UK MNOs set to claw back £200+ million in licence fees

A UK court has ruled in favour of the telcos in an on-going battle with regulator Ofcom over licence fees paid on spectrum assets between 2015 and 2017.

The legal battle concerns the process which was undertaken by Ofcom prior to increasing licence fees paid by each of the telcos for access to the airwaves. The decision to increase the licence fees was met by much criticism during the initial announcement, and you can see why.

The licence fees concern 900 MHz and 1800 MHz spectrum assets awarded to each of the telcos during a 2013 auction.

Telco Fee paid (post-2015) Fee paid (pre-2015) Difference
Vodafone £76,245,025.10 £21,865,536 £54,379,489.10
O2 £76,245,025.10 £21,865,536 £54,379,489.10
Three £44,390,398.53 £17,463,600 £26,926,798.53
EE/BT £139,823,997 £57,380,400 £82,443,597

While telcos are constantly complaining about regulation, as well as the amount paid to regulators around the world, the drastic difference in licence fees was too much to stomach here.

Following the decision to increase licence fees, EE was first to act, challenging the ruling in the courts in 2017. The other UK MNOs were quick to follow, with Ofcom being named as a defendant in the lawsuit.

“We welcome the court’s decision that finds in favour of the mobile operators,” said an O2 spokesperson. “We are however disappointed that Ofcom has been granted leave for appeal and we will strongly defend any future appeal brought by Ofcom.”

Ofcom will most likely appeal the decision.

The argument from the telcos is one which we have heard before. The more money which is demanded from Ofcom, the less which is available to invest in networks to ready the UK for the digital economy.

Following EE’s decision to challenge the changes to licence fees in 2015, a move which was supported by the other MNOs, Ofcom decided to revert back to the licence fees which were paid in the previous regime. There has been another consultation since, resulting in an increase to licence fees paid moving forward, though this case is focused on the period between 2015 and November 2017.

Aside from clawing back the payments made during this period, the parties have agreed simple interest be applied on whatever sum is due, calculated at 2% above the Bank of England base rate during the period.

For the MNOs, this news will be very much welcomed considering the financial burden they face ahead of the 5G era. With billions set to be spent rolling out the networks, a bit of financial relief will go a long way.

Supreme Court opens the legal floodgates on Apple

Apple is potentially on the verge of facing a tidal wave of lawsuits as the Supreme Court agrees the iLeader is allowed to be challenged on a potential abuse of power in the app economy.

The pivotal case the Supreme Court has been ruling on is Apple vs. Pepper. Robert Pepper and other plaintiffs, various iPhone owners, filed an antitrust lawsuit against Apple claiming the firm monopolised the app market through the App Store, with developer licence fees and the 30% commission ultimately driving the price up for consumers.

One the other side of the argument, Apple suggested iPhone owners were actually customers of the developers, while the developers were customers of Apple. This nuanced argument leans on legal precedent set in doctrine known as Illinois Brick where ‘indirect purchasers’ of a product don’t have the power to file antitrust cases. In distancing itself from the end-user in the app economy, Apple was hoping to protect itself.

In the first instance, the district court ruled in favour of Apple, dismissing the case, while the Ninth Circuit Court reversed the decision, ruling that consumers are purchasing from Apple not the developers. The fight was then escalated up to the Supreme Court, with the highest legal battleground in the US ruling 5-4 in favour of the iPhone owners.

What is worth noting is this is not a ruling which states Apple’s App Store is a monopoly, but a decision which allows users to file antitrust lawsuits against the iLeader. It’s a step towards another legal headache but is by no means a sign of guilt.

For Apple, this will come as an unwanted distraction as it attempts to scale it software and services business, in which the App Store is a key cog. The last few years have seen the Apple team attempt to create a more balanced business, with less of a reliance on the staggering hardware segment and reaping the rewards of the blossoming software world.

