Iliad confirms Nokia for France and Italy 5G push

In a much needed win for Nokia, the Finnish network vendor will be the central cog to the Iliad 5G deployment strategy across France and Italy.

In recent months, Nokia has at times looked like a bit of a suspect partner to work alongside, though that doesn’t seem to bother Iliad that much. In South Korea during April, unnamed officials said all three operators were told to expect delays in receiving 5G base stations, while Sprint in US it was also suggested delays were down to the Finnish vendor’s tardiness.

CEO Rajeev Suri acknowledged the delays, suggesting they were only ‘short-term’ issues, in April’s earnings call, though the chief also tried to shift the blame onto ‘instabilities’ in consumer chipsets. The fact that these issues were not reported by Nokia’s competitors says more than Suri would like.

However, Iliad is an important win for the vendor.

After partnering with Iliad for both its 3G and 4G networks, Nokia would have been confident in retaining the relationship, though it has been losing out over the last 12-18 months. The telco is currently planning its 5G roadmap, with the first base stations set to go live in 2020.

This is somewhat of an important juncture for the telco, which has been licking its own battle wounds over the last couple of financial periods. Despite taking the French market by storm in the early years, Iliad has been suffering at the hands of competition as rivals stepping their own promotional games, chasing down Iliad during the race to the bottom.

The last financial period looked much more promising, though it still has some work to do to repair the damage. In May, Iliad reported an increase in mobile service revenues in France of 2.3%, however the total number of subscribers decreased by 50,000, down to 13.4 million.

The damage was most notable across 2018. Across the first half, Iliad was beaten at its own game, being undercut by rivals and being forced into announced a reduction in profit forecasts. Q1 in 2018 saw churn of 200,000 mobile subscriptions, the first net decline since the introduction of Iliad in 2012. The broadband business suffered the same fate, resulting in roughly a 40% share price crash across the whole of 2018.

Looking at the most recent numbers, there is a bit more stability and perhaps this is where the greatest enthusiasm for an aggressive 5G rollout will emerge from. In both France and Italy, Iliad has an opportunity to generate momentum through the new connectivity euphoria. This is an era which, once again, looks perfect for aggressive pricing and the first to scale 5G across a nation will reap the profits.

The opportunity for Iliad to get back on track is certainly there, it just needs the right partner to help facilitate the rollout and get the company back on track in the 5G world. Iliad executives will be hoping Nokia’s troubles are in the rear-view mirror.

Vodafone Italia and TIM join the network sharing bonanza

Vodafone’s Italian business and Telecom Italia are the latest pair to join the sharing euphoria which seems to be sweeping the Vodafone group.

After network sharing agreements were signed in Spain with Orange and O2 in the UK, Vodafone has swept across to Italy to join forces with market leader, albeit a stressed business currently, Telecom Italia.

“This agreement will enable us to step up the rollout of 5G for the benefit of our customers and the community as a whole,” said Aldo Bisio, CEO of Vodafone Italia. “5G has a key role to play in modernising the country.

“It will provide the technology platform from which to launch innovative new services capable of making business models more efficient and improving productivity throughout the value chain, helping to build a more competitive digital economy. Network sharing reaps the benefits of 5G and at the same time reduces the impact on the environment and lowers rollout costs, allowing more investment in services for customer.”

This announcement actually has two components to it. Firstly, in pursuit of an accelerated 5G deployment plan, Vodafone Italia and TIM will enter into a network sharing partnership which will include active equipment. Secondly, the Vodafone passive tower business will be merged with INWIT, TIM’s own tower business.

Starting with the first component, once again Vodafone has decided to go down the route of sharing active equipment. This was the case when pooling resources in the UK with O2, though it is a slightly unusual approach as the only differentiator now is the spectrum which the duo has acquired individually. However, like the UK the larger cities will be excluded from the network sharing partnership.

Although sharing active equipment has been viewed as relatively unusual in the past, perhaps this is an indication of Vodafone’s position in both of these markets. In the UK, it is sitting firmly in third place in the market share rankings with a lot of ground to make up, while in Italy there are financial pressures thanks to the pricing disruption of Iliad. In both cases, Vodafone will welcome opportunities to free-up cash.

Using this approach, Vodafone suggests it will be able to free-up €800 million over the next 10 years which will certainly be useful for other R&D or reallocating for customer acquisition efforts.

The second aspect of this deal will see the Vodafone Italia tower business merge with TIM’s INWIT, with Vodafone taking a 37.5% and a lump sum of just over €2 billion. What we’re not too sure about is how this will impact the potential spin-off of Vodafone’s tower business in the future.

