a week in wireless

Doomed, we’re all doomed

Me oh my but the credit crunch bit like a pitbull this week, with a slurry of dreary results and announcements of the type that make company employees throughout the building loosen their collars in anticipation of the worst.

First up Canadian flag bearer Nortel, which has been known in the past to open the odd conversation or two with the words: “I’m afraid the news isn’t good”. The kit vendor turned Q308 revenues of $2.3bn (down 14 per cent year on year) into a quarterly loss of $3.4bn – which compares somewhat unfavourably to last year’s Q3 net profit of $27m. Nortel’s been making these kind of announcements for so long now that the Informer is wondering just how much more the company has to lose.

You’d imagine an exec coming into the boardroom with a biscuit tin full of used bills and a jar of coins, plonking them on the table and saying: “Ok, everyone, now please bear in mind that this really is the last of it. I know, I know. I said that last time, but today I mean it…”

The result is that another 1,300 Nortelians will have to clear their desks in the firm’s bid to “flatten the corporate structure [and] eliminate or consolidate executive management positions company-wide.”

Finnish-German vendor Nokia Siemens Networks announced some cuts of its own this week, with 750 Finns and 500 Germans set to take the long walk. Given the global financial backdrop to announcements like this, NSN comms people were jumping on the phones and leaving messages reminding us all that these cuts are the closing stages of the post-merger clear-out announced in 2006, when the firm pledged to slash 9,000 jobs. Up until this week the firm had hit two thirds of its target and Tuesday’s announcement still leaves some 1,000 jobs to go.

“With the successful completion of these plans, we will have the vast majority of the synergy-related headcount reductions completed and we can then start to put this chapter of our history behind us and focus on creating a world-class company,” said Simon Beresford-Wylie, chief executive officer of NSN.

Telekom Austria (TA) brought similar tidings, pledging to slash 1,250 workers over the course of next year. The carrier’s profits dropped 6.2 per cent year on year to E163m despite revenues growing four per cent to E1.33bn. The cuts will cost TA around E630m

The consolidation of Belarusian mobile player Velcom helped to boost revenues, but the company’s European mobile operations took a hit from the decline in voice roaming traffic as a consequence of regulation introduced by the European Union in the second half of 2007. That’s Big Viv Reding off Boris Nemsic’s Christmas card list then.

Speaking of which, Reding’s mantelpiece might be emptier than usual this Yule, what with the European Commission probing the practices of mobile operators who block or restrict internet telephony (VoIP) applications on their networks.

The EC has sent questionnaires to a number of unidentified European carriers asking for information on their tools and techniques for filtering and blocking VoIP traffic. The assumption is that the authority is looking into whether such activity is in breach of competition law

Nevertheless, Nemsic, TA’s group CEO, trumpeted decent growth in the mobile communications segment, driven by strong international performance and a 50 per cent growth in subscriber numbers. Fixed line loss was halved with broadband bundles proving effective in maintaining market share and counteracting fixed to mobile substitution.

Meanwhile, mobilkom, the mobile division of Telecom Austria said Friday it has started the first femtocell pilot in Central Europe. Mobilkom has rolled out the technology with 35 selected residential and business customers throughout Austria, using kit from Chinese vendor Huawei.

Interest in femtocells is gathering momentum, with Informa Telecoms & Media recently predicting that more than half of all mobile data traffic will be generated at customers home’s within the next five years, with voice not far behind, driving a clear case for the femto business model.

The explosive adoption of 3G dongles and ‘mobile broadband’ services is also firing interest in femtos, as operators begin to reach capacity in their various spectrum allocations.

Japanese operator SoftBank is to score a world first in January, when it becomes the first service provider to launch 3G femtocells in a commercial capacity. 2G versions of the technology have already been deployed by the likes of Sprint in the US, but the fast adoption of data services driving the need for a 3G version.

Mobilkom Austria’s pilot project will run until the second quarter of 2009, with the final product offering to be launched in the first half of next year.

Back to the headcount slashing, though, and the numbers from NSN, Nortel et al are dwarfed by UK incumbent BT’s decision to cut 10,000 staff from agencies, contractors and offshore workers. Which is good news for anyone who’s been tied up in one of BT’s call centres for hours on end.

When times get tough, the industry often looks to Vodafone for reassurance. Here’s a flagship firm for the industry; bold, expansionist, rich. Come on Vodafone, everything’s ok. isn’t it?