This decision from the Supreme Court might not assign guilt to Apple, but it certainly creates a monumental migraine. Such is the lawsuit culture in the US it won’t be long before miffed customers just on the bandwagon in pursuit of compensation.

Could Orange’s CEO end up in prison?

Orange CEO Stephane Richard is widely respected throughout the telco industry, but he is also currently embroiled in a legal battle which could land him behind bars.

For his alleged role in the misuse of public funds while he was working for the Finance Ministry, French prosecutors have called for Richard to be sentenced to three years in jail. He would only spend half this time in prison, but this would be 18 months too long for almost everyone you ask.

The trial itself is drawing to a close, but this is hardly news, dating back to the 90s and the financial affairs of businessman Bernard Tapie. After making millions and eventually an 80% stake in German sports brand Adidas, Tapie faced debts and instructed state-owned Crédit Lyonnais to sell his stake. After the sale, Tapie was unable to settle said debts and challenged Crédit Lyonnais, suggesting the bank sold shares at a depressed rate.

This is where Richard steps into the fray. Tapie backed Nicolas Sarkozy in the presidential election, which he went onto win. After this victory, the Sarkozy Government set up an independent arbitration panel to settle the case between Tapie and Crédit Lyonnais, instead of challenging the legal case brought against the bank which was the previous rhetoric.

After Tapie was awarded €403 million by the panel, the French Finance Ministry came under extreme criticism. At this point, Richard was serving as Chief of Staff for Christine Lagarde, Finance Minister at the time and now the head of the International Monetary Fund.

The players in this game are accused of creating this panel, and the subsequent settlement, as a convert reward for the support Tapie gave Sarkozy during the election campaign. This is the gloomy side of politics which causes so many to groan at the moral fibre of today’s politicians; there is always someone to thank one way or another. Since this point, a Paris court annulled the panel’s decision and ordered Tapie to repay the funds.

It’s all very nefarious, grimy and complicated, however Richard is tied up due to his position and alleged action during the latter stages of the affair.

What is clear, however, is that Richard is potentially facing prison time for his role.

As we understand it, Richard’s team is confident he will not end up on the losing side, though there is always a chance one of Europe’s leading telcos could be thrown into disaster as its CEO is locked up. Aside from a prison sentence, prosecutors are also pursuing a €100,000 fine and a ban from working for any organization where the French Government has a stake for five years. Currently, the Government owns around 13% of Orange.

Orange has no comment on the saga at this point, as this is a personal issue for Richard not the telco’s business. However, we suspect there must have been some whispered conversations behind closed doors discussing contingency plans; it would be irresponsible of the Orange management team if they were not.

The trial will likely conclude this week, though this does not mean we will be any closer to a decision. Richard will be left on the edge of his seat for the next couple of months, with a decision expected after the summer.

Facebook faces hyper-targeted advertising lawsuit

The US Department of Housing and Urban Development (HUD) has lodged a lawsuit against Facebook, challenging the hyper-targeted big data model which has made OTTs billions over the years.

Quoting the Fair Housing Act, the HUD has claimed Facebook is breaking the law by encouraging, enabling, and causing housing discrimination. The Fair Housing Act prohibits discrimination in housing and housing-related services, including online advertisements. Facebook’s advertising platform is said to discriminate individuals based on race, colour, national origin, religion, sex, disability and familial status, violating the Act.

“Even as we confront new technologies, the fair housing laws enacted over half a century ago remain clear – discrimination in housing-related advertising is against the law,” said General Counsel Paul Compton.

“Just because a process to deliver advertising is opaque and complex doesn’t mean that it’s exempts Facebook and others from our scrutiny and the law of the land. Fashioning appropriate remedies and the rules of the road for today’s technology as it impacts housing are a priority for HUD.”

Complaints were originally raised by the HUD last summer, though the two parties have been in discussions to come to some sort of settlement to avoid legal action. Reading between the lines, talks have broken down or the HUD leadership team wants to give the impression it is taking a more hardened stance against the social media segment.

