France next on the list to be teased with Trump’s tariffs

The United States Trade Representative (USTR) has opened an investigation into France’s digital sales tax, a move which could lead to the European nation facing trade tariffs.

The digital sales tax in France has been viewed as a means to force internet companies to play fair. The creative accounting practices of these companies has ensured nominal tax has been paid to various European states, and France has had enough. The proposed tax has passed through the lower parliamentary house, the National Assembly, and is expected to get the final thumbs-up today from the Senate.

As a result, US Trade Representative Robert Lighthizer has announced the launch of an investigation under Section 301 of the Trade Act of 1974 of the Digital Services Tax (DST) into the French government. This is the very same tool used by the Trump administration to justify the introduction of tariffs against China due to the alleged theft of IP.

“The United States is very concerned that the digital services tax which is expected to pass the French Senate tomorrow unfairly targets American companies,” said Lighthizer.

“The President has directed that we investigate the effects of this legislation and determine whether it is discriminatory or unreasonable and burdens or restricts United States commerce.”

What is worth noting is that while many US companies might find themselves paying more tax, this is not necessarily a move to raid the US economy. This tax has been directed towards all digital companies who abuse the international tax system to the detriment of the French government and society irrelevant as to their nationality, it just so happens the US dominates the internet industry.

Many will view the French move as a gallant effort to hold the internet economy accountable, though it seems the US does not feel the same way; its own economy and society does of course benefit from the tax skulduggery.

The suggestion of the US imposing tariffs on the US comes two days after President Trump declared Indian tariffs on US goods should be a thing of the past.

The tax itself has been in the pipeline for some time, as European nations have become increasingly frustrated by the taxation strategies of the digital economy. Companies such as Google, Facebook and Amazon have been shifting profits freely throughout the world to ensure lower taxation rates are paid. This move from France, to impose a 3% sales tax on revenues realised within its borders, seems like an effective counter-punch.

What is worth noting is it is not just the US firms who are abusing this taxation system. Sweden’s Spotify is another which has played the system well. In the UK, as an example, the company reported revenues of £444 million over the course of 2017 but paid £891,425 in tax as it only reported advertising revenues in the country. Revenues associated with the ‘Premium’ subscription product were moved to Sweden where it could pay less tax.

France is not alone with its frustrations either. The UK is another nation which is considering its own digital tax reforms, while the European Commission attempted to pass bloc-wide rules recently. These rules were blocked by the likes of Ireland and Luxembourg, two countries who benefit significantly from the fleecing of other nations.

Now onto the US response. Section 301 and related provisions of the Trade Act offer the USTR the opportunity to investigate what it or the White House deem as a foreign country’s unfair trade practices. There will be a public consultation and lobby efforts from Silicon Valley and should the USTR conclude France is unfairly persecuting US business, tariffs could be directed towards imported cheese and garlic.

Tariffs are a popular weapon for Trump and the White House hacketmen on the international trade scene, as it is becoming increasingly common for US diplomats to huff and puff, while banging their chest and showing off their biceps when things don’t go their way.

Unfortunately, the US doesn’t really have a leg to stand on here, though the presence of logic will not persuade the hawks from their flightpath. Internet companies, all over the world for that matter, are taking advantage of a dated taxation system which allows them to grow bank accounts without recontributing to the country which has fuelled this prosperity. There is little which can be said to counter this position.

Interestingly enough, the move could spark wider tensions. The relationship between the White House and the European Union is already stressed and targeting a single member state might not be received well by the bloc. The US feels targeting a single member state is legitimate, though there might well be a bigger conversation to be had in Brussels.

With the clouds of tariffs already lurking above the European automotive industry, the US might find itself with another trade disagreement on its hands before too long.

Vodafone UK edges in front with ‘wider pipe’ approach to 5G

It’s always difficult to offer a winning position before all hands have been shown, but Vodafone looks to have stretched a nose ahead in the UK 5G race.

For the moment, we can only really judge two of the four 5G propositions in the UK, though there have also been hints from Three. With EE launching its 5G assault last month, and Vodafone switching on this week, it does seem that the latter has re-found its mojo and could challenge leadership positions in the UK connectivity standings.

As it stands, O2 and EE are sitting very comfortably in the number one and two spots respectively. With 36% and 33% market share for mobile subscriptions, according to Ovum’s WCIS, Vodafone is a distant third with 20% and Three falls away with 11% in fourth. However, that can all change very quickly, it wasn’t long ago Vodafone was the clear market leader.

