Vodafone cancels UK 5G launch event at the last minute

Vodafone UK was scheduled to match EE’s 5G launch event with one of its own the next day but suddenly cancelled it.

Pretty much every other event in the telecoms world these days exists in the shadow of the rapidly escalating Huawei crisis, but that didn’t stop UK MNO EE from going ahead with its launch event today. Huawei was conspicuously absent from its initial list of 5G smartphone vendors, and parent company BT is clearly trying to distance itself from it across the board, but at least the event went ahead.

The same won’t be said about Vodafone, which had scheduled an ‘informal media briefing’ for 23 May – tomorrow. In a last-minute communication with media that had signed up to attend Vodafone UK said: “…due to the ongoing media agenda, tomorrow’s briefing with Max Taylor, Vodafone UK’s new Consumer Director has been postponed. This was an informal media briefing to provide an update on Vodafone’s 5G device plans. Vodafone will still be issuing an announcement on their 5G handset pricing tomorrow and customers will be able to purchase/ pre-order some handsets.”

As we noted earlier, the US ban on doing business with Huawei is metastasizing rapidly. It’s starting to look like companies are pre-emptively cutting ties with the Chinese vendor if there’s even the slightest risk of upsetting the US. Vodafone may well have decided it was better to call the whole thing off than risk political contagion, since it was due to announce the Huawei Mate X (5G) and an exclusive 5G home router, called the 5G Gigacube, at the event.

We presume Vodafone still intends to flick the 5G switch in the UK on 3 July as previously announced but this Huawei business has seriously taken the wind out of its PR sails. It’s very unlikely that this will be the last time we see a western Huawei partner forced to make a last-minute adjustment as this whole saga plays out.

Vodafone ditches Kiwis and cuts dividend in search of ‘financial headroom’

Vodafone has announced the sale of its New Zealand arm and a cut to the dividend as the firm searches for breathing room on the spreadsheets amid its Liberty Global acquisition and annual loss.

Such is the precarious position Vodafone is under, a cut to the dividend was expected by many analysts, though the sale of its Kiwi business unit compounds the misery. Facing various challenges around the world, including expensive spectrum auctions in Europe, the telco giant is searching for financial relief, though whether these moves prove to be adequate remains to be seen.

“We are executing our strategy at pace and have achieved our guidance for the year, with good growth in most markets but also increased competition in Spain and Italy and headwinds in South Africa,” said Group CEO Nick Read. “These challenges weighed on our service revenue growth during the year, and together with high spectrum auction costs have reduced our financial headroom.

“The Group is at a key point of transformation – deepening customer engagement, accelerating digital transformation, radically simplifying our operations, generating better returns from our infrastructure assets and continuing to optimise our portfolio. To support these goals and to rebuild headroom, the Board has made the decision to rebase the dividend, helping us to reduce debt and deliver to the low end of our target range in the next few years.”

While the news of a dividend cut saw share price drop by more than 5%, trading prior to markets opening has seen a slight recovery (at the time of writing). The dividend cut is not as drastic as some had forecast, down to 9 euro cents from 15, while an additional €2.1 billion from the New Zealand sale will provide some relief.

Looking at the financials for the year ending March 31, group revenues declined by 6.2% to €43.666 billion, while the operating loss stood at a weighty €7.644 billion. This compares to a profit of €2.788 billion across the previous year, though there are several different factors to take into consideration such as the merger with Idea Cellular in India and a change in accounting standards.

The loss might shock some for the moment, though this is likely to balance out in the long-run. In changing from the IAS18 accounting standard to IFRS15, Vodafone is altering how it is realising revenue on the spreadsheets. From here on forward, revenues are only reported as each stage of the contract is completed. It might be a shock for the moment, but more revenue is there to be realised in the future.

Although these numbers are the not the most positive, there is a hope on the horizon.

“The dividend cut is a massive blow for investors, while the results highlight the on-going challenges facing the company in its quest to turnaround its fortunes,” said Paolo Pescatore of analyst firm PP Foresight. “All hopes seem to be pinned on 5G, but the business model is unproven. Huge investment is required to roll out these new ultra-fast networks, but it comes at a cost.”