Not exactly, as it turns out. First half profits of £2.17bn from revenues of £19.9bn hardly puts Vodafone on the breadline, of course, but it still represents a 34 per cent drop in profits year on year.

“It could have been worse. But a fall of about 2.5 per cent in the revenue forecast is still pretty worrying,” said IDC anayst John Delaney. “It’s one of the biggest indications so far that, contrary to the prevailing consensus, telecoms is not immune to damage from the consumer downturn.”

He earmarked prepaid accounts as the biggest problem for cellular carriers in the current climate, because end users can reduce spend on a prepaid SIM as much as they need to. “In Europe, and other markets where the calling party pays, you can actually reduce your spend to zero without depriving yourself of telecoms. Your phone can still receive incoming calls,” Delaney said.

Vodafone’s subscriber base increased from 269 million at the end of June to 279.5 million at the end of September and consists of around 83 per cent prepaid users. Eek.

Staying in Europe and the regional market’s second biggest bellwether, Spanish carrier Telefonica is also announcing the bad news, with third quarter net income dropping 50 per cent year on year to Eur2bn.

The previous year’s income was boosted by the sale of media firm Endemol however, and Telefonica’s results showed organic growth with group revenue climbing 5.7 per cent year on year to Eur14.99bn. Fixed line subscribers jumped 15 per cent year on year to 247.7 million at the end of September, while mobile users increased 19 per cent to 188.9 million worldwide.

Michael Kovacocy, European telecoms analyst and sector strategist at the Daiwa Institute of Research, said at first glance, Telefonica’s results, “Highlight what our position has been throughout the recent turbulence in world financial markets – Euro telecom players offer a defensive play and have been unfairly sold off.”

But we’re back to wading through the stagnant pool of woe when we have a look at Sprint, over in the US, which is losing customers as well as money. There was a 1.3 million strong exodus away from Sprint in the third quarter alone, of which 1.1 million were postpaid users. Revenues fell 12 per cent year on year to $8.81bn, while profits were, well, a net loss of $326m.

A comparatively poor quality network, along with customer service shortcomings, has contributed heavily to Sprint’s troubles. “We have yet to turn the corner,” said CEO Dan Hesse with admirable understatement in an analyst call.

Some people say that we should spend our way out of a recession and, bucking the trend to do just that this week was Japanese carrier NTT DoCoMo. On Wednesday this week the firm bagged 26 per cent of India’s sixth-placed cellular player Tata Teleservices for $2.7bn. The firm also announced plans to make an offer for a further 20 per cent of Tata’s outstanding common shares.

The Indian mobile market is turning into something of a goldrush at the moment, what with Vodafone and Telenor taking stakes of late. There must be something in it if DoCoMo’s been coaxed out of its lair. The Japanese player is not renowned for the quality of its international investment strategy, having historically tried to build an empire through minority stakes and well-meaning advice. Such a policy just doesn’t stack up against benign dictatorship, though, and DoCoMo’s previous overseas jaunts have been largely disappointing, to say the least.

Tata covers all of India’s operating circles with wireless networks and also owns a large number of retail stores. The carrier’s subscriber base currently exceeds 30 million. Indian sign-ups are running at around eight million a month and penetration is still low – sitting at just over 26 per cent in September this year according to the mighty abacus that sits at the heart of Informa Telecoms & Media’s World Cellular Information Service.

Tata is a CDMA player, which isn’t an entirely logical fit with DoCoMo – the first firm in the world to launch WCDMA services. That said, Indian 3G licences are to be auctioned in January next year and Tata may well cross to the other side.

One device that will be of absolutely no use to Tata whatsoever is HTC’s new MAX 4G, which the Taiwanese vendor claims is the first commercial, dual mode GSM and WiMAX handset. The new phone will become available on 26th November to customers of Scartel, which is building out a mobile WiMAX network in Moscow and St Petersburg under the ‘Yota’ service brand name.

For voice, HTC MAX 4G users will be able to make and receive GSM calls with any Russian mobile phone network operator. When both callers are Yota subscribers, calls will be routed as VoIP on the Scartel’s mobile WiMAX network. There’s been no word yet on the pricing details of the handset or the service.

In other handset news, the Informer attended the launch of the INQ1, the first handset to come out of Hutchison Whampoa’s new design stable, INQ Mobile. There’s too much information to include in this little old newsletter, but you can read all about it on telecoms.com, here.

That’s about it for this week. Next week’s edition will be brought to you from Cape Town in South Africa where the Informer will be attending the AfricaCom event and overdosing on biltong.

Take care

The Informer

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