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Q3 Results Watch: Telco 2.0 News Review

Monsters of Cloud win Q3; Microsoft Linux; HP, Windstream out of cloud, DTAG, Huawei in

Google, Microsoft, and Amazon have all reported impressive Q3 numbers driven by the cloud. As we point out in this blog post, our 2012 Cloud 2.0: Telco Strategies in the Cloud report forecast 2015 as the year the cloud market would take off into mass adoption. Taking it company by company, AWS revenues are up 78% year-on-year, and the 8% of Amazon’s revenue that comes from AWS represents 52% of Amazon’s operating profit. Amazon’s operating margin in North America is 3.5%. In AWS, it’s 26%.

Read/Write points out here that AWS would be worth an insane amount of money if it had a typical tech sector valuation. It also points out that VMWare president Carl Eschenbach doesn’t look so smart any more for saying that he couldn’t believe he wouldn’t be able to beat a company that sells books.

Microsoft, meanwhile, beat its estimates handily, but as Julie Bort at Business Insider tells us, it gave itself a big helping hand by re-organising its reporting segments. Under the old reporting scheme, only two segments would actually have grown - and those are the two that contain the consumer and enterprise cloud businesses respectively. The Register notes that the mix of Lumia phones seems to have skewed sharply cheap, trashing margins but still not getting enough volume to matter. Evidently, if the Windows licensing and hardware lines suck, the cloud must be doing superbly well for the company to show top-line growth.

Mark Russinovitch, the MS Azure CTO, went to a Linux conference and encouraged developers there to apply for jobs at MS - they are currently advertising 498 posts that mention “Linux” somewhere in the description.

Google, meanwhile, is still keeping ahead of the plummeting price of online ads. The average cost-per-click was down 16%, but volume was up 23%, and OPEX rose “only” 14% in Q3. By Google’s opulent standards that’s a pretty lean quarter, especially as CAPEX was lower than usual, so the result was net income of $3.98bn, compared to $2.72bn a year ago. The new CFO, Ruth Porat, seems to be setting a slightly different tone since the Alphabet re-org - not only is the free pizza bill being reined in, the company is going to buy back $5bn worth of shares.

Data Center Knowledge notes that MS spent $1.5bn on cloud CAPEX in Q3, Google some $2.4bn (again, Google’s idea of saving is pretty relative), and AWS won’t say although we know they lease a lot of data centre space. Either way, Big Cloud is still a dear, dear do in terms of capital.

Perhaps that’s why HP is shutting down the public cloud element of Helion. They’re still going to be contributing to OpenStack, providing private cloud, and managing other people’s data centres, but the front-line public cloud element shuts down on the 31st of January, 2016. Windstream is also getting out of the game, selling its data centre portfolio for $575m and concentrating on fibre.

DTAG, however, is getting in. They plan to launch the Open Telekom Cloud at CeBIT next year as part of a collaboration with Huawei.

Here’s an interesting piece about BT, which apparently doesn’t like OpenStack much, in part because it can’t fit all its enterprise vCPE customers on one controller - but as a comment points out, why would you do that in the first place?

And here’s an exercise benchmarking different hypervisors on Ubuntu 15.10. It’s harder than you might think to get valid results, but the short answer is that there’s not much to choose between Xen or KVM, and either is better than VirtualBox.

Verizon, AT&T Q3s - wireless margins tick up. Is Comcast WiMVNO coming soon?

Hi diddly dee, United States Q3s. Verizon is up first, with groupwide revenues up 5% year-on-year and net income up 9% on the same basis. $23bn out of $33bn total revenue came from VZW, which saw a 4.3% increase in subscribers with 82.5% smartphone penetration and 89% of its data traffic on the 4G network. In the quarter, they scored 1.2m net adds.

CAPEX is up 8.4% year-on-year and may go higher next year, with the emphasis on wireless, suggesting that the US CAPEX cycle will start to lift again in H2. VZW might be spending more on small cells or DAS, too, as it confronts 75% growth in data traffic. That said, Fran Shammo didn’t say what period the 75% growth was over.

In wireline, Shammo said they were committed to the East Coast FiOS footprint, where they claim to have passed over 70% of homes with fibre. Another way of saying that would be that they aren’t so committed to wireline outside the FiOS footprint. That said, it was a decent wireline quarter as well. Consumer revenue was up 2.8%, and FiOS revenue up 7.5%, while 79% of the total revenue came from fibre. They claimed 114k net adds on fibre broadband, plus 42k video. Two-thirds took over 50Mbps, with 25% of subscribers on the 75Mbps tier.

Margins were strong, too, with wireless operating margin up from 31.% to 33.9% and service EBITDA margin up from 49.5% to 56.4%, wireline EBITDA of 23%, and even wireline operating margin, where the capital cost of FiOS makes itself felt, going from 2.3% to 6.2% in a year.

