Vodafone bags Big Blue as $550 million partner

Vodafone Business and IBM have signed-off on a new joint venture which will aim to develop systems to help data and applications flow freely around an organization.

The joint-venture, which will be operational in the first half of 2019, will aim to bring together the expertise of both the parties to solve one of the industry’s biggest challenges; multi-cloud interoperability and the removal of organizational siloes. On one side of the coin you have IBM’s cloud know-how while Vodafone will bring the IoT, 5G and edge computing smarts. A match made in digital transformational heaven.

“IBM has built industry-leading hybrid cloud, AI and security capabilities underpinned by deep industry expertise,” said IBM CEO Ginni Rometty. “Together, IBM and Vodafone will use the power of the hybrid cloud to securely integrate critical business applications, driving business innovation – from agriculture to next-generation retail.”

“Vodafone has successfully established its cloud business to help our customers succeed in a digital world,” said Vodafone CEO Nick Read. “This strategic venture with IBM allows us to focus on our strengths in fixed and mobile technologies, whilst leveraging IBM’s expertise in multi-cloud, AI and services. Through this new venture we’ll accelerate our growth and deepen engagement with our customers while driving radical simplification and efficiency in our business.”

The issue which many organizations are facing today, according to Vodafone, is the complexity of the digital business model. On average, 70% of organizations are operating in as many as 15 different cloud environments, leaning on the individuals USPs of each, but marrying these environments is a complex, but not new, issue.

Back in September, we had the chance to speak to Sachin Sony of Equinix about the emerging Data Transfer Project, an initiative to create interoperability and commonalities between the different cloud environments. The project is currently working to build a common framework with open-source code that can connect any two online service providers, enabling a seamless, direct, user-initiated portability of data between the two platforms This seems to be the same idea which the new IBM/Vodafone partnership is looking to tackle.

With this new joint-venture it’ll be interesting to figure out whether the team can build a proposition which will be any good. Vodafone has promised the new business will operate with a ‘start-up’ mentality, whatever that means when you take away the PR stench, under one roof. Hopefully the walk will be far enough away from each of the parent companies’ offices to ensure the neutral ground can foster genuine innovation.

This is a partnership which has potential. The pair have identified a genuine issue in the industry and are not attempting to solve it alone. Many people will bemoan the number of partnerships in the segment which seem to be nothing more than a feeble attempt to score PR points, but this is an example where expertise is being married to split the spoils.

Investment bank thinks Vodafone could be in trouble

RBC Capital Markets has released an investor note warning Vodafone might be in a spot of bother following years of restructuring, M&A, as well as the risk associated with up-coming spectrum auctions.

RBC Capital Markets, the investment bank arm of Royal Bank of Canada, has suggested Vodafone might be in a suspect position, with very little financial headroom despite synergies and cost cutting strategies over the last few years. The telco might be offering investors a strong dividend right now, though RBC believes this position is ‘unsustainable’ when you look at the bigger picture.

“Vodafone’s frenetic portfolio restructuring has left the company more European and converged, but also vulnerable,” RBC stated in the note. “Its underlying markets remain ‘challenging’ and it has very little financial headroom despite synergies and cost cutting. Vodafone has options with its towers but faces a threat from 5G spectrum. The dividend is unsustainable even before we consider a macro downturn. Downgrade to Underperform with 125p PT (was 260p).”

The last couple of years have been an interesting time for Vodafone, as while former CEO Vittorio Colao certainly shook up the business during his tenure he left at a time where Vodafone is sitting on a knife’s edge. There are certainly some success stories across the group, though the potential for disaster is just as prominent.

On the positive side, the UK business is returning to the position of strength under UK CEO Nick Jeffrey. You don’t have to look too far into the past to discover Vodafone used to be the number one player in the UK, though time and sloppy management eroded this position. The last couple of years have seen a turnaround in the mobile business, while the introduction of a fixed line offering certainly creates the opportunity to grow revenues through the much-desired convergence play.

As RBC notes, with no legacy business to protect and a strong partnership with CityFibre, the fixed line potential is certainly noteworthy. Digitisation strategies also seem to be paying off, while its tower business also gives it at opportunity to raise more funds through a divestment if necessary. This is a strategic asset Vodafone would not want to get rid of completely, though a minority sale could raise between €3 billion and €5.5 billion, offering suitable security should it be needed. With the Liberty Global deal set to complete in a couple of months’ time, there is potential for further convergence wins in Eastern Europe also.

