Softbank opens yet another investment fund

Softbank CEO Masayoshi Son has continued his quest to prove he has been a man in the wrong career for the majority of his life with the launch of another investment fund.

The Growth Acceleration Fund has completed its first closing with committed capital of $269 million, somewhat short of the $100 billion raised during the first venture, though it will offer plenty of opportunity to explore new opportunities.

Having launched the Softbank Vision Fund and the Delta Fund, this latest attempt will look to target start-up businesses globally, though the primary focus of the fund will be the Asia markets. Softbank Group will be the main and controlling partner of the fund, contributing 52% of the capital, while other Softbank subsidiaries will also contribute as well as institutional investors such as Korea National Pension Service.

This is of course not the first fund which has been launched by the Softbank business, though it is another step-forward for Son, who seems to have the goal of being the most influential person in the technology industry.

The first investment body, the Softbank Vision Fund, was launched in 2017 and now has $91.7 billion in committed capital from the likes of the Mubadala Investment Company, Apple and Foxconn. With this capital, Son has made some heavy bets in the technology space including Nvidia, Arm, Slack and WeWork.

The more humble fund, the Delta Fund, is headquartered in Jersey and currently has $6 billion in contributing capital. The focus of this fund is also on the technology industry, although Softbank is less forth-coming with the names of its investments. So far, the Delta Fund has directed investment towards ‘VR/AR development tools’, a ‘geographical location platform’ and a ‘GPU developer’.

Although investment management is somewhat outside of the realms of Son’s experience to date, it seems he has a knack to running funds. In the financial year ending March 31, the two funds added 1.26 trillion yen in profits to the Softbank accounts. With such profits being realised, you can see why Son is keen to double-down and explore further.

G20 gets tough on tech tax as trade war gets agenda nod

20 bean-counters walk into a bar and ask for a tonic water. The barman asks who picking up the bill, and all fingers are pointed towards Silicon Valley.

In southern Japan, finance ministers and representatives of the central banking organizations have gathered to discuss the world of international and domestic finance. Of course, G20 is about much more than spreadsheets and calculators, but this weekend saw the accountants gather, while in the next room, ministers for trade and the digital economy were setting the world to rights.

Starting with the accountants, Silicon Valley is to remain the political punching bag of 2019.

“Specifically, in the area of international taxation, we will continue to have discussions on a review of the existing tax framework triggered by digitalization, in addition to fighting against tax avoidance and evasion,” Japanese Finance Minister Taro Aso said in a statement.

Of course, these politicians are savvy enough not to target a specific segment or highlight companies who are abusing the grey areas in the system. There are numerous different organizations outside of the tech sector who are mistreating globalisation trends for tax benefits, though the tech giants are the ones in the limelight right now.

In the G20 Finance Ministers and Central Bank Governors meeting, new ideas have been tabled suggesting governments around the world will be cracking down on the creative accounting techniques which are becoming ever-so-more common.

According to a communique seen by Reuters, the newly proposed rules would not only make it more difficult for the tech giants to make use of low-tax countries for their benefit, it would also work the other direction. Countries like Ireland, who have benefitted from offering loopholes to the tech giants, would have their freedoms curbed in the pursuit of fairness and a more level global approach.

The new rules would propose two different approaches to taxation. Firstly, companies would have to pay fair tax on the revenues which are derived in the country, and secondly, should the accountants find a way around these rules, a global minimum tax rate could also be introduced. It is the tax version of the Swiss Cheese model; the more layers which are incorporated, the more difficult it is to effectively create a tax evasion model for these organizations to follow.

For countries like the UK and France, this is a win, though the likes of Ireland, Luxembourg and the US will find the outcome frustrating. While the UK and France have been pushing for more stringent tax rules, Ireland and Luxembourg are attempting to protect the light-touch regulatory environments which benefits their own societies but screws everyone else.

The US has suggested any change to taxes was discriminatory to its own companies, effectively a raid on the US economy. Although US Treasury Secretary Steven Mnuchin has seemed relatively cordial in reaction to developments, it remains to see whether any further strain is placed on international relationships. The US is already struggling to maintain strong links with certain governments, and this presents another risk to stress relationships.