On the 5G front, Vodafone UK has announced it will go live on July 3, initially launching in seven cities, with an additional 12 live by the end of the year. Vodafone will also offer 5G roaming in the UK, Germany, Italy and Spain over the summer period. Interestingly enough, the firm has said it will price 5G at the levels as 4G.

Although this is a minor consolation set against the backdrop of a monstrous loss, it is at least something to hold onto. As it stands, Vodafone is winning the 5G race in the UK, while the roaming claim is another which gives the firm something to shout about. Vodafone is not in a terrible position, though many will be wary of the daunting spectrum auctions it faces over the coming months.

Vodafone share price tumbles on dividend cut report

Share price in Vodafone has taken a 4.3% hit during the opening hours of trading as rumours over a cut in dividend emerge.

Although several telcos have veered away from the dangers of cutting a dividend, The Sunday Times is reporting Vodafone is on the verge of making the announcement. With fourth quarter results scheduled for tomorrow morning, the team only has a short period of time to fend off unwanted questions.

Vodafone is currently one of the most attractive investments in the FTSE thanks to higher than average dividend payments to investors, though that might all be about to change. Some analyst firms are suggesting the cut could be as large as 50%, taking the dividend down from 15 pence per share to 7.5 pence. At the time of writing, Vodafone’s share price had declined 4.53% from the closing price on Friday afternoon.

The Vodafone share price has been steadily declining over the last 12-18 months, though any more downward movement could take it to the lowest since the fallout of the financial crisis in 2008.

The cause of the dividend cut is most likely to be due to the demands of 5G deployments across Europe. Although Vodafone is in a very strong position in multiple markets across the continent, this creates a difficult position when it comes to funding the funds to fuel future-proof infrastructure investments.

The challenge which Vodafone is specifically facing is spectrum. With auctions in Italy and Germany set to push the price of spectrum further north, telcos in the markets will be scrapping and scraping to secure a war chest deep enough.

It might not be the most exciting part of the mobile connectivity segment, but spectrum is one of the most critical. The assets could potentially define the success of a telco in the future 5G world, and numerous executives have already bemoaned the process of securing the frequencies. Some are complaining of the scarcity, and others of the price. Spectrum is central to 5G plans, and it’s not cheap.

This current predicament has been predicted however. Back in January, RBC Capital Markets suggested Vodafone might be in a precarious position due to years of restructuring, M&A, as well as exposure in up-coming spectrum auctions.

“Its underlying markets remain ‘challenging’ and it has very little financial headroom despite synergies and cost cutting,” the investor note stated. “Vodafone has options with its towers but faces a threat from 5G spectrum. The dividend is unsustainable even before we consider a macro downturn.”

RBC estimated securing the relevant licences could cost Vodafone between €4.5 billion and €12 billion, and even suggested investors should sell Vodafone shares ahead of a potential dip.

These are of course rumours for the moment, though there is enough support to justify the dip in share price. Only tomorrow’s results will tell.

Vodafone Shareprice

Merger of Vodafone Australia and TPG blocked

The Australian competition authority has decided that the telco merger of Vodafone and TPG amounts to excessive consolidation and has blocked it.

This decision comes after months of agonising by the Australian Competition and Consumer Commission (ACCC), which started looking into the deal last December, several months after it was first proposed. Vodafone is one of three major MNOs over there, while TPG is one of three major fixed-line players.

“Broadband services are of critical importance to Australian consumers and businesses, across both fixed and mobile channels,” ACCC Chair Rod Sims said. “Given the longer term industry trends, TPG has a commercial imperative to roll out its own mobile network giving it the flexibility to deliver both fixed and mobile services at competitive prices. It has previously stated this and invested accordingly.

“Vodafone has likewise felt the need to enter the market for fixed broadband services. These moves by TPG and Vodafone are likely to improve competition and future market contestability. TPG is the best prospect Australia has for a new mobile network operator to enter the market, and this is likely the last chance we have for stronger competition in the supply of mobile services.

