CommScope likes the look of Arris – report

Reuters reckons US networking vendor CommScope is seriously courting UK cable and set top box company Arris.

The report, which cites those shadowy ‘people familiar with the matter’ that are so often responsible for such leaks, just claims the two companies are in talks for CommScope to acquire Arris. The exponentially-growing public demand for streaming video is apparently one of the big drivers behind the talks.

The market values of the two companies aren’t too far apart, but a big reason for this was CommScope’s share price going down the toilet when it announced its Q1 2018 numbers. Specifically forward guidance that indicating a degree of commoditisation in its core markets seemed to spook investors and it could well be that a good old bit of M&A might be just what they need to cheer them up.

Arris is no stranger to M&A of late, having grabbed Ruckus from Broadcom at the end of last year. There seems to be a bit of an accelerated trend towards consolidation among tier 2 kit vendors, apparently catalysed by fear of commoditisation. Light Reading has further analysis of the pros and cons of the potential move here.

Vermont follows Califorina into the dock over net neutrality

The State of Vermont has been hit with a net neutrality lawsuit after passing a Senate Bill and signing an Executive Order forcing ISPs to follow the banned principles for government contracts.

The lawsuit, filed by the CTIA, cable industry lobby NCTA, telco lobby USTelecom, the New England Cable & Telecommunications Association, and the American Cable Association (ACA), calls into question requirements for ISPs to follow net neutrality rules should they want to be considered for government contracts. The lawsuit follows the same argument as the California case; it contradicts the Communications Act, the ‘Restoring Internet Freedom’ rules and two clauses in the US Constitution.
“This case concerns two interrelated attempts by the State of Vermont to unconstitutionally regulate the provision of broadband Internet service” the filing states.
“As the FCC has repeatedly recognized, Internet traffic flows freely between states, making it difficult or impossible for a provider to distinguish traffic moving within Vermont from traffic that crosses stateborders. Both the Supremacy Clause and the dormant Commerce Clause protect broadband Internet service providers from a patch work of inconsistent regulations that are impossible for them to comply with as a practical matter. The Court should declare that the Executive Order and S.289 are preempted and unconstitutional, and should permanently enjoin the Defendants from enforcing or giving effect to them.”

Senate Bill 289 was signed by Governor Phil Scott on May 22, while the Executive Order from Scott was signed in February. The telco lobbyists might be a bit slow off the mark, but this is a bit more of a complicated matter.

In California, and Washington State for that matter, net neutrality rules are being applied to the ISPs in every context. This is a much easier position for the telcos to push back against, though in the Vermont case it is only conditions for public sector contracts. The argument here is relatively nuanced; organizations should be allowed to apply their buying power to place requirements on vendors competing for lucrative contracts, but it does contradict rules set forward by the FCC.

Because this is not a blanket approach to net neutrality regulations, as is the case in California and Washington State, there is a better chance of the rules standing. The rules are being applied to specific relationships which lean on conditional approval and benchmarks for applicability. These are not unusual concepts in the world of procurement, but the net neutrality seems to be too contentious for any exceptions to be considered. The court will be interferring with market dynamics in Vermont, it is a delicate matter.

Another interesting idea is that of precedent. States such as Hawaii, New Jersey, Montana and Rhode Island have all passed similar rules, dictating ISPs wanting to compete for public sector contracts would have to adhere to net neutrality principles, and will be watching the outcome of this case closely. If Vermont wins there is precedent to maintain their position, however a win from the telco coalition will destroy the foundations.

Both cases, California and Vermont, come down to the old state versus federal battle ground and the interpretation of clauses in the Communications Act and the US Constitution. This is the bueaty and beast of the legal world, interpretation of the law and its implications means so much. The telco lobbyists do have a strong position though, especially considering the potential for a constitutional crisis.

Finally, perhaps the most interesting aspect of this on-going saga are the lawsuits themselves. In searching for a more light-touch regulatory landscape, the telco lobbyists are, ironically, seeking state intervention to maintain their position.

