SoftBank fire sale could include T-Mobile US stake

Japanese conglomerate SoftBank had a nightmare quarter thanks to massive losses at its Vision Fund investment arm and it might need to raise a few yen quickly.

Most of SoftBank group is doing fine. Its Japanese operations, its stake in Alibaba and ARM have no worries, and it finally managed to complete the merger of its Sprint MNO with T-Mobile US. But boss Masayoshi Son just couldn’t resist getting funny ideas about investing in all kinds of other unrelated stuff and it turns out a lot of those bets were bad ones.

As warned a month ago, WeWork is the major bust in the portfolio, but the whole thing has taken a severe kicking thanks to the business world grinding to a halt coz of coronavirus. The quarterly presentation seemed to essentially amount to an extended apology to shareholders for losing so much of their cash on reckless punts, followed by a plea for them to stay the course to give his unicorns (very large private companies) a chance to fly over the Valley of Coronavirus, to the fertile pastures beyond.

Even if Son’s pleas are well received, SoftBank may well join many other companies in having to manage a cashflow crisis until things start to pick up again. For that reason it seems possible that it will flog some of its stake in new, improved TMUS to Deutsche Telekom in order to bolster its working capital. A WSJ report speculated that such a move would give DT the majority share in the company and relegate SoftBank to relatively silent partner. On current form, that might not be such a bad thing for all concerned.

Softbank warns of $17bn blow to Vision Fund investments

COVID-19 is causing waves across the world, and now Japanese telco Softbank has warned the pandemic might well be the cause of ¥1.8 trillion ($17 billion) loss in the investment unit.

With the earning results for full year 2019 due on May 11, Softbank has released a statement to warn investors of some very dampened fortunes. Due to the impact of COVID-19, Softbank is forecasting an operating loss of roughly $12.5 billion, mostly due to the $17 billion blow dealt to the Vision Fund.

To make matters worse, Softbank is also warning of an additional ¥800 million (roughly $7.4 billion) loss to investments which are being held outside the Vision Fund, including WeWork and OneWeb.

Although it is hardly unusual for a company to make adjustments to financial forecasts due to current trading conditions, Twitter and Microsoft are two others who have made similar statements to investors, the impact might be compounded thanks to Softbank’s diversity and some questionable bets.

In 2018, Softbank founder and CEO Masayoshi Son attempted to add diversity to the business through the creation of an investment vehicle, the Vision Fund, though this is where the firm is exposed today. With the Dow Jones and FTSE 100 down 20% and 21% respectively since the beginning of the COVID-19 outbreak in the US and Europe, being an investor in the technology space is a tricky vocation today.

Some of Softbank’s investments are looking pretty positive, Slack for instance, but others are being hit hard by the outbreak. Cash which has been pumped into the real estate industry is not necessarily looking healthy, neither are bets into transportation and logistics. Uber, one of the companies in the portfolio, has seen share price decline by more than 30%.

Outside the impact of COVID-19, there are also other investments which are going sideways. WeWork has proven to be a flop, with the coronavirus covering up much deeper failings, while OneWeb recently filed for Chapter 11 Bankruptcy.

What is worth noting is that not all of the investments made by the Softbank Vision Fund are bad. Investors in such businesses usually have to accept the risk that not every gamble pays off, and while the coronavirus is negatively impacting the investments, it does not mean it will always be a loss maker. Over the last two years, investors have been enjoying the profits of Masayoshi Son’s VC ambitions, and we suspect it will be the same once COVID-19 stops wreaking havoc with society.

The question is what will happen in the interim period? Will investors understand this is only short-term pain, or will there be calls for actions to return to the traditional ways of telcos making money?

KDDI and Softbank join the network sharing craze as Rakuten risk rises

Japanese telcos KDDI and Softbank have inked a network sharing partnership to ease the commercial pressures of connectivity in the rural regions.

Network sharing agreements are becoming increasingly common, perhaps one of the more prominent trends of 2020, owing to the financial pressures being placed on the telcos. With 5G and full-fibre projects on the books for many telcos, deploying connectivity infrastructure in the more sparsely populated regions, were ROI is significantly lower, is a tricky spreadsheet to balance. Telcos are increasingly looking to network sharing partnerships, to ease the financial burdens of building the foundations of the digital economy.

The new company, which will be known as 5G Japan Co, will be managed by co-CEOs Noriaki Terao (seconded from KDDI) and Eiji Otaki (seconded from SoftBank). With each telco owning 50% of the company, the network will reach out into the rural regions to provide suitable densification of 5G base stations for the 28 GHz and 3.7 GHz airwaves.

While network sharing agreements to create a more attractive ROI are not uncommon, perhaps there is more demand in Japan than many other nations. These are telcos who may have to deal with a very significant disruption in the shape of Rakuten.

As the poster boy for the open movement, Rakuten is building a network as many telcos would love to; a greenfield project, completely disassociated from the concept of legacy technologies and systems. This sort of network deployment is a dream come true for any telco and has the potential to offer significant benefits.

