Free vs T-Mobile; Apple Q3s; results roundup - Telco 2.0 News Review

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US Disruption - will Iliad really get T-Mobile USA?

No question what the big surprise was this week. There's a new bidder for T-Mobile USA and the new bidder is Iliad, the Free.fr/Free Mobile parent company and serial disruptor. It's an audacious move to say the least.

But what's the story - is it 'Xavier Niel (majority shareholder in Iliad) does it again', or is he 'the dog that finally caught the car?'

T-Mobile's turnover is $26bn, compared to $5bn for Free. T-Mobile's market capitalisation is $25bn, plus $15bn of debt, while Free's is $16bn. Free is offering $15bn in cash for 56.6% of T-Mobile's stock, implying that they're hoping to keep substantial existing shareholders on board - that will help with the financing, but requires Xavier Niel and company to play nicely with at least one big shareholder. This will be a new challenge - the combined company won't be a startup any more.

As for the finances, Free is putting in $2bn in equity, for which it will issue new shares. Niel and the other directors, who own a substantial chunk of Free, have promised that they will personally buy in to the rights issue. But the rest of the cash is good old debt, raised from banks HSBC and BNP Paribas, so Free will be leveraging up hugely.

The obvious answer to "who is the big shareholder who might stick around?" would be Deutsche Telekom. They're also the seller. Bloomberg reckons that DTAG won't sell for $33 a share, but might at $37. Obviously, going higher would stretch the finances, but it does sound like there's a classic bargaining process here and they could agree on something in between.

The big advantage a Free bid has is that there is essentially no reason for the FCC to strike it down, as it would maintain 4 national carriers, and everyone expects Xavier Niel to detonate a price bomb under any business he gets involved with. Strategy Analytics, for example, point out that French operators' margins and ARPU have been hammered since Free Mobile launched, and argue that if Sprint doesn't now take out the T-Deal, it will be much the worse off.

The problem, though, is that Free Mobile (and before it, Free.fr) had a genuinely disruptive operating model and technology strategy that let it, in the French regulatory context, run cheaper than its competitors while delivering improvements on a faster software development cycle.

T-Mobile doesn't have fixed ISP assets, and the US regulatory model doesn't permit a quick build-out via local loop unbundling or special access, so the synergy between the ISP and the mobile operator and the heavy use of WLAN and small cells that characterise Free Mobile aren't available. Niel usually has a technical or product rabbit up his sleeve at these moments, but it's hard to imagine what it might be. He claims that he can achieve $2bn a year in additional operating profits and $10bn in one-offs by running T-Mobile in an "Iliad-like way", but in context it's difficult to see what this means. Sprin-T could save, for example, by stripping out duplication and sharing infrastructure, but this isn't an option. And only Sprint can bring its wedge of 2.5GHz spectrum to the wedding. Also, Free has never been an international business and has never had to integrate a big acquisition. In fact they've only ever done one acquisition at all.

Reuters profiles Niel here.

Meanwhile, T-Mo reported Q2 numbers, with very strong net-adds, slightly lower ARPU, and strong revenue growth. The mountain of device receivables from customers is said to be 53% "prime". Is that good or bad? They also claim to have turned up VoLTE across the whole footprint and to have increased their LTE channel bandwidth to 2x15MHz in 17 cities. They've also hired a new lobbyist in an effort to get some more 1.7GHz spectrum out of the Pentagon.

Our recent Executive Briefing Disruptive Strategy: Free, T-Mobile, VZW compares T-Mobile USA's "uncarrier" strategy and Free Mobile in depth. More Free coverage is here and here (this link is, in fact, free). In more new Telco 2.0 research, our new Google's Big, Big Data Battle covers the challenges to Google's business model around Silicon Valley as the great Internet deflator itself faces deflation and commoditisation

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Apple's big Q3, BRIC iPhones, IBM (Enterprise Mobility) & Epic (Healthcare) partnerships

In the heart of the Valley, Apple has results for Q3 and they are good. Revenue was $37.4bn, up from $35.3bn, and net profit $7.7bn, up from $6.9bn, while gross margin was 39.4% compared with 36.9% a year ago. Crucially, iPhone sales in the so-called BRICs were up 55% year-on-year. The key products were iPhones and Macs, with iPad sales relatively poor.

ZDNet rounds up changes to the Macs, which can be summed up as either a small price cut or some extra goodies at the same price point on the MacBook Pro line. They also review a release-candidate of OS X 10, codename Yosemite, which focuses on iPhone/Mac integration. For example, if the phone is within WiFi range, you can pick up calls on the Mac.