“Wherever possible, market structures should be settled by the competitive process, not by a merger which results in a market structure that would be subject to little challenge in the future. This is particularly the case in concentrated sectors, such as mobile services in Australia.

“TPG has a proven track record of disrupting the telecommunications sector and establishing itself as a successful competitor to the benefit of consumers. TPG is likely to be a vigorous and innovative supplier of mobile services in Australia, offering cheaper mobile plans with large data allowances, and competing strongly against incumbents Telstra, Optus and Vodafone.

“TPG has the capability and commercial incentive to resolve the technical and commercial challenges it is facing, as it already has in other markets. TPG already has mobile spectrum, an extensive fibre transmission network which is essential for a mobile network, a large customer base and well-established telecommunications brands.

“TPG is also facing reducing margins in fixed home broadband due to the NBN rollout. Further, there is the growing take-up of mobile broadband services in place of fixed home broadband services which is expected to increase especially after the rollout of 5G technology. After thorough examination, we have concluded that, if this proposed merger does not proceed, there is a real chance TPG will roll out a mobile network.”

It’s great that Sims offered such a detailed rationale, but he could have just said “We want to force Vodafone and TPG to diversify through organic investment rather than M&A.” He doesn’t seem to buy TPG’s line that the Huawei ban makes it impossible for it to build its own mobile network, but it seems to be a big leap of faith to conclude that blocking this merger will automatically result in a change of heart.

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.

Vodafone found vulnerabilities in Huawei kit but stuck with it because it was cheap – report

The latest mini-leak in the ongoing Huawei propaganda war saw Vodafone admit to finding security flaws in some Huawei kit in the past.

The scoop comes courtesy of Bloomberg in a story headlined Vodafone Found Hidden Backdoors in Huawei Equipment. The kit in question was mainly domestic routers and some optical service nodes supplied to its Italian business back in 2011, which the report claims had security backdoors that could have given Huawei access to the whole fixed line network (which Vodafone denies). Vodafone told Bloomberg the issues were eventually resolved, but it’s far from an open-and-shut case.

Vodafone said it asked Huawei to deal with the backdoors as soon as it spotted them and was told that they had been, but it took further prompting to get the lot of them. Furthermore some anonymous sources told Bloomberg that the vulnerabilities remained beyond 2012 and were also present in Vodafone networks in other countries, including the UK. Vodafone allegedly knew about this but stuck with Huawei regardless because they were relatively cheap.

Apparently some in Vodafone had concerns about the security of Huawei routers from the start and flagged a bunch of bugs up, the most critical of which was a ‘telnet’ service that allows remote access. Vodafone Italy asked Huawei to remove this telnet and was once more told that it had been, while subsequent testing revealed it hadn’t. Huawei then apparently shifted the goalposts, saying it needed the telnet to configure devices, and offered to remove it once the configuration had been done.

This reportedly caused concern for Vodafone’s chief information security officer at the time, Bryan Littlefair, who wrote the following in a 2011 report: “What is of most concern here is that actions of Huawei in agreeing to remove the code, then trying to hide it, and now refusing to remove it as they need it to remain for ‘quality’ purposes.”

Now it should be stressed that this is still far from the smoking gun evidence of inherent security vulnerability the US claims to have and which Huawei wants to see. This stuff took place years ago and seems to have been quite isolated. Furthermore Huawei is hardly the only vendor to have vulnerabilities in its routers. Having said that this latest piece of circumstantial evidence is certainly unhelpful l to Huawei in the current environment and could well cause some reputational damage to Vodafone too.

UK MNOs suck compared to MVNOs – Which

Consumer publication Which asked its members to rate UK mobile operators and found the small ones tend to do better across the board.

Vodafone sucked the most, according to Which, managing only a one-star rating for each of customer service, value for money and technical support. 19% of Vodafone customers surveyed said it was poor value for money, while 18% said its customer service was poor and 13% thought the same about its technical support.

There are various other unflattering datapoints attributed to EE and O2 too, but you get the general point. It turns out that market leaders can be a bit complacent, which challenger brands try harder. Who knew? Thee UK, accordingly, scored better than the other three MNOs, but MNVOs such as Giffgaff scored more highly than the lot of them.