Firstly, it has been claimed the network can be run with only 350 employees, a fraction of the workforce running competitors’ networks. Secondly, it could be significantly cheaper to construct, thanks to Rakuten’s embrace of the OpenRAN movement. And thirdly, due to the acceptance of openness, upgrades should be faster and cheaper. This is the sort of network which everyone would build if they could start from scratch tomorrow.

There is still plenty which could go wrong with Rakuten’s business. The network could fail, or it might not be as successful as hoped in teasing subscriptions away from rivals, but the threat is very real for the Japanese telco industry. With investments substantially reduced for network construction, maintenance and upgrades, the demands on ROI are lessened. Rakuten is suddenly afforded a lot more flexibility when it comes to pricing.

At the beginning of March, Rakuten unveiled its ‘UN-LIMIT’ 5G data tariff costing 2,980 Yen per month, roughly half of what rivals have been offering. What is worth noting is that when customers are out of range of a Rakuten owned base station, a 2 GB download limit will be introduced as well as data throttling. This will be a disadvantage for the telco as it is rolling out its network, though the risk of pricing disruption is very clear.

Reliance Jio in India has already demonstrated how a market can be turned upside-down if a disruptor is allowed to gather too much momentum. This is a lesson which the likes of KDDI, Softbank and NTT Docomo should be learning as Rakuten comes online; new initiatives will have to be introduced across operations to realise efficiencies.

Without these initiatives, network sharing partnerships being one, the traditional Japanese telcos will not be able to sustainably compete with the Rakuten tariffs.

Who is set to benefit from the COVID-19 outbreak?

For millions of individuals and businesses, the threat of COVID-19 is financial ruin, but there are parts of the technology industry that are benefiting from the considerable changes forced on society.

The FTSE 100 Index is likely to close below 5,000 today, a 27% decline in a month, while the Dow Jones is currently down (at the time of writing) 31% over the same period. Economies around the world are being hit disastrously hard, but some will see gains out of this pandemic at least temporarily, if not permanently.

Cloud Computing

The cloud computing segment has been on the rise for years, though as more employees find themselves restricted to their homes more workloads will have to be migrated to the cloud to ensure the business can function as usual.

For the cloud companies, the coronavirus outbreak is effectively forcing some organisations through a very rapid digital transformation project, to embrace the cloud and mobility trends. From an IaaS perspective it means more money, from SaaS it means more engagement and PaaS more opportunity.

Amazon Web Services, Microsoft Azure and Google Cloud are the obvious beneficiaries as market leaders, though for companies like Oracle, who might be working with more traditional industries that have resisted evolution to date, new conversations about enabling the workforce will have to occur.

Interestingly enough, once these businesses have begun their journey towards a cloud-based business model and environment, it is highly unlikely they will go into reverse. This could be a catalyst for accelerating the already fast-blossoming cloud segments.

Video conferencing and collaboration

Although there is no substitute for a face-to-face meeting to progress and complete complicated projects, alternatives have to be sought today. Many businesses are encouraging more meetings to be conducted via video links rather than email to not only ensure effective communication but ensure well-being of employees. Contact with colleagues via video link is not perfect by any stretch, but it might assist some who are feeling the loneliness of remote working.

Microsoft is an obvious beneficiary here, it announced last week the number of daily active users for its Teams collaboration suite increased by 12 million, though there are many others who are financially better off also.

Zoom Video Communications, a remote conferencing services company headquartered in San Jose, has seen share price increase 130% since the beginning of the year, while more marketers are turning to companies like ON24 to purchase webcasting and webinar services to ensure lead generation projects can continue.

As mentioned above, some companies are being forced into a digital transformation project meaning some of the remote working capabilities might be retained in the long-term, but virtual alternatives are never going to be a complete replacement for face-to-face meetings, where we can subconsciously pick up non-verbal communication cues so easily.

Electronic payments

The likes of Visa, Mastercard and AMEX are already benefitting from long-standing trends where physical cash is quickly becoming a thing of the past, though the COVID-19 outbreak could accelerate this.

In the short-term, some shops are now only accepting digital payments, though as the total number of transactions are decreasing, so will revenues. That said, in the long-term it could force customers into adopting digital payments.

Although cash is quickly becoming a thing of the past, some from the traditional generations still resist the use of digital currency. The chequebook took years to fall out of common usage as banks and shops were still compelled to accept such payment when offered. The same could be said of physical cash; as long as some still want to use it, it will persist. But in refusing to accept physical payments, shops are forcing some individuals to adopt digital payments.

This is not a likely to be a permanent change for all, but it might be for some, both in terms of consumers who adopt digital payments and the shops who will now only accept digital currency.

Ecommerce

The more people are at home bored, the more likely fingers are going to venture towards the eCommerce apps to spend the money which has been saved from not going to the pub. Your correspondent’s household has turned into a satellite Amazon storeroom thanks to certain individuals in the flat.

Streaming, gaming and video content platforms

This is perhaps the most obvious example of a beneficial segment.

In terms of video streaming, parents will need to occupy children, while adults will also need entertaining as pubs, clubs, theatres, parks, beaches, holidays and gigs all disappear. Netflix is already immensely popular, but with more people stuck at home in the evenings, it may well become more so, but this benefit is not limited to the content king. All streaming platforms could benefit, while Disney+ is launching at a good time to capture the attention of European consumers.