This was an announcement which got investors excited last week, as Group CEO Nick Read suggested monetizing the tower infrastructure business alongside declining revenues for the latest quarterly statement. This seemed to have forced a positive reaction from the market, though presumably any Italian assets would now have to be excluded from a European-scaled tower infrastructure business.

Huawei reshuffles its global deck

Chinese vendor Huawei is reportedly doubling down on Italy while scaling back what little presence it has in the US even further.

Thomas Miao, Huawei’s Italian boss, announced the company will invest over a billion bucks a year for the next three years in Italy, according to a Reuters report. No such pledge can be made without a few strings attached, however, and Miao apparently called on the Italian state to ensure a level playing field for Huawei in the country, though its ‘golden power’ that allows it to poke its nose into the telecoms sector if it feels like it.

We’re told Italy recently augmented this power in apparent response to security concerns over the involvement of Huawei and ZTE in the country’s 5G network and Miao wants to make sure those powers will be used with equal vigour towards Ericsson and Nokia too. There were no overt conditions attached to the investment, but it seems clear that it might suddenly disappear if the Italian political environment deteriorates for Huawei.

Meanwhile the WSJ reports that Huawei plans extensive layoffs in the U.S. Specifically this refers to some Huawei research labs called Futurewei, that employ around 850 people. The source is the usual people who reckon they know a thing or two, but it’s totally believable considering how hostile the political climate in the US is towards Huawei. Well-known hedge fund manager Kyle Bass seemed to welcome the news on Twitter.

Having said that Reuters, once more, reports that the US government is set to start some limited trade between US companies and Huawei within weeks. This development comes in the face of considerable domestic opposition to President Trump’s minor concessions and serves to further illustrate what a good move it will probably be for Huawei to clear off from that country entirely.

TIM hits the 5G go-button

Telecom Italia is the latest telco to join the 5G bonanza, announcing launch of its own network in Turin, Naples and Rome.

The launch is limited for the moment, though it seems TIM is confident it can scale very quickly. By the end of the year, an additional six cities (Milan, Bologna, Verona, Florence, Matera and Bari) will be added to the list, as well as 30 tourist destinations, 50 industrial districts and 30 specific projects for big business.

By 2021, TIM has set itself further ambitious targets; coverage for 120 major cities, 200 tourist destinations, 245 industrial districts and 200 specific projects for big business. The dreaded ‘up-to’ metric has also made an appearance, with speeds ‘up to’ 2 Gbps promised by the end of the year, progressing to 10 Gbps by 2021, when it is also promising 22% population coverage for 5G.

What hasn’t been detailed is the number of base stations which will be upgraded to 5G over the coming months and years. It’s all well and good to ‘have’ 5G in Turin, Naples and Rome, but without knowing the number of base stations which are 5G there is little way to gauge the coverage footprint. It might end up meaning very little unless you are stood in the perfect spot just outside the entrance to Vatican City.

Onto pricing, TIM has elected to take the SIM-only approach, with the option to bolt on a subsidised handset as an additional product. For €29.99 a month, users will have a data allowance of 50 GB, with unlimited calls and SMS, while the data pool is increased to 100 GB for €49.99 a month.

Interestingly enough, the most attractive offers which we have seen around the world for 5G have been SIM-only plans. Vodafone in the UK has taken this approach, while T-Mobile US has done the same also. Telcos have wanted to distance themselves from the profit churning subsidised handset model for years and perhaps this is further evidence of this. Whether a SIM-only approach to 5G, with optional bolt-ons for subsidised handsets, becomes a defining trend, only time will tell.

Another excellent move from TIM is the roaming. Although there are few telcos who have announced roaming plans, Vodafone is one of the only ones to do so, TIM has suggested it will offer 5G roaming in six countries, starting within July in Austria, the UK and Switzerland and moving on to Spain, Germany and the UAE soon after.

The announcements are coming think and fast as we move closer to the 5G dream, but this looks like one of the more comprehensive ones to date.

ZTE moves to prove its own security credentials

Taking a page from the Huawei playbook, ZTE is opening its own European cybersecurity lab to demonstrate its own security credentials and appeal to customers.

Although Huawei is taking a battering on the US side of the Atlantic, European nations have stubbornly stood by the side of reason and reasonable behaviour, asking for evidence before signing an execution order. One of the reasons for this will be the apparent transparency to security through its cybersecurity centres in the UK and Belgium, and it seems ZTE is following suit.