“The continuing reign of smaller networks over the big players goes to show exactly how important customer support and value for money are to mobile users,” said Natalie Hitchins, Head of Home Products and Services at Which. “If you think you are paying too much or are not getting the level of service you expect from your provider you should shop around for a better deal – you might find you save yourself some money and probably a lot of grief too.”

Great advice Natalie, thanks. Some other people said things that amounted to much the same. In response Vodafone sounded contrite but EE defiant. Which also had a look at average contract prices and found that the bigger operators have the nerve to charge more for their substandard service.

UK advertising watchdog ties itself in knots over broadband marketing

The UK Advertising Standards Authority has ruled that Vodafone’s ‘Gigafast’ service was misleading because some people might reckon that means 1 Gbps.

In reality the brand referred to a range of broadband packages, the fastest of which could still only manage an average of 900 Mbps. Virgin Media thought this was a bit cheeky and so grassed Vodafone up to the ASA, which today upheld the complaint on the grounds that, while some people wouldn’t read much into it, some punters might reckon they would be getting at least 1 Gbps when they weren’t.

“The ASA considered that many consumers would likely understand the prefix ‘Giga’ to be a hyperbolic description of speed, and would therefore generally understand ‘Gigafast’ internet was very fast broadband,” satated the ruling. “However, we considered that a significant proportion of consumers would have sufficient knowledge of broadband terminology to understand Gigafast Broadband as a reference to a service capable of providing speeds of 1 Gbps (1000 Mbps).”

Contrast this with the ASA’s previous ruling on the use of the term ‘fibre’ in broadband marketing. Its conclusion in that case was that hardly anyone would think fibre meant 100% fibre, so it’s fine to just chuck the term around even if loads of the connection was actually over copper. How come people understand giga to mean 1000 Mbps but don’t think fibre means fibre?

To be fair to the ASA there was an additional complicating factor in this case, which is that Vodafone apparently kept banging on about the £23 price point in its Gigafast marketing, when that price only gets you an average speed of 100 Mbps, with the 900 Mbps one costing £48 per month. That seems to be the thing that the ASA most objected to, implying it’s fine with a 900 Mbps average service being called gigafast despite having previously ruled that ‘up to’ claims weren’t allowed.

“Although we considered that the website made clear that Vodafone Gigafast referred to a range of packages which were not all capable of providing 1Gbps, because it implied that consumers could get a service that offered speeds of 1Gbps for £23 per month, when that was not the case, we concluded that it was likely to mislead,” concluded the ruling.

The ASA seems to be increasingly confused about broadband marketing. It seems fine with labelling a package of services, the fastest of which only averages 900 Mbps, as Gigafast and with calling a partly copper connection fibre. At the same time it objects to the use of ‘up to’ in describing broadband speeds and is touchy about ambiguous pricing claims. It needs to either be laissez faire or authoritarian, but right now it seems to jump between those positions on a case by case basis.

Vodafone not bothered by EC objections to Liberty Global deal

The European Commission has apparently notified Vodafone of some concerns it needs to be addressed before it will approve its acquisition of Liberty Global assets.

The acquisition was announced almost a year ago but such is the way of these things that the EC has only just got around to flagging up its issues with it now. The objections haven’t been published but they have been widely reported and are presumably not a million miles away from those flagged up at the end of last year.

Anyway it doesn’t seem to have thrown Vodafone out of its stride at all and it issued the following statement. “The Commission’s Statement of Objections is an expected part of the review process. We will review the Statement and continue our constructive dialogue with the Commission.

“This is a significant, pan-European transaction that will create a fully-converged national challenger in four European markets, and we remain confident that the Commission will recognise that it will deliver considerable benefits for consumers and competition. We still expect to receive final approval in the middle of this year.”

Reading between the lines this seems to be Vodafone saying “we got this”. Being given a bunch of hoops to jump through was always going to be an inevitable part of this process and it’s probably a relief to have finally received them. Vodafone will now spend a couple of months chatting to the EC to make sure all its objections are properly addressed, with its fingers crossed throughout.