Looking at the current offerings from the UK MNOs, Vodafone does look to have a more attractive offering. On the subsidised handsets front, the two are pretty much on par with Vodafone being a little bit cheaper. However, the SIM-only offering might grab the attention of a lot of people.

This is a model which we think is much more suited in the 5G era. If you believe the technologists, delivering data over 5G networks is cheaper than 4G. This is down to efficiency gains on the spectrum front, as well as improvements to antenna and the introduction of new technologies such as Massive MIMO. If it is becoming cheaper to give data to the increasingly insatiable consumer, why not offer unlimited.

Tiering on speeds is a very interesting approach. Data usage is going up for every demographic, such is life as more aspects become digitised, but the variety of ways people consume that data is becoming increasingly varied. Some will only use the internet for browsing, some focus on video consumption and others are gamers. Each different experience can be satisfied by different speed limits.

What will need to be done over the next couple of weeks and months is educating the consumer. Most consumers think faster is always better, but sometimes this is not the case. The majority of consumers could get by with mobile connectivity of 10-20 Mbps, but many think they need the fastest possible connection.

If you are in an urban setting and not able to use the internet on your device properly, the immediate assumption is that speeds are not fast enough. This might be the case, but another explanation is that there are too many people attempting to connect through the same cell site. This is network congestion, its not necessarily anything to do with speed, but too many people are clogging up the digital highway.

This is where 5G can add benefits over 4G. Think of the ‘internet’ as a water pipe. Not only does 5G make the water flow faster, it makes the pipe wider to allow more water to flow through it. This should address the network congestion challenge in various places if more people are connecting more devices to the same cell sites.

With this concept in mind, Vodafone has built the speed-tiered options; all you have to do is work-out how you use your phone, decide on a suitable speed and then you never have to worry about using up your data allocation ever again.

The one criticism we have is the pricing, which you can see below:

Speed limit 2 Mbps 10 Mbps Fastest possible
Price £23 £26 £30

On the lower end of the scale, the 2 Mbps tier, we believe Vodafone has charged a bit too much. And on the upper-end, the telco probably could have charged more. The strategy appears to be gearing as many people as possible to the middle tier which effectively undermines the concept of having experience designed tiers in the first place.

The success of this initiative will entirely depend on whether Vodafone can educate the consumer on the basics on connectivity experience. The water pipe analogy is a good one to explain the difference between 5G and 4G, though it would also help to inform users of how much speed is required to do what.

How much do you need to use WhatsApp, watch YouTube or play Harry Potter; Wizards Unite, for example. The general consumer in the UK will not know the answer to this question, and unless they do, this Vodafone strategy will likely fail.

Ofcom introduces text-to-switch

Thanks to Ofcom the days of being passed around a call-centre should theoretically be over, as new text-to-switch rules come into play.

Starting today (July 1) customers will be able to end mobile contracts simply by texting their provider. It’ll end an incredibly frustrating process used by all mobile operators to keep valuable post-paid customers from leaving their grasp.

It has been one of the biggest complaints against the telcos over the years; ending contracts is an incredibly painful process. While it might leave customers frustrated and infuriated, it does also help the telcos improve their churn. This is a system which is effectively loyalty through stubbornness, as the telcos enter a game of hide-and-seek with customers. It’s a competition of will and a perfect example of the telcos not understanding customer service.

“Breaking up with your mobile provider has never been easier thanks to Ofcom’s new rules,” said Lindsey Fussell, Ofcom’s Consumer Group Director. “You won’t need to have that awkward chat with your current provider to take advantage of the great deals available.”

Of course, while the majority of the telcos will be disappointed with the new rules, realising they will have to figure out new strategies to keep customers instead of forcing them into loyalty through the torture of hold-music, there will be some who are happy.

“I’m delighted that text-to-switch makes it easier and faster for everyone to get the best deal, helping people change to a new mobile provider with a few taps on their phone,” said Dave Dyson, CEO of Three.

“At Three, we’re making huge improvements to our 4G experience and preparing to launch the UK’s fastest 5G network, in more cities and towns than anyone else this year. This makes it the perfect time for people to consider the outstanding experience Three can offer, both now and in the future.”

