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.
Telefónica’s otherwise flat quarter was bolstered by strong performance in its UK and Latin America South units, which delivered 5.3% and 15.2% organic growth rates, taking the group level growth rate to 3.8%.
Telefónica reported its first-quarter results, with the total revenue at €12.611 billion, an increase of 3.8% in organic terms. This means adjustments were made to the reported numbers considering impacts of exchange rate moves, regulation and reporting standard changes, and special factors, for example adjustment made to the Argentina numbers on account of the hyper-inflation. Otherwise, the total revenue would have reported at € 11.979, or a 1.7% decline from a year ago. The quarterly operating income before depreciation and amortisation (OIBDA) reached €4.264 billion, up by 10.3%; and the net income grew by 10.6% to reach €926 million.
The Telefónica group is now serving a total of 332 million subscriber accounts (“accesses”), 6 million less than a year ago. The total mobile accesses by the end of the quarter stood at 267 million, down by 4 million from a year ago. But the good news for Telefónica is that it actually grew the contract customer base by 7.5 million over Q1 last year, meaning the loss is mainly on the pre-paid market, down by 11.5 million. It also grew its fixed broadband (including FTTx and cable) customer base by 2.1 million over the course of the year.
“The first quarter results showed a significant improvement in revenue growth trends and double-digit growth in net income and earnings per share. Strong cash generation, which was three times higher than the figure reported in the first quarter of the previous year, allowed for an acceleration in debt reduction, for the 8th consecutive quarter, further strengthening our balance sheet,” commented José María Álvarez-Pallete, Chairman and CEO of Telefónica. “We have started the year by extending our leadership in fibre and 4G deployment, testing new 5G capabilities and making progress in the UNICA virtualisation programme, allowing us to continue gaining customer relevance through better experience and higher average lifetime.”
Ángel Vilá, Chief Operating Officer of Telefónica, introduced the Q1 results and its outlook to 2019 annual outlook in more detail in the video clip at the bottom (in Spanish, with English subtitle).
While the its two biggest markets, Spain and Brazil, managed to stay stable, delivering modest organic growth of 0.3% and 1.7% respective (+0.3% and -5.2% in reported terms), Telefónica’s UK business registered a strong 5.3% organic growth to reach €1.67 billion (£1.47 billion). Excluding the exchange rate impact, the UK business would have reported a 6.6% revenue growth to reach €1.691 billion (£1.488 billion). The company is now serving 32.7 million mobile subscribers, up 2.3% over Q1 last year, which includes both customers on O2 (25.1 million) and those on the MVNOs using Telefónica networks (Sky Mobile, giffgaff, Lycamobile, and Tesco Mobile).
“This is another good set of results building on our momentum from 2018. We have delivered further revenue and customer growth underpinned by our award-winning network and market-leading loyalty,” commented Mark Evans, CEO of Telefónica UK. “We are committed to making every day better, providing customers with compelling reasons to join and stay with us through attractive propositions such as O2 Custom Plans.”
Looking across all the Telefónica markets, the UK registered the lowest churn rate of 0.9% among in its postpaid customers. In comparison, in Telefónica’s other European markets, the churn rate of contract customers was 1.6% in Germany and 1.7% in Spain. Comparable churn rates in markets like Chile and Mexico ran around 3%.
Telefónica attributed high customer loyalty, among other things, to its aggressive investment to improve its networks. The company claims it is investing equivalent to £2 million a day to strengthen its network and increase its reach.
One of O2’s focus investment areas in 2019, in addition to the planned launch of 5G, will be high density venues, including sports arenas, shopping centres, hotels, and conference centres. Already serving the Anfield Stadium in Liverpool and the Lord’s cricket ground in London with improved networks, in collaboration with the Wireless Infrastructure Group (WIG), an infrastructure company, O2 is planning to upgrade and improve its coverage and capacities in other high usage venues.
“While we look ahead to 5G we also continue to focus on our existing network capability. We strive to deliver a great network experience to all our customers, including some of the UK’s busiest locations where network demand is at its peak,” said Brendan O’Reilly, O2’s Chief Technology Officer. “Our multi-million pound investment with our partners at WIG should provide O2 customers with even better connectivity in the places they love to visit.”