Mnuchin has also found himself in the news regarding the Huawei conundrum.

The US finance chief has said in Fukuoka that a trade deal between the US and China could ease the firm stance which is threatening to provide collateral damage all around the world. The statement quotes President Donald Trump, who made the suggestion over Twitter a few months back.

For those firms impacted by the ban, the reiteration of this statement might come as some relief, though critics will become increasingly frustrated. It seems the White House has little concern for collateral damage as long as its own ambitions are fulfilled. For the firms who supply products to Huawei or investors who have been left short by such a ban, the ease in which their livelihoods can be used by the White House as a disposable bargaining chip must be incredibly worrying.

This of course was a topic of conversation at the Ministerial Meeting on Trade and Digital Economy also.

“We continued our dialogue to mitigate risks and enhance confidence among exporters and investors, as we committed to do in Mar del Plata last year,” a briefing document states. “We affirmed the need to handle trade tensions and to foster mutually beneficial trade relations.”

While it might seem like a throw-away comment, perhaps we should appreciate the significance of recognising the situation. In most circumstances, governments would steer clear and allow the bickering duo to continue their chest-beating, however in recognising the circumstances perhaps we are closer to someone stepping in and de-escalating the situation.

Clearly neither the US or China can be trusted to be mature and manage the saga for a net-gain, so it might need a third-party to step in. As it stands, no-one is benefiting, and everyone is losing. The winner of this trade war will be the one which can be the least negatively impacted; that should not be considered an effective way to manage international relations.

Nokia and Ericsson compete to be SoftBank’s 5G best friend

The public battle for 5G ascendancy between Nokia and Ericsson has moved to Japan, with simultaneous SoftBank deal win announcements.

Nokia says SoftBank has selected it as a ‘strategic partner to drive its commercial 5G offering’. In other words Nokia is selling SoftBank a bunch of 5G gear. Specifically we’re talking about the Nokia AirScale RAN product suite, the 5G version of which is added to all the stuff Nokia already does for SoftBank.

“We are delighted to continue our long-term relationship with SoftBank and to be working with them as a trusted end to end partner at such an important milestone in the transformation to 5G. We are committed to help SoftBank launch their commercial 5G network,” said John Harrington, Head of Nokia Japan.

Meanwhile Ericsson has also announced a 5G RAN deal with SoftBank, which is sensibly pursuing a multi-vendor policy of 5G kit (although presumably not Huawei or ZTE). This will, of course, involve the Ericsson Radio System and this deal seems to apply specifically to mid and high frequency bands (Nokia made no comment about frequency bands).

“SoftBank and Ericsson have been partners since the 2G era and we are thrilled to support them on this latest part of their technology journey,” said Chris Houghton, Senior Vice President, Head of Market Area North East Asia, Ericsson. “With the help of our advanced product portfolio, SoftBank can unlock the potential of 5G for Japanese society and we look forward to building on our long-standing partnership.”

Nokia also mentioned it now has 38 5G commercial contracts, including 20 with named customers. Ericsson made no equivalent claim but it recently identified 18 named 5G contracts and has recently amended that to reveal six of them currently involve live networks. We don’t know the total number of commercial contracts Ericsson has, and its public list doesn’t yet include SoftBank, so it looks like the Nordic rivals are more or less level when it comes to 5G at this stage.

Japan joins the anti-globalisation movement

It might not be as aggressive a position as the White House has entrenched itself in but limiting foreign ownership of strategic segments is a similar objection to globalisation.

According to The Telegraph, the Japanese government has identified 15 new sectors which would be restricted from foreign ownership, while restrictions on a further five would be increased. Any foreign investor wanting to take more than a 10% share of a companies listed in these segments would have to report to the Japanese government.

“…based on increasing importance of ensuring cyber security in recent years, we decided to take necessary steps, including the addition of integrated circuit manufacturing, from the standpoint of preventing as appropriate a situation that will severely affect Japan’s national security,” said a spokesperson for the Japanese government.