Three might well be happy with the development considering the opportunity it has as we approach the era of 5G tariffs. Although the telco has not unveiled any pricing plans for 5G yet, the scene as been set for a disruptor to enter the fray and cause chaos.

EE has launched its 5G network and Vodafone is entering the small numbers in the countdown. Both have detailed tariffs on their websites, and both are charging a considerable premium for the pleasure of 5G. There is a massive opportunity for Three to undercut these two competitors on price, and with the new text-to-switch rules, it will be easier to lure potential subscriptions away.

In a perfect world, this text-to-switch initiative will force the telcos into a more customer-centric mind frame. Most businesses will tell you it is more profitable to cultivate customers first and chase new business second, but that have never really been the case for the telcos. Almost every business is geared towards acquisition first, leading the industry to its current position where it has one of the worst reputations for customer service and experience.

Perhaps these new rules will encourage the telcos to think about customers in a different way. The technology and data are certainly there to create a more valuable and informed customer experience, but only time will tell whether the telcos embrace it in the same way the OTTs do.

O2 UK first to exploit fairness initiative with Overpayment Estimator

Ofcom has been pressuring UK MNOs to stop ripping off their customers at the end of their contracts and O2 has been the first to act.

One of the secrets of success if you work in a regulated industry is turning new regulations to your advantage. When they can get away with it all operators rip off their customers whenever they can, whether it’s exorbitant roaming fees, punitive charges for going over your allowance or failing to let you know when you’ve paid off your handset.

The smart MNOs are the ones that make a virtue out of doing what they’re compelled to by the regulator and that seems to be what O2 has done with the launch of its Overpayment Estimator. It’s actually a fairly rudimentary tool that just asks you about your current contract, tells you what you could save if you switch to O2 when it ends and then invites you to set a calendar reminder to switch to O2 when that happens.

The fact that this is even a thing is an indictment of how UK MNOs treat their own customers. It’s surely not beyond the capabilities of modern BSS to create an internal calendar marker at the start of a contract that automatically notifies them when it has finished and yet that often doesn’t happen. The only plausible explanation can be that they want their customers to keep paying over the odds and that’s not cool.

“It is simply not right that consumers across the UK are being charged for a phone they already own,” said Mark Evans, CEO of O2. “You wouldn’t keep giving money to your mortgage provider if you’d finished payments and owned your house – so why should it be that way for your phone? The mobile industry does not have the best track record on transparent billing practices.  Our Overpayment Estimator is another positive move towards changing that.”

O2 has something called ‘custom plans, which it says don’t charge customers for their phones once they’re paid off and automatically lower their bills. If some of its competitors are still doing that sort of thing then O2 deserves some credit for exploiting this window of opportunity while it’s still open. The technology presumably exists to only charge people for what they use, but there’s no point in trying to walk before you can crawl is there?

Vodafone Idea has had enough of toe-to-toe Jio battle

Vodafone Idea has contacted subscribers to confirm the end of its ultra-low-priced data tariff as it shifts towards ARPU over scale.

According to The Economic Times, Vodafone Idea is following in the footsteps of Bharti Airtel to end its lower cost data tariffs. These might be attractive to Indian consumers and do encourage the overall subscription numbers, but the dent which has been put in ARPU figures seems to be too much to stomach anymore.

The SMS states:

“Dear Customer, your current Idea post-paid plan is no longer valid from 10-July-2019.You will be upgraded to Nirvana 399 with benefits of unlimited voice calls, 40 GB high speed data and 100 L/N SMS.”

Although the telco is asking subscribers to effectively double their monthly bill, the new data plan does also include year-long subscriptions to Amazon Prime, Prime Video and Prime Music, as well as other bundled TV services.

For Vodafone Idea, this is perhaps a move which has been on the horizon for some time.

When Jio entered the market, it offered a service which drastically undercut anything from the incumbent players. This loss-leader position threw the market into chaos, with profits being slashed everywhere and telcos disappearing from the landscape. The remaining players had to create tariffs which were competitive, such was the queue of consumers waiting to switch to Jio, but they would also have to stomach significant blows on the financial spreadsheets.

What this move does suggest is that Vodafone Idea is willing to sacrifice subscriber scale, focusing on higher-value services and customers. It will see market share drop, but if there are greater profits on the horizon, investors might be happy with the outcome.

Jio is unlikely to follow suit, why would it if it is profitable at the same time as cheap, but this doesn’t mean Vodafone Idea is in trouble; there will be a market for higher value services in India and this is just a different way of doing business.