“The security lab is an open and cooperative platform for the industry,” said Zhong Hong, ZTE Chief Security Officer.

“ZTE plans to gradually achieve the cybersecurity goals through three steps: first, meeting the requirements of cybersecurity laws, regulations and industry standards as well as certification schemes; second, conducting an open dialogue to enhance transparency and establishing cooperation with customers as well as regulatory agencies; and third, sustaining the open cooperation mechanism to contribute to cybersecurity standardization.”

Opening in Rome, the cybersecurity lab will enable telcos to contribute ideas to improve the security credentials of ZTE products, while customers will also be able to conduct audits of all products and services in the labs. This approach is seemingly working for Huawei, and ZTE is recognising the opportunity to get in on the action as 5G ramps up across the continent.

For ZTE this is a perfectly sensible move to mitigate against future risks. As Huawei is largely a proxy for Chinese aggression, it would be reasonable to assume any action taken against Huawei would be replicated against ZTE. Anything which can be done to get into the good graces of potential European customers should be seen as a priority.

Although it is for selfish reasons, the cybersecurity centre also adds more credibility to the standardisation approach which seems to be forming across the European continent. The more vendors who agree to the higher barriers to entry, the closer the continent comes to standardising security credentials. This approach to risk mitigation, an acceptance that 100% secure is an impossible objective, manages threats while also preserving competition.

Until there is concrete proof of collusion with the Chinese government for nefarious aims, this is the most sensible approach, taking the argument out of the political arena.

Iliad flogs a bunch of towers to reduce debt pile

French telecoms conglomerate Iliad is selling most of its tower assets in France and Italy to Cellnex for €2 billion.

Iliad has debts in excess of €4 billion and seems to think paying some of them off might be an idea. Fellow French giant Altice has recently had to do a bunch of debt refinancing but it apparently had to pay a premium to do so. European telcos are increasingly inclined to sell and lease back assets like towers to free up cash for 5G investments and that sort of thing.

In France Iliad will be selling 70% of the company that manages 5,700 cell sites to Spanish infrastructure specialist Cellnex, while in Italy it’s offloading the whole company that takes care of 2,200 sites. Right now the whole process is at the ‘exclusive negotiations’ stage but that seems like a formality.

“This transaction is part of a long term industrial strategy allowing us to accelerate rollout of our 4G and 5G networks and to increase Iliad’s investment leeway,” said Thomas Reynaud, Iliad’s CEO. “This transaction supports the group’s new growth and innovation cycle. It enables more efficient infrastructure roll-outs in the future while meeting the challenges of further increasing territory coverage.”

On top of this Cellnext is acquiring 90% of the company that owns 2,800 sites in Switzerland from Salt.

“[These deals] allow us not only to reinforce our position as the main independent infrastructure operator in France, but also to decisively strengthen our platform in Italy, a key a strategic market, and significantly expand our foothold in Switzerland,” said Cellnex CEO Tobias Martinez.

“Furthermore, Cellnex strengthens its role as a neutral host by having two major anchor tenants within its sites network. The combined effect of these agreements is an increase of our current  portfolio across six European countries by more than 50% –to 45,000 sites in total. The latter allows us to properly assess the very quantum leap nature of these deals.

“A greater density and capillarity of our sites networks means a differential added value that enhances Cellnex’s role as a natural partner for all mobile operators in Europe, meeting their densification needs in the current 4G roll-out while accelerating that of 5G.”

Vodafone found vulnerabilities in Huawei kit but stuck with it because it was cheap – report

The latest mini-leak in the ongoing Huawei propaganda war saw Vodafone admit to finding security flaws in some Huawei kit in the past.

The scoop comes courtesy of Bloomberg in a story headlined Vodafone Found Hidden Backdoors in Huawei Equipment. The kit in question was mainly domestic routers and some optical service nodes supplied to its Italian business back in 2011, which the report claims had security backdoors that could have given Huawei access to the whole fixed line network (which Vodafone denies). Vodafone told Bloomberg the issues were eventually resolved, but it’s far from an open-and-shut case.

Vodafone said it asked Huawei to deal with the backdoors as soon as it spotted them and was told that they had been, but it took further prompting to get the lot of them. Furthermore some anonymous sources told Bloomberg that the vulnerabilities remained beyond 2012 and were also present in Vodafone networks in other countries, including the UK. Vodafone allegedly knew about this but stuck with Huawei regardless because they were relatively cheap.

