DT takes German Gov to court over 5G auction

Deutsche Telekom has joined its main competitors in court, filing its own lawsuit against the German government over the 5G auction pre-conditions.

According to German newspaper Die Welt (in German), DT has found enough wrong with the pre-conditions set out ahead of the 5G auction that it will be taking the government to court. Some might suggest this is simply a market incumbent throwing a temper tantrum, but Telefonica and Vodafone already beat DT to the punch.

While there have been several points of contention surrounding the auction, which will take place over the next couple of months, the primary concern is focused on new players in the market. You can see what the government is trying to do, there is an emphasis on creating more choice for the consumer as well as correcting the digital divide, but it is going about it in a horrible way.

Looking at the conditions placed on those bidding for the valuable 5G spectrum, minimum data rates of 100 Mbps will have to be available by the end of 2022 in 98% of households in each state as well as along all major transport paths. Each of the telcos must also install 1000 5G base stations and 500 other base stations, and by 2024, the data coverage must be extended to seaports, main waterways and other minor roads.

However, DT’s main issue is focused on the lessened requirements placed on new market entrants; these companies will not have the same conditions placed on their networks, allowing them to focus on the more commercially attractive and denser urban environments. For DT, the economics simply do not add up and it feels it is being punished for having a successful business.

You do have to have a bit of sympathy for DT and other established players. Not only do they have stricter conditions and requirements placed on them, but in having to open up their networks to those who do not have infrastructure, they are being forced to help new players steal their customers. The German government’s intentions might have been good, but this is a shoddy set up.

Over the course of the last couple of months these rules have been criticised widely. Telefonica and Vodafone have already taken the government to court and the GSMA have repeatedly suggested such rules would slow the rollout of 5G across Germany, a country which already struggles with nationwide 4G.

Unless the government takes another look at the rules, it’s hard to see how the network operators will be incentivised to accelerate Germany’s connectivity landscape. Telcos are generally a bit grumpy and miserly with CAPEX but forcing unpopular rules on them will certainly not help matters. Most people agree a successful industry is one where the telcos and regulators collaborate; Germany clearly doesn’t agree with that sentiment.

Google bids adieu to Allo

Google has finally called it a day on Allo, its attempt to compete with WhatsApp, to focus on its Messages product.

The concept of Allo was an interesting one to say the least, but it never took off. Launched back in September 2016, Allo made use of the artificial intelligence capabilities in Google. The platform included a number of features geared around making the app smarter which, if used excessively enough, meant you wouldn’t even have to message someone yourself. The dream was to take the unnecessary you out of the conversation.

And it didn’t work out well for Google.

Investments in the platform were frozen earlier this year, with many of the features being migrated across to the Messages platform. This is a product area which will get more attention at the expense of Allo, Google’s version of 15 minutes of fame.

“Thanks to partnerships with over 40 carriers and device makers, over 175 million of you are now using Messages, our messaging app for Android phones, every month,” Google said on its blog. “In parallel, we built Google Allo, a smart messaging app, to help you get more done in your chats and express yourself more easily.

“Earlier this year we paused investment in Allo and brought some of its most-loved features – like Smart Reply, GIFs and desktop support – into Messages. Given Messages’ continued momentum, we’ve decided to stop supporting Allo to focus on Messages.”

Users can export any contacts and conversations to the Messages platform, but in March 2019, Allo will say goodbye.

As far as we can see Allo failed for one reason. Google tried to steal market share in the messaging space by over-engineering the idea. For a messaging platform to be successful, it doesn’t have to be overly complicated, it just has to work. WhatsApp is not complicated, but it works and has scale. Google tried to be Google, and it didn’t work.

The concept of simplicity winning over an industry should be a very familiar one for Google, as it is what the entire enterprise is built on. The Google search engine might be an impressive feat of engineering behind the scenes, but presented to the user it is a simple, functional and accurate search engine. Google has set its place in the search world with a simple product and no-one else can compete.