While telecom is already one of the sectors which has been listed for protection against foreign ownership, the new segments include mobile phone and the wider IT sector.

The rules themselves seem to be heavily nuanced to offer enough wiggle room for decision makers. At the very top level, should an investment be deemed contrary to national security, the Japanese government has granted itself the power to block or force changes to investment plans.

Although this might seem like another step on the road towards isolating China, sceptics are suggesting this is a plan to block the theft of trade-secrets by Chinese authorities and companies, it should hardly come as a surprise. After all, Japan is one of the countries the US has success in turning against China.

Last year, the Japanese government passed rules which would ban the use of phones, computers and other components from Chinese vendors in any of its agencies. Telcos have also been awarded 5G spectrum licences which come with coverage and security obligations, a move seen by some as a means to limit network exposure to Huawei. The telcos had in fact already committed to omit Huawei and ZTE from their network deployment plans, though an official position is a much stronger symbolic gesture.

There might be genuine security and economic concerns about China and its telco flagbearers, but the world is increasingly moving away from the concepts of openness. This announcement might only be a pebble in the global pond, but each pebble adds to the growing waves of isolationism.

All four operators are awarded 5G licences in Japan, with security conditions attached

NTT DoCoMo, KDDI, Softbank, and Rakuten have all received the 5G licences they applied for, but they come with coverage obligations and security commitment.

The Ministry of Internal Affairs and Communications announced on 10 April (in Japanese) that all the four applicants have been awarded radio frequencies and licences to rollout 5G services. Each licensee is awarded 400MHz spectrum on the 28GHz frequency, while three of them are awarded 200MHz on 3.7GHz except Rakuten, which has requested 100MHz.

All the operators are going to roll out 5G services starting in 2020. NTT DoCoMo, KDDI and Softbank will launch the service in spring time, with Rakuten planning to open its service in June. The total investment planned by the operators to the end of 2024 amounted to Yen 1.6 trillion ($14.4 billion).

While both NTT DoCoMo and KDDI have pledged to cover over 90% of the country within five years, Softbank only plans to cover 64% of the country and Rakuten 56%. The minimum requirement from the government is serving every prefecture within two years, and at least 50% of the whole country within five years, calculated by the number of geographical blocks the networks will cover out of the total 4,500 blocks the Ministry divides the country into.

In addition to coverage requirement, the Ministry has also attached a dozen granting conditions (pp.16-17 of the summary, in Japanese), including commitments to expand optical fibre networks (#2), to improve safety measures to minimise outage during natural disasters (#3), to prevent interference of existing radio licensees (#7) etc.

The item that may raise eyebrows is Item 4 on the list, which requires the operators to “take appropriate cyber security measures including measures to respond to supply chain risks” (unofficial translation). It refers to earlier regulations including the “”Information and telecommunications network safety and reliability standards” published by the Ministry of Post and Telecommunications in 1987, “Common Standards Group for Information Security Measures for Government Agencies and Related Agencies” issued by the National Information Security Center (NISC) in 2018, and the cross-departmental “Agreement on IT procurement policy and procedures for goods and services” published on 10 December 2018.

The last two documents, though neither of them names any particular countries or brands to be excluded, have been broadly recognised as the Japanese government’s decision to ban companies like Huawei and ZTE from public sector procurements. By invoking these regulations, it may not be too much of a stretch to read it as a message to the operators to stop using equipment supplied by the Chinese vendors. This may not cause serious disruptions to the operators’ business though, as Softbank, the only operator that has Huawei equipment on its network, is already planning to swap for Ericsson and Nokia, Nikkei reported earlier.

Japanese 5G licensees

All data-roads lead to Tokyo after EU’s thumbs up

The European Commission has given its nod of approval for data protection rules drawn up in Japan, effectively extending GDPR protections for European citizens to the Asian country.

On top of the current data protection regulations in Japan, an additional set of rules have been created adding safeguards to guarantee that data transferred from the EU will be subject to the same protection as European standards. The supplementary rules will be binding on Japanese companies importing data from the EU and enforceable by the Japanese regulator and courts.

