Softbank turns its attention to Latin American start-ups

Softbank has announced the launch of yet another investment fund, this time turning its eyes towards the unfulfilled promise of Latin America.

Alongside the fund, the SoftBank Latin America Local Hub will also be created, an operating group which will help companies in the other Softbank portfolios enter Latin America, navigate the local markets and broaden their geographic reach. Yet again, Softbank CEO Masayoshi Son is attempting to prove he wasted decades in the telco space and should have been focusing on investment management.

“Latin America is on the cusp of becoming one of the most important economic regions in the world, and we anticipate significant growth in the decades ahead,” said Son.

“SBG plans to invest in entrepreneurs throughout Latin America and use technology to help address the challenges faced by many emerging economies with the goal of improving the lives of millions of Latin Americans. I am grateful to our Chief Operating Officer Marcelo Claure for leading this initiative, in addition to his other responsibilities at SBG.”

The SoftBank Innovation Fund will aim to raise funds totalling $5 billion, with Softbank contributing the first $2 billion, with a particular focus on e-commerce, digital financial services, healthcare, mobility and insurance.

For years, Latin America has been promised as a land of fortunes. With several economies on the verge of blossoming, the realities of the world have staggered success. Political controversies, violence, poor infrastructure and hostile environments have been some of the reasons this region has yet to properly flourish, however the statistics are on its side.

Since 2000, over 50 million people in the region have entered the middle class, increasing the amount of disposable income flowing around the local economies. Internet and smartphone penetration have grown considerably, to 375 million and 250 million respectively. E-commerce sales have jumped from $29.8 billion in 2015 to $54 billion in 2018, suggesting digital society is bedding in.

Combining all of these factors suggest there are fortunes to be made with the right execution. Many have failed to capitalise on the promise, but there has been renewed enthusiasm in recent years.

Liberty Global is excellent example of a company which seems to think this is a market set to burst. Over the last couple of years, Liberty Global has been trimming back its exposure in Europe, note its recent asset disposals to Vodafone in Germany and Sunrise in Switzerland, as well as spinning off Liberty Latin America as an independent, publicly-traded company. Chairman John Malone has built a successful business over the last few decades, and now he clearly spots something he likes in the Latin American markets.

Another interesting development is over at Telefonica. The Spanish telco is seemingly positioning Aura as a potential competitor to the Google and Amazon digital assistants, fighting to manage the consumer’s digital ecosystem, though initial launches have been focused on its Latin American business units, not its domestic market.

Latin America is a market which has consistently failed to deliver on the promise, but eventually the bubble will burst, and fortunes will be made. Whether this is another false dawn remains to be seen but laying the foundations for the future is not necessarily a bad move.

Ericsson rumoured to be behind O2 and Softbank outages

With O2 UK and Softbank customers being thrown back to the 90s after a network outage, reports have emerged suggest Ericsson was the root cause.

At roughly 5am this morning, O2 customers suffered the dreaded fate of a data-free diet, while Softbank also experienced similar problems. In Japan, the firm suggests 3G networks kicked in to partly compensate for the 4G issues, though the same could not be said for the UK. As a Giffgaff customer, your correspondent can confirm the data desert, at least in this part of East London at the time of writing (11.30am, UK)

“We’re aware that our customers are unable to use data this morning,” O2 has said in a statement. “One of our third-party suppliers has identified a global software issue in their system which has impacted us.

“We believe other mobile operators around the world are also affected. Our technical teams are working with their teams to ensure this is fixed as quickly as possible. We’d encourage our customers to use Wifi wherever they can, and we apologise for the inconvenience caused.”

Although there is no official confirmation of which supplier this might be, the FT has sources which point the finger towards Ericsson. According to two people directly involved, an issue relating to software in the systems provided by Ericsson has been identified.

In an email to Telecoms.com, Ericsson said it is working with customers to correct the issue, though it did not explicitly confirm or deny whether it was the root case of the problem.