Enterprise, however, was horrible, with revenue declining 4.9% in Global Enterprise and 5.8% in Wholesale. Quote of note:

“On the enterprise piece, I guess what I would say is we’re seeing more or less the same and there’s been no change,” Shammo said. “There’s a lot of competition and there’s a lot of price compression continuing in the IP space.” Shammo added that it has made gains on the strategic side around security and data centers, “but even in data centers there’s an awful lot of competition happening with price compression.”

If it’s Verizon’s results, it must also be AT&T’s. Wireless revenues were broadly flat year-on-year, but service margin was up sharply to 49%. They put this down to “operational efficiencies” and quick-upgrade plans, but if it’s happened at VZW as well, perhaps the US price war is beginning to ease? ARPU is up 5% counting device instalments, and service ARPU is still down on a year-on-year basis, but basically all the drop happened in H2 2014, so perhaps it’s true.

T also claimed a huge net-adds quarter, 2.5m, but this was rather less than it looked. That includes 1.6m M2M devices, 622k tablets and the like, and 466k prepaid users, for a postpaid score of 289k. By contrast, VZW reported 430k net postpaid adds. On the other hand, 1 million of the M2M devices are connected cars, and the ARPU for a prepaid smartphone user was a very decent $42. They now have a million prepaid smartphones on Cricket, so this wants taking seriously.

Glenn Lurie, the head of AT&T Mobility, recently offered us the connected bike and said he wanted to connect everything to everything else. Less fluffily, he also mentioned they’ve won Jaguar-Land Rover’s connected car business.

Resi wireline was a mixed bag. On one hand you’ve got 192k “IP broadband” net-adds, but on the other, there were 278k net losses from DSL. By comparison, VZ lost about 400k DSL subs during the last 12 months or 100k/quarter. They also net-added 26k satellite subscribers on DirecTV, but net-lost 92k U-Verse subscribers. Randall Stephenson blamed this on “shifting focus to DirecTV”, but surely you’d want the net-adds on DirecTV to be equal or more than the losses?

As usual, strategic business services were doing well, growing 12.6% year-on-year. That wasn’t enough to outweigh the slippage in the legacy business wireline sector, though, and business wireline overall was off 2.5%. A lot of wireless has been reclassified into Business Solutions, so overall the segment was up 1.2%. Overall, AT&T’s consolidated margin was 20.3%.

Back when Verizon bought the cablecos’ chunk of spectrum in 2012, they agreed to provide them with MVNO service should they want it. It’s now being suggested that Comcast is about to turn the key, but this piece argues they won’t deploy a WiFi-plus-MVNO, although the original source at Bloomberg Businessweek thinks they will.

Centurylink reckons it’s deployed SDN to 36 locations, and it intends to get to 40% of its network by the end of this year and 100% by 2018. Services are the usual ones (firewalls, virtual routers, vCPE) and the kit comes from Ciena.

Level(3) is offering a new wireless backup connectivity product. Interestingly, which mobile operator it uses will be determined at install after an engineer surveys the site.

Charter is taking over TWC’s concession in Louisville and will do 1Gbps.

FCC wants >24GHz in WRC15, NGMN emphatically doesn’t

The FCC is asking for comments on how to use spectrum above 24GHz for mobile broadband, with a view to what proposals they might take to WRC15. It’s pretty blue-skies at the moment - a wide variety of platforms, licensing setups, and technologies are included - but it’s worth watching precisely because it’s going to inform the US position in WRC15 next month.

Here’s even more from Harold Feld on the legalities of LTE-LAA, plus a Halloween-themed take.

The NGMN is also packing for WRC15, and they’ve issued a briefing paper setting out what the carriers’ lobby would like. The short answer is: More! The slightly longer answer is: More spectrum under 6GHz, now, and between 6 and 20GHz, at WRC19 or even earlier, but 20+ is only nice-to-have.

OFCOM has set final arrangements for the UK 2.3 and 3.4GHz auctions.

Vodafone claims it would like to pull fibre to 1000 more cell sites around London, but the councils won’t let them. Funny, it worked for 3UK and EE. Maybe it was because they used Virgin Media’s gigabit Ethernet? Meanwhile, Tom Mockridge, VMED CEO, says there should be no more BDUK money, and the carrier is offering its small business customers 300Mbps over cable.

And Level(3) and Charter are negotiating a peering agreement via the FCC.

T-Mobile.nl up for sale? EE goes majority 4G; Orange, TeliaSonera back to growth

DTAG is considering selling off T-Mobile Netherlands, for about €5bn. The cash might go to reducing debt, or alternatively to paying for T-Mobile USA to go spectrum shopping. The most likely buyer is Liberty Global, which is also after Cable & Wireless Communications (i.e. the Caribbean island MNO, not the enterprise ISP) in another €5bn-er.