Ericsson just manages first quarter of growth since 2014

Ericsson registered another quarter of gradual recovery but revealed it expect to receive sanctions from a US corruption investigation. spoke to Ericsson marketing head Helena Norman and she seemed to be pretty satisfied with the Q3 numbers. She flagged up its 1% annual revenue growth (when adjusted for adjustments), which might not seem like much but is apparently the first time Ericsson has managed it since 2014. At least as important to Norman was the fact that Ericsson managed some profit (net income) for the first time in a couple of years.

A lot of this positive stuff is down to the core networks division, especially in North America. As you can see from the tables below, networks grew organically by 5% in the quarter. Furthermore the division’s operating margin has doubled over the past year, which will have been a big reason for the profit column heading in the right direction.

Among the other divisions Managed Services seems to also be headed in the right direction, thanks mainly to bailing out of a bunch of rubbish contracts and some pretty serious streamlining. Digital Services seems to still be a work in progress, with the sequential picture moving slightly in the wrong direction, and the relatively small emerging business division is moving slowly in the right direction.

Set against these largely positive numbers is the admission that the US corruption investigation, which has been ongoing for a few years, seems likely to result in fines for Ericsson and possibly other sanctions too. Ericsson doesn’t seem to know specific numbers, or even when the process is likely to conclude, but it felt compelled to offer some kind of update.

“While the length of these discussions cannot be determined, based on the facts that we have shared with the authorities, we believe that the resolution of these matters will likely result in monetary and other measures, the magnitude of which cannot be estimated currently but may be material,” said Ericsson CEO Börje Ekholm in his comments accompanying the numbers.

Norman cautioned that the traditional sequential jump in Q4 might not be as big as usual thanks to the US 5G ramp already being well underway. We asked Norman about the financial effect of 5G and she conceded that it’s hard to specifically attribute spend on 5G, as opposed to just general network improvement.

On the whole this seems to be another positive, if unspectacular quarter for Ericsson, and maintaining that momentum is strategically the most important thing. Norman sounded pretty upbeat and it wasn’t a bad quarter to offer an update on the corruption situation. It’s still early days in Ericsson’s turnaround and the cautious guidance about Q4 reveals this newfound confidence is still tinged with fragility.

Ericsson Q3 financials

Ericsson Q3 networks

Ericsson Q3 managed services

Ericsson Q3 digital services

Ericsson Q3 other

There’s a big difference between download speed and mobile video experience

Network rating outfit OpenSignal has started measuring ‘video experience’ as well as raw network performance and found they don’t necessarily correlate.

A new report entitled The State of Mobile Video ranks a bunch of countries according to their mobile video experience on an arbitrary scale of 0-100. This takes into account not just download speed but things like ‘traffic management’ (often referred to as throttling) and latency. These can all contribute to things like buffering and slow load times, all of which affect the overall video experience.

As you can see from the scatter graph below, taken from the report, there is a fair bit of variation in the correlation between download speed and video experience. If the correlation was exact then you’d just have a straight diagonal line, but as you can see the country with the fastest raw speed – South Korea – isn’t even in the top ten for mobile video experience.

Conversely the Czech Republic has been found to be top of the pops when it comes to mobile video experience but is also just outside the top ten for download speed. We spoke to OpenSignal CEO Brendan Gill and he revealed the main reasons for these discrepancies are traffic management and latency.

Another outlier country is the US, which has a relatively low mobile video score compared to download speed. A major reason for this is probably unmetered tariffs that theoretically allow unlimited video streaming but in practice feature fairly extensive restrictions on bandwidth. This practice is understandable but there is an argument that if those services are being positioned as ‘unlimited’ then there’s some mis-selling going on.

Latency is most pertinent when it comes to shorter video clips typically accessed over social media. If you’re scrolling through your social media feed you’re probably not prepared to wait more than a second or so for a clip to start playing. While this is probably a sad indictment of the modern attention span and certainly qualifies as a first world problem, that’s the environment we’re operating in and apparently US load times aren’t great.

Opensignal mobile video chart

AT&T and Verizon compete for yet more 5G ‘firsts’

US carriers AT&T and Verizon have completed what they both claim to be the world’s first data transfer to a smartphone form factor device over mmWave 5G live networks.