And while it hasn’t been heavily reported, O2 and Softbank are not alone with this issue. Several telcos around the world, mainly situated in Asia, are rumoured to be experiencing similar problems. There might be a common factor between the issues…

It’s unlikely the guilty party will take ownership for the fault until the PR madness has died down, especially considering telcos will be more stringently examining the track records of suppliers ahead of the 5G bonanza, and in light of recent issues at Huawei and ZTE.

Just so you are aware, O2’s primary suppliers for network infrastructure are Ericsson and Nokia.

For O2, the ‘double-edged sword’ metaphor is hitting home hard right now. Other telcos have experienced outages in the last couple of months, EE and Vodafone certainly did in October, though it wasn’t as widely reported or condemned on social media. In leading the market share rankings in the UK, an O2 outage would certainly impact more customers than other similar examples.

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.

Softbank is now more of a VC than a telco group

Back in 2016 when Softbank CEO Masayoshi Son announced plans for the $100 billion Vision Fund it looks like a ludicrous plan, but with such incredible growth perhaps we should ask whether Son has been missing his calling for decades.

Looking at the financials for the first half of 2018, the most interesting story aspect is linked back to the Softbank Vision Fund (SVF) and Delta Fund (DF) investment bodies. Over the first six months, net sales for the Softbank Group came in at roughly $41 billion, with the team collecting an operating income of roughly $12.5 billion. The operating income attributable to the SVF and DF is $5.7 billion, roughly 45%.

45% might sound like a good number, but it becomes even more impressive when you consider how the funds are accelerating. In the first three months of 2018, the funds accounted for approximately 33% of operating income, but this ratio increases to 55% when you look at the second quarter alone. As you can see from the table below, the cash being generated by the funds is quickly racking up.

Q3 2017 Q4 2017 Q1 2018 Q2 2018
Gain on investments for SVF and DF $530 million $860 million 2.18 billion 3.55 billion
Realized gain on investments NA NA NA 1.29 billion
Unrealized gain on valuation of investments $490 million $830 million $2.24 billion $2.27 billion
Interest and dividend from investments $33 million $20 million $12 million $10 million

(Approximate values after currency conversion)

The fund itself, which has come under pressure recently due to involvement from Saudi Arabia, has consistently been consistently questioned by investors, though perhaps monstrous profit is a language which they will be more familiar with. Son has prioritised artificial intelligence in a portfolio which contains investments in Uber, Nvidia, Arm, GM Cruise, Doordash and Compass. The only one which doesn’t really fit into the family is WeWork, a shared office business which would be more comfortable inside a real-estate investment portfolio. That said, few will argue with the results.

Looking at the rest of the business, the story is pretty positive if less glamorous next to these monstrous profits. Total revenues and profits are up in the Softbank telco business, while the net gain on customer subscriptions is up approximately 1.2 million in comparison to the same period of 2017. Churn was also at a healthy 0.93% for the quarter and ARPU is flat. Not a bad return for the period. Sprint in another which is performing surprisingly well. Although subscription numbers are down sequentially, year-on-year Sprint managed to find 520,000 subscriptions from somewhere.

Son’s traditional stomping ground is looking very healthy, though with the acceleration of the VCs you really have to wonder whether the audacious businessman has been in the wrong industry all these years.

Boston Dynamics rehabs drunken robot into parkour expert

Boston Dynamics has released a new video of its humanoid robot, Atlas, and it is scarily impressive how quickly the technology is advancing.

Two years ago the firm released a video of one of its employees testing out Atlas by taking it for a walk through snowy woods, knocking items out of its hands and knocking the robot off balance with a hockey stick. You can see the video at the bottom of the article, we decided the dubbed version was a bit more entertaining, though the latest video show remarkable progress by Boston Dynamics.

As you can see below, Atlas has gone from a staggering buffoon to a potential Olympian.