Horace points out that the PC market is just about eking out overall growth, but this is entirely down to Macs. When Apple had problems manufacturing iMacs at the end of 2012, world PC sales went sharply negative. And, as with the mobile industry, Apple is taking up more and more of the total margin pool.

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He also sets out the context for the dramatic announcement that Apple and IBM have formed an alliance to cooperate on enterprise software, presumably bringing IBM systems software to Apple devices and UX design. Meanwhile, the spectacular growth of apps as a revenue category continues, and Ben Evans thinks Apple iTunes Store payouts to developers are tracking a classic Bass curve while Google Play's are linear.

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But perhaps the most lucrative Apple story is that they're partnering with the company that provides 40% of America's healthcare records systems.

Microsoft announced earnings for its Q4, and the stand-out detail is that its cloud business is now doing $4bn a year in revenue. They claim 100%+ annual growth for both Azure and Office 365.

You might think Android patent litigation was finally going out of fashion. But Microsoft this week staged a revival. It's complicated, but back in 2011 Samsung signed a licencing agreement with Nokia, which was renewed in 2013. Under the deal, Samsung paid Nokia royalties in respect of Android devices. Now, with Samsung shipping vastly more Androids than in 2011, Microsoft thinks it is owed.

Qualcomm, meanwhile, is the target of a Chinese anti-trust investigation.

Facebook Q2 is here and it's pretty good. Gone are the days when it wasn't so much pre-profit as pre-revenue. Net profit was $791m in Q2, compared to $333m a year ago. A key point is that mobile daily-active users are now up to 78% of the total. Meanwhile, their subsidised not-quite-the-Internet Internet.org service launched in Zambia. After all the talk about robot solar-powered Internet drones with lasers, it turns out to mean they're paying Airtel to zero-rate a collection of useful websites and, of course, Facebook.

Amazon's results are in, and they're pretty typical - huge growth with margins held down to a tax-loss level. Their newest cloud customer, the CIA, just went live. Twitter is growing its revenues fast, but still losing money hard. Google is going to prise Google+ and Google+ Photos apart, as it continues to back away from the original vision of rolling everything into +. Mozilla's new CEO is a veteran of Firefox 1.0.

Samsung down, LG and HTC up; Alcatel floats sub (division); IoT radio wars

Samsung seems to have lost 7% of smartphone market share compared to a year ago, as the Galaxy S5 has disappointed a little and the value-smartphone sector (Moto X and E, Xiaomi, Huawei etc) has done so well. It's not a macro-phenomenon, as Q2 2014 seems to have been the biggest quarter for smartphone shipments ever, at 295 million. It looks very much like a billion gadgets will ship this year.

However, very few of them will be Tizen devices, as Samsung has postponed the launch of the Z phone.

Just down the road, LG had a banner quarter with profits up 165% as the G3 phones proved to be a hit and ultra-HD TVs sold well. HTC, meanwhile, squeaked back into profitability thanks to the M8.

ZDNet reviews the BlackBerry Passport and is impressed.

Alcatel-Lucent didn't lose nearly as much money in Q2, and claims to have tripled their revenues from small cells. They're also planning to float the submarine cable business on the stock market, which sounds funny when you put it like that, and keep a substantial stake.

Huawei is investing in a British chip-design startup XMOS. As you may be able to guess from the fact another investor is Robert Bosch's venture capital wing, they specialise in M2M and connected-car products.

Here's an M2M developer kit for kids. Nick Hunn's Creative Connectivity blog has a long and interesting article comparing different radio network solutions for M2M/Internet of Things infrastructure, while French regulator ARCEP has a consultation out about open spectrum for the IoT.

AT&T signs up IBM, Alcatel, Fujitsu for SDN; Verizon upload boost, wireless cap

AT&T is clearly spending heavily on its software-defined network effort. Shannon Labs is working with IBM on ways to set up virtual network interfaces between clouds really fast, and they're down to 40 seconds. At the same time, they've signed up two more vendors, Alcatel and Fujitsu.

Verizon is giving its FiOS customers an upgrade to symmetric broadband. At the same time, the remaining grandfathered-in unlimited data users on VZW are going to be subject to a rate-limit above the 95th percentile of usage, and the FCC is not pleased.

Sprint is still losing customers and becoming more and more wholesale, while cost-cutting saw them squeak into the narrowest of profits ($23m). The wholesale does seem to be getting more sophisticated - Virgin Mobile USA can now provision user-defined tariffs in real time.

Windstream has decided to sell its network to a real-estate investment trust it controls and rent it back. The real-estate trust will pay for this with debt, permitting the company to refinance a big chunk of its debts, and the fact it's considered real estate provides a big tax break for some reason.

