjunction will force some telcos to create new avenues to secure cash.

That said, the industry is looking attractive for long-term investors, especially for fixed line assets. This is a change in the winds over the last couple of years; the consumer appetite for fibre connectivity has been demonstrated, and the Wall Street money men want in on the action. CityFibre is another which has benefitted from this surge of enthusiasm from the investment bankers, though it would not be considered unusual for more connectivity wholesalers, or challenger alt-nets, to secure additional funding.

US is a more attractive investment than Europe – DT CEO

Deutsche Telekom CEO Tim Höttges is always a colourful character, but he hasn’t held back in brutally condemning Europe as we enter the digital age.

“I have 50%, 50% businesses in Europe and the US,” said Höttges at the FT-ETNO Conference in Brussels. “I would love to invest patriotically, but it is better to invest in the US. They want 5G for every citizen as soon as possible, they are bringing a lot of spectrum to the market.”

Europe is a market which has grand ambitions for the digital age, but it is struggling to keep pace with the likes of the US, China and Korea. As it stands, some could argue there is parity for control of digital economy, but it is questionable as to whether this will be the case moving forward.

“I would like to say the future is Europe, but I can’t, at least not unconditionally,” said Höttges.

Governments and regulators are demanding rapid deployment of infrastructure, but consolidation is the dirtiest of words. Scale is critical, but no assistance is being offered. There are positive noises about spectrum harmonisation, but fragmentation is rife. This valuable asset is becoming increasingly expensive with every passing auction. And the legal framework for digital services does not line-up between the telcos and the cloud players.

This is of course yet another example of a telco moaning about regulation, but if the moaning leads to investment being directed elsewhere regulators cannot ignore it for much longer. Höttges is a very honest CEO and today saw a statement which should seriously worry authorities across the continent.

Investors demand DT invests in areas which return the greatest profits, Höttges has a fiduciary responsibility to ensure this is the case. If the US landscape is more likely to generate the required returns, this is where the company will drive investment.

“I invest where I see the biggest opportunity,” Höttges stated.

US authorities and consumers will be thrilled to hear such proclamations. Over the course of 2018, DT investments totalled more than €12.2 billion worldwide. If the US is creating a more investment friendly landscape, regulators are arguably doing their job. This means more money being pumped into T-Mobile US, a company which is already forcing the hands of rivals with disruptive strategies. More money could mean more disruption. Theoretically, this will only benefit the US telecoms industry.

What is worth noting is that DT is not alone in its criticism. Telecom Italia Chairman Salvatore Rossi suggested there has not been enough attention paid to industrial policy. Altice Portugal CEO Alexandre Fonseca complained about market consolidation resistance from authorities when the fourth player accounts for less than 3% market share. Telefonica Chief Finance and Control Officer Laura Abasolo bemoaned shifting regulations; inconsistency is the enemy of investment after all.

These are only a few of the frustrations which were aired today. Some very senior people said some very condemning things, but this is of course not new.

Telcos will always complain about regulation. From their perspective, there are always too many rules, never enough subsidies and spectrum is consistently too expensive. The majority of the time these companies are trying to get more for less, profit is the ultimate goal after all, but occasionally you have to listen to the moaning. The outcome is arguably more important than the process, and this outcome is not beneficial for Europe or DT’s customers.

If investment is being directed elsewhere because the regulatory framework is not working for the continent’s largest telco, the dynamic needs to change, and change quickly.

R&D spend is increasing in UK, but still not at the top table

Figures from the Office of National Statistics (ONS) suggest investment towards R&D is heading the right direction, though there is still work to be done to compete with the worlds’ best.

Across all sectors in the UK, R&D spend by private companies increased by 5.8% to £25 billion. Drilling down into these figures, telecoms accounted for £947 million, a year-on-year increase of 25.4%, making it the fastest growing segment. This figure is still significantly down on the historical high of £1.5 billion spent in 2007, though growth is always an encouraging sign.

“The telecoms industry is extremely important to the UK strategically and it is reassuring to see such growth in investment,” said Mark Tighe, CEO of R&D tax relief firm Catax.