“This adequacy decision creates the world’s largest area of safe data flows,” said Věra Jourová, Commissioner for Justice, Consumers and Gender Equality.

“Europeans’ data will benefit from high privacy standards when their data is transferred to Japan. Our companies will also benefit from a privileged access to a 127 million consumers’ market. Investing in privacy pays off; this arrangement will serve as an example for future partnerships in this key area and help setting global standards.”

Starting with the rules, new conditions will be set into play regarding the protection of data, the rights of European citizens to request further information on usage, as well as further requirements dictating what data can be transferred out of Japan to other nations. Protections have also been put in place with regard to how intelligence and law enforcement agencies can use or retain data, while a complaint-handling mechanism has also been introduced.

With these new rules the road to Tokyo is now open, allowing data to freely transfer between Japan and all members of the European Economic Area (EEA), Iceland, Liechtenstein and Norway. It’s a win for the bureaucrats which have been looking to develop deeper relationships, creating a trading bloc which can provide more competition for the likes of the US and China.

“This is the first time that such a recognition takes place under the GDPR and in a reciprocal manner. As of today, Japan has adopted an equivalent decision for data transferred to the EEA,” said Tanguy Van Overstraeten, TMT Partner and Global Head of Data Protection at law firm Linklaters.

“This major milestone puts both Japan and the EU in a unique position, strengthening the recently adopted Economic Partnership Agreement (EPA) between the EU and Japan. The EPA will enter into effect on 1 February 2019, creating an open trading area covering over 600 million people and almost one third of the world’s GDP.”

For Japan enthusiasts, this announcement will come as great news, especially ahead of the EU-Japan trade agreement which is set to come into force next month. This tie up will create an open trading zone covering 635 million people and almost one third of the world’s total GDP, and the first ever bilateral framework agreement between the two parties.

As part of the new relationship the vast majority of the €1 billion of duties paid annually by EU companies exporting to Japan will be removed, as well as regulatory barriers inhibiting some trade, for example on car exports.

The European Commission might have its critics throughout the world, but this doesn’t look like anything aside from a good bit of business.

Japan is the latest country to prohibit Chinese vendors in 5G networks

Huawei and ZTE have been dealt another blow ahead of the 5G bonanza as Japan’s four operators join the government in snubbing Chinese communications equipment.

According to Nikkei Asia Review, the Japan’s telcos have followed the lead of the government by omitting Chinese technology from any future network plans. With Japan set to be one of the leading lights in the 5G era, this is one of the most significant dents in the Huawei and ZTE egos to date.

Softbank, NTT Docomo and KDDI have all said they will not use Chinese equipment in their 5G networks, while Rakuten (which will become the fourth operator upon launch next year) has also joined the snub.

Yesterday (Monday 10), the Japanese government officially confirmed rumours that it would effectively be banning any public-sector body or organization from purchasing personal computers, servers and telecommunications equipment from Chinese companies. While the guidelines have not named any company specifically, it does add to the growing momentum building against Huawei and ZTE around the world. The official line from the government is the precautions have been put in place to prevent the leak of sensitive information.

As is the case most of the time, the telcos generally follow the lead of the national government. This is not necessarily because they agree with the party line, but more to ensure there are no compliance issues in the future when bidding for government work. If the government has banned Chinese components in their own networks for security reasons, it might not look favourable on potential vendors who have the kit in theirs.

For Huawei, this could be seen as a massive loss. Over the last 12-18 months, the firm has been buddying up to Softbank, Japan’s main telco, through a number of 5G trials and joint research projects. The stage had been set for a major customer win, following from a profitable relationship in the 4G era, though this seems to be the end of the Japanese road.

Looking at the international market for Huawei and ZTE, prospects are starting to look thinner every week. The US was the first to ban the pair, though this is not necessarily new, but with Australia and New Zealand joining the US momentum gathered. South Korean telcos all omitted both Huawei and ZTE from preferred supplier lists, while the UK is also turning as well. Last week, EE said it was stripping all Huawei kit out of its network, and none of the four MNOs will be using any Chinese kit in the core network for 5G.