If we put together all the 5G ‘firsts’ claimed by the industry players it would make a long read, especially if we included cases where similar firsts have been claimed by different companies. In this most recent case, both AT&T and Verizon called themselves the world’s first to successfully transfer data over live 5G networks to purpose-built mobile devices, in Texas and Minnesota respectively.

Temporally, AT&T might have stolen a step ahead of its competitor. The AT&T test took place “over the weekend”, while news coming out of Verizon on Monday declared the success happened yesterday, but they were essentially the same kind of tests. Probably the most intriguing part of the story is that both carriers used Qualcomm’s terminals on networks supplied by Ericsson.

Even the technical details disclosed look very similar. Both tests were using smartphone form factor test devices from Qualcomm integrating the latter’s Snapdragon X50 5G modem and RF subsystem (see the picture), both were going through Ericsson 5G-NR capable radios connected to 3x virtual core networks.

These announcements followed hot on the heels of a couple of other 5G firsts in the last few days: last week Verizon and Nokia claimed to have completed the first over-the-air data transmission on a commercial 5G NR network in Washington DC, though the receiving end was not exactly a smartphone-like device. On Monday Nokia announced its demo with Sprint to conduct the first (in the US though) 5G NR connection over Massive MIMO.

Ericsson and Qualcomm claimed to have completed the first 5G NR ‘call’ to a smartphone-like device (which was pretty similar to the ones used in the AT&T and Verizon tests). That announcement itself came a couple of days after Ericsson announced another similar test with Intel. These two slightly earlier tests were conducted in lab environment while the latest AT&T and Verizon cases were done over live networks, or as AT&T emphatically stressed, “Not a lab. Not preproduction hardware. Not emulators.”

We understand the marketing departments of these companies must be busy generating as big a buzz as possible in the run-up to the Mobile World Congress America (starting tomorrow). Meanwhile we cannot discount that tests and announcements (and claims) like these do show the wider world 5G potentials when the commercial networks roll out in the coming months and years, though at the moment all these firsts still do not mean anything for consumers as no 5G terminals are available yet.

Another interesting angle to look at these tests is how active the US carriers are in pushing ahead 5G on mmWave, which contrast with how slow the European operators and regulators are moving. The European Commission launched a project to look into the feasibility of using mmWave for 5G deployment in the EU. A reporting session was organised in Brussels in June this year. The views were divided, and conclusions elusive. The main doubt from the industry looked to be the lack of compelling business case and the wrangling between the telecom industry and the satellite industry on the utilisation of the lower mmWave spectrum, hence the lack of contiguous bands for 5G buildout.

It may be a worthy reminder that we can never tell with full confidence what new technologies can do. Andre Fuetsch, AT&T Communications’ CTO was bang on when he said “… yet to be discovered experiences will grow up on tomorrow’s 5G networks. Much like 4G introduced the world to the gig economy, mobile 5G will jumpstart the next wave of unforeseen innovation.”

Ericsson managed services contract with MBNL gets extended

MBNL, the network joint venture between UK MNOs EE and Three, has decided to keep Ericsson on as its managed services provider until 2020.

Managed services is a big part of Ericsson’s business, but has been its most problematic division of late thanks to a bunch of ill-advised historical contracts apparently entered into in a desperate drive for growth. Current CEO Börje Ekholm has prioritised profitability over growth and thus encouraged the abandonment of the worst of these, among which the MBNL deal clearly isn’t.

“This marks another significant milestone in our longstanding partnership with MBNL and our joint commitment to deliver superior network quality and performance to Three and EE consumers in the UK,” said Peter Laurin, Head of Managed Services at Ericsson. “We are delighted to continue our successful relationship and continue to evolve our managed services portfolio to deliver innovation and industry leading efficiencies through automation and analytics.”

“The agreement to extend the Design, Plan and Deploy services contract with Ericsson, for a further two years, reflects the strength of the collaborative relationship between Ericsson and MBNL,” said MBNL MD Pat Coxen. “This will continue the trend of collectively delivering great results and is a sign of true partnership. We look forward to continuing the great work with Ericsson in order to meet the demanding business objectives of MBNL and its shareholders.”

