Back to school deals

There’s nothing like easing back into work after your summer holidays, is there? Whatever plans the Informer had for a gentle return were shattered by two of the biggest M&A announcements we’ve seen for some time. Neither depended on the element of surprise for their impact, though, as both had been much anticipated.

September 6, 2013

13 Min Read
Back to school deals

By The Informer

There’s nothing like easing back into work after your summer holidays, is there? Whatever plans the Informer had for a gentle return were shattered by two of the biggest M&A announcements we’ve seen for some time. Neither depended on the element of surprise for their impact, though, as both had been much anticipated.

Let’s go with Vodafone and Verizon first of all. Making it big in the US isn’t easy if you ain’t from round there. A long list of people and organisations from Robbie Williams to Tesco have tried and failed—Vodafone hung on longer than most. And that tenacity is not without reward; if you’re going to back out of a situation then doing so with $130bn in your pocket is quite the consolation.

Verizon has made no secret of its yearning for full control of the lucrative US wireless JV, which now has more than 117 million customers (WCIS+, June 13) and pulled in revenues of $75.9bn in 2012. For its part Vodafone has always projected smiling contentment with 45 cents on the dollar, waiting for the right offer.

It turns out that $130bn is Vodafone’s magic number. Indeed, for whom would it not be? The stone faces on Easter Island would raise an eyebrow at such a sum; it’s one hell of a return.

And return is what Vodafone plans to do with the proceeds, ladling 65 per cent, or $84bn, onto the plates of its lip-licking shareholders. There was some expectation as the story gathered momentum early this week that the proceeds would be swiftly channeled into acquisition, with Vodafone’s recent Kabel Deutschland purchase held up as a blueprint for its intentions to drive multiplay, in-market consolidation in cherry-picked territories. But there will be no spree, it seems.

Instead the firm’s nod to proactivity sees it setting aside £6bn for investment across its global network portfolio, which remains substantial. Vodafone owns operations in 15 markets outright and has majority stakes in another seven. And in light of the extent of network investment that is required, particularly in core European markets, £6bn looks a little miserly. Especially when you consider the size of the Verizon deal.

Industry analyst at Ovum dismissed Vodafone’s shareholder pacification as “short-sighted” (£900m is already earmarked for the UK, the firm pointed out), noting that the operator has the chance to create market leading network offerings in key territories. And big as Vodafone is, let’s not forget that it doesn’t hold too many number one spots.

Look at Europe: Post the Telefónica/ePlus deal Vodafone will be third and last in the German mobile market. It is second of four in Italy, third of four in Spain and the UK, and second in Portugal, the Netherlands, Hungary, the Czech Republic and Romania. It leads in Ireland and Malta. By any other name you’d class Vodafone as a challenger.

Verizon was prepared to pay over the odds for Vodafone’s stake because the US market is motoring and because, important as the multi-play offering is, mobile is where the money’s coming from. The freedom to dictate its own future is worth the cost. Vodafone would love its strategic decisions to be that simple.

At least this one was a no-brainer. Vodafone will buy a huge amount of shareholder goodwill with that $84bn and Colao will be highly regarded and handsomely rewarded for having negotiated so successfully. And if that’s where the money and the glory are to be found, why bother yourself with network investment?

It’s often observed that the US benefits from the size of the market relative to the  number of operators serving it and that Europe is desperately fragmented by comparison. As the GSMA pointed out this week, in a report that represents its latest bid to steer European market regulation, there are 100 operators in Europe and almost 530 MVNOs. There is a lack of harmony in spectrum allocation and too much threat of regulatory intervention on consolidation and pricing, GSMA said.

The group’s comments were directed squarely at EC Commissioner Neelie Kroes who looked more Snoozy Kroesy than Steely Neelie as she appeared to stack a few Zs during GSMA chairman Franco Bernabe’s presentation at the group’s Mobile 360 Europe event in Brussels this week.

Bernabe suggested that the Vodafone/Verizon deal, and Microsoft’sNokia acquisition, which we shall come to shortly, are negative for Europe as they diminish the continent’s influence in the global mobile sector.

“Despite the fact I think Microsoft will do a fantastic job, I think that what happened to Nokia does not go in the direction of helping Europe to become a champion. I think this must be given serious consideration by policy makers,” he said.

“Even what happened with Vodafone, and I think that Vittorio Colao has done a fantastic job in selling the Verizon stake, I’m not sure this helps the growth of the European telecoms industry.”

