Google makes more progress in telco cloud with Telefonica tie-up

Telco cloud services might still be in their embryonic days, but there is plenty of attention from the Silicon Valley internet giants as Google inks a deal with Telefonica.

As part of the new agreement, Google Cloud will open a new cloud region in Spain that will make use of Telefonica’s Madrid region infrastructure, while jointly creating 5G mobile edge computing services and products with the telco.

“The unusual situation that we have had to live in, marked by the confinement of the world’s population and the exponential increase in remote work and online education and entertainment, has highlighted the key role that connectivity and digitalization play in society to create a more inclusive and sustainable future,” said José María Álvarez-Pallete, CEO of Telefónica.

“Through our alliance with Google Cloud,  we want to fulfil our social commitment and foster the recovery of the economy by helping companies, the public administration and all types of organizations not only to recover the ground lost by the crisis as well as  accelerate their digital transformation and strengthen themselves for the future.”

How many of companies will maintain today’s working dynamics once the COVID-19 pandemic abates remains to be seen, however, Google clearly sees value in partnering with telcos to enhance its cloud computing footprint.


How do the internet giants view the telcos?

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Aside from this partnership with Telefonica, Google Cloud is also working with Telecom Italia in Italy, where it plans to open another cloud region, T-Systems in Germany and it is also developing edge compute services with AT&T in the US.

Google is of course not alone in targeting the telco cloud world for additional revenues. Microsoft has acquired NFV-specialists Affirmed Networks and Metaswitch, while Amazon Web Services (AWS) have also been making the right noises. You get the impression Google Cloud and Microsoft has gotten a jump on AWS in this space for the moment, but the Amazon business unit is the cloud market leader and could turn momentum around quickly.

Google looks like the most aggressive of the internet giants in this space currently, and considering success, we would expect the team to up the ante soon enough.

Although the Google business has largely been steady through the coronavirus pandemic, there have been dents. Hiring has been frozen, while the latest financial results demonstrated some weakness in the advertising market. Most importantly, however, its diversification efforts have allowed it to continue growth and expansion.

Top of the list of diversification successes has to be the Cloud business unit. The latest quarterly results saw revenues increase to $2.777 billion, a 52% year-on-year increase, and while it does not command the same market share as its rivals, it is a worthy inclusion on the podium.

The telco cloud segment presents an opportunity for all the internet giants to expand cloud revenues, but as it is still early days, Google could create a leadership position with the right partnerships. This could erode the gap between itself and the top two cloud players.

It does seem to be following a strategy of exclusive partnerships in each market, and it will be interesting to see who discussions are taking place within regions such as the UK, France and the Netherlands.

The risk for the telcos is somewhat of double-edged sword. Yes, the assistance of the internet giants could lead to greater revenues, but telcos could be relegated to the role of connectivity partner. Some telcos might be happy with a commoditised role in the partnership, but others would not see the value.

As MasMovil becomes latest acquisition target, are more takeovers on the horizon?

KKR, Cinven and Providence have combined forces to buy Spanish telco MasMovil, but with depressed share prices and regulatory opinions shifting, it could be the first of many corporate transactions.

The merger and acquisition landscape has been somewhat quiet over the last few months, since the COVID-19 pandemic set in across the world, but we struggle to believe there are not cash rich investment funds considering weighty purchases. The most successful investment funds are only such because they can sniff an opportunity, and this is exactly what the MasMovil acquisition should be viewed as; corporate opportunism.

There are still approvals needed from Banca de Espana, the Spanish Telecoms ministry and Industry & Commerce ministry (foreign investment approval), as well as competition authorities in the EU, China, Turkey, Serbia and Israel. However, we suspect the process will run smoothly, especially considering MasMovil CEO Meinrad Spenger has already said he would support the transaction.

First reported by Reuters, the trio of bankers have now made an official public tender offer for $3.3 billion, a 22% premium on the opening share price this morning (June 1). Share price has surged 20%, as one would expect, though it has only just crept above the pre-lockdown levels.

This is what is very interesting about the telco market currently; share price for all major and minor telcos is severely depressed. For those who have money available, and the desire to push into the telecoms space, it is a very attractive opportunity currently.