We wouldn’t want Google to stop experimenting with weird and wonderful ideas, some great products have emerged while the ludicrous Loon is starting to gather pace, but you have to take the rough with the smooth when you let your imagination run wild. This is one example of Google having better ideas.

The diversification dilemma; making money and meeting expectations, can it be done?

Diversification is an accepted truth in the telco industry nowadays, but are the telcos resourceful and adaptable enough to chase after new revenues while also achieving their connectivity responsibilities?

This was one of the questions facing the panel during the opening session of The Great Telco Debate 2018; should the telcos confine themselves to connectivity or should the aim be to chase new revenues? Of course, the answer to this question is relatively simple, diversifying to build alternative revenues streams is an absolute must, but how this is done and whether the telcos have the capabilities to do so is a bit more of a murky area.

First of all, lets address the overarching question, which has to a degree become redundant nowadays. With customers expecting more in terms of speed and capacity, but not necessarily willing to pay for the upgrades, diversification is a necessity. The equation is not balanced anymore and the connectivity business model is failing. Analyst Chris Lewis pointed out that while the telco industry is worth in excess of $1.6 trillion, it isn’t actually growing.

Those who confine themselves to connectivity revenues will only find their own expenses going north, while ARPU remains relatively stable, or increasing ever so slightly. In the developed markets, subscription growth has more or less hit a glass ceiling, therefore telcos are spending billions on swapping customers between themselves. This is an industry which is heading towards bankruptcy unless new ideas are sought, and, more importantly, put into practise.

However, there is a problem with diversification; the telcos are not doing the basics properly. When you look at broadband and mobile coverage, or average download speeds, the telcos fundamental mission has not been completed. Coupled with a disastrous relationship with the customer, NPS for telcos is lower than with airlines, you have to question whether the telcos have the right foundations to do anything aside from their basic purpose.

The foundations of this journey to profitability and growth are certainly shaky, but the issue is there is no time to fix them, ultimately the telcos are under threat. For all the billions which have been spent on 4G, you could argue the rewards for the telcos have been minimal. 5G will be more expensive, so you have to question whether the telcos could survive another G which went down this avenue.

Diversification was the resounding message to come out of this morning’s debate, but what is critical is doing it in the right way. Veon, Google, Softbank and many participants from the audience pointed towards joint ventures and partnerships, with stories such as BT’s venture into TV as a lesson of the disaster which can occur when you go it alone. But where do you start? Carrier billing is an obvious choice.

As Google’s Mike Blanche pointed out, more of the world is becoming digital meaning more transactions will have to happen in the virtual world. Unfortunately the virtual world is full of horror stories concerning theft and fraud, while consumers are constantly warned about safe-guarding credit card details online. The telcos established billing relationship with the customer is a simple exercise to add value, drive additional revenue and lean on already existing processes.

Having Google present at this event was an interesting twist as well, as it puts a face onto the big, bad OTTs. For years, these companies have been portrayed as the enemy, but the telco of tomorrow should really be leaning on the success of these guys. Why, for instance, would you want to compete with the billions being spent by Netflix on content and marketing, when you can just partner with it? In most cases, the OTTs are virtual companies with limited presence in the physical world, the telcos high-street retail presence and field-engineering workforce can aid the OTTs. The idea of wholesaling business processes and assets takes the telcos into a new world.

This is one of the important takeaways from this morning’s session, diversification is critical but, as the former CEO of Veon Jean Yves Charlier put it, you have to diversify as close to the network as possible. Exploring the exciting new opportunities might sound like a wonderful idea, but you have to question whether the telcos are competent enough to move too far away from the network. Without sounding rude, we suspect there aren’t many.

So this is the diversification dilemma. Telcos need to diversify, but they aren’t good enough at the core business to justify the new journey. Unfortunately, there isn’t an alternative.

DT/Tele2 tie up could smooth path to industry consolidation

For years the telco industry has condemned the EU’s approach to competition, though green-lighting DT’s acquisition of Tele2’s Dutch business could indicate a loosening grip on the idea of four operators.