Telefónica Deutschland will be able to sell services that run on the combined Vodafone and Unitymedia cable network in Germany, as a remedy measure taken by Vodafone to satisfy EU’s competition concern over its proposed acquisition of Liberty Global.
The two companies announced that they have entered into a definite “cable wholesale agreement” in Germany, whereby Telefónica Deutschland will offer its customers broadband services that use both the Vodafone fixed network and that of Unitymedia. The combined networks cover 23.7 million households and represent a significant upgrade to whatever Telefónica Deutschland customers are currently getting.
“The cable agreement will enable us to connect millions of additional households in Germany with high-speed internet in the future,” said Markus Haas, CEO of Telefónica Deutschland. “By adding fast cable connections, we now have access to an extensive infrastructure portfolio and can offer to even more O2 customers attractive broadband products – including internet-based TV with O2 TV – for better value for money.”
Vodafone’s plan to acquire Liberty Global in Germany (where it trades under the brand Unitymedia), the Czech Republic, Hungary, and Romania, has run into difficulty at the European Union, which raised competition concerns at the end of last year. The Commission was particularly worried that the combined business would deprive the consumers in Germany of access to high speed internet access, and the OTT services carried over it. Vodafone expressed its confidence that it would be able to satisfy the Commission’s demand. Opening its fixed internet access to its competitor is clearly one of the remedies. Also included in the remedy package Vodafone submitted to the Commission was its commitment to ensure sufficient capacity is available for OTT TV distribution.
“Our deal with Liberty Global is transformational in many ways. It is a significant step towards a Gigabit society, which will enable consumers & businesses to access the world of content & digital services at high speeds. It also creates a converged national challenger in four important European countries, bringing innovation & greater choice,” said Nick Read, CEO of Vodafone Group. “We are very pleased to announce today our cable wholesale access agreement with Telefonica DE, enabling them to bring faster broadband speeds to their customers and further enhancing infrastructure competition across Germany.”
Vodafone believed the remedial measures it put in place should sufficiently reassure the Commission that competitions will not suffer after its acquisition of Liberty Global. The company now expects the Commission to undertake market testing of the remedy package it submitted, and to give the greenlight to the acquisition deal covering the four countries by July 2019. It plans to complete the transaction by the end of July. The merger between Vodafone’s and Liberty Global’s operation in The Netherlands was approved by the EU in 2016.
The telecom operator Orange reported a flat Q1, with a weak performance in its home market partially compensated by the strength in Africa and the Middle East.
Orange reported a set of stable top line numbers in its first quarter results. On Group level, the total revenue of €10.185 billion was largely flat from a year ago (-0.1%), and the EBITDAaL (earnings before interest, tax, depreciation and amortisation after lease) improved by 0.7% to reach €2.583. Due to the 8% increase in eCAPEX (“economic” CAPEX), the total operating cash flow decline by 10.2% to €951 million.
Commenting on the results, Stéphane Richard, Chairman and CEO of the Orange Group, said that “the Group succeeded in maintaining its high quality commercial performance in spite of a particularly challenging competitive context notably in our two principal countries of France and Spain. Our strategy is paying off since EBITDAal is continuing to grow while revenues remain stable, allo wing us to reaffirm our 2019 objectives”
On geography level, France, its home and biggest market is going through a weak period. Despite registering net gain in the number of customers, the total income dropped by 1.8% to €4.408 billion, the first quarterly decline in two years. The company blamed competition, a one-off promotion of digital reading offer towards the end of the quarter, and “a weaker performance on high-end equipment sales in the 1st quarter of this year”. The move to “Convergence” was positive, but not fast enough to offset the lose in narrowband customers. The competition pressure is still visible. The Sosh package (home broadband + mobile) Orange rolled out to combat Free is gaining weight among its broadband customers, which resulted in a decline of revenues despite the growth in customer base.
Orange’s European markets, including Spain and the rest of Europe, reported modest growth, with strength in Poland (+2.6%) and Belgium & Luxembourg (+3.8%) offset by a weaker Central Europe (-1.9%). The bright spot was Africa and Middle East, which registered a 5.3% growth to reach €1.349 billion revenue, taking the market’s total revenue above Spain and just marginally behind the rest of Europe. The company’s drive to extend its 4G coverage in Africa is paying off, with mobile data service contributing to 2/3 of its mobile growth. Orange Money also saw strong enthusiasm, with the revenue up by 29% and total number of monthly active users totalling 15.5 million.