Share price of selected European telcos during COVID-19 lockdown period
Telco Share Price, June 1 Share Price, Feb 3 Change
BT 120.51 163.34 -26%
Telecom Italia 0.48 0.34 -29%
Telefonica 6.11 4.48 -26%
Telenor 17.75 15.02 -15%
Orange 12.80 10.98 -14%
Vodafone 150.82 134.86 -11%

Share prices accurate at the time of writing – 10.30am, June 1

Some of the companies mentioned above would be too big to consider to be an acquisition target, Orange or Telefonica for example, though others could certainly fall into the right bracket. BT has a market capitalisation of £11.9 billion and is underperforming against UK rivals considerably, while the likes of KPN in the Netherlands could be another interesting target. Sitting third in the mobile market share rankings in the Netherlands, a cash injection and refreshed strategy could be a worthwhile gamble with the telco’s market capitalisation currently €9.42 billion.

Of course what is also worth noting is that the opportunity for acquiring business is not just limited to the bankers. Thanks to a ruling from the European Court of Justice, telcos might have renewed enthusiasm for market consolidation.

Last week, the General Court of the European Court of Justice annulled a decision made in 2016 to block a merger between O2 and Three in the UK on the grounds of competition. In annulling this decision, it challenges the long-standing belief that mergers which would take a market from four operators to three would be vetoed automatically.

This decision is very important for those who have been championing market consolidation. Some argue fewer telcos would results in more concentrated network investment, as well as scaled economics thanks to larger customer bases. The decision from the European courts opens the door for potential market consolidation.

There are of course markets where consolidation is not realistic, the Netherlands or Belgium for example where there are only three mobile network operators (MNOs) today, but there are others where this could be an interesting development. Spain is certainly one of them.

The Spanish market is one where there is plenty of competition. There are currently four major mobile operators, albeit MasMovil is an MVNO, while Euskaltel announced plans to challenge the market with a Virgin Media branded proposition. KKR, Cinven and Providence want to take control of MasMovil, but might Orange be tempted to muscle in on the action?

Telco subscriptions in Spain (2018-2021)
Telco 2018 2019 2020 2021
Orange 19,450,963 19,016,941 19,783,330 19,890,931
Telefonica 18,384,400 18,916,801 19,579,529 20,040,114
Vodafone 15,500,832 15,427,639 15,262,546 15,406,460
MasMovil 6,760,000 7,435,000 7,513,777 7,952,289

Source: Omdia World Information Series

MasMovil could look attractive to Orange for several reasons. Firstly, this is a telco which is heading in the right direction, subscriptions are growing year-on-year. Secondly, MasMovil has bought into the convergence business model which is being championed by the Orange Group. And finally, MasMovil is a MVNO customer of Orange’s Spanish wholesale business, making integration a bit simpler.

With the European courts turning a new page on market consolidation, possibly indicating authorities might be more accommodating of such transactions, this could be an idea which is being discussed in the Orange offices. It would make sense for Orange’s ambitions in the country, while MasMovil is open to some sort of transaction.

Some might also suggest Telefonica would be interested, but with the management team desperate to reduce the €44 billion debt burden and its credit ratings not exactly sparkling, this is unlikely. Vodafone might have considered such a move at another time, but it has larger problems to tackle without adding the complications of an acquisition, most notably in India and Italy.

Speculation aside, KKR, Cinven and Providence will attempt to buy the Spanish challenger telco. With a depressed share price and appreciation for the importance of the telecoms industry at its highest levels, we would not be surprised if this is only the first of several transactions from investment funds, though telco consolidation is also another story worth keeping a close eye on.

Spanish operators beg customers not to screw the network up

All the major Spanish telcos have unveiled a joint statement to customers, asking for fair and reasonable use of the internet during over the foreseeable future.

Many companies are now asking employees to work from home, and in some nations, the government is enforcing the policy. In recent days, the coronavirus impact in Spain has escalated leading to the declaration of a two-week state of emergency and the implementation of a national lockdown similar to the one already imposed in Italy.

In response, the Spanish telco operators are asking customers to be frugal with their connectivity services and products. Networks are already being strained, though these tests will become more aggressive as more people remain in their homes.

In Italy, WhatsApp has said there is a 20% year-on-year increase in the number of messages and calls across the service, while Microsoft has said it has seen a 100% growth in usage of its enterprise productivity application Teams. Telecom Italia CEO Luigi Gubitosi said there has been a 70% increase of internet traffic over the landline network, partly thanks to video streaming and gaming applications such as Fortnite and Call of Duty.

With home broadband networks not necessarily designed for such a rapid increase in data usage consistently throughout the day, the networks are likely to become strained very quickly as parents and children both fight for connectivity resources.