Apparently some in Vodafone had concerns about the security of Huawei routers from the start and flagged a bunch of bugs up, the most critical of which was a ‘telnet’ service that allows remote access. Vodafone Italy asked Huawei to remove this telnet and was once more told that it had been, while subsequent testing revealed it hadn’t. Huawei then apparently shifted the goalposts, saying it needed the telnet to configure devices, and offered to remove it once the configuration had been done.

This reportedly caused concern for Vodafone’s chief information security officer at the time, Bryan Littlefair, who wrote the following in a 2011 report: “What is of most concern here is that actions of Huawei in agreeing to remove the code, then trying to hide it, and now refusing to remove it as they need it to remain for ‘quality’ purposes.”

Now it should be stressed that this is still far from the smoking gun evidence of inherent security vulnerability the US claims to have and which Huawei wants to see. This stuff took place years ago and seems to have been quite isolated. Furthermore Huawei is hardly the only vendor to have vulnerabilities in its routers. Having said that this latest piece of circumstantial evidence is certainly unhelpful l to Huawei in the current environment and could well cause some reputational damage to Vodafone too.

Vivendi conditionally concedes defeat in TIM board battle

French conglomerate Vivendi withdrew its bid to replace five TIM board members at the 11th hour but doesn’t seem happy about it.

TIM shareholders were due to vote on Vivendi’s request to replace those board members it had identified as acting in bad faith last Friday. But at the meeting itself TIM CEO Luigi Gubitosi apparently had one last attempt to get Vivendi to back down and, amazingly, it did. Presumably it had realised it wasn’t going to win the vote and not to have it rather than suffer a humiliating defeat.

Here’s what Caroline Le Masne de Chermont, Vivendi Group Head of Legal Affairs (why do Vivendi execs all sound like aristocrats?), had to say at the meeting:

“As extensively expressed in our request, we asked the shareholders to vote for a change of governance, because what happened in and around the Board since last May has affected the stock price, and the whole functioning of the company.

“However, there is no point in revisiting here and now the events of the last year, particularly those that cannot be changed. Let’s focus instead on the changes we would like to see in the near future. Vivendi wishes TIM’s board to be more reflective of the company’s shareholder base and to be led in an independent, transparent and fully inclusive manner.

“To conclude, we are prepared to give credit to the CEO. Accordingly, following his suggestion, Vivendi has decided not to pursue today its proposal to revoke and replace five Board members, provided that this has the support of the shareholders’ meeting.

“What needs to occur next, may at this stage be left in the hands of the Board members and their individual conscience. What we can say is that if change does occur as the CEO announced, he can count on our loyal and stable support as the company’s largest shareholder.”

Essentially Vivendi seems to be conceding defeat, for now, in its battle to control the TIM board, but reserves the right to kick off again if the current board doesn’t start raising its game sharpish. Vivendi has presumably realised its open hostility to the TIM board isn’t a great look and its sudden conciliatory stance about letting bygones be bygones is just hilarious.

In response Elliott issued the following statement: “Elliott welcomes Vivendi’s decision to withdraw its request to shareholders to revoke five of TIM’s Directors, a clear sign that Vivendi understands that there is broad support for TIMs existing independent Board.

“This outcome is a victory for the company and paves the way for stability and sustained value creation for all of TIM’s stakeholders. Elliott remains fully supportive of CEO Luigi Gubitosi, the Company’s management team and the existing independent Board, and looks forward to constructive dialogue with all stakeholders to pursue a value maximising path forward for the company.”

Gubitosi himself apparently struck a cautiously conciliatory tone, calling the move courageous and a first step towards peace. TIM shareholders will presumably be happy that this period of corporate turmoil has been concluded, although shares were only up a few percent on Friday. Maybe this muted optimism was a consequence of the veiled threats contained within Vivendi’s climb-down. It may have exhausted this strategy but this is unlikely to be the last time Vivendi clashes with Elliot over TIM.

Vivendi denounces TIM board

The emotional level of the custody battle for TIM has reached a new pitch, with Vivendi starting to lose its composure.

“Vivendi denounces the behaviour of the Elliott-nominated Telecom Italia (TIM) Board members who yesterday rejected by a majority vote the report issued by the company’s Board of Statutory Auditors, a totally independent body, citing serious irregularities related to the company’s governance and its Board,” opened Vivendi’s latest salvo, which claimed to be seeking to re-establish the truth.

