Europe. Once upon a time it led the world in mobile communications. Once upon a time it smiled a condescending smile across the Atlantic, towards the US, which didn’t really understand text messaging, was conflicted by a jumble of standards that it tried to pass off as technology competition beneficial to the consumer, and still favoured handsets with comedy telescopic antennas.
Times have changed. The US has converged on a single next generation standard and its operators are at the industry’s vanguard. In Europe, meanwhile, everyone’s cash-strapped and off the pace.
We’ve been hearing all year about the need for dramatic change in the make-up of the European mobile market and, at the Broadband World Forum in Amsterdam this week, the theme was still hot. Eelco Blok, CEO of host operator KPN pointed out that, with 150 mobile operators competing for business in the European market, the kind of scale that a modern network operator needs to make its investments as efficient as possible is simply unavailable.
Blok cast a wistful eye towards the US in one direction and China in the other, where deployments of LTE are surging ahead, thanks in part to the ratio of operators to customers—and in the case of China, of course, the involvement of the state. He wasn’t the only one. Steely Neelie Kroes, VP for the Digital Agenda at the European Commission, made the same comparisons, urging national decision makers to address the hesitant deployment of LTE “as a matter of urgency”.
If they don’t, she said, “manufacturers will ignore our continent’s needs”; clearly pointing the finger at Apple, which opted not to support Europe’s primary LTE bands with its iPhone 5 handset. Future Europeans will “curse the missed opportunity” of the continent’s LTE inertia, she said, adding: “We cannot condemn people to a Europe of old, unreliable networks.” Why not, though? The Americans love coming over here and looking at all the ancient stuff. Maybe Europe should pitch its wireless sector as historical tourism.
One of the worst hit markets in Europe at the moment is Spain, where this week Nokia Siemens Networks announced that it had provided TD-LTE kit to COTA, a player new to the Spanish market, for a trial of the technology ahead of a planned commercial launch in November. COTA bagged 10MHz of 2.6GHz spectrum in an auction last summer and plans to wholesale access to another WiMAX operator looking to fly the technological coop, WiMAX Online, as well as providing fixed wireless services in the Murcia region.
Back at the show, Neelie Kroes urged regulators and governments to improve the environment for investors, hinting suggestively that private sector investment alone would not be enough to sustain the European telco sector, without actually calling for state support. Likewise everything she said pointed towards consolidation in the operator community but she stopped short of recommending a minimum number of network players per market, for fear of compromising competition.
It’s just too easy to say these things and then turn the responsibility over to the national overseers, whose greatest fear is coming under criticism for allowing one or two players to unbalance the market. Look at the UK, where regulator Ofcom is dead set on shifting four LTE licences in the forthcoming spectrum auctions, despite serious question marks over whether four LTE operators are viable in the market.
Ofcom announced this week that it had accelerated the creation of a jointly funded organisation that is responsible for ensuring that LTE in the 800MHz band will not interfere with the service enjoyed by UK TV viewers. Earlier this month Ofcom gathered the UK operators together for a family therapy session in the wake of its decision to allow EE to steal a march on competitors by launching LTE at 1800MHz. Evidently O2, Vodafone and 3UK have decided that their energies are best spent getting even rather than angry.
The new company, Digital Mobile Spectrum Ltd will be chaired in the interim by Andrew Pinder, who said: “It represents a real milestone and I will continue to work with all of the mobile operators and other stakeholders to get plans in place for the rapid launch of 4G services on the spectrum to be auctioned next year.”
O2UK has had enough to worry about with existing technology in the last few months, after two serious network outages, one of which required the firm to offer compensation to a large number of users. The second was earlier this month and the firm announced this week that it is swapping out Ericsson’s Central User Database for the Swedish vendor’s HLR product, blaming the CUD for the outages. O2 said it would be spending £10m on the swap-out.
At the Broadband World Forum, meanwhile, Ericsson’s CTO Ulf Ewaldsson was espousing the firm’s views on the next important evolutionary steps for operators fixed and mobile. And he was all about the Software Defined Network.
Everyone was talking about SDN at BBWF and the only conclusion that can be reliably drawn from that chatter is that SDN means different things to everybody, and there is no agreed, central definition.
In line with this, Ewaldsson told press and analysts that evolution to SDN would likely be slow and involve at least one interim step which he described as “hybrid SDN”. In this scenario operators use their installed base of network equipment as the foundation; a sensible message from a kit vendor given the financial constraints facing most operators.
OpenFlow is a communications protocol that gives access to the forwarding plane of a network switch or router over the network, but Uwaldsson wants to see SDN extended to allow all network entities from the cloud and data centres to be connected to OSS and BSS platforms. Building on the acquisition of Telcordia in 2011, B/OSS has become a key strategic area for Ericsson to focus on as it is so closely tied to SDN evolution, Uwaldsson said.
In some senses, the industry is also likely to benefit from an extended transition time to service provider SDN, as it will give those building the technology time to incorporate the network architectures of other industries, such as media/broadcast and others which have their own content delivery networks (CDN).