Many through the industry, us included, might be surprised. Robotics is an area which does not get much attention nowadays, perhaps due to the perception it is an area is not progressing in the same way as other next-gen tech. Of course, there are incredibly advanced machines in various different factories, but the idea of a humanoid machine we’ve gotten used to through Hollywood is laughable. Not anymore.

Although life for Boston Dynamics began as a spin-off from MIT, it was acquired by Google for an unknown price in 2013. Shortly after acquiring the robotics business, Google was reportedly in the market looking to offload the firm, struggling to see profitability or how it would fit into the wider Google universe. The rumours proved to be true, and Softbank purchased Boston Dynamics in 2017.

Atlas might be the product getting the attention today, but it is not the only robot worth keeping an eye on. Spot and SpotMini are four-legged versions, which move in a similarly remarkable way to Atlas, while Handle is a robot with both legs and wheels.

The incredible thing about Atlas right now is the progress which has been made in terms of balance. If you compare the two videos, the Boston Dynamics team seem to have mastered the art of stability and shifting weight in real-time. In the latest video, you can see Atlas even manages to identify the steps are not straight and shifts direction to safely land on the boxes. Such movement suggests the robots are not far away from real-world applications.

Stereo vision, range sensing and other sensors give Atlas the ability to manipulate objects in its environment and to travel on rough terrain, while it keeps its balance when jostled or pushed and can get up if it tips over. One of the immediate use cases could be delivery. There of course a few hurdles to adoption right now, the payload is only 11kg while battery life would have to be considerable, though these are minor challenges in comparison to what has been achieved so far. On the darker side, there will be several governments around the world looking at these robots with more militaristic ambitions.

There are of course scary implications for every new technology, just look at how the US Government wants to use AI to improve the accuracy of drone strikes, but that should not take away from the genuinely amazing progress here.

And as promised, here is Atlas in his early days:

Softbank and Yahoo team up to crack mobile money in Japan

Softbank and Yahoo Japan have announced the formation of a new joint venture, PayPay, to launch a QR-based smartphone payment services in Japan by November.

The joint venture will lean on the experience of Paytm, India’s largest digital payment brand and a SoftBank Vision Fund portfolio company, for technology and expertise in mobile payments in the latest efforts to move Japan away from a cash-based society. As it stands, less than 20% of payments across the country are cashless, one of the lowest worldwide for a ‘developed’ economy.

“The Japanese government is taking measures to raise the cashless payment ratio to 40% by 2025, with a long-term goal of 80%, the highest level globally,” Softbank said in a statement. “To aid these efforts, SoftBank and Yahoo Japan established PayPay Corporation in June 2018 and will launch its user-oriented payments platform in the fall 2018.”

With the experience of Paytm, the brand has 300 million customers and 8 million merchants, combined with the presence of SoftBank and Yahoo Japan, the PayPay business certainly has a promising to start to disruption. The Yahoo! Wallet which has approximately 40 million accounts, will act as the foundation, with Softbank leading the sales strategy, while also developing a localised service leveraging Paytm’s technology. Once the new service has been launched, Yahoo Wallet will cease to exist, though a time-frame has not been laid out.

While the adoption of this technology is far from given, the venture does demonstrate the power of the Softbank ecosystem. While it might have looked like a side-project to keep billionaire CEO Masayoshi Son busy, the Softbank Vision Fund offers a wealth of technology expertise for family members to lean on and launch new services. Of course, Vision Fund employees will be looking to find investments which will make money in the long-run, but complementary businesses and technology to aid the progression of current new services would certainly play some role in the decision making.

Softbank kicks off domestic telco listing

Softbank has unveiled plans for an initial public offering for its Japanese telco business as CEO Masayoshi Son looks to draw a line between investments and telecommunications.

The plan is to have the business listed within a year, and should offer greater clarity and rewards for investors. Such a move will essentially provide breathing room between the telco business and the more entrepreneurial ambitions of Son, as his Softbank Vision Fund continues to invest in businesses such as Uber.