What this does suggest is that Vodafone Idea cannot tolerate the toe-to-toe battle with Jio. It seems it cannot be beaten at its own game, so perhaps it is a better idea for Vodafone Idea to carve its own niche in the Indian telco environment.

More than 13% mobile users in Spain changed operators in 2018

According to a recent survey, over 13% of mobile users in Spain switched mobile operator in 2018, 18% more considered switching.

The National Commission on Markets and Competition (Comisión Nacional de los Mercados y la Competencia, “CNMC”), Spain’s market competition watchdog, recently polled 5,000 families and over 9,000 individuals to understand their loyalty towards their mobile operators. The survey found the churn rate reached 13.48% of all mobile users. In addition, 11.25% considered moving to a new operator but did not start the process, a further 6.57% did not only consider moving but had actually started the process of moving but did not complete the swap.

When it comes to the main reason for moving, tariff was by far the leading driver, cited by 62% of the individual respondents, the highest level since 2015. A quarter of users moved operators to get fixed and mobile packages, with 20% driven away by the dissatisfaction with the quality of service at their original operators. 14% said they were attracted to change by special promotions (see the chart at the bottom of the article).

On the other hand, the most cited reason for users to stay with an operator for long term is tariff discount or improved terms, chosen by 49% of all respondents. Until two years ago, the leading reason had been promotion of new handsets.

CNMC survey 2018 b

UK MNOs accused of using handset subsidies to rip off their customers

Research from Citizens Advice reckons four million people in the UK are still paying back their phone subsidies after the end of their contracts.

This will come as no surprise to anyone who has reached the end of a postpaid contract that came with a subsidised handset. It’s universally understood that such things are part service contract and part financing on the device, but MNOs are generally deficient in contacting their customers when the contract period is over.

They do get in touch, but usually with misleading offers such as ‘free’ new handsets, when in fact they’re merely calling for the customer to initiate a fresh postpaid contract, complete with a subsidised handset. An honest exchange would also offer a SIM-only deal that would offer far more data for far less money in the absence of a new device.

Citizens Advice specifically calls out EE, Vodafone and Three, implying O2 does a better job on this matter. It reckons these four million mugs are being overcharged, on average, by £22 per month, which seems about right. It also found that most of the time we’re paying more for the handset by getting it subsidised by the operator than if we just bought it on the open market, but there’s no surprise there.

“It is unacceptable that mobile providers are knowingly overcharging customers for phones they already own,” said Gillian Guy, Chief Exec of Citizens Advice. “We’ve heard a lot of talk from government and the regulator but now we need action. Other companies have already stopped doing this so we’re looking for these three major providers to follow suit. In the meantime, consumers should check their phone bills to see if they can save money with a SIM-only contract or upgrade to a new phone.”

Like most studies accusing utilities of ripping off their customers this ultimately comes down to telling them not to be lazy and check their contract every now and then. It’s not difficult to give yourself a reminder to renegotiate your contract when it expires so those who don’t should receive limited sympathy. On the other hand, from an industry that constantly wrings its hands about churn, this is hardly an example of customer service best practice.

Apple warns of higher prices with looming Chinese tariffs

Apple’s relationship with the White House looks to be straining at the seams as the iLeader continues to criticise the impending trade war, while the President offers little knowledge of how supply chains actually work.

Using his favourite means to spread tripe, President Donald Trump took to Twitter to hit back at a filing make by Apple with the US Trade Representative. In the filing, Apple argues the tariffs would lead to higher consumer prices, slower economic growth in the US and Apple being exposed to higher competition from foreign rivals.

“Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive,” the President wrote in a tweet. “Make your products in the United States instead of China. Start building new plants now. Exciting!”

While some of Apple’s products have been hit by the current tariffs placed on Chinese exports, the iPhone, which accounted for 56% of revenues over the second quarter of 2018, is yet to be effected. As a company which manufactures the majority of its good in China, Trump’s next tariff proposal, essentially covering everything coming out of China, would have a very negative impact.

On the surface, forcing Apple’s manufacturing process back onto US shores would be a political PR win for the President, though the move could be disastrous for Apple and iLifers. There might well be tax incentives in moving the manufacturing process back to the US, but cost of building the factories would be incredibly high, while labour costs are also much higher. Tax incentives might compensate for these incurred costs, as would a price hike to consumers, but there is a bigger issue at hand which the President doesn’t seem to understand.