FierceWireless argues that DTAG is getting out of pure-play mobile, at least in Europe.

Another operator it’s selling, EE, reported that in Q3 it went majority-4G, and as far as its postpaid subscribers go, two-thirds 4G. The first UK MNO to be over 50% 4G, 3UK, has meanwhile added another 5MHz carrier in the 1800 band for more speed.

Orange is the latest Eurocarrier to return to year-on-year growth, albeit only 0.5%. Their CAPEX/revenue ratio is currently 15.2%, roughly where it’s been since 2010; will we soon see them join Vodafone, Telefonica, and DTAG in moving into an investment phase?

Austria denies it’s selling the government stake in Telekom Austria. TeliaSonera reckons 5 out of 7 of its European OpCos are seeing EBITDA growth, but beyond that their 9-month report is a bit pale.

And Tele2’s big bundle strategy seems to be paying off.

China Unicom suffers in Q3; RCom/Aircel/Sistema; MTN, Millicom, America Movil Q3s

China Unicom seems to be suffering - it’s losing subscribers, 3.3% year-on-year, to both its rivals. This has knocked back service revenue by 8% and net income by 23% for the first 9 months of 2015. Margin will be going down further, too, as the company will let users carry over unused data allowances as of next month. All Chinese operators will be doing that, so don’t expect this effective price cut to help with share.

That said, their M2M platform partner, Jasper Wireless, seems optimistic.

In India, a merger between Reliance Comms, Aircel, and Sistema is being discussed. India has so many operators that such a thing would only be the third-biggest. Apparently, RCom isn’t too keen on the merger but would be open to a spectrum trade, while Aircel is losing money and wants out.

MTN’s net adds for Q3 were, as they say, impacted by Nigeria’s effort to have SIM cards registered. About 5.1m users were shut off, and so far 3.4m of them are back. That said, data revenue is rising over 100% annually, and ARPU in South Africa is up 8.8%, so it can’t be all that bad.

Millicom is being battered by foreign exchange movements, but down at the bottom, revenue on an organic basis was up 2.9% before counting the recently acquired cableco. Oh, and they had to report themselves to US and Swedish police over improper payments in Guatemala.

America Movil is also blaming the forex, but in their case, service revenue actually fell by 1%, notably because Mexico is becoming competitive. Selling shiny gadgets compensated enough to get to 1.2% growth.

Both carriers in the Philippines have begun offering 1Gbps FTTH. M1, again, had a reasonable quarter, largely because of device (hell, iPhone) sales.

Iliad seems to be snapping up networks in the French overseas territories.

Huawei vs Xiaomi; Ericsson Q3, 5G projects; EE’s balloon; Internet.org struggles

Huawei and Xiaomi are locked in a desperate struggle for all the Chinese smartphones that aren’t made by Apple. So far Huawei has the upper hand. The problem, though, is that only Samsung has really managed to make something of being the alternative to the iPhone, without seeing its margins crushed. And that’s because Samsung is a huge silicon vendor. Huawei, meanwhile, is spending $1bn on developer support.

Telco 2.0 has new research on Huawei out now.

BlackBerry - remember when they were the “third ecosystem”? - has briefly leaked its Priv Android phone and it’s startlingly dear at $749.

Here’s an interesting discussion of whether or not Intel might try to get into the iPhone by developing an LTE modem.

Ericsson Q3 results are out, and they’re pretty thin. Net sales, in constant currency, were down 9% - like they were last quarter - and the worst of it is that the Networks segment did poorly, as it has the best margins of the three reporting segments. The US CAPEX pause hasn’t been kind to Ericsson, and it’s Nokia who’s getting most of the China business. However, profitability was rather better, chiefly because the Network Rollout consulting business managed to break even - it’s been bleeding money for some time.

To go with that, they’ve been testing “network slicing” for 5G with SK Telecom. There’s a bit more about the baffling announcement that they would be testing 5G in Brazil next year, here - it’s yet another “partnership” on various research projects.

Juniper has sold its SDN controller, Contrail, to AT&T.

Bouygues Telecom suggests that LoRa will eventually overtake SigFox.

EE’s head of radio wants to test a cell on a balloon somewhere in the Scottish Highlands.

Facebook’s Internet.org isn’t going down well in India, because the users would rather have the real thing if they can, or else not bother. Also, they don’t seem to have convinced the airtime agents, the key channel to market.

InnovateUK is offering £1m for exciting 5G ideas.

And Russian ships have been spotted acting suspiciously near major submarine cables. The Americans are not happy, which is rich from a country that owns a special, dedicated cable-fiddling submarine.

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