Although it should come as little surprise Facebook is facing a lawsuit considering the ability for Mark Zuckerberg to stumble from one blunder to the next, this one effectively challenges the foundations of the business model. Hyper-targeted advertising is the core not only of Facebook’s business, but numerous other companies which have emerged as the dawn breaks on the blossoming data-sharing economy.

What is worth noting is this is not the first time Facebook has faced such criticisms. The American Civil Liberties Union (ACLU) has also challenged the social media giant, and earlier this month Facebook stating it was changing the way its advertising platform was set up to prevent abuses with the targeting features.

“One of our top priorities is protecting people from discrimination on Facebook,” said Facebook COO Sheryl Sandberg. “Today, we’re announcing changes in how we manage housing, employment and credit ads on our platform. These changes are the result of historic settlement agreements with leading civil rights organizations and ongoing input from civil rights experts.”

As a result of the clash with the ACLU and other parties, Facebook agreed to remove any gender, age and race-based targeting from housing and employment adverts, creating a one-stop portal instead.

According to the HUD, Facebook allows advertisers to exclude individuals from messaging based on where they live and their societal status. For example, whether someone is a parent or non-American, these categories have been deemed discriminatory. Facebook also allows advertisers to effectively zone off neighbourhoods for campaigns, which is also deemed a violation of the Act. By bringing together data from the digital platform and other insight from non-digital means, HUD is effectively challenging the legitimacy of digital and targeted advertising.

As with other similar cases, the HUD is bringing attention to the light-touch regulatory landscape for the internet economy. While traditional advertising is held accountable by strict rules, the internet operates with relative freedom. This is partly down to the age of mass market media online, it is still comparatively new, and the fact few bureaucrats understand how the data machines work.

What is worth noting is that this is an incredibly narrow focus for the HUD, though should it be successful the same concepts could be applied, and other elements of the Facebook hyper-targeted advertising model could be challenged.

Facebook might be the target here, though many companies will be watching this case with intrigue. Precedent is a powerful tool in the legal and regulatory world, and should the HUD win, the same business model which is being applied elsewhere would be compromised also.

Qualcomm lands roundhouse in Apple legal battle

The on-going legal battle between Qualcomm and Apple has taken a twist as the US District Court for the Southern District of California has ruled in favour of Qualcomm.

The court has decided Apple’s iPhone 7, 7 Plus, 8, 8 Plus and X infringe two Qualcomm patents, while the iPhone 8, 8 Plus and X devices infringe on a third. As a result, the jury has awarded Qualcomm $31 million in damages.

“Today’s unanimous jury verdict is the latest victory in our worldwide patent litigation directed at holding Apple accountable for using our valuable technologies without paying for them,” said Don Rosenberg, General Counsel for Qualcomm.

“The technologies invented by Qualcomm and others are what made it possible for Apple to enter the market and become so successful so quickly. The three patents found to be infringed in this case represent just a small fraction of Qualcomm’s valuable portfolio of tens of thousands of patents. We are gratified that courts all over the world are rejecting Apple’s strategy of refusing to pay for the use of our IP.”

The three patents support different functions on iPhones, all of which has become normalised features of the devices. Patent No. 8,838,949 enables ‘flashless booting’, removing the need for a separate flash memory and allowing smartphones to connect to the internet quicker after being turned on. Patent No. 9,535,490 speeds up internet connections. Finally, Patent No. 8,633,936 enables high performance and rich visual graphics for games, while also increasing battery efficiency.

The $31 million bill will actually mean very little to Apple. Looking at the iLeader’s 2018 full year results, it would take just under 62 minutes Apple to generate revenues to cover the $31 million, though it does set precedent around the world.