Managing a supply chain in the manufacturing trade is more than simply understanding how much labour costs. It’s access to raw and manufactured materials, cheap energy and real estate and finally, skilled workers. Once the plant has been built, the transportation and logistics puzzle to access materials will have to be addressed. Finding the right plot will also be tricky, as real estate will have to be cost effective, but it will also have to be close enough to a large enough workforce. This in itself is perhaps the biggest challenge as important aspects of this workforce do not actually exist at scale in the US.

Precision tooling is an excellent example of one of these skills. Precision tooling is a trade which requires years of training, combining artisanal craftsmanship with precision engineering skills. Apple CEO Tim Cook pointed out a couple of years back at a Fortune conference China actually stopped being the low-labour market and instead has a skilled workforce which enables the manufacture of smartphones and other advanced electronics. There are of course cost savings to be made in Chine, but these skills are critical in the smartphone manufacturing industry, and simply cannot be created overnight in the US.

The risk for Apple when it comes to moving the manufacturing process into the US, isn’t simply the cost as President Trump is suggesting. There are immensely complicated supply chain issues which will take months and years to perfect, this was the case for China as well, but the manufacturing industry here has evolved with technology industry. Skills have been taken forward and adapted to the manufacturing process as more complicated techniques and processes become commonplace. The learning process in the US will have to be much sharper.

When you take these elements into consideration, the risk is much more than financial. Apple could probably absorb a couple of years of heightened manufacturing costs, such is the profitability of the organization, but what it cannot allow is for a glitch in the supply chain. This is an incredibly well-oiled machine which produces hundreds of millions of devices every single year. Poking, prodding, moving and shifting this machine will impact Apple’s ability to meet consumer demand.

On one side of the coin, this is not worst case scenario. Less products on the market create a sense of exclusivity, which is turn increases the value of the products. Many luxury brands limit supply to create this sense of exclusivity which inflates prices. Some in the accounting department might like this idea, but Apple is a different beast. Somehow, Apple has managed to create the image of an exclusive, luxury brand, while flooding the market with supply and still maintaining incredibly high prices. Its contradictory and defies logic in the branding and price game.

If there is money to be made, Apple will profit. If it can offer a customer an Apple product, it will make the offer. When there is an opportunity, Apple usually capitalises. However, this saga threatens to impact Apple’s ability to supply the masses with their iFix.

Most of the time, disagreements are about money. But President Trump doesn’t seem to understand anything more than surface complications here. Tax incentives and price hikes will not compensate for the massive issues the Apple supply chain could face.

Throttling video streaming is not criminal but Xfinity has botched the move

Comcasts’s Xfinity Mobile is going to limit video streamed over cellular to 480p resolution and cap hotspot speeds at 600 kbps unless customers pay more.

In a letter sent to current customers, which inevitably got posted online for all to see (on Reddit), Xfinity Mobile announced two changes to its service: it will limit the resolution of video streaming over cellular networks to 480p (so-called “DVD quality”), and it will cap the speed of hotspots powered by mobile device to 600kps. Although it may help customers’ data plans last longer, ultimately this is a measure to control cost. Comcast does not have its own mobile network and is reselling Verizon Wireless’s data.

Limiting the resolution of mobile video streaming is nothing new. YouTube will fall back to SD (240p or 360p) when the network quality degrades, prioritising continuous play over picture quality. For a long time, Netflix had by default capped the resolution of streaming over cellular at 600p before it gave users the choice to go for higher resolution.

Neither is limiting tethering using mobile hotspots. When T-Mobile launched its Uncarrier programme “One”, mobile tethering speed was limited at 128kps. Even with the expensive “One Plus” the hotspot speed was only lifted to 512kps.

However Xfinity could have handled the issues better to avoid the backlash on its reputation. Xfinity should realise that the increasing popularity of video streaming is the main driver for data consumption. Therefore when designing the products it should either raise the data plan cap of its “Unlimited” data plan, currently at 20GB, or go for real “unlimited” but bill different customers based on the speeds offered, like the common practice in Finland, where per capita mobile data consumption is the highest in the world.

More importantly, Xfinity should have given its existing customers the grace period till their current contracts ran out if it wanted to avoid antagonizing them. Exerting new limitations and charging additional fee for services that are in the original contract is even potentially a breach of contract on the service providers’ side.