Perhaps Kroes was just resting her eyes. She’s used up a lot of energy over the summer, forcefully reiterating her intent to do away with roaming charges after leaked plans for her single European market vision suggested she was retreating from her stated aims in that area.

But even if the GSMA’s friendly new approach to Kroes were to reap rewards the inconvenient truth remains that scale is difficult for operators to exploit across borders.

Scale is something that Nokia and Microsoft ought to know a little bit about and the week’s other big story centred on the acquisition of the Finnish firm’s mobile device business by the US software giant. This is a much smaller deal; smaller than the sum Vodafone is putting in the biscuit tin for Project Spring. And substantially smaller than what Google paid for Motorola’s twitching handset business last year.

Smaller, even, than what Nokia paid for Navteq in 2007;  $8.1bn on a map and it still lost its way.

The once mighty Nokia’s mobile phones business will go to Redmond for $7.2bn, with a positive and popular reading of the deal suggesting that control over hardware and software will lead magically to smartphone success for Microsoft, because that’s what Apple’s got. The problem with this reading is that it’s not true; after all, the Informer could go out and buy a pair of £150 football boots but it wouldn’t make him Gareth Bale.

A more realistic interpretation is that buying Nokia was the only way that Microsoft could guarantee the continued existence of the Lumia Windows product range. And while it may succeed in doing that it now has a monster integration project to manage; one that threatens to divert focus away from continued enhancement of that product range.

Some 32,000 employees come as part of the deal. A lot of experience, no doubt, but one man’s experience is another man’s baggage and it’s going to be interesting to see what kind of loyalty Microsoft is able to inspire, if indeed that is what it wants to do.

Stephen Elop, the Microsoft ranger who was sent out to capture Nokia, returns to the fold with more than one analyst tipping him for the top spot when Steve Ballmer steps down inside the next twelve months, something that was announced towards the end of August. Perhaps he wasn’t too keen on the Nokia acquisition…

Back in 2007, when Nokia still had 38 per cent of the mobile device market, the Informer was chatting to one of its SVPs about potential consolidation in the sector. “I don’t want to sound arrogant,” he said, thereby guaranteeing that he would sound arrogant, “but two turkeys don’t make an eagle”.

Unlike dogs, turkeys are not for life; they’re just for Christmas. And mobile phone brands are no more for life, it would seem, than turkeys.

Those lamenting the possible disappearance of Nokia from the market altogether would do well to remind themselves of George Harrison’s therapeutic outpouring after the demise of the Beatles—All Things Must Pass; a reassuring reminder that, at a cosmic level at least, nothing really matters.

The good people at Sony can take heart at this news and forgive themselves for their latest attempt to derive integrated innovation from expertise in adjacent sectors. The firm’s latest gambit is a high quality camera lens module that clips to its smartphones, creating a hybrid that is not as good as a dedicated camera and far more unwieldy than a standard smartphone. Elements of two devices combining to make something that’s not as good as either.

The firm also unveiled the Xperia Z1, its new flagship Android device, which features CMOS, BIONZ and TRILUMINOS, which could be Harry Potter spells for all the Informer knows about it. The Z1 is also waterproof.

The phone is available on LTE networks, as EE was keen to point out in the UK, where anyone who orders it will receive the Sony SmartWatch 2 for free. The Informer noticed a while back that Sony was giving smartphones away for free in a bid to sell more TVs. Is this the real benefit of the cross sector play? And what’s with all this smart watch nonsense at the moment? For an industry that has succesfully trained its users to rely on their handsets to tell the time, pushing wrist furniture is a bold move.

Sticking with Android, there was a bit of a hoo-ha this week when it was announced that Google had moved into brand extension with its OS naming strategy, dubbing the latest version (4.4) KitKat, after the seminal Nestlé (previously Rowntree) packed lunch snack. Surely KitKat sales are going to dip among Apple’s staunchest supporters, but Nestlé got a slick overhaul for its KitKat website courtesy of the Google bods, which may counteract the effects of its partisan behaviour—something that is unique in the confectionary space as far as the Informer knows.

Let’s go back to M&A activity, albeit on a much smaller scale, and the news that OSS/BSS solutions provider Amdocs, which now styles itself as a customer experience specialist, on Wednesday announced the acquisition of network management firm Actix for $120m in cash.

“Service providers will be able to differentiate the customer experience and achieve cost-efficiencies with improved automation and optimisation of their existing networks, as well as when rolling out new network technologies, such as LTE and small cells,” said Bill McHale, chief executive officer of Actix.