Comcast has finished deploying IPv6 in its core network and reached 30% deployment into the access network.

The FCC is consulting on whether or not to let MVNOs and others acquire spectrum.

Telenor is having a good quarter, with margins up both in Norway and Sweden on one hand and in Thailand on the other. In all cases, it's selling lots of mobile data to smartphone users. On the other hand, KPN saw its revenue fall 7% and it would have lost money if it hadn't been for a one-off gain on the pension fund. Orange saw its revenues fall 3.4%.

A fixed-line price war has begun in the UK. Openreach, meanwhile, has another idea that isn't fibre to the home.

Ooredoo has turned up UMTS900 service in Burma, the first operator to go live. KDDI's profits have surged, up 67%. KT lost money, having to make a big payment into the pension fund.

Telefonica may be about to buy Mexican operator Iusacell. Ericsson is doing the fixed-wireless and satellite elements of the NBN. Vodacom relaunched M-PESA in South Africa, swapping Nedbank for Bidvest Bank as the financial partner.

Netflix pays AT&T; Apple CDN; media production with EE, Sky, and the BBC

Netflix and AT&T have confirmed that a paid-peering agreement is in place between them.

Meanwhile, an interesting discussion on NANOG reveals that Verizon fixed-line users, who experience congestion between Verizon and Netflix, and Verizon Wireless users, who haven't reported such, are in a very different position. Compare AS8115, a Verizon fixed-line network, and AS6167, Verizon Wireless - the first depends on Verizon's company-wide peering relationships, plus Cogent, to reach Netflix, the second has multiple peers and transit providers.

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Is this because Verizon is a monopoly RBOC and Verizon Wireless faces a competitive national cellular market?

Meanwhile, the Apple CDN is up and running, apparently with multiple peers and transits and heavy use of Level(3) infrastructure. Look for the domain name "aaplimg.com" if you're curious.

Here's an interesting rundown of how LG is using WebOS for its smart TVs and STBs.

EE demonstrated dynamic LTE broadcast at the Commonwealth Games, and says the technology is "inevitable".

EE offers really enormous pre-paid data packages (like half a terabyte) for film production, TV news, and similar media applications. The 3G, 4G, and 5G Wireless Blog has an interesting case study of using it for field news gathering with Sky Sports.

Relatedly, here's a good piece from the BBC R&D Blog about the network they set up to support the Games and their new IP Studio production system.

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Facebook forces users to Messenger; BBM for Windows; secure voice for iOS

Facebook is bored with trying to persuade users to only send messages through the Messenger app, so now they're going to force you by stripping the messaging functionality out of the main app. Dan York discusses.

How does a Voice 2.0 company run its own tech-support call centre? After Comcast's embarrassing disaster went viral, Tropo VP of customer experience describes his own experiences in the industry and the four principles they've adopted:

The individuals who consistently performed best in the metrics were typically gaming the system, not solving the most problems, even going so far as hanging up on calls to pad their stats....our support team at Tropo follows these four general guidelines:

• Take as much time as needed to resolve an issue
• Work on tickets as a team, not as isolated individuals
• Asking for help, including additional training, is always welcome and encouraged
• Support does not close a ticket without the customer confirming resolution

BlackBerry has made BBM available for Windows Phone. BitTorrent, meanwhile, is beta-testing a new P2P instant messaging system.

Is Mozilla losing its grip on WebRTC? An interesting debate on Apple and VoLTE. WhisperSystems, famous for encrypted IM, now has an open-source encrypted VoIP app for iOS to go with the one they already built for Android.

China busts 24 fake base station factories; ex-NSA chief's patent hoard

China has arrested 1,350 people in a crackdown on "fake telecoms base stations", aka IMSI-catchers. The scary bit is that they found 24 sites producing the devices and identified at least 3,540 cases involving them. Apparently the major criminal applications are spam and fraud.

Once there was a man who disclosed the NSA's secrets out of principle. He was denounced by the NSA director, Keith Alexander, as a traitor. Keith Alexander left the NSA and filed a number of patents within months. He now charges $1m a month as a security consultant on the strength of the patents. Can they seriously not have anything to do with his work at the NSA?

Secusmart made the hardened phone Angela Merkel should have used but didn't. Now BlackBerry has bought the company.

A US court holds that Microsoft has to hand over e-mail it controls anywhere in the world, regardless of local laws.

SecureKey is teaming up with SIM-maker Oberthur to provide mobile authentication.

EFF is focusing on the security of home routers, notoriously awful.