Both the Q1 results and outlook to the rest of the year spelled mixed messages for the wider telecom market and Orange’s suppliers, but negatives look to outweigh positives. On the consumer market side, the slowdown of high-end smartphone sales and prolonged replacement cycle has once again been demonstrated in the weak numbers in France. On the network market side, Orange predicts more efficiency. This includes both the network sharing deal signed with Vodafone Spain, which is expected to deliver €800 million savings over ten years, and an overall reduction in CAPEX this year.
As the CEO said, “while the level of eCapex for this quarter is higher, it should reduce slightly for 2019 as a whole, as predicted, excluding the effect of the network sharing agreement with Vodafone in Spain announced on 25 April.” This means, to achieve the annual target of reduced CAPEX, the spending will drop much faster in the rest of year. There is no timetable to start 5G auction in France yet, but it will be safe to say that any expectations of 5G spending extravaganza will be misplaced.
On the positive side, Orange has seen its efforts to diversify its business gaining traction, especially in IoT and smart homes. But these areas, fast as the growth may be, only make a small portion of Orange’s total business.
The US DoJ’s anti-trust chief has not made up his mind on the T-Mobile/Sprint merger case, saying the deal must meet key criteria.
Speaking on CNBC (see below) Makan Delrahim, Assistant Attorney General for the US Departments of Justice’s Antitrust Division, said he has not made up his mind yet. Although he refused to comment on if his staff resisted the deal, as was reported by the media, Delrahim did allude to more data being requested from the two parties.
Delrahim also dismissed the notion that there is any magical number of competitors to deliver optimal competition in a regulated market like telecom. Any proposed deal needs to deliver efficiency, but the efficiency needs to be both merger specific, that is the efficiency cannot be achieved through other means, and verifiable.
With regard to the effects of the merger on consumers, Delrahim listed two items, price effect and coordinated effect. The first is related to the potential price move up or down after the merger. The second refers to if the merged company has the incentive to continue to compete with the existing competitors on price, in this case AT&T and Verizon. 5G will also factor in the DoJ’s decision making consideration, Delrahim said. But, instead of being positioned as a counteract against China, in this interview Delrahim was treating 5G in the framework of service offer to consumers, and the merger’s impact on it.
When being asked on the timeline, Delrahim said there is no deadline on the DoJ side, except that the deal cannot be completed before a certain date. This timeline can be extended if more deliberation is needed.
On the FCC front, another hurdle that the two carriers need to overcome before they can become one, they continued to play the offensive. Last week representatives from the two companies, including John Legere, the CEO of T-Mobile, and Marcelo Claure, Executive Chairman of Sprint, called on the FCC commissioner Jessica Rosenworcel and her Legal Advisor. The team presented the updated merger case, including their pledge to deploy home broadband, drive down prices, deliver more benefits to prepaid customers, and create, instead of cutting, jobs.
FCC’s unofficial 180-day consultation period was reopened early this month, after being halted three times, and is now on day 147.
The UK government is said to have agreed to let Chinese telecom kit maker Huawei join the building of non-core parts of the country’s 5G network.
The Telegraph reported that the country’s highest security decision-making body, the National Security Council, chaired by the Prime Minister, has agreed to open the “non-core” parts of 5G to Huawei’s equipment, for example antennae. The report said the Prime Minister was in favour of the decision, despite concerns raised by her Home, Foreign, Defence, International Trade, and International Development secretaries.
The government replied to media queries by claiming “we have conducted an evidence-based review of the supply chain to ensure a diverse and secure supply base, now and into the future. This is a thorough review into a complex area and will report with its conclusions in due course,” reported Reuters. The spokesperson also insisted that decisions by the National Security Council were confidential.
Huawei, while waiting for a formal announcement, looked to be confident that the decision would go its way. It told that media that it was “pleased that the UK is continuing to take an evidence-based approach to its work, and we will continue to work cooperatively with the government, and the industry,” quoted by the BBC. Earlier the media reported a decision on Huawei would be made in the spring, and the company’s market share would capped at 50%.