It was issued in quick response to the TIM board’s own response to Vivendi’s previous moan about a recent auditor’s report – you see how convoluted this is getting. It unsurprisingly thinks the perspective of the TIM board “…fails to mention several acts of serious misconducts by the Chairman and the lead independent director, who did not inform all independent directors in the same manner and were clearly selective in their interactions.”

Here are the questions Vivendi reckons remain unanswered:

  • Why did the Chairman organize the preparatory meeting concerning the dismissal of Amos Genish with the sole participation of the ten Board members designated by Elliott?
  • As widely reported by the Italian press, why did at least one preparatory meeting take place in the presence of only the ten Board members nominated by Elliott prior to the November 18, 2018 Board meeting?
  • Did the Chairman have any contact with any of Elliott’s representatives before or after the Board meetings of the 13th and 18th of November?
  • What was discussed at the meeting between the Chairman and the representatives of at least one minority shareholder that occurred on the 12th of November 2018?
  • What were the criteria used in the selection of the legal advisor for a decision as important as the dismissal of the CEO when it was well known that the same law firm has represented Elliott in the past and even sued TIM in recent months?
  • Does the Chairman believe he still has the confidence of the minority Board members, the Board of Statutory Auditors and the market?
  • Has the Chairman considered stepping down from the Board, in light of the findings of serious breaches in his duties that have emerged from the Report of the Board of Statutory Auditors?

In common with its opponents Vivendi also has a special website for its propaganda in this matter. It wants both the statutory auditors and CONSOB, the Italian securities regulator, to look into this further because it doesn’t think the Elliott-dominated board of TIM can be trusted to ‘self-police’. Ultimately, of course, Vivendi wants to restore its own dominance of the board, because it did such a great job of self-policing last time.

TIM board slaps down Vivendi moans

It took the TIM board a few days to respond to a bunch of accusations thrown at it by Vivendi, but the result was pretty comprehensive.

At the start of the week we reported that the battle between French conglomerate Vivendi and activist investor Elliott for control of Italian operator group TIM had degenerated to the point of resembling an acrimonious custody battle. The latest initiative from Vivendi was to accuse the TIM board of bad behaviour and state that this was the result of it being dominated by Elliott nominees.

That same board has now responded, laying out six Vivendi accusations and addressing each one at considerable length. We’re not going to lie to you, dear reader, the response is far from being a riveting read. But such is our devotion to duty here at Telecoms.com that we’ve digested the essence so you don’t have to. Italics denotes a direct copy from the document and regular font denotes our summaries of the TIM response.

Essentially, according to shareholder Vivendi and Mr de Puyfontaine, the Board is alleged to have:

(i) executed an unwarranted impairment test process which allegedly resulted in an equally unwarranted writedown of goodwill for a grand total of 2 billion euros in the interim report on operations at 30 September 2018;

  • The reasons for this have already been published and the process was signed off by loads of expert third parties. Furthermore the decision was overwhelmingly approved by the board, including Amos Genish.

(ii) utilised the circumstances that led to the impairment to revoke the powers assigned to Mr Amos Genish;

  • He was doing a rubbish job and there’s loads of evidence to prove it.

(iii) breached the rules of governance in the process that led to the aforementioned revocation;

  • He was doing such a rubbish job that we couldn’t waste any time in replacing him as CEO.

(iv) breached the rules of governance in the process whereby powers were attributed to Mr Luigi Gubitosi;

  • See previous answer.

(v) breached the current regulations on the occasion of Vivendi’s request for a TIM shareholders’ meeting to be called to:

(a) appoint the external auditors for the period 2019-2027;

(b) revoke the mandates of five directors, in the persons of Fulvio Conti, Alfredo Altavilla, Massimo Ferrari, Dante Roscini and Paola Giannotti de Ponti, and

(c) appoint five Directors, in the persons of Franco Bernabè, Rob van der Valk, Flavia Mazzarella, Gabriele Galateri di Genola and Francesco Vatalaro, to replace those whose mandates were revoked;

  • We already addressed this. Everything was done by the book and loads of experts will back us up on that.

(vi) breached current law on the occasion of the announcement to the market of preliminary 2018 results below the consensus and prudent estimates for the first half of 2019, allegedly thus causing a fall in the share price, as well as a loss of trust among investors.

  • On the contrary the law obliged us to make that announcement.

The response concludes by noting, as it was bound to, that Vivendi’s accusations are groundless and everything the board’s actions have been exemplary and beyond reproach. Vivendi can’t have expected anything else, but at least it forced the board to explain itself fully ahead of the shareholder meeting at the end of this month. It will presumably spend the intervening time picking holes in it.