This could be particularly relevant for multi-play Japanese operator Softbank, which this week announced a $20bn bid for 70 per cent of US carrier Sprint. Subject to approval from regulators and Sprint shareholders, the deal is expected to close towards the middle of next year. It would see the creation of a company called New Sprint, 70 per cent of which would be owned by Softbank through a US holding company. The Japanese carrier said the deal would make it the third-ranked global operator in terms of combined service revenue.
Continuing the theme of consolidation pre-nups that was so costly to AT&T in its recently failed takeover of T-Mobile USA, Softbank must pay Sprint $600m if it doesn’t secure financing for the deal, while the same amount will travel in the opposite direction if Sprint changes its mind and accepts a better offer from someone else.
Sprint immediately looked to boost its stake in Clearwire to a majority holding, something that Informa principal analyst Mike Roberts suggested might be a precursor to a move for full control of the firm and its 2.5GHz spectrum portfolio. Clearwire wants to ditch its WiMAX experiment and launch TD-LTE, which Softbank launched in Japan earlier this year at 2.5GHz. But Roberts was not convinced that the deal is sound, claiming that it could “hobble” both companies.
“While it’s true that Softbank’s investment could pay off by making Sprint significantly more competitive, it’s also true that there’s a huge risk that the deal could weaken both companies at critical times,” he said. “Earlier this month Softbank announced plans to acquire rival eAccess for $2.3bn in a bid to become the second-largest mobile operator in Japan, and adding a huge international deal on top of that increases the risk that management will be so stretched that neither deal will go to plan.”
Likewise Sprint is already managing a hugely complex network integration project, Network Vision, and working to introduce the iPhone onto its network.
Clearwire can count itself lucky that it is not being taxed on its unused spectrum portfolio. Over in India the Empowered Group of Ministers (EGoM) has announced that it will impose a charge on operators holding what it considers to be excess amounts of radio spectrum. The committee of senior ministers, which was set up to dilute power from just one telecoms minister, has decided that GSM operators with more than 4.4 Mhz os unused spectrum and CDMA operators with 2.5 MHz will be forced to pay a one time surcharge. The EGoM said that the charges levied on all operators in total would raise Rs270bn ($5.1bn) for the exchequer.
According to Anubhuti Belgaonkar, senior analyst for Asia Pacific at Informa Telecoms and Media, India’s operators had been expecting this move and are relieved that they will not be charged retrospectively for their spectrum.
“Initially the idea was that operators would have to pay retrospectively for the excess spectrum over years that they have had it,” she said. “That’s not the case anymore. Operators knew it would happen but this is much cheaper than what they were facing if the originally proposed recommendations had been implemented.”
The EGoM has also announced a proposal for the country’s operators to give back their 900MHz spectrum to the government in exchange for 1800MHz spectrum. The 900MHz spectrum will be refarmed and reauctioned for LTE. This is likely to be costly for operators, explained Belgaonkar, as they will need more base station to ensure coverage using 1800MHz spectrum than they did for 900MHz spectrum
There was more tricky news for Nokia this week, which posted its fifth consecutive quarterly loss. The firm recorded an operating loss of €576m for the quarter ending September 30, 2012, dwarfing the €71m loss the firm posted in the same period in 2011. Net sales also dropped 19 per cent year-on-year from €8.98bn to €7.24bn
Malik Saadi, principal analyst for handsets and devices at Informa Telecoms and Media, said that investors must be losing patience and suggested that they would soon be considering options to dissolve the business.
“The situation is getting critical. Nokia cannot afford another bad quarter, it’s now playing for its survival over the next two quarters,” he said. “I don’t think investors will afford Nokia another bad quarter and Q4 is going to be very tough, the competition is very intense.”
He suggested that Nokia could be the subject of a takeover if the situation does not improve, as potential buyers would be attracted by its 10,000 patents and strength in industrial design. He indicated that Microsoft could be a potential suitor, given that around 70 per cent of Windows Phones sold globally are Nokia devices.
The firm saw its net sales fall in every region it operates in during the quarter, aside from Latin America, where there was a 14 per cent year-on-year increase. In Greater China, sales fell a huge 78 per cent, from €1.24bn to €278m. CEO Stephen Elop admitted that the period had been “a tough transitional quarter”.
“While we continue to focus on transitioning Nokia, we are determined to carefully manage our financial resources, improve our competitiveness, return our devices and services business to positive operating cash flow as quickly as possible, and ultimately provide more value to our shareholders.”
But in Saadi’s view, the Finnish firm’s marketing strategy is the key reason for its demise. He explained that Nokia’s approach to launching new handsets has been unsuccessful.
“When Apple launches a new product, it will announce to the media that there will be an event months in advance. That creates excitement about what is next. Then it unveils the device. A few days after that, the device is in the market.
“Nokia does exactly the opposite. It will showcase the phone before it is ready to go out, meaning that analysts and journalist do not have a chance to see it properly, use it and review it. They can only rely only on Nokia’s marketing materials. And then it launches the phone into the market two months later, when everyone has forgotten about it.”
In other troubled Scandinavian news, regional operator group TeliaSonera is to slash approximately 2,000 jobs, representing seven per cent of its total workforce. The announcement was made as the firm announced its earnings from the quarter ending September 2012, in which it saw net sales decrease year-on-year by 3.2 per cent to SEK 25.8bn ($3.9bn).
And that’s about the size of this week.
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