In terms of video platforms outside of streaming, YouTube is enjoying particular success. Not only are there those who are trying to entertain themselves, but there is also millions of hours of information (some much more accurate than others) on the pandemic itself.

From a gaming perspective, this is back to the boredom conundrum. With the usual entertainment venues shut down, consumers will need to be entertained. The likes of Microsoft Xbox, Google Stadia and PlayStation are likely securing additional subscriptions as well as in-game purchases.

Savvy corporates

For those corporations who in a more fortunate cash position than others, the shock to the financial markets could be viewed as an opportunity. Softbank is a perfect example.

Today (March 23), Softbank announced it was selling off certain unnamed assets to fund a second share buyback programme. Combined with the first announced on March 13, Softbank will be able to retire 45% of Softbank shares which are currently on the open market.

Generally speaking, the fewer shares which are on the open market, the less exposed a company is to external influences. All you have to do is look at the conflict between Elliott Management and Twitter/AT&T/Telecom Italia to see what influence an activist investor can have on a business where share price has taken a decline. Share buyback programmes could be viewed as a way to protect a corporate strategy from short-term influences and aggressive investors.

Online grocery delivery

With the rush on supermarkets persisting as the days turn into weeks, online grocery delivery companies are seeing a surge in popularity.

Online shopping delivery service Ocado suspended its website last week, telling customers demand exceeded its capacity to deliver. The firm has said it would fulfil its orders and will soon reopen, with rations placed on certain food items. Share price for Ocado has surged this month, though it did decline once it announced it would temporarily stop taking orders.

The telecommunications industry

The telecommunications industry is critical to today’s society functioning seamlessly, though it has traditionally been ignored. Consumers have simply expected the internet to work without appreciating the importance of the telecommunications industry. Telcos are viewed as boring companies, paid little attention in everyday life.

Thanks to the number of people attempting to entertain themselves, work from home or access educational resources the telco industry has been thrust into the limelight. Authorities are putting in measures to protect these valuable assets, not only to ensure consumers are able to continue their daily lives but so emergency services can continue to function, or research labs can collaborate to create a vaccine.

The telco industry underpins the success of almost every element and facet of society, and now the networks are under pressure, everyone realises it.

Softbank to offload $41bn assets for share buyback programme

In what could be interpreted as an attempt to protect the Japanese conglomerate from the impact of COVID-19, Softbank has announced it will sell assets to the value of JPY4.5 trillion ($41 billion).

Through open market transactions, privately negotiated transactions and tender offers the company plans to repurchase and retire a significant proportion of its shares. Combining this share buyback programme along with another which was announced on March 13, 45% of Softbank shares will be removed from the open market. This looks like a very attractive programme when you consider the performance of international markets amid the COVID-19 pandemic.

“This program will be the largest share buyback and will result in the largest increase in cash balance in the history of SBG, reflecting the firm and unwavering confidence we have in our business,” said Masayoshi Son, CEO of Softbank Group.

“This will allow us to strengthen our balance sheet while significantly reducing debt. Moreover, the monetization of assets represents less than 20 percent of the Company’s current asset value.”

Right now, the business has not said which assets will be divested, though it has its fingers dipped deep into plenty of pies around the world. Thanks to two multi-billion-dollar investment funds, CEO Masayoshi Son has been fuelling the growth of the digital economy for many years. However, the core business is of course telecommunications, and this would appear to be a sensible time to reinvest.

According to Softbank, shares in the telco are undervalued currently, trading at a 73% discount “to their intrinsic value”, the largest dip in the company’s history. Since this announcement, Softbank share price has risen 18.61% (at the time of writing).

What this small story does show is that those with money can benefit from any developments in society. Softbank is freeing up some assets to repurchase shares and wrestle back control of the organisation, as the fewer shares which are available for purchase, the more protected Softbank is from external influences, such as activist investors.

NTT Docomo set to ditch Huawei phones over Android fears – report

Japanese operator group NTT Docomo will not offer Huawei smartphones when it launches its 5G network next year, according to a report.

The scoop comes courtesy of Nikkei Asian Review, which chatted to some NTT execs that preferred to keep it on the QT. The reason for this sudden reticence is fairly simple: if Google pulls the plug on Android support for Huawei phones the operator doesn’t want to be stuck with thousands of very expensive bricks that nobody wants to buy.

If this is true then it sets a very alarming precedent for Huawei, especially if the other Japanese operators follow suit. Japan was apparently Huawei’s fifth largest market last year and is right in the middle of the geopolitical arm wrestle between the US and China that has forced Google’s hand when it comes to Android support for Huawei phones.

The Nikkei Asian Review is on good form today, having also learned that Softbank is hoping to launch its 5G network two years ahead of schedule. How great an achievement this is, however, is open to debate, since many 5G networks around the world are already live. If the original projection by Softbank was that it wasn’t going to get its 5G act together until 2022 then it just as well it has belatedly pulled its socks up.

Softbank opens yet another investment fund

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Japanese 5G licensees

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.