How the mighty have fallen

By The Informer

The recent news that Disney is to further desecrate the temple of Star Wars by rebooting the franchise with two new episodes and a new film every two to three years thereafter was met with howls of pain by many of the Informer’s generation, who grew up with the first three movies. But we shouldn’t be surprised at this bid to wring yet more dollars from the Force, given that Yoda, once the most powerful Jedi in the universe, has for some time been reduced to mugging in Vodafone adverts to earn a crust.

Everybody loves Yoda, of course, so he’s an effective marketing tool. But he also has gravitas, so it was good to see him on hand when Vodafone put out its half-year financials this week; a set of results for which the doom-laden strains of the Imperial March might have been a more suitable accompaniment.

The firm recorded a loss of £1.89bn for the six months to the end of September, having been forced to write down its Spanish and Italian operations to the tune of £5.9bn. For the same period in 2011 Vodafone trousered a profit of £6.64bn, and contrasts don’t come much more marked than that. Gross income was down 7.4 per cent to £21.8bn but Southern Europe was down more than 18 per cent. On the up side, non-voice services now deliver 65 per cent of group revenue, with data revenue for the year to March 2012 up £2.2bn since 2010 to £6.2bn.

“Very positive we remain about the longer term,” said Yoda, filling in for Vittorio Colao, in what some analysts are suggesting reflects a position of increased influence for the Jedi going forward. “Based on a new strategic approach to our consumer offer, this is—and on unified communications in the enterprise an increasing focus.”

VimpelCom, a company with a name that is much enhanced by being spoken in a Yoda voice (go on, give it a try), had some happier numbers to sing about. The international operator, headquartered in Amsterdam but of Russian extraction, saw Q3 profits up 185 per cent year on year to $538m, despite revenues dropping six per cent year on year to $5.75bn. Revenues were hit by the appreciation of the US Dollar, the firm said, as well as the impact of termination rates in some markets.

Back to Vodafone, though, and it was one of a number of operators to try its hand once more in the Indian 2G spectrum auctions. Vodafone bagged 1800MHz licences in 14 of the market’s telecom circles and was the biggest spender in an auction that was neither as competitive nor as fruitful as the Indian Government might have hoped.

The bidding lasted just two days, with the licences attracting just Rs9,407 crore, compared with the Rs40,000 crore that local news sources said the government had been anticipating when it cancelled the previously issued licences. There were no bids for the national licences, with the reserve prices felt to be too high, while almost one third of available licences were left on the table.

The Brits are famous worldwide for their reserve, of course, and in the case of the upcoming LTE auction, that reserve has been set at a cautious level. Ofcom this week released its schedules for the auction, accelerated in the wake of EE’s launch of LTE1800 and a sense of unease among the public and private sector powers that be that the UK is suffering as a 4G laggard.

Ofcom wants £1.3bn for the various licences on offer, including the 2x15MHz of 1800MHz spectrum that EE is required to divest as part of its deal to launch early. Bidders are required to submit applications and deposits by December 11^th and the bidding will begin in January. The priciest licence, with a reserve of £250m, offers bidders 2x10MHz of 800MHz spectrum, but with an obligation to deploy in rural areas that are currently underserved.

Meanwhile France Telecom CEO Stephane Richard told Bloomberg this week that EE might be up for taking on a third investor to lighten the load on FT and Deutsche Telekom. “”We want to keep control of the asset, and so do the Germans,” Richard said. “That said, there is a possibility that we can give ourselves some financial headroom by opening EE’s capital to a minority shareholder or through an IPO, but we haven’t yet decided.”

Just over the water, the latest Irish spectrum auction concluded this week, raising €481.7 for the state coffers, with a further €372.95 payable over the next 14 years. Spectrum at 900, 1800 and 800MHz was distributed in the form of technology neutral licences to Telefónica, Vodafone, Hutchison and Meteor, doubling the volume of spectrum in those bands currently held by the market’s mobile operators.

1800MHz spectrum is the most widely used for LTE deployments worldwide, according to the Global Mobile Suppliers Association. The GSA said this week that 42 operators have launched LTE1800 either as a single band system or as part of a multi-band deployment, with licences now held by 350 operators in 150 countries. Almost 25 per cent of LTE end user devices are 1800MHz compatible, the group added.

“A robust ecosystem is established to support 1800MHz as the prime band for LTE deployments worldwide, and will greatly assist international roaming for mobile broadband services,” said GSA chairman, Alan Hadden.