As a precautionary measure, the Spanish telcos have asked customers to adhere to some best practise in an attempt to maintain some sort of tolerable experience:

  • Only download documents which are needed immediately – other documents can be downloaded during off-peak hours
  • Send links to heavy files, as opposed to attaching the document to an email
  • Use a landline where possible not mobile devices
  • Reserve leisure applications, gaming or video streaming, for off-peak hours

The operators are attempting to increase capacity, by putting more equipment into service and increasing the capacity of existing equipment, but these projects are time consuming. It might take days or weeks to scale up capacity throughout the entire network. These activities could be likened to the way in which services are scaled-up in the coastal regions during the holiday season.

Networks are likely to get a test the likes of which the telcos are not prepared for. It the telcos can convince customers to be more responsible with the way in which the internet is used, that will help, but it is not the answer to a challenge which is only likely to get worse in the coming weeks.

BT streamlining continues with sale of Spanish managed services

UK telecoms group BT is in the middle of a major streamlining operation and the latest casualty is its Spanish managed ICT services business.

The business is part of BT’s Global Services unit, which is the main focus of the current restructuring programme. Earlier this year BT raised around €100 million by flogging some Dutch infrastructure and this Spanish operation includes some infrastructure too. It’s being snapped up by Portobello Capital as private equity continues to show increased interest in telecoms infrastructure.

“Today’s announcement is another key milestone in the execution of our strategy to make Global a more agile and customer focused business,” said Bas Burger, CEO of BT Global. “The transaction is great for BT, for our people and for our customers. Through agreements with the Spanish business, it provides continuity to both our multinational and local customers. It also enables us to focus on what we do best: providing secure connectivity and digital solutions to multinational companies globally.”

“We are very pleased to invest in one of the leading providers of managed telecommunications services to the corporate market in Spain,” said Luis Peñarrocha, a founding partner of Portobello Capital. “We look forward to continued investment in the development of the business for the benefit of new and existing customers in the region.”

The price of the transaction wasn’t disclosed, but the business turns over nearly a quarter of a billion pounds a year so we must be talking serious cash. Assets in the transaction include a 5,600 km owned and leased optical fibre network, fully owned city fibre networks in Barcelona and Madrid and three data centres.

Spain and Portugal resist US pressure over Huawei

Portugal is the latest western country to say it won’t ban Huawei from its 5G network, while Telefónica Spain is using Huawei for its 5G core.

AP reports that Portugal formally notified the US it won’t be excluding any Chinese vendors from participation in its 5G network. The report goes on to note that Portugal already has a fair bit of Chinese infrastructure investment and may be wary of putting that sort of thing in jeopardy. If so, that’s further evidence that the whole 5G security thing is a proxy for the broader geopolitical tussle between the US and China and that China may be threatening further consequences for countries that pick team US.

Meanwhile Telefónica has revealed it will be using Huawei in its Spanish 5G core, indicating there’s no ban from the Spanish government either. Expansión got the scoop and Reuters got confirmation from Telefónica. Both reports note that Telefónica is moving to a multi-vendor strategy having been all-in with Huawei, so that would appear to mark some kind of concession to security concerns.

US President Trump has been in the UK for a NATO summit and has inevitably been whispering in the ears of allied leaders about the perils of Chinese involvement in 5G networks. While the UK is still agonising over the matter, general European sentiment seems to be warming to Huawei, which could lead to diplomatic repercussions down the line. It seems the lack of hard evidence of the security threat Huawei is accused of posing is seriously undermining the US position.

Telefónica demos surgery with a bit of help from 5G

Some surgeries were performed in Spain with real-time assistance from Japan thanks to the low latency of 5G.

This is still far from the remote surgery that has for so long been used as an illustration of the utopian potential of 5G, but is nonetheless a dramatic illustration of the kind of things it could unlock. A surgeon performed some operations in Malaga and had real-time assistance from another doctor who was dialling in from Tokyo. That assistance would have been far less useful if there had been a lag on the line.

The demo was part of the Advanced Digestive Endoscopy Conference and featured some degree of augmented reality. It claims also to be the first in medical congress in which the training sessions have been broadcast live with almost no latency, thus enabling attendees to interact thanks to 5G and AR.

“The operations organised at this conference are just an example of the numerous practical applications that 5G can have in healthcare,” said Mercedes Fernández, Innovation Manager at Telefónica. “Thanks to two key features of this technology – the low latency that allows transmission without delays and the ability to handle large video streams at high speed – it was possible to perform this intervention with the added value of doing so live and in real time with the interaction of doctors and attendees to provide solutions and ask questions about the clinical case that was undertaken.”

“The experience of previous years in organising innovative training courses in digestive endoscopy allows us this year to provide a global training course thanks to 5G technology, something that might seem science fiction but that we are making reality today” said Dr Pedro Rosón the surgeon who performed the operations.