Views from the country’s other related offices are split. Earlier the National Cyber Security Centre (NCSC), which oversees Huawei’s work in the UK, was said to believe the risks posed Huawei could be managed. When questioned on the new rumoured decision, Ciaran Martin, the chief executive of NCSC, told the media that he was “confident ministers will reach a decision that will provide for the safer 5G networks that we need.” He also highlighted the “more fundamental risks” from sovereign states like Russia and North Korea as well as the sophisticated attacks by cyber criminals.
Tom Tugenthat MP, chairman of the Commons’ Foreign Affairs Committee, on the other hand, was not so sure. He tweeted “There’s a reason others have said no” referring to the US, Australia, and New Zealand. The other two countries of the “Five Eye” intelligence alliance, Canada and the UK are yet to make decision on whether Huawei will be allowed to build their 5G networks. “It is unwise to co-operate in an area of critical national infrastructure with a state can at best be described as not always friendly,” Tugenthat said. The alliance will hold a meeting on security in Glasgow, Scotland.
One point Tugenthat highlighted but has evaded the others is the virtualisation nature of 5G. He stressed it by pointing out that 5G is highly software defined (in his words, “internet system that can genuinely connect everything”), and it will be very hard to insulate the non-core from the core.
Allowing Huawei into the UK’s 5G infrastructure would cause allies to doubt our ability to keep data secure and erode the trust essential to #FiveEyes cooperation. There’s a reason others have said no. https://t.co/GA7DaooupI
Ajit Pai, Chairman of FCC, has called on his colleagues to vote against granting a licence to China Mobile, citing national security concerns.
In a public statement tilted “FCC Chairman Opposes China Mobile’s Telecom Services Application”, Pai said that he believed, after reviewing the relevant evidence, “China Mobile’s application to provide telecommunications services in our country raises substantial and serious national security and law enforcement risks. Therefore, I do not believe that approving it would be in the public interest.” He went on to request the Commission team to “join me in voting to reject China Mobile’s application.”
This should not come as any surprise. One piece that stood out among the “input provided by other federal agencies” Pai referred to in his statement already set the tone. It was a brief statement issued by David J. Redl, Assistant Secretary for Communications and Information, U.S. Department of Commerce. “After significant engagement with China Mobile, concerns about increased risks to U.S. law enforcement and national security interests were unable to be resolved. Therefore, the Executive Branch of the U.S. government, through the National Telecommunications and Information Administration pursuant to its statutory responsibility to coordinate the presentation of views of the Executive Branch to the FCC, recommends that the FCC deny China Mobile’s Section 214 license request.” The statement was released through the National Telecommunications and Information Administration (NTIA), a part of the Department of Commerce.
China Mobile Limited, the world’s largest mobile operator by subscriber numbers, is partially listed (27.28%) on the Hong Kong Stock Exchange. The Chinese government, through the parent company China Mobile Communications Group Co., Ltd., controls the rest of the company. Its US subsidiary, China Mobile USA, registered in Delaware, filed an application in 2011 to offer international telephony service between the US and other countries. But it had remained dormant until it was reviewed by the Trump administration last year.
China Mobile would have to operate as a virtual network anyway as it lacks the infrastructure. That worries the US officials that the operator, ultimately the Chinese government, would be able to exploit the American telecommunication networks for intelligence gathering purposes, therefore compromise the security of the government and the public. “There is a significant risk that the Chinese government would use the grant of authority to China Mobile USA to conduct activities that would seriously jeopardize the national security and law enforcement interests of the United States,” an FCC official told the reporters, quoted by Reuters.
The vote by the FCC Commissioners will take place at the May 2019 Open Commission Meeting to be held on 9 May. The result will likely go Pai’s way if the commissioners vote along party line. Three out of the five commission seats are occupied by Republicans, as is Pai himself.
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.
5G for consumers is expected to launch late this week in South Korea. The three mobile operators in the market have published their 5G packages, starting from 55,000 won and going up to 130,000 won.
After launching the pilot B2B 5G services simultaneously in December, South Korea annouced it would launch consumer 5G service by the end of March. But there was a minimum delay. When the Samsung Galaxy S10 5G hits the retail market on Friday 05 April, all three mobile operators in the country, SKT, KT, and LG Uplus (LGU+), are expected to switch 5G services on. In addition to fast internet, there will also have a 5G UHD live broadcasting service that KT is going to launch.