Operators with smaller allocations of 1800MHz, or none at all, are not so keen to see it painted as the “prime band” for LTE, however, as such a depiction rather relegates them to a lower standing.  Mike Short, VP at Telefónica Europe countered that 800/900 beats 1800 for in-building penetration as well as wider deployment. Network sharing—increasingly important for LTE deployment in these times of austerity—is also easier where “adjacent frequencies are shared”, Short said, which acts in O2 UK’s favour in its net share with Vodafone.

“The major mobile operators in each European country have mainly 900MHz and that is why 900MHz and new 800MHz frequencies will lead the way with 4G in Europe,” Short said. He conceded that the availability of 800MHz is still dependent on the digital switchover of television services in some places, but suggested that the leadership of 1800MHz for LTE is likely a short-term phenomenon.

In separate news this week Telefónica announced that it is to move to a single, global platform for all video entertainment services across its entire operating portfolio. The move is a partnership with Microsoft and the Spanish operator said the platform, based on Microsoft’s Mediaroom platform, would be “unique in delivering TV services over both managed (IPTV) and non-managed (OTT) networks at global scale, to a range of consumer devices.” The first deployments will be in Brazil, Chile and Spain.

Telefónica told the Informer this week that it “reviews all of its supplier arrangements on an ongoing basis, as a matter of best practice.” There was a reason for the statement; it wasn’t just a random pronouncement. In fact the Informer understands that the operator is planning a similar standardization exercise to its video overhaul in the mobile wallet space. Telefónica dismissed this as “pure speculation”, saying that no decision had been made. But watch this space.

Back to Microsoft for a moment, though, and there was a surprise personnel development this week when it was announced that Steven Sinofsky, head of Microsoft’s flagship Windows and Windows Live operations was leaving. Yup, Sinofsky’s offski and we’re not sure why. Microsoft offered no explanation but the move does raise questions over the future direction of the firm’s platform strategy.

Windows 8 was billed as more than a simple product upgrade when it was launched, with Microsoft positioning it as a multi-device strategy that would embrace the modern diversity in devices used to access services and content.

With Sinosfky gone, Julie Larson-Green will be promoted to lead all Windows software and hardware engineering while Tami Reller, who retains her roles as chief financial officer and chief marketing officer, will also assume responsibility for the business of Windows.

Anyway, let’s have a look at some network news, now and the results of some ABI research into the global RAN market. With RAN sharing on the increase and times tighter than a gnat’s wotsit, there remain serious question marks over how many network vendors the market can continue to sustain. Further consolidation would surprise few observers, but good business remains for whoever remains in the picture.

That picture is not quite as bad as it could be, ABI suggested this week, with the announcement that infrastructure kit revenues stabilized in Q3 this year at $11.3bn, a one per cent sequential decrease and a 10.3 per cent drop year on year. ABI picked out Nokia Siemens Networks and Samsung for special praise, with NSN growing its share more than all the others; 4.2 percentage points sequentially to 22.4 per cent. This puts NSN a whisker behind second placed Ericsson with 22.9 per cent of the market.

Samsung picked up 1.1 points to reach five per cent, with both NSN and Samsung attributing their success to LTE contract wins.

Huawei remains out front with 24.3 per cent of the market, according to ABI, despite its revenues dropping by more than 15 per cent sequentially. Alcatel Lucent is safe in fourth with 14.3 per cent of the market, while ZTE sits in fifth, with its revenues dropping 15 per cent just like it’s compatriot.

“There is no question that the RAN market has been squeezed in 2012,” said Aditya Kaul, practice director, mobile networks at ABI. “Even with 4Q bringing in the traditional Christmas cheer, 2012 will end up 10 per cent down at the very least, which is bound to cause market share shifts ,especially in the top 3.”

But what is this traditional Christmas cheer of which Kaul speaks? We hear all about it in the handset market, but not on the network side. You can just imagine the spoiled teens on Christmas morning: “A ZTE access network? ZTE? They’re fifth in the market! Everyone at school is going to laugh at me! I wanted Huawei, or at least an Ericsson!”

More people are likely to get femtocells than macro networks, the Informer reckons, especially if their indoor coverage at home is as bad as his. But Ovum spat in the small cell soup this week, suggesting that the industry may have completely overlooked how challenged their use might be.

The problems aren’t all complex and technical, either. Operators aren’t used to securing the kind of real estate needed for widespread small cell deployment, Ovum said, and the market may not be big enough to support the number of vendors currently attempting to make their fortunes in it. Perhaps it needs to be renamed the small small cell market.

Some of these vendors might struggle with operators’ willingness to use a different small cell vendor from their macro provider, Ovum said, “especially if the macro vendor has no reason to co-operate.” Vodafone will be alright, of course, it will just get Yoda to deploy Jedi mind tricks on all of its suppliers to ensure their harmonious collaboration.

And that’s it for this week.

Care you should take

The Informer