“There is still some way to go if this investment is to recover to levels seen before the financial crash, however, and it is vital this happens if Britain is to continue to be a key technological player on the world stage.”

Investment in R&D has become quite a point-of-interest to the UK Government, and measuring R&D investment as a percentage of Gross Domestic Product (GDP) is a key performance indicator of the Industrial Strategy. By 2027, the Government objective is for R&D to make up 2.4% of GDP, though this target also factors in public investment which the ONS figures do not.

In comparison to other nations which the UK aims to compete with the technology segments, the story is perhaps not as encouraging.

Country Percentage of GDP Total in USD ($) billions Researchers per million population
China 1.5 286.4 1096
Finland 2.1 4.9 7011
Germany 1.9 74.1 4318
Israel 3.5 11.6 8250
Japan 2.6 131.8 5328
Korea 3.7 57.2 6856
Sweden 2.1 9.5 6877
USA 1.9 340.7 4217
UK 1.2 33.3 3765

Statistics courtesy of UNESCO (latest available figures)

As may have been suspected, the bigger economies are contributing more cash to R&D efforts, though those who are creating more investment friendly landscapes are also thriving. Israel or Finland might not be spending the most, though the number of researchers is much more concentrated. This is clearly having a positive impact on innovation.

Looking at the comparative figures, the UK might claim to be prioritising R&D to ready the nation for the future, but the numbers do not necessarily support this. If R&D is an indicator of where profits and influence will lie in the future, other technology-orientated nations are in a better place.

What is also worth noting is the figures mentioned above are private investment, not including any expenditure from Government agencies on testbeds, as an example, or academic research. Certain governments have been more proactive when it comes to spending money on innovation in pursuit of glories in the digital world, and the UK is certainly one which has been quite vocal.

Although R&D investment is increasing, across the board the UK is not competing with those nations which would be considered the most innovative. What is worth noting is that the most successful countries are generally those where private industry investment makes up a considerable percentage of GDP, or the larger economies where investment in real terms is eye-wateringly high. Looking at these numbers, the UK falls into neither category.

TechUK joins the manifesto bonanza

With the UK General Election only weeks away, the chest pumping, and ego stroking will only become more fabulous, but there might have been a few surprises to see a TechUK manifesto emerge.

Representing companies which employ roughly 50% of all tech employees in the UK, TechUK has unveiled its manifesto for the next sitting Parliament. The report features 25 recommendations to drive towards five core goals for the UK digital economy; digitising more public services, increasing investment, rethinking security policies, ensuring talent is developed in the UK and maintaining the strong position the UK currently holds in the global digital economy.

“To move forward towards a better future, we need to be both optimistic about the opportunities ahead and realistic about the challenges we face,” said Julian David, CEO of TechUK.

“The UK must build on its success not only to be the best place to start, grow and scale a tech business, but also to lead the world in using digital technology for good – to make things better for people, society, the economy and our planet.”

As it stands, the UK is in a useful position. Being one of the first to launch 5G, international investors will look at the small isles as an attractive proposition. As it did with 4G, the new connectivity landscape will encourage the creation of new business models, products and services. The last decade has seen the likes of Uber, AirBnB, Facebook, Amazon and Netflix, reach unprecedented heights of success and influence. But this success is as much a credit to the innovation-friendly landscape in the US as it is to the innovators at the heart of the companies.

This is where the risk lies for the UK. The current position looks promising, though there are plenty of risks present which are driving uncertainty. The Supply Chain Review, Brexit and the General Election are three events which have already introduced uncertainty, the enemy of progress, though whether this has a lasting impact on the UK’s position in the global economy remains to be seen.

As you can expect with such statements from an industry lobby group, the recommendations are not too extreme, but are perfectly logical to support the growth ambitions of the industry. More than anything else, this is perhaps a very timely nudge to politicians to have perhaps forgotten one aspect of their jobs is to drive the UK economy forward.

With all the bickering which is now second-nature to the House of Commons, the real risk is one of relevance. In the digital world, the UK is currently relevant, thanks partly to the aggressive push forward with 5G and fibre infrastructure, though whether that remains to be the case after the current political ding-dong is the big question.

Access the full report here.