Alongside this ruling in San Diego, courts in China and Germany has also ruled Apple has infringed Qualcomm patents, questioning whether Apple is legally allowed to continue sales not only in these countries, but other territories around the world. In Germany, Apple has been barred from selling any iPhone 7 and 8 models, while in China all devices from the iPhone 6 to the iPhone X have also been banned from sale.

The legal battle between two of the digital economy’s heavyweights has been dragging on for some time now, but this round has been undeniably chalked up to Qualcomm.

Facebook reportedly facing criminal charges over data sharing

Facebook’s day started off with a major outage and, should reports turn out to be true, it is ending with the social media giant facing a criminal investigation from Federal prosecutors.

According to the New York Times, a grand jury in New York has obtained records from two smartphone manufacturers, via subpoena, which will detail the data sharing partnerships in or previously in place with Facebook. Sources has retained anonymity and it is not exactly clear who the subpoenaed parties were, though Facebook did have more than 150 such relationships in place before winding-down over the last couple of years.

Although the investigation has not been officially confirmed, it will come as a surprise to few considering the scrutiny those dominating the data-sharing economy are facing. Over the last few months, there have been numerous attempts to weaken the influence of the internet giants, with some even suggesting legal force to break-up the empires. The internet giants created a cosy position, but this is certainly under threat.

That said, while the scandals over the last 18 months might lead some to presume the practice of selling personal data would be scaled back, there seems to be little evidence of this. A recent Motherboard investigation suggests various US telcos are still reaping the benefits, and in some cases, scaling up the practice.

What is worth noting is the concept of selling personal information is not illegal, as long as the right consent has been obtained from the end user. This is what Facebook, and the third-parties who entered into such arrangements, are facing criticism for today. Accusers suggest proper content was not obtained or done so in such a complicated fashion it should not be considered valid.

The data-sharing economy is gaining validity across the world, but only when the practice is managed in a fair and responsible manner. This is what GDPR and other regulations intend to enforce. The idea is not to stop the practice, but to ensure the companies involved act in a responsible manner, with the user properly informed and in control of the situation. The data-sharing economy can work, and can benefit everyone involved, as long as no single party abuses their position.

The partnerships which are reportedly being investigated here, however, have come under criticism for some time. Privacy campaigners suggest the partnerships violate a 2011 consent agreement between Facebook and the FTC, after allegations the social media giant had shared personal information in a way that deceived users. At one point, there were more than 150 such partnerships in place, though Facebook has been phasing out most of the agreements over the last few years.

Although this is a retrospective investigation into the company, it could potentially contradict statements from CEO Mark Zuckerberg and other executives suggesting the business was being more transparent and managing user data responsibly. Facebook has been making this statement for several years. This case could prove Facebook mislead the world with these claims as well.

There is a general feeling of ‘if’ not ‘when’ here. Politicians, governments and regulators are seemingly scouring the Facebook business for any cracks, allowing them to slap a significant fine and parade the streets with a victory on behalf of consumer privacy. Facebook’s lawyers have done a pretty good job of wriggling so far, but there is a bit of a feeling the dam could burst at any point.

Huawei CEO tries to deflect cybersecurity spotlight onto Ericsson and Cisco

It was just a matter of time before Huawei played the whataboutism card and Founder/CEO Ren Zhengfei couldn’t resist in a recent interview.

Chatting to CNN in Shenzhen Ren said the following when referring to the US ban on Huawei gear: “They have to have evidence. Everybody in the world is talking about cyber security and they are singling out Huawei. What about Ericsson, what about Cisco, don’t they have cybersecurity issues? Why has Huawei been singled out? There’s no Huawei equipment in the US networks but has that made the US networks totally safe? If not how can they tell other countries that your networks will be safe without Huawei?”

When Huawei announced its lawsuit against the US government we figured it would have a pop at Cisco sooner or later, but Ren decided to involve Ericsson for good measure (but not Nokia). He has a bit of a point, we suppose, but there are a couple of flaws in this fallacious approach. Firstly, if he thinks any other vendors might be a security risk then he is subject to the same burden of proof he is applying to the US. Secondly, even if they are dodgy that doesn’t mean Huawei isn’t.