According to the European Commission, each market should ideally have four operators to ensure the consumer has choice, though this has been challenged in recent years due to market economics. In short, the telcos do not feel they are making enough money to continue network investments and challenge the OTTs in capturing the digital economy fortunes. One way to balance the equation is consolidation, but regulators have consistently resisted. This might be changed according to reports in Reuters.

DT has been attempting to swallow up Tele2’s Dutch business to create a more competitive threat to the number one and two in the market, KPN and VodafoneZiggo. However, such an acquisition would decrease the number of national telcos from four to three, sacrilege in the eyes of the Brussels bureaucrats, though this vice-like persistence with four telcos might be loosening.

The decision is due on November 30, though rumours are circulating that a decision has been made and it will be in favour of the Germans. DT’s argument has been combined company would only have a 25% market share, still a way off KPN and VodafoneZiggo, therefore it would still have to challenge on price, and it seems the European Commission is buying the stance.

For rest of the telcos around Europe, executives are bound to be eagerly awaiting the official decision. Precedent is everything when it comes to regulations, competition and acquisitions. Merging these two players will give lawyers something to point to and ammunition to fight for market consolidation.

This has been a bugbear of the European telcos for some time; scale means investment. The larger the subscription bases of the telcos, the safer they will feel in terms of splashing the cash and upgrading networks. It might of course be nothing but a rouse to make more money and realise operational efficiencies, but when you look at the size of telcos on other continents you can see the argument; European telcos simply cannot compete with those in North America or Asia.

Of course what is worth noting is this is nothing more than a report for the moment. The official decision will emerge over the next few days, though the telco industry might finally be getting some ammunition to fight back against the OTTs.

US petitions allies to drop Chinese 5G vendors ahead of tense G20 summit

The feud between the US and China continues to gather pace ahead of a tense G20 summit as the nation petitions its allies to ditch Chinese 5G equipment.

Officials have long held concerns that equipment from Chinese manufacturers could be used for spying. While the US is most vocal, other countries have voiced similar views and either banned equipment – such as Australia – or taken measures to mitigate the risks, such as the UK and Canada.

All four of the aforementioned countries are part of the close ‘Five Eyes’ intelligence sharing relationship. The final member, New Zealand, is currently deciding their stance.

For its petition, it seems the US is reaching beyond its usual security partners.

US officials are urging Germany, Italy, and Japan to reject Huawei and ZTE. It's reported they’re even offering aid in developing telecoms networks to countries which reject Chinese vendors.

If successful, it would be seen as a win for the US in its wider ‘trade war’ with China. Western vendors such as Nokia and Ericsson would gain more business in a lucrative industry at the expense of Chinese.

Whether it’s an overall win or not, however, is questionable. Many experts believe equipment from the likes of Huawei is superior to Western counterparts. More competition also lowers prices, enabling telcos to rollout 5G networks more quickly and pass less cost on to consumers.

Defending its decision not to ban Chinese equipment, the head of Ottawa’s Canadian Centre for Cyber Security claimed doing so would pose an increased security risk as it reduces the myriad of vendors used. If a specific vendor is compromised, it would represent less of the overall network.

Huawei’s equipment is currently in use around the world, including many European countries. Officials are more concerned about 5G networks due to their expected use for even more critical infrastructure such as driverless cars, smart cities, and even remote surgery.

US President Donald Trump has vowed to fix China’s “long-time abuse of the broken international system and unfair practices” and imposed $250 billion of tariffs since last July. Half of all Chinese imports to the US are now subject to duties.

China has reciprocated with $110bn of tariffs on American goods. Trump has threatened to slap tariffs on the remainder of China’s $500bn-plus exports to the US if the disputes cannot be resolved.

Trump will meet Chinese leader Xi Jinping at the G20 summit later this week.