Of course, there are substantial risks as well. Competition in the Italian, Spanish and German markets are ramping up, with new entrants such as Iliad and United-Drillisch causing all sorts of problems, while national expansion of Euskaltel in Spain will not be welcomed. These are markets where Vodafone has a notable presence and disruption is rife.

And then you have the spectrum auctions. Vodafone might have already participated in some, but there are still many on the horizon. In Germany, the pre-conditions set on established players look to be commercially unreasonable, and that is even before the auction has taken place. The prices being discussed at each auction are increasing each time and RBC estimates the remaining licences could cost Vodafone between €4.5 billion and €12 billion. Some might suggest the Italian auction was inaccurately inflated, though the premiums paid in Australia and Sweden also confirm the auctions are going to be expensive business moving forward.

Finally, you have India. Vodafone currently owns 45% of the newly created Vodafone Idea telco, the teams answer to the Reliance Jio disruption, though what this is actually worth is unknown for the moment. None of the strategies used to tackle Jio have actually worked yet and it is unknown whether Vodafone Idea will be able to slow the momentum behind the upstart. This market could be great for Vodafone, or it could be a disaster; no-one knows for sure.

As it stands, there are certainly possibilities for the telco moving forward, but the risks and dangers in certain markets are huge. Vodafone has shown itself to be a pretty sound business in recent years with the digitisation and convergence shifts, but RBC doesn’t feel it is in a particularly strong position.

Aussie watchdog sniffs around TPG and Vodafone merger

The Australian Competition and Consumer Commission (ACCC) is having a closer look at the AUS$15 billion TPG and Vodafone merger, with the signs looking rather ominous for the pair.

After initially being rumoured in August, the merger was confirmed with the pair targeting convergence trends to source fortunes down-under. Neither telcos has been tearing up trees in the market, TPG’s recent financials revealed 0.5% growth over 2018 while Vodafone posted a first-half net loss of AUS$92.3 million in July, though this merger could have been viewed as a means to become more profitable.

However, the ACCC is citing competition concerns in both the mobile and the broadband business units. When the watchdog starts to get twitchy, it doesn’t necessarily bode well.

“Our preliminary view is that TPG is currently on track to become the fourth mobile network operator in Australia, and as such it’s likely to be an aggressive competitor,” ACCC Chair Rod Sims said.

“Although Vodafone is currently a relatively minor player in fixed broadband, we consider it may become an increasingly effective competitor because of its high level of brand recognition and existing retail mobile customer base.”

As separate companies, TPG has the broadband heritage with ambitions in the mobile game, while for Vodafone it is the opposite. Any regulator or competition authority which is starting to see organic diversification will start to get excited, though this merger will effectively kill off any promise of additional players in the individual connectivity segments, as they would lean on the new partners strength. The promise of four separate mobile and broadband telcos is disappearing in front of the ACCC’s eyes.

The question which remains is whether Australia needs a fourth player in the mobile and broadband segments for the market to remain competitive? There are of course pros and cons to both sides of the argument, though risk-adverse public sectors bodies tend to believe more providers means a better outcome for the consumer due to competition.

This is certainly what appears to be happening in Australia, though this is a country which needs to operate its own rules.

In markets like the UK, fewer providers might not mean less competition. The land mass which needs to be covered is comparatively small, therefore it is not out of the question to have genuine national providers, which can offer 90% or greater coverage. This means choice for the consumer and the providers have to scrap for attention and subscriptions.

However, Australia is massive, incredibly varied and contains some very hostile environments; not exactly the perfect playing field for telco expansion and greenfield investment. The risk of localised monopolies emerging are greater, due to the final burden of increasing coverage or entering into new segments. With this in mind you can see why the ACCC is getting a bit twitchy.

Of course, consolidation means a bigger subscriber base, greater revenues and therefore increased CAPEX budgets. Investors and management teams have more confidence in being able to upsell services to existing customers, therefore the risk in investing in new infrastructure or upgrades is decreased.

It is six of one and half a dozen of the other when you look at it, though that will come as little comfort to the TPG and Vodafone executives now facing the scrutiny of the ACCC.