“Through the listing of SB shares, SBG and SB expect that the respective roles and valuations of SBG, the parent company that is accelerating investments on a global scale, and SB, a company core to the Group’s telecommunications business, will be clear, making it possible to communicate information regarding the Group’s businesses to the market with greater clarity and thereby better respond to the various needs of investors,” the company said in a statement.

Separating the two business units will allow investors to reap the benefits of a profitable and stable telco business, while greater freedoms will be offered to Son as he continues to realise his deal-maker dreams. While there have been some big deals over the last couple of months, Son is no-where near hitting the limit of his $100 billion investment pot. Such a division could see the number, variety and risk-level of the deals increase.

Looking at the quarterly earnings of the group on the whole, operating profits fell short of analyst expectations, roughly $2.5 billion, though net sales did increase. Total sales came in at roughly $21.9 billion. Once again, the domestic Japanese business was the star of the show, though ARM contributed solidly as well.

Softbank has not yet stated how much of the business will be sold off, how much it expects to raise or what the money will explicitly be used for, but it might indicate Son is getting a bit bored of the slow-moving telco space. Son has repeatedly pointed towards the information revolution as a growth driver for the future, so it should come as little surprise the CEO is looking to spread his wings a bit further with investments.

What is clear is the Vision Fund is a money making machine. The fund has invested about $28 billion so far, but this does not include the Uber deal, and has contributed $2.1 billion to operating profit over the course of the last nine months. Son also has plans to IPO a couple of the businesses in the near future as well.

Son might be doing his best impression of a Japanese Del-Boy, but you have to hand it to him; the man knows how to make money.

Softbank might IPO its Japanese telecoms unit, then again it might not

In response to a report claiming it’s going to flog $18 billion of shares in its Japanese mobile units. Softbank has said it might, but no decision has been made yet.

The report was brought us by Japanese business title Nikkei, which chatted to someone who reckons SoftBank Group aims to list its Japanese mobile phone unit in Tokyo and overseas this year. The un-named source also reckons the amount of money raised by such an IPO is likely to be in the region of two trillion yen, which is about $18 billion.

Softbank felt moved to respond to this piece of rumour-mongering, issing the following statement: “With regard to today’s Nikkei report on the listing of SoftBank Corp., a subsidiary of SoftBank Group Corp., we are always studying various capital strategy options. The listing of SoftBank Corp. shares is one such option, but no decision has been made to officially proceed with this course.”

SoftBank is the third of three major Japanese MNOs with around 24% subscriber market share according to Ovum’s WCIS service. Narrowly ahead is KDDI and the market leader is NTT DoCoMo. But SoftBank Group also owns Sprint, ARM and a bunch of other stuff, as well as being hyperactive in the general tech VC space. So it’s perfectly plausible that it might want to raise a few extra yen, but right now nothing has been decided. You can read further analysis on Light Reading here.

Ain’t no party like a Softbank party

Not even the end of its relationship with Deutsche Telekom could dampen spirits at the Softbank party, as the team reported $3.46 billion in profit, up 21% year-on-year, for the last quarter.

It’s domestic telecom business was down slightly for the first half of this year, Sprint was actually up compared to the same six month period of 2016, the Yahoo assets were also up, there aren’t any year-on-year stats for ARM just yet and the Softbank Vision Fund also brought in a healthy amount of cash. Aside from a messy break up with Deutsche Telekom, you could say it has been a very satisfactory six months for Softbank.

Talking about the potential Sprint/T-Mobile US merger, lets address the elephant in the room before it starts to get uncomfortable. It’s officially over and there is no going back now.

Softbank and Deutsche Telekom could agree on a number of things, and it is now officially over. Whether it was a disagreement over the controlling voice in the boardroom, or a valuation of the business or maybe there was fear of regulatory resistance to the deal, its off. The rumours were there last week, as were whispers of Softbank dilly-dallying with Charter, but some might have assumed these were mind games by Softbank CEO Masayoshi Son in an effort to gain some sort of advantage in negotiations, but alas no.

