Vodafone ditches Kiwis and cuts dividend in search of ‘financial headroom’

Vodafone has announced the sale of its New Zealand arm and a cut to the dividend as the firm searches for breathing room on the spreadsheets amid its Liberty Global acquisition and annual loss.

Such is the precarious position Vodafone is under, a cut to the dividend was expected by many analysts, though the sale of its Kiwi business unit compounds the misery. Facing various challenges around the world, including expensive spectrum auctions in Europe, the telco giant is searching for financial relief, though whether these moves prove to be adequate remains to be seen.

“We are executing our strategy at pace and have achieved our guidance for the year, with good growth in most markets but also increased competition in Spain and Italy and headwinds in South Africa,” said Group CEO Nick Read. “These challenges weighed on our service revenue growth during the year, and together with high spectrum auction costs have reduced our financial headroom.

“The Group is at a key point of transformation – deepening customer engagement, accelerating digital transformation, radically simplifying our operations, generating better returns from our infrastructure assets and continuing to optimise our portfolio. To support these goals and to rebuild headroom, the Board has made the decision to rebase the dividend, helping us to reduce debt and deliver to the low end of our target range in the next few years.”

While the news of a dividend cut saw share price drop by more than 5%, trading prior to markets opening has seen a slight recovery (at the time of writing). The dividend cut is not as drastic as some had forecast, down to 9 euro cents from 15, while an additional €2.1 billion from the New Zealand sale will provide some relief.

Looking at the financials for the year ending March 31, group revenues declined by 6.2% to €43.666 billion, while the operating loss stood at a weighty €7.644 billion. This compares to a profit of €2.788 billion across the previous year, though there are several different factors to take into consideration such as the merger with Idea Cellular in India and a change in accounting standards.

The loss might shock some for the moment, though this is likely to balance out in the long-run. In changing from the IAS18 accounting standard to IFRS15, Vodafone is altering how it is realising revenue on the spreadsheets. From here on forward, revenues are only reported as each stage of the contract is completed. It might be a shock for the moment, but more revenue is there to be realised in the future.

Although these numbers are the not the most positive, there is a hope on the horizon.

“The dividend cut is a massive blow for investors, while the results highlight the on-going challenges facing the company in its quest to turnaround its fortunes,” said Paolo Pescatore of analyst firm PP Foresight. “All hopes seem to be pinned on 5G, but the business model is unproven. Huge investment is required to roll out these new ultra-fast networks, but it comes at a cost.”

On the 5G front, Vodafone UK has announced it will go live on July 3, initially launching in seven cities, with an additional 12 live by the end of the year. Vodafone will also offer 5G roaming in the UK, Germany, Italy and Spain over the summer period. Interestingly enough, the firm has said it will price 5G at the levels as 4G.

Although this is a minor consolation set against the backdrop of a monstrous loss, it is at least something to hold onto. As it stands, Vodafone is winning the 5G race in the UK, while the roaming claim is another which gives the firm something to shout about. Vodafone is not in a terrible position, though many will be wary of the daunting spectrum auctions it faces over the coming months.

New Zealand joins the march against Huawei

Kiwi telco Spark has had an application to incorporate Huawei’s radio access network (RAN) equipment in its 5G infrastructure plans slapped down over security concerns.

The Government Communications Security Bureau (GCSB) has quoted the Telecommunications Interception Capability and Security Act (TICSA) as the grounds for rejecting Spark’s application to include Huawei equipment in its 5G infrastructure, suggesting this might be another country which will be shutting the door completely to Huawei.

“The Director-General has informed Spark today that he considers Spark’s proposal to use Huawei 5G equipment in Spark’s planned 5G RAN would, if implemented, raise significant national security risks,” Spark said in a statement. “Spark has not yet had an opportunity to review the detailed reasoning behind the Director-General’s decision. Following our review, Spark will consider what further steps, if any, it will take.”

“As per Spark New Zealand’s statement today, I can confirm the GCSB under its TICSA responsibilities, has recently undertaken an assessment of a notification from Spark,” said Director-General of GCSB, Andrew Hampton. “I have informed Spark that a significant network security risk was identified. As there is an ongoing regulatory process I will not be commenting further at this stage. The GCSB treats all notifications it receives as commercially sensitive.”

Details on the GCSB’s specific reasoning is absent for the moment, though this will emerge in the coming weeks. Either Spark will make a fuss over the situation, Huawei will hit back or someone will leak the documents on the internet. It’ll only be a matter of time, though Spark has reiterated the decision will not impact its plans to launch 5G services in New Zealand by mid-2020.

Unfortunately for Huawei, this looks like it will be another country where it will be banned from the 5G bonanza.

The anti-China rhetoric was of course started in the US, where both Huawei and ZTE has been effectively banned from any meaningful contracts, though Australia quickly followed suit. South Korea was the next domino to fall, though the operators simply omitted Huawei from the preferred suppliers list as opposed to a ban. New Zealand is the next country to join, though this is unlikely to be the last story we write of this nature.