Interested in hearing industry leaders discuss subjects like this and sharing their experiences? Attend the Cyber Security & Cloud Expo World Series with upcoming events in Silicon Valley, London, and Amsterdam to learn more.

Still no news on CEO, but BT results show promise

We’re still no closer to finding out who will be leading the BT business into the era of 5G, but investors seem happy with the first quarter performance as share price creeps up 3%.

Total revenues for the quarter stood at $5.7 billion, down 2% compared to the same period in 2017, though the consumer business saw growth. The consumer unit, led by former EE CEO Marc Allera, was up 2% with the enterprise business unit and regulation enforced price reductions wiping out the positive steps forward.

“We’ve made a good start to the year,” said CEO Gavin Patterson. “We are making positive progress against our strategy. Our customer experience metrics continue to improve and we have seen the successful launch of new converged products including BT Plus, our first Consumer converged offering and 4G Assure, for business customers. Initiatives to transform our operating model have seen a gross reduction in c.900 roles across the Group and improved cost performance.”

Growth in the consumer business was led by an increased mix of high-end smartphones, growth in the SIM only base and customers now paying for BT Sport. Operational costs were flat across the period, though the team expect sports rights and device costs to increase later in the year. The ‘Best Connected’ strategy, BT’s play to make use of the broad assets available to woo customers, also looks to have gotten off to a promising start, with the team claiming 100,000 customers signed up across the quarter.

In terms of investment, BT’s CAPEX column on the spreadsheets was £839 million, a healthy 14.7% of total revenues. £428 million was invested in the fixed network, while £150 million was allocated to systems and IT and £224 million on what BT describes as ‘customer driven investments’.

Looking at the more negative side of the results, revenue decline in the enterprise business was blamed on lower equipment volumes, migration from fixed voice to IP, and the impact of EU roaming regulation on mobile. In Global Services, BT said its own decision to reduce low margin business was the primary reason for the dip, while decline at Openreach was driven by £90 million of regulated price reductions on our FTTC and Ethernet products and a decline in physical line base.

The bad bits wiped out any growth which the consumer business might have been able to conjure up, but considering the opportunity which is in front of BT, investors have every right to be excited. Convergence is a tricky game to play, but with the assets and customer base available to BT, the opportunity to make money is right in front of the team.

The first steps have been made towards the convergence dream, but announcing the new CEO should come sooner rather than later. Our Gav might be steadying the ship for the moment, but the business cannot operate effectively without a long-term leader for much longer. Despite the opportunities, investors might start getting nervous before too long with a new CEO named.

Ericsson continues its search for silver linings

Swedish networking giant Ericsson reported continued sales declines in Q1 2018 but feels the grand plan is starting to show some positive results.

Reported sales were down 9% year-on-year to SEK 43.4 billion, but only down 2% when the usual handy currency adjustments kick in. While it’s a shame to see yet another quarter of decline, it was more or less expected and Ericsson has previously stated its immediate priority is profitability rather than growth.Helena Norman

To get a bit more insight into the results Telecoms.com spoke to Helena Norrman, SVP and Head of Marketing and Corporate Relations at Ericsson (pictured). In line with the above strategy Norman was keen to highlight Ericsson’s trend of improving gross margin, which jumped to 34% in Q1 2018, up from 16% a year ago.

She explained that the like-for-like jump isn’t quite as dramatic as that, thanks to a bunch of exceptional items and IFRS changes and pointed us towards the slide from Ericsson’s presentation below, which shows that the adjusted gross margin for this quarter was 36% and was 31% a year ago. Either way Gross Margin, which is probably Ericsson’s number one priority right now, seems to be headed in the right direction, for which Norman expressed satisfaction.

Ericsson Q1 2018 gross margin

The reasons for this improvement are fairly well-known. Norman advised that around half of it is down to the streamlining process that has been underway for some time now. The rest of it is down to getting out of bad contracts and, on a more positive note, increased sales of Ericsson Radio System.