So far, so generic, but Ekholm and Laurin will be delighted by any positive news coming out of the managed services division. A major strategic decision has been to restrict its customers to those who already by Ericsson networking gear, which also seems to be a good way of restricting excessive deal-making zeal. You can hear more from Laurin about the strategy for his division in our Inside Ericsson piece.

EE cleans up in RootMetrics testing once more

For the fifth year in a row EE has come top of the RootMetrics assessment of UK mobile networks.

RootMetrics is owned by market intelligence giant HIS Markit and claims to offer ‘the most scientific and comprehensive survey of mobile network performance’. The 1H 2018 report marks the tenth times in succession EE has been the overall winner in the RootMetrics UK tests.

“EE’s reputation for delivering strong speed and performance is maintained in our testing; whilst Three’s consistent reliability places itself as another leading carrier across the UK,” said Kevin Hasley, Head of Product at RootMetrics and Executive Director of Performance Benchmark at IHS Markit.

“The first movers in 5G are going to have an advantage as consumers will see a big step change in performance of their devices across critical functions like live streaming video. EE’s high performance in 4G testing can lead to a seamless service transition to 5G; however it will be a brand new playing field once the technology is live. 5G will give all networks an opportunity to be a leader in performance and service provision.”

“However, 5G is most likely to impact urban area performance as it will be deployed in centres of high population density. Operators will still need to prove and maintain 4G and even 3G performance across wider geographies as that’s how we use our phones. We accept that when on the move and in more rural locations that performance will be lower, but we still have expectations about minimum performance.”

“We have relentlessly invested in improving our customers’ experience of our network,” said EE CEO Marc Allera. “We’re connecting customers in more places than ever before, more reliably than ever before, and with the fastest data speeds in the UK. We’ve been driving forward the UK’s mobile infrastructure for five years, and we’ll keep going – with 5G launching next year to raise the bar yet again.”

Here are the findings by category.

Rootmetrics 1H 18 overall

Rootmetrics 1H 18 reliability

Rootmetrics 1H 18 speed

Rootmetrics 1H 18 data

Rootmetrics 1H 18 call

Rootmetrics 1H 18 text

Nokia shares down as it misses profit expectations

Kit vendor Nokia reported quarterly operating profit 42 percent lower than a year ago in Q2 2018 but reiterated its whole year target, pinning hopes on aggressive 5G rollout.

When the headline of the result release reads “First half 2018 as expected”, it is a sign that there is not much to write home about. Nokia reported quarterly net sales of €5.3 billion, 6 percent down from Q2 2017, while the operating profit, in non-IFRS measures, went down by 42 percent to €334 million, falling short of analyst mean forecast of €373 million. It would have been a €221 million operating loss if the costs related to the Alcatel-Lucent acquisition, goodwill impairment charges, intangible asset amortization, etc, were included. Share price fell by more than 7 percent by the time of writing, having recovered from a 9 percent drop earlier.

“Business and regional mix continued to have some impact on gross margin,” said Nokia CEO Rajeev Suri. The main year-on-year drops in its Networks business took place in Asia Pacific and Greater China. But Nokia maintained that it is still on track to achieve its full year targets, believing the rollout of 5G in key markets would come to the rescue. “Our view about the acceleration of 5G has not changed and we continue to believe that Nokia is well-positioned for the coming technology cycle given the strength of our end-to-end portfolio. Our deal win rate is very good, with significant recent successes in the key early 5G markets of the United States and China,” said Suri.

Nokia may be right that 5G is going to start to be rolled out in the US and in Asia later this year, but its success is not guaranteed. Although the Chinese vendors Huawei and ZTE, formidable competitors globally, have had their fortunes curtailed in the US market, Nokia is facing stiff competition from its northern European rival Ericsson. Nokia’s strategy to attack selected verticals in 5G is a smart move, to diversify its client base to go beyond telecom operators.

Another Nokia strategy to bear fruit is its high investment in R&D over the years. One bright point that stood out in the release was Nokia Technologies, the unit tasked to license Nokia’s IPR and brand. With less than 7 percent of the total net sales, it generated over 87 percent of the company’s operating profit, up by 27 percent over Q2 2017. You can read further analysis of Nokia’s numbers at Light Reading here, and here are they are in a table.

