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Q2 Explosion! AT&T, VZ, Telenor, China Tel, Amazon, Qualcomm, Apple: Telco 2.0 News Review

Carrier Q2s: AT&T saved by lower CAPEX and M2M volume; VZW, Telenor, China Telecom surge

Verizon Q2s are in. Wireless revenue was up 5.3% year on year, with 1.1m postpaid net-adds. Service revenue was down 2.2% as the general shift of emphasis from service pricing to device sales kicked in (device sales are up from $2.4bn to $3.9bn). 87% of wireless traffic is now on 4G.

AT&T, meanwhile, boasted of a 2m net-add quarter, “triple the 634k” recorded in Q2 2014, but on closer examination that included 1.4m M2M net-adds. The postpaid net-adds number was 410k, but this also includes 659k tablets, so the core business result was a net-loss of 249k phone subscribers. Ouch.

Prepaid was better, much better, with 331k net-adds as against a 286k net-loss a year ago, but this still suggests AT&T is losing high-value customers in mobile and replacing them with low-value bulk. That said, wireless saw almost a 9% increase in segment income because CAPEX slowed down substantially, by roughly $350m/quarter.

The problem with M2M is always making money from it. Usually, AT&T will say how many M2M SIMs they have on the network, but not how much money they make; Verizon will tell you how much money they make but not how many users they have. This week, VZW put a number on Q2 M2M - $165m in revenue - and $320m year-to-date.

Meanwhikle, the FCC cleared the AT&T-DirecTV deal on condition AT&T goes through with the FTTH build, submits to FCC oversight of interconnection, and agrees not to zero-rate its own TV from data caps. Bruce Kushnick argues it’s not enough because the FCC hasn’t said what sanctions it might use.

The video service Verizon acquired with AOL is going to launch in “late summer”, according to Fran Shammo, who also let slip that it would be about “live-type news clips, sports, and events” and would use LTE multicast - except on the iPhone, which doesn’t support it.

More solidly, Shammo also cast doubt on whether VZW would take part in the 600MHz auction, saying that the 87% of their data traffic that’s on LTE fits into 40% of their spectrum holdings. RootMetrics would tend to agree, having found that VZW was almost always the best data network at US airports. Not enormously surprisingly, Sprint finished dead last.

The FCC, meanwhile, is trying to make DISH repay the $3bn credit it obtained by bidding on AWS-3 through two “small businesses” it controls.

Last week, we wondered how if Sprint would be “financially stretched” by its latest network build, it was meant to be buying T-Mobile. This week, some interesting ideas are doing the rounds about how it might pay for a small-cell rollout of as many as 70,000 sites, beyond the $2.1bn in vendor financing it signed up back in January. One suggestion is that a towers company might co-invest.

Back at Verizon, the CWA has angrily rejected an offer from management, describing it as “retrogressive and insulting”. Management, meanwhile, has distributed an app to make it easier to report any misbehaviour by union members.

Vodafone reported that its European service revenue numbers have been rather good, which means “not plummeting”. They fell 1.5% to £6.5bn, which is surely better than 2.6% a year ago but is hardly stellar either. Over the whole company, revenue was down 0.9%, including both 3.1% of M&A and -7.3% of currency effects. The non-European businesses grew 6.1% to just shy of £3bn. And Project Spring is apparently 71% complete after 71,000 sites were upgraded to “high capacity backhaul” - but there’s no mention of how many of those are on fibre. Hmmm. Remember this chart from the Winning Strategies: Differentiated Mobile Data report?

Screenshot from 2015-07-27 13:33:06.png

Orange is planning to sell its Armenian opco, and also to buy four African opcos off Bharti Airtel. Those would be Burkina Faso, Chad, Congo Brazzaville, and Sierra Leone. However, Bharti itself denies it’s planning to get out of the ex-Zain, ex-Celtel businesses it bought back in 2010. The four networks make up 16% of their African revenues and might go for $1bn or thereabouts.

Telenor reported revenue up 17.5% in Q2. Although that comes with a shopping list of adjustments, the underlying figure of 6% revenue growth is pretty decent, driven up by a strong showing in Norway based on 4G data (mobile revenue was up 6.5%), and a stellar one in Burma, where 55% of subscribers are already using data. Guidance for 2015 is 5-7% revenue growth and 34-36% EBITDA margin.

There are 225m 4G users in China, and China Tel seems to be taking some share off China Mobile and Unicom.

Amazon Q2s smash expectations; Kubernetes 1.0; CloudRouter; AT&T, VZW CAPEX plans; Cisco hedges with new ASIC

Jeff Bezos is $7bn the richer this week, after Amazon’s Q2s showed unexpectedly strong profits. Well, $92m in a company with $23bn in quarterly revenue, but then it’s Amazon after all. The driver here is Amazon Web Services, which made $391m in operating income, up 45% from Q1. Clearly, there’s a lot of money in selling computer resources surprisingly dear, as we pointed out in the Amazon Web Services: Colossal, but Invincible? Executive Briefing.