Norman, and every other Ericsson exec we’ve spoken to in the past few quarters, are quick to admit there’s still a long way to go. Of course the trend of revenue declines needs to reverse, but the cunning plan is to stop losing money first, which is reasonable, and datapoint trends like improving gross margin are viable causes for muted celebration.

Ericsson has gone through a few years to facing up to its own corporate dysfunction and is trying to build a robust platform from which to rebuild. When we asked Norman if she was feeling optimism she confessed to a degree of “Scandinavian optimism”, which seems to be of the quiet, cautious variety. As in the UK, spring has finally arrived in Sweden and Ericsson may allow itself a cheeky glass of aquavit in the sun this weekend, before rolling its sleeves up once more on Monday.

Here are some other selected slides from the Ericsson Q1 2018 presentation.

Ericsson Q1 2018 sales

Ericsson Q1 2018 regions

Ericsson Q1 2018 networks

Ericsson Q1 2018 digital services

Ericsson Q1 2018 managed services

Ericsson Q1 2018 other

UK outlines plan for 5G testbed dream on a budget

The UK Government’s Department of Digital, Culture, Media and Sport has unveiled Urban Connected Communities Project which promises funding to the winning city to drive 5G technology research and deployment.

Over the next couple of weeks, local or combined authorities with a coverage area in the region of 500,000 people will be able to apply to be part of the programme, though so far it is unclear how many cities would be accepted as part of the initiative, or how much money will actually be spent, Digital Minister Margot James’ statement suggests it will be quite limited.

“This is a huge opportunity for an urban area to become the flagship of our ambitious programme to make Britain fit for the future and a world leader in 5G,” said James. “Trialling 5G at scale across an entire city is a chance to prove the economic benefits predicted from this new technology, test different methods of deployment and boost the connectivity of ordinary people working and living there.”

The money itself will be taken from the £200 million assigned so far to develop 5G technologies as part of over £1bn investment in next-generation digital infrastructure, but the UK track record in actually spending money is woeful. In each budget statement over the last 12 months, a notable chunk of change has been set aside for the development of these technologies, but the amount sitting in the bank account never seems to grow or shrink.

The government is spending money, but in comparison to other nations, it is very limited. Last month, the government gave £23.8 million to six companies and local authorities to develop 5G initiatives. While this seems like good progress, it is essentially one of the only examples where the government has actually spent. Right now, DCMS is proving excellent as congratulating itself for allocating £1 billion for its Digital Strategy, but unless the promise actually hits the economy, what’s the point in it?

In terms of where the money would be allocated, according to research from Demographia, there are only 14 urban regions in the UK which exceed the 500,000 benchmark the government seems to have set above. The areas are as follows:

City Population
London 10,585,000
Manchester 2,705,000
Birmingham 2,565,000
Leeds-Bradford 1,985,000
Glasgow 1,240,000
Southampton-Portsmouth 905,000
Liverpool 885,000
Newcastle upon Tyne 805,000
Nottingham 775,000
Sheffield 720,000
Bristol 670,000
Belfast 620,000
Leicester 555,000
Edinburgh 505,000

Other areas would be considered, though the way in which it phrased reminds us of PR statements where something has been said with the primary objective of appeasing those who have been hurt. This of course a measure of local authority and urban areas, so there might be some other areas which would sneak in, but the UK is not a huge country. There aren’t that many areas which would meet the government criteria.

Other criteria which will be taken into consideration include ‘pinch spots’ of weak connectivity throughout the area as well as areas of high demand such as mainline stations or city centres where heavy usage rather than a lack of signal leads to not-spots.

While we don’t like to be cynical, the copy and paste promises from UK politicians when it comes to investment in digital infrastructure is starting to get frustrating. The practise seems to be offering promises of restoring the UK to the top table of the global economy but thinking it will happen on its own. Right now, we need more concrete commitments as opposed to generic and murky PR statements.

Without spending substantial amounts of money in the short-term, the long-term benefit of the country will never be realised. The UK is doing nothing about the downward spiral right now, but it seems happy about it.