Vodafone searches the sewers for missing connectivity

Vodafone UK has announced a new initiative to embed small antennas below street level in a bid to meet data demands in the country’s busiest streets.

With today’s users demanding increased connectivity but refusing to allow MNOs to place more antennas due to aesthetics, an interesting conundrum has been created. One solution to this challenge is to place mobile equipment in street furniture such as manhole covers, lamp-posts and phone boxes.

“We are committed to providing customers with the best network possible by drawing on our strengths in innovation and strong UK heritage,” said Vodafone UK CEO Nick Jeffery.

“It is great to be able to use yesterday’s infrastructure – from phone boxes to manhole covers – to deliver the services of tomorrow.  This is one of the ways we are extending our 4G services to areas other networks cannot reach and getting ready for 5G.”

One of the issues which UK MNOs face in comparison to other countries throughout Europe are the restrictions placed on new mobile sites. Planning permission can be scuppered thanks to quinoa-qwaffling locals who feel antennas would not be aesthetically pleasing, while maximum mast heights are notably smaller than other states. This means more have to be placed to compensate. Consumers are demanding the end of not spots but are not making it easy for the MNOs to help out.

This approach from Vodafone is certainly some outside (or below) the box thinking, while it also simplifies the process of installing new equipment. The antennas can be installed without any construction or street works, while the look of the street does not change. Vodafone have already installed two types of mobile-enabled manhole covers at its Newbury office which can carry calls and provide fast internet access over a 200-metre radius without consuming much power.

Another example is up in Edinburgh, where the team is fitting the roofs of traditional phone boxes with small 4G antennas. This also solves another issue when it comes to remote locations, as the phone boxes are already hooked up to the grid with connectivity infrastructure and power lines.

Although the stuffiness of locals and bureaucracy can make it difficult for MNOs to meet demands, it does encourage more creative thinking. Another excellent example of this is over at SSE.

Back in September, SSE signed an agreement with both Three and O2 to make use of the Thames Water waste water network to improve connectivity backhaul capabilities. In other words, cabling would be run through the sewers instead of having to dig trenches on the streets specifically.

Creatively making use of what is already there will be an increasingly important aspect of the connectivity mix, especially in cities like London, which have not been designed for the internet and where the locals are particularly irked by any minor disturbance to their lives. It’s a good idea, but we’ll leave the sewer exploration to someone else.

Vodafone blames big loss on India and other impairments

UK operator group Vodafone announced a net loss of €7.8 billion for the six months to the end of September, thanks largely to some one-off impairments.

Group revenue was down 5.5% year-on-year, but the company wrote down €3.5 bil on the disposal of Vodafone India and a similar amount for various impairments that also included India as well as Spain and Romania. There was also the time-honoured adjustments for currency and various other bits of accounting arcana that presumably make sense to someone. Here’s the P&L, which registers a slightly higher loss, but what’s a hundred mil between friends?

Vodafone 2018 P&L

“Our performance in the majority of our markets has been good during the first half of the year, and we have taken decisive commercial and operational actions to respond to challenging competitive conditions in Italy and Spain,” said Vodafone Group Chief Exec Nick Read.

“Looking ahead, my new strategic priorities focus on driving greater consistency of commercial execution, accelerating digital transformation, radically simplifying our operating model and generating better returns from our infrastructure assets. Our goal is to deepen customer engagement through a broader offering of products and services and to deliver the best digital customer experience, supported by consistent investment in our leading Gigabit networks.

“As part of our effort to improve returns, we are creating a virtual internal tower company across our European operations, and we are reviewing the best strategic and financial direction for these assets. Our focus on organic growth along with the strategic and financial benefits of the proposed acquisition of Liberty Global’s assets give confidence in the Group’s ability to grow free cash flow, which underpins our dividend.”

The comment about towers seems to imply Read is thinking of selling and leasing back some towers, or something like that. The upshot seems to be that Vodafone is fine for cash (the write-downs were mainly the devaluation of existing assets, so there’s no expenditure involved) and so it’s fine to maintain the current dividend level. This resulted in Vodafone’s share price ending the day around 8% up, so no worries. You can read further analysis of Vodafone’s numbers here.

