Arachnophobia

By The Informer

The Informer once spent a month in Costa Rica. What a beautiful place it is; spectacular jungles, intricate river networks, active volcanoes, perfect, deserted beaches. Admittedly the presence of MASSIVE spiders everywhere made for a holiday that wasn’t unequivocally relaxing. More than once the sights and sounds of the Informer high-stepping at full tilt like an NFL wide receiver, while shrieking like a B-movie scream-queen, disturbed the tranquillity of the forest.

This trip down memory lane was inspired by Apple’s financial results. For the first quarter of 2014, Apple netted revenues of $45.6bn, roughly equivalent to the GDP of Costa Rica for the whole of 2012, according to World Bank figures. It’s quite the comparison.

The iPhone vendor bagged $10.2 in net profit, up 7.4 per cent year on year, and grew gross margin from 37.5 per cent to 39.3 per cent. Good results—or are they?

Apple data shows that iPhone shipments grew by 17 per cent year on year. But number-crunchers polled by the Informer think that the smartphone market grew by closer to 30 per cent year on year in the first quarter, in shipment terms. So Apple is actually underperforming the market.

The problem is that Apple, despite the barely perceptible nod to affordability that was the iPhone 5c, is resolute in its occupation of the high end. But smartphone growth is fastest in emerging markets, where end users are more price sensitive.

Nonetheless it looks as if Apple’s average selling price did decrease year on year; iPhone revenue was up by less (14 per cent) than shipments (17 per cent). If this looks like the Informer forcing a cloud onto Apple’s silver lining, well that’s just the kind of guy he is: Miserable, and terrified of spiders.

It was a numbery sort of week this week, with a host of financial reports hitting the wires. And there were ups and downs as one might expect. Heading south this week were:

TeliaSonera, where net sales for the quarter dropped 2.5 per cent year on year to SEK23.97bn and net profit fell by four per cent to SEK3.95bn. Those pesky mobile termination rate cuts were to blame, said TeliaSonera.

Canada’s Rogers, where net income was down by 18 per cent to C$3240m for the quarter—despite year on year stability in operating revenues. Lower roaming charges and simplified roaming plans were to blame for the drop in wireless performance, the firm said.

ChinaMobile, where struggles with cost control in an “increasingly fierce” environment led to a 9.4 per cent drop in profit year on year, to RMB25.24bn. In a mark of its having joined the rest of the world’s leading operators, the firm cited once again the impact of saturation, increased competition and the activities of OTT players. ARPU was down year on year from RMB68 to RMB62.

On the up were US market leaders Verizon and AT&T. The latter of the two said it had seen its strongest revenue growth for two years, up 3.6 per cent year on year to $32.5bn. Income was stable at $3.7bn, not least because of the firm’s acquisition of Leap Wireless in March. AT&T said integration costs from the deal would run to $1.2bn over two years.

AT&T saw net postpaid wireless additions of 625,000, it said; it’s best Q1 for five years.

Arch rival Verizon posted a 4.8 per cent increase in consolidated revenue for the first quarter, bagging $30.8bn. Operating income grew by 15.1 per cent to $7.2bn. The operator’s wireless unit saw a 7.5 per cent year on year increase in service revenues and a 6.7 per cent year on year increase in retail service revenues. The operator added 549,000 net retail connections and reported a postpaid churn of 1.07 per cent.

On the vendor side, and despite seeing a decline in net sales, Ericsson announced a 41 per cent year on year increase in net income for Q1. Net income for the period stood at SEK1.7bn ($260m) in 1Q14, compared with SEK1.2bn in 1Q13, largely due to a focus on more lucrative deals such as capacity upgrades that have higher profit margins, the firm said.

Net sales dropped from SEK52bn in 1Q13 to SEK47.5bn in 1Q14, which the firm attributed its decline in sales potential in North America and Japan. Ericsson said it saw lower revenues year on year from mobile broadband coverage projects in North America and Japan, which peaked in the first half of 2013. The firm saw a 23 per cent year on year drop in sales from North America and a 19 per cent year on year drop in sales in North East Asia as a result.

More interesting was the firm’s decision to reorganize its networks division, splitting it into two new business units; Radio and Cloud & IP. The Cloud & IP unit will drive Ericsson’s work on virtualization, an area in which the firm has ground to make up on its competitors. Executive VP Johan Wibergh will continue to lead the Networks segment, although Ericsson has yet to name the heads of the two new business units.

Of these, Cloud & IP will be the more intriguing appointment. Ericsson has long led the market in radio infrastructure and this unit will need a leader able to maintain and protect that leadership as technology continues to evolve towards 5G. In virtualization, however, Ericsson has been slower than the likes of Alcatel-Lucent and Huawei to stake its claim ahead of the intensification of competition that will accompany the industry’s shift to NFV.

Network Functions Virtualization is set to become strategically fundamental for Ericsson’s core telco customer base and the reorganization reflects the work that needs to be done, CEO Hans Vestberg said in a statement.

“The business logic and Ericsson’s relative position is different in the two areas. Radio is the foundation of Ericsson’s technology leadership and we are the undisputed market leader, same size as number two and three together. We are committed to maintain our leadership as the market evolves with 5G. In the cloud and IP space, which are vital for the evolution to 5G, we have made significant progress but are still a challenger. In a transforming market we will now intensify our work to capture opportunities in virtualization and cloud, building on our leading position in core networks.”

The formal restructuring will be complete by July, Ericsson said, with a spokesperson adding that appointments for the leadership of the two new units should be made in May.