ZDNet points out that AWS is now about the only cloud that doesn’t support Kubernetes, the deeply fashionable Google container management technology that just went into general availability this week. It’s already in anything OpenStack that keeps up with the releases, it’s in all things Google, it’s in CoreOS, and it’s in Microsoft Azure. It’s also now open source, maintained by the new Cloud-Native Computing Foundation.

However, there’s one name in containers that’s missing, the original and best, Docker, and it looks like a standards war is in prospect.

The second beta of CloudRouter has been released. CloudRouter is a containerised, open-source software router based on the Open Networking Foundation’s ONOS, OpenDaylight, and Fedora Linux, designed to be a cut-down, minimal, performant app. You get a choice of three different routing daemons.

We mentioned earlier that AT&T Mobility’s CAPEX was coming down. John Stephens provided a lot more detail, and it looks like part of this is the impact of their transition to SDN. Stephens expects their future CAPEX to be roughly flat, which implies real pain for the vendorsphere.

That said, Cisco has just announced a new hard ASIC, its Unified Access Dataplane, designed for very high capacity wireless LAN switches (up to 60Gbps), which does all the packet processing in hardware. It can be managed through OpenFlow, though, so perhaps “hybrid SDN” is coming next.

Verizon Wireless, meanwhile, is still focused on more faster broadband now, and who can blame them after the Q2 results above? Carrier aggregation between 20MHz LTE channels is the first priority, with small cells coming later. In San Francisco, promising 300Mbps with tri-band CA later this year. The GSA, meanwhile, reckons 30% of operators have deployed at least some LTE-A, and it’s always CA that goes first.

ZTE says its net profits are up 43%. Nokia-Alcatel has been cleared by the European Commission. Juniper Networks is feeling the pressure on telco CAPEX and relying on its security products for growth.

Vodafone UK edges closer to FTTH; OFCOM rethinks last 5%; VZ, AT&T wireline Q2s; Cox 1Gbps

Vodafone CEO Vittorio Colao has put at least some of his cards on the table. Colao said Vodafone would be willing to “give up some equity” in order to deploy FTTH in the UK - which could mean either the often-discussed idea of a deal with Liberty Global, the equally-often discussed idea of a joint venture with CityFibre, TalkTalk, and others, or perhaps even a joint bid to buy Openreach from BT. Colao explcitly called out the latter option:

“We would be prepared to put some equity in a vehicle that could deliver fibre at good conditions to us and also to others, whether that is an independent Openreach or another company.”

He also denounced BT’s plans to deploy G.fast as:

“yesterday’s vision and the vision of a monopolist”

and went on to say:

“I think Britain needs more fibre, not more expensive football, which is what is happening now”

Burn. It is certainly no accident that he said this the week BT wrote to its subscribers putting up the standard voice line rental by 7%. They’ve got all those footballers to look after.

Meanwhile, OFCOM director Sharon White suggests that the last 5% of households might not get “fibre” (i.e. BT DSL) but rather something wireless. Also, apparently the “superfast” target is 95% of homes but only 82% of businesses now. And further, the government is considering making the telecoms industry pay a levy, rather like the Universal Service Fund in the States, to do the rest. Interestingly, that story defines “superfast” as 25Mbps, or essentially ADSL2 plus 1Mbps, and then refers to “changing the universal service obligation from dial-up speeds to 5Mbps”.

Sky is preparing a new set-top box.

Verizon says 64% of FiOS customers are 50Mbps-plus, with 23%, the biggest group, on the 75Mbps tier. FiOS revenue was up 10% year-on-year, while wireline as a whole was up 4.5%. There were 72k FiOS net-adds, and 26k FiOS TV net-adds, so for each new fibre Internet link they sold one-third of a TV plan. Meanwhile, the enterprise segment is still shrinking.

Cox is the latest cableco to start rolling out 1Gbps FTTH, while also pulling its DOCSIS 3 speeds up to 200Mbps. AT&T is targeted again, in Louisiana.

For its part, AT&T says it’s satisfied with take rates on its own gigabroadband. However, the wider picture in wireline is a bit mixed. Revenue was up 3.7%, but the carrier net-lost 136k broadband and 22k video subscribers, showing that it’s feeling cable competition. That said, the star strategic business services segment is still crushing it, growing 13% year on year.

Qualcomm in crisis; Intel as buyer? Apple’s storming Q2; Huawei’s pretty great H1s

Qualcomm Q2s are out, and they are incredibly terrible. Sales were down 14% year-on-year, almost as bad as the 19% drop registered in the pits of the Great Financial Crisis. But this time, Qualcomm has no-one else to blame. Apple has triumphed in the high-end, Samsung has taken the S6’s CPU in-house after rejecting the latest and greatest Snapdragon at the last minute, and Mediatek is doing spectacularly well in the value segment. As a result, they’re planning to cut 4,700 jobs - the company’s head count has nearly doubled since 2010 - and review the idea of breaking it up into a chip-design and a technology licensing business. They’ve also had to give an activist investor seats on the board.