Nokia Q2 2018 table

Ericsson shares jump after another quarter of quietly delivering the numbers

At first glance Ericsson’s Q2 2018 numbers don’t look all that great, but they’re clearly better than investors expected because its shares have jumped.

Net sales were down 1% year-on-year to SEK 49.8 billion. And Ericsson’s quarterly loss increased to SEK 1.8 billion. But Ericsson and, apparently, its investors, are more interested in things like gross margin and operating income. Gross margin was up to 34.8%, cementing the positive trend initiated in the previous quarter. Operating income was in the black at SEK 0.2 billion, versus an expected loss of SEK 0.1 billion, which equated to an operating margin of 0.3%. Ericsson’s shares were up 10% in pre-market trading.

“We continue to execute on our focused business strategy and are tracking well towards our 2020 target of an operating margin of at least 10%,” said Ericsson CEO Börje Ekholm. “The investments in technology leadership have resulted in increased gross margin to 37% and growth in segment Networks.

“Customers turn to new technology in order to manage growing demand for data with sustained quality and without increasing costs. This, together with fixed wireless access, represent the first business cases for 5G… We have good market traction in Networks, with a sales growth of 2%, particularly in North America where all major operators are preparing for 5G.”

Network sales in North America have always been critical to Ericsson. A slump in network spending by US MNOs was one of the main reasons behind the protracted slump that led to the major rethink Ericsson reckons it’s only just reaping the rewards of. It’s also a relatively soft market thanks to the hostility of the US state towards Chinese vendors and having their former CEO running one of the biggest operators is presumably quite handy too.

We spoke to Ericsson marketing boss Helena Norrman and she confirmed that the upturn in North America is considered pretty significant within the company, but the big one is the overall networks division. That grew by 2% year-on-year, which was apparently the first quarter of annual growth since Q4 2015.

“There is momentum in execution and also in customer discussions – especially in networks,” said Normann. “Were doing what we said we would do.” By this she was referring to the boring but vital business of cutting costs, improving margin and just doing the day job properly. This isn’t a very exciting narrative, but at the end of the day it’s the only thing that matters.

We were quick to criticize Ekholm when he initially appeared to lack big strategic ideas. A cunning plan was eventually unveiled but the bad news continued and by the start of this year there was little evidence of things improving. Unperturbed my moaning journalists Ekholm persisted with his unexciting strategy of just doing the basics better and this now seems to be paying off.

At the end of the day it all comes down to your numbers, especially for public companies. Last quarter’s numbers suggested a possible turnaround and now a second quarter of positive movement on things like margin allows people to think this may be a more durable recovery. So right now Ekholm’s strategy is vindicated but he doesn’t need us to remind him that you’re only as good as your last quarter.

Ericsson Q2 2018 summary

Ericsson Q2 2018 networks

Ericsson raises a few more kroner by flogging its Swedish field services business

The Ericsson economy drive continues with the sale of its field service operations in Sweden to Transmeta Group.

We’re supposed to be getting towards the end of the great Ericsson cost-cutting drive, with headcount down around 20% and a bunch of moody deals scrapped, but there’s apparently still some pruning to be done. Managed Services is the Ericsson silo that has been in greatest need of sorting out and this divestment would appear to be a symptom of that.

“Ericsson Local Services is a market leader in field service operations in Sweden with a skilled workforce of approximately 700 employees across the country,” said Per Narvinger, Head of a bunch of stuff at Ericsson. “They deliver very good support to our customers, and we believe Transtema has an excellent opportunity to continue to develop the field service operations while also executing on existing customer commitments.”

If it’s so great, Per, then why are you flogging it, mate? The answer seems to be a general strategic move to get out of the standalone field service game, as opposed to offering managed services to existing customers of its networking gear. It’s not clear how many other such deals Ericsson has in place, but this could potentially be the first of a bunch of divestments. You can read further analysis on Ericsson’s cost-cutting efforts at Light Reading here.