In the run-up to it, all three of them have published the price list of their data packages:
Earlier in March, the Ministry of Science and ICT rejected a price proposal from SKT that set the entry price at 70,000 won ($62), deeming it too expensive and “restricting consumers’ choice.” The three operators then agreed to set the starting price according to the Ministry’s expectations at 55,000 won ($48). Park Jung-ho, SKT’s CEO was quoted by the local media outlet The Investor, “there was a request for a pricing plan in the range of 55,000 won (from the government). We are about to wrap up the discussion.”
Despite the equal starting price, there are differences between offers. While a 55,000 won package on KT and SKT will get the consumer 8GB data, the same price on LGU+ will come with 9GB. The most expensive offers on SKT and LGU+ are priced at 120,000 won and 95,000 won respectively, giving users 300GB and 250GB. Any packages from 80,000 won upward on KT will give users unlimited data.
There are also different speed caps. Speed will be capped at 1Mbps if the user chooses the starting package from KT and LGU+ and goes beyond his data limit. Higher package users on KT will have unlimited speed, while speed for users of LGU+’s higher packages will be capped at 5Mbps and 7Mbps if they go beyond their monthly data limit. KT also offers free international data roaming (185 countries outside of South Korea), but the roaming data speed will be capped at 100Kbps on the 80,000 won and 100,000 won packages, and at 3Mbps on the most expensive130,000 won package. SKT has not released details on its data speed cap policies.
However, although the 80,000 won package with unlimited data on KT is cheaper than the current LTE packages offered by the operators, consumer advocacy groups argue that 5G users could end up paying up to 20,000 won ($18) per month more than they do now with LTE unlimited data packages now. This is calculated by including the high price of the Samsung Galaxy S10 5G, which is set to be sold at 1.4 million won ($1,231). The LG V50 ThinQ is only going to be able to reach the retailers in Korea after May, company sources told ZDNet. There is no information when or if the 5G smartphones from other suppliers will reach the Korean market.
“Those who spend 30,000 to 40,000 won on telecom bills would not be able to use 5G network services. It is the worst pricing plan in the era of worsening income disparity,” said People’s Solidarity for Participatory Democracy, an activist group, quoted by The Investor.
The anti-trust chief in the Department of Justice is said to be receptive to T-Mobile and Sprint’s argument that the combined company will improve America’s competitiveness in 5G.
Fox Business reporter Charlie Gasparino claimed people close to Makan Delrahim, Assistant Attorney General for the DoJ’s Antitrust Division, have disclosed that the department is receptive to the argument that a third strong operator in the US will help the country compete better with China.
SCOOP SOURCES say DOJ Antitrust chief Makan Delrahim is said to be “open” to T-Mobile/Sprint 5 G argument; SOURCES: Sprint-T Mobile arguing that deal should be approved to advance 5 G technology over Chinese more now @FoxBusiness
As we reported earlier, the proposed merger still needs to overcome two barriers before it can be completed: the DoJ and the FCC. Gasparino explained that, unlike the FCC which needs a panel decision, the DoJ’s decision rests on Delrahim’s office alone. It looks that the argument for 5G competitiveness from the merger is outweighing his concerns for anti-trust consequences. Also significantly, Gasparino said, the FCC tends to follow the DoJ’s decision in cases like this.
5G has always been a central argument in the merger case. In its public interest statement published in June 2018, the companies stressed the investment commitment and the benefits the New T-Mobile would bring to America. $40 billion in the development of a nationwide 5G network and services will be made by 2024. “The New T-Mobile network will have approximately double the total capacity and triple the total 5G capacity of T-Mobile and Sprint combined, with 5G speeds four to six times what they could achieve on their own,” the companies said in the close to 700-page document.
The argument of competing with China on 5G with a third strong operator comes days after the companies claimed the merger would benefit up to 50 million Americans who currently do not have access to broadband, when T-Mobile launched its LTE FWA trial.
Meanwhile, the position of FCC is not getting clearer. On 7 March, for the third time, the agency put a hold on its 180-day countdown to gather feedback while ploughing through new information, which, FCC detailed, is related to the extension of a simulation model for the merger provided by the companies. The Commission will re-open the countdown at day 122 on 4 April.
The market was encouraged by the news. Both companies’ share prices grew following Gasparino’s tweet. T-Mobile closed the day up by 1.42%, and Sprint’s up by 1.75%.