Now, earlier this year, the CEO of TelekomAustria, , Hannes Ametsreiter, told Telecoms.com that he expected to see increased foreign investment in the European telecom sector and that some European telcos might see their headquarters shift outside of the region as a result.

Telekom Austria is itself part owned by Mexican billionaire and AmericaMovil chairman Carlos Slim, who has made no secret of his desire to consolidate his European position. At the time Ametsreiter insisted that he was speaking in general terms and not about his own organisation, although the Informer’s ears pricked right up at his observation that: “I believe international players from outside Europe will make acquisitions and I believe this means that the headquarters of some European operators might move outside of the region.”

So it wasn’t a huge surprise when America Movil this week announced its intention to acquire all outstanding shares in Telekom Austria.

If its offer is approved, the Mexico-based group has  agreed to vote in favour of a €1bn capital increase in Telekom Austria. And if America Movil’s offer gains regulatory approval, the LatAm group said it will also take on operational responsibilities for the firm.

In January, America Movil increased its stake in the Austrian telco by 3.14 per cent through its wholly-owned subsidiary Carso Telecom. America Movil already directly held 7.94 million shares in Telekom Austria, and indirectly, through CarsoTelecom, it held a further 96.96 million shares, equating to a 21.9 per cent stake in the firm. Currently, America Movil currently holds a 26.81 per cent in the Austrian group.

America Movil has now offered €7.15 per share in Telekom Austria but is only eyeing shares not already held by America Movil, Carso Telecom, Telekom Austria or the Austrian government’s holding company the Österreichische Industrieholding AG (ÖIAG).

Telekom Austria confirmed that the ÖIAG supervisory board has approved and signed a syndicate agreement with Carso Telecom. The agreement guarantees that the ÖIAG will still hold at least a 25 per cent stake in the firm. The operator explained that for a shareholder to reach above the 30 per cent share threshold, Austrian competition law dictates that the shareholder it must make a mandatory offer to acquire the stakes of all other shareholders. The Austrian Takeover Commission must then determine whether the offer is valid and America Movil’s official public offer will be made in the weeks to come.

The syndicate agreement also ensures that Telekom Austria will continue to be headquartered in Vienna and that the firm intends to extend its footprint in Eastern Europe. However, no details have yet been divulged around how the €1bn capital increase will be funded.

Steven Hartley, leader of Ovum’s Industry, Communications & Broadband Practice, believes that America Movil’s expertise will benefit Telekom Austria following the disruption caused by Three’s entry into the market. The challenger operator has a very strong network in Austria and has able to undercut competitors on pricing.

“I think the biggest benefit America Movil can bring to Telekom Austria is the operational outlook,” he said. “It is used to working in markets with lower ARPU. However can it bring in scale benefits around its equipment purchases or creativity around system purchases and outsourcing in an Austrian market that has frankly been hammered for the past few years.”

The Latin American group’s gradual increase in ownership of Telekom Austria led to the European group parting ways with group CFO Hans Tschuden. A source at the operator told Telecoms.com that Tschuden’s departure was fuelled by a conflict with the board members representing Telekom Austria’s Works Council and mentioned that a key topic of discontent was America Movil.

While we’re on acquisitions, Facebook has picked up Finland-based activity tracker app Moves for an undisclosed sum. Moves set out to take on the likes of Fitbit and Nike in the tracker band market, launching in early 2013 after scoring $1.6m of seed funding, led by LifelineVentures and PROfoundersCapital.

The app runs in the background on Apple and Android devices and tracks users’ physical activity by automatically recognising movement such as walking, cycling, running and transportation.

“It’s a very smart move to buy Moves given how hot the activity tracking space is right now. This is a slick application that has been a trailblazer in this app category on smartphones,” said Ben Wood, chief of research at CCSInsight.

“For a lot of users there really is no need for a smartband to track your activity. Moves not only captures your activity levels but also where you have been. That so-called ‘contextual data’ will be immensely valuable to Facebook,” said Wood.

The Moves purchase comes hot on the heels of Facebook’s $2bn purchase of immersive virtual reality developer OculusVR, as an investment for the future, when such technology is expected to become commonplace.

This week Facebook also began rolling out a mobile app feature called Nearby Friends that “helps you discover which friends are nearby or on the go.”

If you turn on Nearby Friends, you’ll “occasionally” be notified when friends are nearby, so you can get in touch with them and meet up, the company said. Clearly Facebook has failed to realise that not everyone on its users’ friends list are actually their friends. Cue many awkward meetings.

While we’re on social networks, Google has been left without a leader for its Google+ social networking site after Vic Gundotra stepped down as senior vice president for social at Google this week, after almost eight years at the firm.

Gundotra has been credited by Google co-founder Larry Page for “building Google+ from nothing” three years ago, although conspicuous by its absence in this observation is any sense of what it has been built into.

He fittingly announced his departure in a Google+ post, which is why it took a long time to filter into the wider consciousness. In the post, Gundotra thanked Page and the Google+ team, who he noted developed Google+ “against the scepticism of so many”.

Gundotra’s departure has fuelled rumours that Google will scale back its efforts to integrate Google+ functionality into all of its services and restructure its Google+ team. However, Google has denied that it will make any strategic changes as a result of the departure. In a blog post in response to Gundotra’s, Larry Page noted that Google intends to continue to build new experiences for Google+ users. Like friends.

And that’s about the size of it this week. Plus size.

Take care

The Informer