What this means for the Sprint business moving forward we’re not too sure. Quite frankly, Sprint needed this deal more than T-Mobile US did. T-Mobile US is a business going stronger every day with a solid network, a good relationship with customers and an agile marketing team, while Sprint is losing market share consistently. Softbank has announced it will increase its stake in the US telco from 83% to 85%, though there needs to be a serious shake up at Sprint if it going to reverse fortunes.

In terms of the financials, Sprint actually had a positive six months if you take it at face value. Sales were up for the six month period, though this is primarily down to a solid first quarter. The company hasn’t had a profitable year in more than a decade, and fortunes are not particularly appealing. Son has a knack of making money so we wouldn’t rule a turnaround out completely, but it will be tough going against the top three who are all heading in the right direction.

And while the consolidation ambitions of the business are not exactly teeming with success for the moment, another difficult issue is starting to appear on the horizon; debt. Roughly half of Sprint’s $38 billion in debt is coming due over the next four years. While a Softbank influenced Sprint might have slowed the mass exodus of customers, investments in the network are badly needed. Add the debt onto network investments, and Softbank might find itself forking out quite a bit of cash to turn this business around.

Looking at other areas, Softbank’s domestic Japanese telco business took a big of pinch on sales, though subscriber numbers are on the increase, for both mobile and broadband, and the churn rate is also heading in the right direction. Discounts for the mobile business have been on the increase over the last six months, which has led to a decrease in both telecom and service ARPUs, explaining the slight difference in revenues.

On a positive note, things seem to be going well at ARM, though comparable statistics from 12 months ago are not available. Next quarter will give a better idea of how the Japanese influence has been received by the chip-maker. Another bright spot is the Softbank Vision Fund, which made gains of roughly $1.7 billion on its investments over the first six months of the year. Makes up for the messy break up we suppose.

Softbank falls into the arms of another after DT issues

After reports of a breakdown in talks between Softbank and Deutsche Telekom over the Sprint/T-Mobile US merger, it didn’t take long for the Japanese telco to find someone else to party with.

When we first heard about the breakup rumours we speculated one would be out partying and one would be crying into ice cream in typical Bridget Jones style. According to the New York Post, DT is binging on Ben and Jerry’s while Softbank in flirting with Charter.

Sources have said the Japanese telco is ‘definitely’ in talks with Charter Communications for a new tie up. This would appear to be a rekindling with an old flame, as the rumour mill has already circulated such rumours in recent months. That said, it wouldn’t surprise many people as something certainly needs to change at Sprint.

Having surrendered its number three position in the US telco space to T-Mobile US, Sprint has continued its downward spiral. It is a telco which has never really been in a position to challenge Verizon and AT&T at the top of the table, and in recent months it really look capable of tackling John Legere and his T-Mobile cronies either. As mentioned before, something needs to change and a tie-up with Charter would certainly shake things up a bit.

The rumours certainly shine a light on Charter’s promiscuous side, though to date there has been little more than whispers about any consolidation. Sources have previously claimed Charter was given the option to acquire Sprint, a claim which is denied by Softbank CEO Masayoshi Son, and on the flipside, Verizon bid $350 to $400 a share for Charter.

While these are nothing more than rumours at the moment, the murmurs might help get the DT talks back on track. DT is certainly in the position of power in the negotiations with Softbank, Sprint needs change more than T-Mobile US does, however this might give the Germans a bit of a reality check.

Perhaps the fear of missing out on such a deal will soften the demands of DT who are after a controlling share in any merged Sprint/T-Mobile entity. Softbank found issue with these demands, which is apparently the reason for the breakdown.

Now we are not suggesting the rumours originated in any particular office, and we certainly wouldn’t suggest they come from offices in Tokyo, but such whispers might have a way of working out for Softbank in the strategic acquisition game.