An analogy we have used before is a line of dominos. ‘Western’ governments all tend to follow suit when it comes to regulation and legislation, so it would not be a surprise to see the trends gather momentum. Last week also saw European Commissioner for Digital Single Market Andrus Ansip publicly denounce China on the whole, suggesting the bloc might be jumping on the very same banned-wagon. This of course might be nothing more than posturing, but the signs are ominous.

Apple is said to offer discount on iPhone in Japan

The Wall Street Journal has reported Apple is subsidising operators in Japan to offer discounts on its phones because they’re not shifting as quickly as it would like.

After claiming that the new iPhone models are moving slower than planned through its supplier and manufacturer checks, WSJ reported again that Apple is going to offer discount to its XR model in Japan, which is said to be falling short of plan the most. Due to channel price protection, it needs to compensate the mobile operators to do so.

The fact that XR, the cheapest of the three new iPhone models, was the worst performer may come as a surprise, though it is to do with Apple’s positioning. One could only speculate that those going for the premium would rather buy the more expensive models (the XS and XS Max). While those who are not after the newest would go for the older models.

Since last year’s premium model the iPhone X was stopped when the new models were launched in September, to avoid cannibalisation of the new XR, some consumers went back to the older models, the iPhone 8 series. The WSJ reported that Apple may resume the X both to move consumers to more premium (therefore higher margin) model and to fulfil its OLED display commitment to Samsung. The X is said to be cheaper to make than the XS and XS Max, said the WSJ.

Japan was one of the harder to crack markets for Apple when the iPhone was first launched. The country was dominated by DoCoMo’s internet-enabled iMode phones. It took Apple a couple of years before it could convince the Japanese users of the advantage of smartphones and app stores. It looks that Apple is once again having a difficult ride in Japan again.

SoftBank plans massive IPO for its Japanese telecoms business

Tech conglomerate SoftBank wants to raise a few trillion yen by offering some of its Japanese operator up for public consumption.

Around a third of SoftBank Japan’s shares will be served up in an initial public offering that is expected to raise around 2.4 trillion yen (21 billion bucks). If things go really well it could even challenge Alibaba for the biggest ever IPO, which would come in handy for a group that is especially exuberant in its spending.

“Through the listing of SB shares, SBG expects that the respective roles and valuations of the two companies will be clear,” said the announcement. “SBG is accelerating investments on a global scale, while SB is a core company to the Group’s telecommunications business. It is hoped that each of the two companies will be able to provide information regarding their businesses to the market with greater clarity and thereby better respond to the various needs of investors.

An alternative way of looking at it is that SoftBank Group is a bit short of cash and has decided that a sport of equity release from one of its subsidiary companies is the best way to get hold of the kind of cash it needs. As well as big acquisitions such as ARM, the group seems more concerned with general tech investment these days. This IPO seems to have been on the cards for a while, but it remains to be seen how much, if any, of the cash raised will be reinvested in SoftBank’s, Japanese network.

Japan is reportedly thinking about blocking Huawei and ZTE too

Hot on the heels of the Australia ban it is now being reported that Japan is thinking of taking similar action.

This definitely needs to be filed under ‘unsubstantiated rumour’ at this stage, but is also far from inconceivable, given the current momentum acting against Chinese kit vendors. GB Times reported in English about a Japanese language story alleging the Japanese government is thinking of blocking Huawei and ZTE from bidding on public contracts for building information systems.

Last week Australia decided the risk of the Chinese state exploiting the presence of kit from Chinese vendors in telecoms networks to get up to no good was too great and decided to err on the side of caution. There has been no hard evidence published that this happens, and Huawei thinks it has become a scapegoat in a growing economic and political battle between China and the West, but Western governments are increasingly opting to shoot first and ask questions later.

Chinese state-run media has apparently questioned the validity of the report, apparently blissfully unaware how imperative it is to question the validity of anything published by state run media. Having said that it could well be nothing, but it seems very likely that other countries allied to the US will seriously consider a similar move.