The iStore is a perfect example of how we can make money – Vodafone

Many around the world will use Apple as a benchmark of how to successfully engage the digitally native consumer, though it’s the development of the iStore ecosystem which can be used as a model for the telcos.

Speaking at Light Reading’s Software Defined Operations and the Autonomous Network event in London, Atul Purohit from Vodafone Group pointed towards the slow-burning and long-term investments made in creating the app store as the way to make money in the digital economy. This is ultimately one question which will frustrate a lot of telcos, how will the vast expenses on 5G be recaptured over the next decade?

With 5G, MEC and IoT trends starting to make more concrete impacts on the real world, Purohit suggested a platform model should be built these technologies, with the telcos forming the centre of the ecosystem. This is not the blockbuster cash generator, a silver bullet to recoup lost billions, which some investors might want, but it is a sensible, sustainable business model. In fact, you can already see the benefits today.

Apple’s iStore and Google’s Play Store are excellent examples of careful development of an ecosystem and the rewards which can be realised when a segment matures, but the smart home is another. Most would have presumed the telco would be an excellent focal point for the smart home ecosystem, primarily because the router is already an accepted fixture in the living room, though the likes of Amazon and Google has imposed the smart speaker in its place.

This is an example of inaction than anything else, as the proactive internet giants wrestled the focus of the smart home away from the router and the cumbersome telcos, and onto the speaker. Services and products are being built around the smart speaker, and the financial rewards will be claimed by Amazon and Google. With personalised experienced and IoT trends of tomorrow, the telco still has an opportunity to stake its claim to be the focal point of these ecosystems.

This is a business model which will mature over time, requiring long-term investment and patience above all else, though it is a model proven successful time after time.

5G ROI is a no-brainer for us – Orange

5G is clearly critical for the digital economy of tomorrow, but the expensive job of rolling out the networks take a bit more cunning thought.

Speaking on a panel session at Total Telecom Congress in London, Yves Bellégo, Director of Network Strategy at Orange pointed out there is no debate on the ROI for 5G. It’s simple; 5G enables us to deliver data significantly cheaper. With internet traffic continuing to explode, and mobile usage heading north as well, why wouldn’t anyone want to invest in something which can make business operations cheaper.

But here is the clincher; rolling out these networks is an expensive job, and ROI still hasn’t be completely justified. Telcos will have to accept the ‘build it and they will come’ attitude, though trying selling that to accountants. As Takehiro Nakamura, General Manager of 5G Labs at NTT Docomo pointed out, 5G will not just be there overnight, the rollout out will be gradual and it will be years before the concept of nationwide if even close to a reality because of this very reason.

For 5G to realise its potential, there will need to be considerable thought to identify the services which can be offered from Day One. It isn’t going to be as simple as offering a sweeping portfolio of new services, with the progressive rollout which many telcos have in mind, with 4G and 5G working alongside for years to come, difficult choices will have to be made.

Fortunately, a lot of these services can be offered on 4G, though as Ramy Boctor, CTO of Vodafone Qatar, pointed out, the performance will just be better on 5G. Perhaps this will play into the hands of the telcos; limited supply and potentially high demand, a perfect recipe for making money.

This is perhaps a fact which is lost in the buzz and hype; 5G will be incredibly limited for years to come. The rollout will take time, upgrading existing sites will take time, densifying the network with new sites will take time. This is not something many people seem to be saying, but it is worth remembering.

Vodafone next on the 5G ‘first’ campaign trail

We thought we were safe from misleading 5G claims in the UK, but Vodafone has become the next telco to push the boundaries on what is deemed an acceptable ‘truth’.

The statement this morning is a relative bold one; “Vodafone first to switch on full 5G in the UK”, though it is heavily nuanced. Despite it sounding like a 5G bonanza for us to get excited about, these are trials, commercial services are not being offered to customers, once again proving honest statements and transparent claims are difficult concepts to swallow. In fact, this isn’t even the first 5G trial to be launched in the UK after EE pushed the line of truth earlier this month.

However, it is a step in the right direction in a market which was feared to be miles behind the 5G curve.

“We are leading the roll out of 5G across the UK, starting with Greater Manchester,” said Vodafone CEO Nick Jeffery. “A further six cities – Birmingham, Bristol, Cardiff, Glasgow, Liverpool and London – will shortly receive full 5G too. Next year, we will bring 5G to the Scottish Highlands, Cornwall and the Lake District, among other locations.”