“The use of 5G and augmented reality is, without doubt, what stands out in comparison with our previous editions and with any other standard medical workshops. We are therefore proud to keep and to continue offering an innovative training space with the live conducting of cases by specialists from Spain and abroad, with an emphasis on theory and reviewing the latest advances in interventional endoscopy.”

Remote assistance via 5G that makes use of AR may well be one of the primary use-cases used to sell 5G to industry. The potential it offers for providing training in the field is clear and it could transform the way training and mentoring is conducted. These are still early days, but each demo such as this one likely makes mainstream acceptance of this kind of technology more likely.

Vodafone Spain rumoured to be considering fixed network sale

The rumour mill is churning at maximum speed as Vodafone Spain is reportedly considering a sale of its fixed network for €1.2 billion.

It would appear to be an unusual move. With many national business units shifting towards a convergence business model, divesting its fixed networks assets would take the Spanish unit the other direction.

According to Spanish news site Expansion, the business is currently undergoing a restructure, owing to difficult market conditions, and the sale of the fixed network could certainly add some much-needed cash into operations.

“Currently there is no project that is working on the complete sale of the network proactively, although possibilities are always being analysed and studied to find efficiencies and improve the profitability provided by assets, such as the possible partial sale,” a spokesperson said.

The Spanish market is a tricky one to master currently. After the management team deemed renewing TV rights for the Champions League and La Liga football competitions were deemed unprofitable, Vodafone Spain lost 71,000 TV customers almost immediately, though the mobile business did grow gradually over the course of 2018.

Looking at the most recent financial results, alongside Italy, Spain is proving to be the problem child of Vodafone’s European family. Year-on-year revenues declined by 9.3% for the second quarter of 2019, though tariffs have been overhauled to create a more competitive proposition.

However, alongside the new data tariffs, Vodafone’s rivals launched their own promotions which appear to be much more attractive. Over the three-month period, Vodafone lost two corporate accounts, 158,000 postpaid mobile subscribers, 49,000 fixed broadband customers and 24,000 TV customers.

Although these rumours are far from a sign anything will actually happen, we’ll wait for a potential buyer to make themselves known before investing too much energy, it does seem to be a strange move. Vodafone does of course need cash ASAP, though if it still wants to persist with the convergence strategy in Spain it would have to enter into a leasing agreement with one of the other network owners should the sale go through. It does appear to be somewhat short-sighted.

Telefonica pairs up with Santander for banking 5G usecase

Telefonica Spain has announced a tie-up with Santander to launch a joint-innovation project to test out 5G applications in the banking sector.

The project will focus on three different usecases, 4K video conferencing, low latency cloud storage and virtual reality. The hope is to more readily engage customers and adapt their financial products to meet the new demands of the digital economy.

“The initiative with Santander Spain is the result of the collaboration with our corporate customers to ensure that 5G technology is deployed in a way that fully meets their needs, prioritizing the development of the most demanded capacities,” said Emilio Gayo, CEO of Telefónica Spain. “With initiatives like this we also ensure the early adoption of 5G and the positive impact on the Spanish industrial network.”

“This agreement with Telefónica responds to Santander’s commitment to innovation and to accompanying our customers in the transformation process towards the new generation of 5G communications,” said Rami Aboukhair, CEO of Santander Spain. “The new technology will allow us to have a better connectivity and faster speed of response in transactions and to offer all our customers the best experience and the best possible solutions.”

Starting with the video application, a 4K video conferencing link will be set up between two bank branches to offer ultra-high-resolution image, 4096×2160, and natural motion with zero delay. Secondly, a low latency cloud storage solution will be provided by Telefónica, based on the Hitachi Content Platform Anywhere Edge solution embedded on Telefónica’s edge computing infrastructure.

Finally, the pair will introduce co-working spaces developed in collaboration with Idronia that use Virtual Reality, 360 video and Edge Computing technologies. The aim is to offer an immersive reality service allows customers to remotely visit co-working spaces such as the Santander Work Cafe located at the Santander banking office in the centre of Madrid.

5G is being switched on in numerous locations and now it is the time to focus more heavily on the commercial side of telco. There might be some gain in offering eMBB products to both consumer and enterprise customers, but to see the promised value the telcos will have to explore new areas. European telcos might be behind other regions when it comes to engaging the verticals, but progress is being made.

Spain pitches for connectivity leadership with Vodafone 5G launch

Spain is not often mentioned when discussing the leaders for connectivity in Europe, but it does seem momentum is gathering pace in the country.