With trade discussions between the US and China continuing, President Trump has been ramping up the pressure on his counterpart in Beijing. Not only have more tariffs been threatened, with potential collateral damage to Apple, it has been rumoured Trump has been whispering in the ears of allies, attempting to convince them to ban Huawei and ZTE from operating within their borders. It seems the repetitive whispers managed to convince the Kiwis.

There are of course a few countries which will resist the calls to ban Huawei, the UK is an example which seems overly invested in the vendor and would have too much to lose through any ban, though the dominos are lined up and beginning to fall. The political and economic power of the US does make it an influential voice in the global community, which will certainly be a worry for the Chinese vendor. On the other side, Nokia, Ericsson and Samsung will be pleased with the way the conversation is developing.

BBWF 2018: Chorus sings the praises of centralised infrastructure model

Yesteryears rumbling story was the enforced separation of BT and Openreach, and while this might have been nothing more than a thinly veiled show, Ofcom might look at the success of Chorus for future inspiration.

Down in New Zealand, Chorus is an example of what can be achieved through structural separation and effective centralised investment in broadband infrastructure. The business is rolling out fibre faster than many in the world, giving rise to a landscape which benefits the consumer and is remaining profitable in the meantime. Speaking at Broadband World Forum in Berlin, Kate McKenzie, CEO of Chorus, demonstrated just what is actually possible.

Back in 2011, Telecom New Zealand was completely separated into two legal entities; Spark for mobile and Chorus for broadband. Unlike the Openreach and BT separation, these are two entirely separate (and listed) businesses, both of which are proving to be a success.

Fibre broadband penetration is at roughly 70%, with the team targeting 87%. Ubiquitous penetration would be perfect, but due to the at times harsh environment in New Zealand, it is just commercially impossible with today’s economics. New Zealand might be a small country, but the environment is incredibly varied and population density can be a nightmare. Technology is now the third largest contributor to the economy, accounting for 8% of GDP, and is steadily growing. The country now even has its own space programme, and fibre penetration has been heralded as part of this success.

“Coming up with a plan and sticking to it is key to success,” said McKenzie. Sensible regulations, consistent government policy, an understanding of consumer demand, as well as a vigilant board to keep a close eye on costs and returns, are needed to create a successful centralised infrastructure model.

The only suspect outcome is the 90+ service providers in the market. This might be great for the consumer, but it is not sustainable. Barriers are entry are almost none existent allowing anyone to get involved, but numerous of these businesses will fail due to the cut throat nature of competition. However, there certainly are some interesting models. One example is energy companies bundling energy and broadband services together.

Of course, there are dangers of centralising so much spending. Without a resilient and robust regulatory framework, the monopoly could be abused. Australian broadband providers are supposedly feeling the sting of NBN’s dominance with Telstra complaining wholesale rates are double what they should be. The political agenda also needs to be quite stable, as too much interference or changes from different government administrations could cause disaster.

Despite the negatives, New Zealand seems to have struck the right balance. Perhaps this is a country Ofcom should have a close look at. BT might have resisted (and will obviously continue to do so) pressure to remove Openreach from its business, but under the right conditions, New Zealand has shown the great benefits which can be realised for the economy and the consumer.

NZ and Canada decline to jump on the Huawei banned wagon

Despite the current fashion for banning Huawei among US allies, New Zealand and Canada have both indicated they may not play ball.

The Chinese kit vendor has been a pariah in the US for years, but more recently Australia decided to join in the fun and there have been rumours of other countries with close ties to the US following suit. But a couple of reports this week point towards a lack of unanimity on the part of ‘the west’ over this matter.

Reseller News spoke to Kiwi MP Andrew Little, who indicated his government is not convinced Huawei poses a security threat. “New Zealand develops its own, independent security policy based on inputs from a range of sources,” said Little. “As you’d expect with any change in technology of such significance as 5G, officials are considering whether the existing framework will remain fit-for-purpose in the new environment.”

While this appears to leave open the possibility that NZ might yet sanction Huawei, US neighbour Canada seems to be taking a more absolute stance. Earlier this week the Globe and Mail published a story with the following headline: ‘No need to ban Huawei in light of Canada’s robust cybersecurity safeguards, top official says’.

This is the verdict of Scott Jones, the head of the Canadian Centre for Cyber Security, who reckons Canada is perfectly capable of working out for itself whether any technology presents security concerns.

“We have a very advanced relationship with our telecommunications providers, something that is different from most other countries to be honest from what I have seen,” Jones is reported as saying. “We have a program that is very deep in terms of working on increasing that broader resilience piece especially as we are looking at the next-generation telecommunications networks.”

Huawei is understandably keen to see these decisions reported as widely as the Australian one. It seems reasonable to assume that if enough US allies ban it from 5G infrastructure then it will become increasingly difficult for the rest not to follow suit. Europe has kept quiet on the matter and so long as countries like NZ and Canada decline to play ball Huawei might feel it’s on top of the damage limitation