As part of the trial, live mobile data traffic is being streamed to and from the internet exclusively over 5G from a site in Salford, Greater Manchester, connected to Vodafone’s nationwide converged fibre network. Previous trials have been focused on single locations or used part of a 4G network to complete the work, so it certainly is a step forward.

Despite the ‘first’ and ‘switch on’ claims being a bit difficult to swallow, Vodafone has been making progress. Last month the team impressively demonstrated a live holographic call between Newham and Manchester, sparking the imagination to what is possible in the 5G world. For too many years the industry has focused on bufferless cat videos on the go as the 5G driver, but now we are starting to see some creative and engaging usecases.

Looking forward, the team are currently receiving applications for companies which want to be involved with the future 5G trials at the new ‘Future Ready’ innovation centre and digital incubator when it opens in Spring 2019. Vodafone has said the lab will be piled to the ceiling with the latest gadgets including 5G wireless routers, gigabit-capable optical-fibre links and IoT services, which can digitally connect everything from office security systems, vehicles, and household appliances to livestock and pets.

While the telcos are taking the suspect approach of over egging the 5G pudding here, this is progress. Many were sceptical over the 5G preparedness in the UK, though progress is being made. When 5G-compatible handsets arrive in mid-2019, the UK 5G networks will be there or there about to offer commercial services. Who would have thought we would have been saying that 18 months ago.

EE holds onto Opensignal MNO crown

EE has held onto its position as the best performing UK MNO according to the latest figures from Opensignal.

For 4G download performance, EE maintained its leadership position with average download speeds of 29 Mbps between June and August, while it also led in upload speed, latency and availability. This is not to say there weren’t improvements elsewhere, Vodafone grew its average 4G download to 21.9 Mbps, though Three’s dropped with the telco slipping down to third place in the performance rankings.

4G might not have been a fruitful playground for Three, but it did steal the top-spot for 3G speeds off EE. With average speeds of 7.8 Mbps it edged just ahead of EE at 7.2 Mbps, though this will come as little comfort as telcos increasingly look to re-farm 3G spectrum to bolster 4G performance.

Interestingly enough, O2 is still maintaining its position as the leading telco in terms of market share, despite a damning review of the telco from Opensignal. O2 sat in last place for all categories aside from latency (3G and 4G) and availability, where it was second behind EE. O2 might arguably have the weakest network in the UK, the power of promotions seems to counter this position. The Priority loyalty programme is perhaps proving its worth in gold here.

While many will preach the benefits of having the best network, these figures show it’s not always about being the fastest.

Opensignal Awards

Ofcom isn’t happy with EE and Vodafone’s coverage predictions

UK telecoms regulator Ofcom has opened separate investigations into coverage predictions offered up by EE and Vodafone.

In what seems like a fairly pedantic move Ofcom has announced it’s looking into information provided by the two MNOs when it asked them to say how much of the country they expect to cover. Bizarrely EE is suspected of overestimating its 3G coverage, while Vodafone may have under-predicted its 4G coverage.

Why any of this matters is unclear. Ofcom uses these estimates for its own studies into UK mobile coverage, which are ultimately politically sensitive due to the tendency for politicians to grandstand on behalf of those people with dodgy coverage. It’s possible that Ofcom is getting political heat and is looking for scapegoats. Here are the two Ofcom statements.

“On 1 October 2018, Ofcom opened an investigation into EE’s compliance with requests for 3G mobile coverage predictions across the UK under these rules. This followed on from the identification by Ofcom of errors in the 3G/2100 MHz coverage data that EE provided which meant that its 3G coverage was over-predicted, particularly in rural areas.”

“On 1 October 2018, Ofcom opened an investigation into Vodafone’s compliance with requests for 4G mobile coverage predictions across the UK under these rules. This followed on from the identification by Ofcom of errors in the 4G/800 MHz coverage data that Vodafone provided which meant that its 4G coverage was under-predicted, particularly in rural areas.”

As indicated by the beeb, the operators will claim some combination of innocence, mitigation and contrition, so it’s hard to imagine anything significant resulting from these probes. Maybe Ofcom just likes to throw this sort of thing at operators every now and then just to keep them on their toes.