The main theme of this resumption of the Ren roadshow was to augment the points Huawei made when in its lawsuit. Ren stressed he would rather shut the company down than let the Chinese state muck about with it and said US tactics will result in scaring away investment in the country. He also tried playing the martyr card, insisting that what doesn’t kill Huawei will make it stronger and even suggesting this aggro represents a timely wake-upcall for complacent Huawei employees.

Ren’s media tour coincides with parallel attempts to win hearts and minds among US allies, but it looks like those are being trumped by a more direct approach from the US. A recent report from Bloomberg reveals German spooks think Huawei is just too dodgy to be allowed into the country’s 5G networks.

Apparently the German intelligence officials remain unconvinced by Ren’s vows never to collaborate with the Chinese state and are also worried about upsetting the US. “It’s above all a matter of trustworthiness and of the impact on our relationship with our allies,” a Foreign Ministry official told some parliamentary committee.

On top of that the EU has recently been publicly expressing concerns about Chinese 5G kit in general so, for the time being at least, momentum seems to have swung back in US favour. Ren’s attempt to metastasise the aggro to other networking vendors must be causing some alarm, not least because it raises the prospect of them being caught in the orbit of the law suit. If we’re on a Huawei to hell, we’re taking you with us, seems to be the message.

 

The big promise of politics just got bigger

The Senator Elizabeth Warren campaign roadshow is officially underway, and the tech giants are sitting in the crosshairs.

We might be slightly protected from it in the UK, but politics in the US has become much more about theatre than concrete issues of today. For every campaign launched, there needs to be a monumental promise made which will shake the foundations of society. For Donald Trump, the wall proved to be that divisive point, and for Warren, it is the spearhead of US political and economic dominance on the global stage; the internet economy.

“I want a government that makes sure everybody – even the biggest and most powerful companies in America - plays by the rules,” Warren said in a Medium post.

“And I want to make sure that the next generation of great American tech companies can flourish. To do that, we need to stop this generation of big tech companies from throwing around their political power to shape the rules in their favour and throwing around their economic power to snuff out or buy up every potential competitor.

“That’s why my administration will make big, structural changes to the tech sector to promote more competition — including breaking up Amazon, Facebook, and Google.”

And just like Trump’s wall, in reality this promise is nothing more than a PR plug to grab headlines.

Stepping up the hubris game

President Donald Trump is the master and current reigning champion of this competition.

In 2015, Trump entered the world of politics with wide-sweeping messages of hate, xenophobia and borderline racism. These political sound bites, designed to rouse in Middle America and drive forgotten voters to the polls, culminated in the claim he would force Mexico to pay for a wall which would span the width of the US southern borders. Three years into his presidency, Trump is still searching for the wall’s funding, and Warren could be walking into the same problem.

Breaking up the internet giants, the very companies who drove the US economy for years and have now become the world’s punching bag, is a daunting task. It might sound attractive to voters, the people who seek fortunes but cannot congratulate those who have found them, but what happens if Warren is unable to deliver on the marquee promise of her campaign?

This is the very dilemma which Trump is currently facing. His campaign was built on the promise of the wall, but the world still awaits the delivery. Warren is now promising an outcome which will not come easily, potentially becoming the architect of her own downfall, offering ammunition to critics and opponents.

Big promises = big problems

Warren’s promises are a threat to the giants of Silicon Valley, and you can guarantee the lobby machine has already been kicked up a gear.

First, Warren is promising new legislation which will designate some business activities as ‘Platform Utilities’. Facebook is an example, and it does appear Warren’s vision is to separate the functional aspect of the platform from participation activities. It sounds very logical, but you have to consider that the platform in these companies is essentially run as a loss leader; these platforms are free for the consumer and would not exist if the parent company was not entitled to monetize the user.

