China Telecom and China Unicom jointly build and share 5G RAN

China Telecom and China Unicom, two of China’s three leading telecom operators, and two of its four 5G licensees, will jointly cover parts of the country with one shared 5G radio access network.

The two companies, both listed on the Hong Kong Stock Exchange, signed the “Framework Agreement on Co-building and Co-sharing 5G Networks” on Monday. According to the Agreement, the two operators, by sharing the radio spectrums to their names, will “build together” and “share together” one 5G radio access network in 15 major cities, including Beijing, Shanghai, Shenzhen, Guangzhou, etc. The 5G core networks will be built separately.

The Agreement also laid out the plan on how to divide the work between the two in the cities they will share the network. Territories each will cover is divided roughly based on the number of 4G base stations. For example, in Beijing, China Telecom will build 40% of the 5G base stations, while in Shanghai it will build 60%. Each company will be responsible for investing in, maintaining, and operating the base stations it builds. The Agreement also commits “non-aggression” between the partners, for example, collaboration with third parties by one partner should not harm the interest of the other partner. Details of revenue settlement in the shared networks will be worked out later.

On top of that, the two companies will build their own separate 5G networks in other parts of the country. China Telecom’s own network will extend to 19 provinces, while China Unicom’s will cover 10.

The two operators, together with China Mobile, the world’s largest mobile operator by subscriber numbers, and China Broadcasting Network Corporation Ltd, were all awarded 5G licences in June, well ahead of what the industry had expected.

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French parliament passes “Huawei Law” to govern 5G security

Both houses of the French parliament have voted in favour of the new law, dubbed the “Huawei Law”, to give the government the power to security vet 5G rollouts in the country.

The legislation process started when France, being pressured by the US to exclude Huawei from the country’s 5G networks, decided to keep the decision-making power in its own hands, hence the nickname. An earlier draft of the legislation was met with protests from the parliament as being too “open-ended” which would give the government too much power.

The final stage of the legislation process started three weeks ago, when a joint group of 14 parliamentarians (la commission mixte paritaire, or CMP) from the Senate and the National Assembly started putting the final touches to the draft. According to the announcement from the Senate when the final stage started, Senator Catherine Procaccia stressed that the Senate’s amendments have excluded the ongoing 4G rollout from the upcoming law, and demanded the authorisation process be simplified from two-stage to one-stage. Sophie Primas, the chairperson of the economic affairs committee, also believed that the amended version was more balanced than the initial proposal.

The AFP reported that, after an ultimate vote on the Senate floor, the parliament has given its final approval to the comprised text, which it is now ready for President Macron to sign into law. When it becomes effective, the Prime Minister will have the power to approve or reject the telecom operators’ plans to roll out 5G networks, considering the implications on national security. The PM’s decision needs to be made within two months of the application.

Agnès Pannier-Runacher, Secretary of State for Economy and Finance, told the AFP that the new law will establish a stable, simple, and protective legal framework without delaying France’s deployment of 5G, and the government is already in the process of finalising the implementation details. She also stressed that there will not be a city 5G and a rural 5G in France. Each operator should have 12,000 sites equipped with 5G by 2025, a quarter of which should be in the rural areas, she told the news agency.

This piece of legislation is made at a time when the European Union is developing a pan-EU framework to assess 5G risks. Although it is one of the two most powerful driving forces in the EU (the other being Germany), France has a tradition of going its own way without waiting for the EU legislations to catch up. A recent example is the decision to go ahead with the 3% sales tax on the internet heavyweights without waiting for a European-wide single digital market regulation.

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 and Latin America gave Telefónica a steady Q1

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.”

Here’s more commentary from COO Ángel Vilá.

Vodafone Germany tries to placate regulators via wholesale cable deal with Telefónica

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.

A weak France overshadowed Orange’s Q1

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.

Orange 2019Q1 Group level numbers.pdf

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.

T-Mobile/Sprint merger approval is still hanging in the balance

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.

Makan Delrahim’s CNBC interview is here:

 

 

The UK may allow Huawei to get involved in its 5G after all

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.

 

FCC is likely to deny China Mobile’s licence application

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.