The most recent announcement will see Vodafone debut its 5G offering in 15 cities, the first to hit the on-switch in Spain. The Spanish business is also sneaking in just ahead of the Brits in the internal Vodafone race. Quoting speeds up to 1 Gbps, the hope is to be up to 2 Gbps by the end of the year.

And its not only the mobile side which is demonstrating some interesting trends. Looking at the fixed broadband segment, Spain is one of the leading nations when it comes to fibre penetration. According to the latest statistics from the Fibre to the Home Council Europe, 44% of Spanish citizens subscribe to FTTH broadband services, with only Latvia and Lithuania ahead of the country.

One of the issues which Spain will face is the digital divide however. This is a challenge which is unavoidable across the country when you take into consideration its size. At 498,468 km², it is the third largest by geography (fourth if you include Russia) and the seventh largest by population.

This perhaps makes the 44% fibre uptake more impressive, though there will still be those in the countryside who perhaps feel underserved. However, Movistar, one of Telefonica’s brands, has suggested it hopes to have 100% fibre coverage by 2024. This ambition is dependent on the availability of public funds, but should all the pieces fall into place, it will achieve the milestone almost a decade ahead of the UK.

Five years is a long time to wait if you are struggling today, therefore there are various options including WiMAX, satellite and fixed wireless access over 4G products available today. For a country which is scarcely mentioned as the leader in the European connectivity rankings, it does seem to have the right blend when satisfying the insatiable data diets of its citizens.

Looking at the 5G race, Vodafone España is certainly putting itself at the front of the pack with a timeline geared towards June 15. What is also quite impressive is the breadth of the launch. 15 cities on launch date is an impressive haul, and while the coverage might be limited it does give the telco the first step to build outwards and onwards.

Once launched, Vodafone España claims the network could provide latency of less than five milliseconds. For the man-on-the-street, this will mean little, though it will give the technologists the opportunity to explore new services in for real-time applications such as autonomous vehicles, tele-medicine, VR, 8K video and cloud gaming.

This is the most important aspect for any 5G network; it has to have scale. Not only do you have to meet expectations for those who are paying for 5G connectivity, there has to be enough coverage to beta-test and eventually launch new services. The countries which reach this scale the quickest, will give their innovators the best possible start to create the 5G-specific services and applications.

This is not to say they would dominate the market in the way Uber did with the introduction of 4G but having months (or perhaps years) more time to create and hone an offering would certainly be an advantage.

The Spaniards might be guilty of the odd siesta, but they certainly haven’t been sluggish when it comes to getting 5G up and running.

Orange Spain and ZTE complete Europe’s first standalone 5G call

The mobile operator claimed that the voice and data call over end-to-end 5G network in Valencia was the first of its kind in Spain as well as in Europe. All other trials have been done over non-standalone networks.

The Spanish branch of Orange successfully trialled a voice and data call on a “100% 5G” network with standalone architecture, the company announced. The end-to-end solution was provided by ZTE, one of Orange’s suppliers. The test achieved a peak downlink data rate of 876 Mbps on one test terminal, and 3.2 Gbps with 12 test terminals working simultaneously in the same cell.

“It is critical to understand this new and disruptive technology, with which we could close the gap from our 4G networks to offer our customers the best possible 5G network in the world when the time is right,” said Mónica Sala, Director of Networks at Orange (translated from Spanish). “The know-how of ZTE is evident in achieving this milestone and we are very proud of the results.”

The live 5G networks today, in South Korea and the US, for example, are primarily providing enhanced mobile broadband services, which can be achieved with non-standalone mode, i.e. overlaying 5G radio networks on top of 4G core. This was the architecture that Huawei used when demonstrating 5G at MWC on Vodafone’s network. On the other hand, to achieve 5G’s full capabilities, including to provide virtualised networks (e.g. network slicing for a particular client) and to run the extreme low latency applications (e.g. automatic cars) there would need end-to-end 5G networks, i.e. 5G radio and 5G core.

ZTE was also obviously happy with the success of the trial. “It is a great pleasure for us to work hand in hand with Orange for technological innovation and 5G leadership,” Xiao Ming, President of Global Sales at ZTE stressed. Orange is one of ZTE’s two biggest accounts in Europe (the other being the Three group), so holding on and expanding the partnership is critical for the company that has been struggling in the mature markets.

Orange Spain plans to extend 5G trials to other industries including construction, energy, health, automotive, and tourism, to test out the use cases. The company also said that it is going to test 5G in a handful of cities with the support provided by Red.es, the country’s digital transformation programmes, operated under the direction of the Secretary of State for Information Society and Digital Agenda.