If the breakup happens, Intel might be the buyer for the chip design shop, valued at $30-40bn.

We mentioned Apple were doing well. Q2 results dropped this week, and they were strong. Revenue was up 33% year-on-year, and margins ticked up to 39.7%. The driver of all this was…basically, everything. More iPhones and Macs were sold in the quarter than ever before in a second quarter, App Store revenues were higher than ever, and there was the watch. Sales of iPhones are up 59% year-on-year.

Last week, Huawei promised more detail on their smartphone business, and here it is. The Consumer line of business turns out to have done rather well - it’s now 32% of Huawei’s revenue, compared to 24% the year before. Although Chinese smartphone shipments fell for the first time and Xiaomi had a seriously disappointing H1, Huawei more than doubled its revenues in China, not least because it succeeded in refocusing on the high-end of the market, driving up its ASP from $128 to $222.

BlackBerry, meanwhile, says that it’s going to develop 1 or 2 devices a year rather than 3 to 4, in order to put more resources into software and security solutions. That said it works for Apple, and both Samsung and Huawei look distinctly flagship-oriented these days.

Sony is trialling “Concept for Android”, a version of Android 5.1/Lollipop with an even more minimal look and feel.

And Canon’s net profits fell 16% in the second quarter as smartphones bit into the camera business.

Communications-focused Microsoft; Vodafone.it VoLTE; HEVC patent pool strikes; an actual RCS deployment

Last week, Microsoft wrote off the acquisition of Nokia Devices & Services. This week, its results hit, wearing the $7.8bn goodwill charge plus another $780m for restructuring as a result. The upshot was that MS lost money, $2.05bn of it. Ex-ing out the $8.44bn of Nokia-related charges, that implies the mainline business made $6.39bn in 2014-2015, which is disappointing in itself as the company made a $6.48bn operating profit last year.

You can see why they decided to wear the loss. Phone hardware sales were down 23% year-on-year and the division lost $104m in Q2. And the Devices & Consumer division generally was struggling, with revenue off 13% - everyone who’s going to upgrade out of Windows XP has done so, and OEM shipments of Windows 10 haven’t started to ramp up yet.

On the other hand, MS’s “commercial cloud” revenue, made up of enterprise Office 365 sales, Dynamics Online CRM, and Azure IaaS, was up 88%. Said CEO Satya Nadella:

“Our approach to investing in areas where we have differentiation and opportunity is paying off with Surface, Xbox, Bing, Office 365, Azure and Dynamics CRM Online all growing by at least double-digits”

Five out of those six items have at least some cloud content, and as TalkingPointz points out, MS is increasingly pushing either Lync (on premises) or Skype for Business (pure cloud) VoIP as part of Office 365 and will be providing the PSTN interconnect itself.

Watch this space for Telco 2.0 research into Microsoft’s pivot to communications and the cloud.

Vodafone Italy has launched VoLTE and Huawei would like you to know that they’re behind it and it’s cloud-based.

Here’s something ominous: a new patent pool has been created by companies who think they own a piece of HEVC, aka H.265, the latest thing in high-def video codecs. They would like to collect a revenue share from content owners - that’s going to be trouble itself, but do app developers or browser vendors who integrate it for video conferencing in WebRTC have to pay as well?

The LTE critical communications working group has only just managed to elect a chairman and the UK government wants to replace TETRA with LTE. Oh dear. More at the 3G, 4G, and 5G Wireless Blog.

And T-Mobile USA is deploying RCS!

The week they took over the connected cars

The Internet of Terrible Things. It turns out that anyone on Sprint’s network can enumerate and attack connected cars. Worse, once you exploit the cellular module, you can access the CANBus local area network…and everything in the car, including the brakes and the power steering, is accessible over the CANbus, which is one of those default-trusted networks that sounded like a good idea at the time. Does anyone think the self-driving ones are any better?

There’s some more detail here, including instructions on how to patch your car. It involves a USB stick:-) Chryslers with UConnect and the RA3 or RA4 model navigation and radio system are vulnerable and, evidently, probably shouldn’t be driven until updated. Fiat-Chrysler has since issued a recall for 1.4 million cars.

Frost & Sullivan may have picked the wrong week to release a report on how great 5G will be for connected cars.

Ars Technica has a deep review of Android Auto. Just to reassure everyone, it turns out that most versions of Android have a serious bug that lets an attacker execute malicious code via a crafted MMS message. It’s especially bad for anything older than Jellybean 4.1, but it’s pretty horrible all the same.

Microsoft has issued an emergency patch for all versions of Windows, from Vista through 7, RT, 8, 8.1, all the way to the Windows 10 Insider Preview, and Windows Server 2008 to boot. And here’s another.

Here’s an interesting story. The New York Times web site turns out to use WebRTC to identify computers behind proxies, NAT, VPNs, and the like and enumerate their real IP addresses. This turns out to be part of an effort to identify click-fraud bots.

And Google asks security experts what precautions they take. The take-away: use a password manager or write them down, and patch, patch, patch.

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