Ericsson picked up a BSS deal with Vodafone Egypt this week, providing its Mobile Broadband Charging solution which the firm says allows end users to personalize their data usage plans in real time. The Swedish firm also announced the completion of its acquisition of Microsoft’s MediaRoom and a substantial investment into three new ICT centres.

The new research and development centres will focus on delivering interoperability testing services for new technologies underpinning cloud services and Ericsson said that, over the next five years, it will be investing about SEK7bn in two centres in Stockholm and Linköping, Sweden, and a third in Montreal, Canada.

The company’s latest investment into R&D will complement its existing global research activities in China, the US, Canada and Hungary. The two new ICT R&D centres in Sweden are planned to begin operation from the end of 2013 (Stockholm) and from the end of 2014 (Linköping), while the Montreal-based R&D centre will be launched at the beginning of 2015.

In other news from the infrastructure market, AlcatelLucent scored a big LTE deal with Spanish incumbent Telefónica. In its largest European LTE contract to date, ALU will deploy 8,000 4G LTE base stations and its 5620 Service Aware Manager solution. It will also provide Telefónica with installation and turnkey project management services in the initial phase of the project, as well as systems integration, maintenance and configuration optimisation.

In the key metropolitan markets of Madrid and Barcelona, however, the network will be deployed by Ericsson which said it will roll out 1,000 LTE nodes as part of the deal.

Sticking with LTE, South Korean carrier SK Telecom has been granted access to 35MHz of bandwidth in the 1800MHz frequency range, allowing the LTE-Advanced early mover to enhance its services with faster downlink speeds.

With 35MHz of 1800MHz spectrum, SKT will split the allocation with 20MHz on the downlink and 15MHz on the uplink. This will allow the company to upgrade its LTE-A download speeds to 150Mbps for all users of over 20 existing LTE devices including Vega Racer 2, Galaxy S3 and iPhone 5, without charging users any more.

The enhanced service using the wider spectrum channels will launch in the Seoul Metropolitan Area before the end of 2013 and should be extended nationwide by July 2014.

But SKT is not planning to stop there. Using Carrier Aggregation technologies the company intends to combine its bandwidth allocation in the 1800MHz band where it has 20MHz bandwidth and the 800MHz band where it has 10MHz to offer downlink speeds of up to 225Mbps by next year.

To match its ever-increasing bandwidth offerings, SKT has also introduced new tariff packages, this month launching a new data plan named ‘T Life Pack’ that allows customers up to 140 hours of video per month. At a monthly price of KRW9,000 (€6), it provides whopping 2GB of data every day, which results in a monthly total of around 62GB, the company said.

Additionally the company said it is preparing to launch a data plan that offers special rates that differ by time, presumably for people struggling to use their allowance up by injecting bloat into their traffic just to make the network feel like it’s doing something.

SKT’s LTE-Advanced service was available in 84 cities nationwide as of July 30 and the company plans to build a total of 32,000 LTE-Advanced base stations by the end of this year to cover more areas in the 84 cities.

The vendor formally known as NSN, now known as er, NSN, Nokia Solutions and Networks said Thursday that it had recently deployed a software upgrade to base stations in the SKT, LG U+ and KoreaTelecom LTE-A networks to update carrier aggregation technology allowing throughput of up to 150Mbps.

NSN also announced an LTE contract with Dutch operator Tele2 this week.

In related news, IPX platform operator BICS said Canadian carrier Rogers had come on board to enable LTE roaming over IPX with SKT in South Korea and Swisscom in Switzerland.

IPX enables mobile operators to exchange any bilateral IP traffic (voice, video, messaging and all data services) with any IPX destination, through one single interconnection and with an end-to-end management of quality.

In June, Swisscom claimed to have performed the world’s first intercontinental LTE roaming connection between Europe and Asia, having opened up roaming services with other operators in South Korea. SKT is also in talks with mobile carriers in Japan, China and the US to launch LTE roaming service in those countries.

Finally it was from Korea that one of the 2013 Silly Season’s best stories emerged over the summer. A shout out to LG is required after the device vendor tried to give away 100 free smartphones by requiring consumers to snare coupons dangling in the air from helium filled balloons. Enterprising, if slightly unhinged contenders turned up with a range of implements, including pellet guns and a spear, and tried to burst the balloons, injuring one another with abandon in the process.

One for Microsoft to consider when it launches its first device, perhaps.

Take care

The Informer






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