“These companies would be prohibited from owning both the platform utility and any participants on that platform,” said Warren. “Platform utilities would be required to meet a standard of fair, reasonable, and non-discriminatory dealing with users. Platform utilities would not be allowed to transfer or share data with third parties.”

It would be interesting to hear how Warren thinks Facebook or the Google search engine would continue to function if the ability to make money was removed.

The second major point to consider from this post is the unwinding of what could be perceived as anti-competitive mergers.

At Google, Waze, Nest and DoubleClick are the three transactions which are considered anti-competitive, and therefore under these new plans would be reversed. We believe there are two major issues with this promise.

Firstly, removing these aspects of the business would be incredibly difficult, verging on impossible. This might not be the case for some, Nest for example, however DoubleClick is now so deeply embedded in various different functions of the Google business where do you even start?

Secondly, hindsight is an issue. Some of these transactions are only deemed as anti-competitive because of the success. DoubleClick may well not have been a success without the scale and power of Google. The company is being punished for being good at what it does.

In this case, 1+1+1 = 4. This transaction has been deemed as anti-competitive because of the sum of the parts. Google has collected several different components to make a greater result. Individually, each component is powerful, but the outcome is greater.

The not-so-slumbering giants

Google, Amazon, Facebook and numerous others will not take this aggressive attack on the basic business principles of Silicon Valley lying down.

Warren will not be the only politician to make a move against the wealth, power and influence of the internet giants, but the lobby and legal challenges will be astronomical. Should this promise get anywhere near a draft bill or even legislation to pass through the House, legal challenges will be lodged, PR propaganda will be launched, and in-direct, passive-aggressive threats will be made.

Lawyers are excellent at slowing the wheels of progress, and many of the world’s best lawyers call Silicon Valley home.

We suspect the Warren campaign team has not thought this strategy through entirely, there are too many holes and illogical conclusions. From a conceptual perspective, this is the Mexico wall promise in shape-shifting form. It is a promise which sounds attractive to voters but will be almost impossible to deliver.

That said, theatre in US politics works, and Silicon Valley is home to the bad guys right now. We suspect a political administration hell-bent on breaking-up the internet giants will fail, but it could be a big enough promise to attract votes.

Huawei lawyers-up in North America

Huawei’s CFO is suing Canada, while the company is also reportedly set to sue the US government.

While the US and Huawei kept their conflict muted during Mobile World Congress last week, they have wasted little time in picking up where they left off after that brief hiatus. Having said that there was widespread talk on the show floor last week that there were many representatives of the US government and other public institutions at the event, apparently canvassing for support.

Anyway, the BBC reports that last Friday Huawei’s CFO, Meng Wanzhou, filed a civil suit against Canada for breaching her civil rights when it arrested her late last year. The move coincided with the official commencement of her extradition process to the US, which wants to try her for a bunch of alleged crimes. Her case seems to rest on some perceived irregularities in the process by which she was arrested, but is probably part of a broader coordinated legal counter-attack by Huawei.

Meanwhile Huawei is also preparing to sue the US government, according to multiple reports, the first of which seems to have come from the New York Times. This suit is apparently unconnected to the latest US offensive, and concerns the much older ruling that banned US federal agencies from using Huawei products.

Once more, however, this would appear to be part of a greater legal push against the US by Huawei. In this case, by suing the US and therefore obliging it to defend itself, the cunning plan could be to bring specific allegations into the open, which Huawei could then refute. One of the biggest criticisms of the US war on Huawei has been a lack of specifics, so this seems like a plausible tactic.

At this stage it’s still really difficult to see how the war between the US and Huawei will play out. On one hand momentum seems to be against Huawei, with US allies feeling compelled to at least go through the motions of siding with it. On the other, if Huawei can publicly demonstrate that a significant proportion of the charges against it are unfounded, then maybe it can start to swing some Western public opinion its way. Either way both sides seem dug-in for a long conflict.