Ups and downs

Of the three mobile operators that had been operational in Uzbekistan over the past few years, one has now had its spectrum licence revoked and the other two are facing criminal investigations. On Wednesday, European operator group VimpelCom announced that it had received a letter from the US Securities and Exchange Commission (SEC) informing the operator that is conducting an investigation into the NASDAQ-listed group. Its headquarters in Amsterdam were also visited by Dutch authorities, including the Dutch public prosecutor office, who told VimpelCom it is the subject of a criminal investigation. The operator said that the investigations appear to be focused on its business in Uzbekistan.

March 14, 2014

19 Min Read
Ups and downs

By The Informer

Of the three mobile operators that had been operational in Uzbekistan over the past few years, one has now had its spectrum licence revoked and the other two are facing criminal investigations. On Wednesday, European operator group VimpelCom announced that it had received a letter from the US Securities and Exchange Commission (SEC) informing the operator that is conducting an investigation into the NASDAQ-listed group. Its headquarters in Amsterdam were also visited by Dutch authorities, including the Dutch public prosecutor office, who told VimpelCom it is the subject of a criminal investigation. The operator said that the investigations appear to be focused on its business in Uzbekistan.

Until that point, VimpelCom had been operating pretty successfully in Uzbekistan. The firm’s financial figures for the full year of 2013 reveal that its CIS business unit delivered five per cent year on year organic growth over the year to generate revenue of $503m. VimpelCom explained that this result benefited from the duopoly that was created in Uzbekistan, following the closure of a competitor’s network by Uzbek authorities. VimpelCom would not reveal which of its competitors had its licence revoked but Russian operator group MTS has admitted to the Informer that it is no longer operational in Uzbekistan.

VimpelCom told that it could not comment on the nature of the investigation and when asked why Uzbekistan has proven to be such a difficult market for mobile operators to do business in, a spokesperson would not comment.

MTS, however, has not been short of comment aimed at the Uzbek authorities. In February last year, MTS announced that its Uzbek operation Uzdunrobita had filed a petition to declare bankruptcy in the Tashkent Commercial Court as criminal charges were brought against four of its employees in relation to tax evasion charges. Then in June, the operator announced that it had become aware of an auction planned for July 1st 2013 of assets owned by Uzdunrobita.

“In the Company’s opinion, the claims of Uzbekistan authorities that resulted in the initiation of bankruptcy proceedings and the forthcoming auction sale of Uzdunrobita assets have no legal and factual basis,” the operator said at the time.

In 2012 MTS had already accused the Uzbek government authorities of “blatant harassment” with the “thinly-veiled purpose of destroying the business and expropriating its assets” since June 2012.

And TeliaSonera, the other operator present in Uzbekistan has had its troubles in the market documented extensively in the media. Hours after VimpelCom told of the criminal investigations into its operations, TeliaSonera revealed that two of its Dutch holding companies, TeliaSonera UTA Holding and TeliaSonera Uzbek Telecom Holding, are also involved in a preliminary investigation concerning bribery and money laundering – again, regarding its operations in Uzbekistan.

“Authorities have carried out searches at companies during course of March 11th 2013 to get access to documents,” TeliaSonera said in a statement. “TeliaSonera is cooperating fully with the authorities. At this point TeliaSonera has no further details about the investigation.”

In February last year, the firm called on Swedish law firm Mannheimer Swartling to issue a report on the operator’s business in Uzbekistan after attracting criticism over allegations of corruption. While the law firm did not establish any evidence that bribery or money laundering had occurred, there remained suspicions of criminal activity among the Swedish Prosecution Authority that were not dismissed by the investigation.

CEO Lars Nyberg left the firm as a consequence. The operator’s board then appointed law firm Norton Rose Fulbright to launch a review of its transactions in Eurasia and it appointed Johan Dennelind as president and CEO as of September 1, 2013.

But no Eastern European crime story would be complete without a femme fatale, and it appears that the daughter of Uzbekistan’s dictator, no less, Gulnara Karimova has been implicated in the investigation.

On the same day that VimpelCom and TeliaSonera were visited by authorities in the Netherlands informing them of a criminal investigation, French news agency Agence France-Presse (AFP) reported that Swiss prosecutors had revealed that they have been investigating Karimova on suspicion of money laundering since late last year. Her personal investments included Uzdunorbita, before it was sold to MTS.

Until July last year, Karimova had been protected by diplomatic immunity, AFP reported, which she lost once she was removed as Uzbekistan’s ambassador to the UN. Swiss broadcaster RTS also reported that one of Karimova’s associates was involved in TeliaSonera’s scandal. AFP claims that the suspicions against TeliaSonera are that the firm massively overpaid for its 3G licence in what appeared to be a “thinly-veiled bribe”.

Meanwhile, Vodafone UK was upset this week by accusations that it has the worst network of the four MNOs in the country. A report by network performance monitoring specialist RootMetrics published this week ranked Vodafone UK in last place for network reliability, mobile internet performance, and call and text performance. The operator was ranked third of the four for network speed, with 3UK ranked as having the slowest network.

Vodafone hit out at RootMetrics following the report and said in a statement to that it believes the performance monitoring firm’s testing process “does not appear to follow standard industry practices” as well as questioning whether the measurement firm was “fully impartial”.

Root Metrics would not confirm who sponsored the research and said that it has signed NDAs “precluding us from naming the companies that we are working with.”

But UK operator EE was much happier than Vodafone with the report’s findings, issuing a press release on Thursday morning publicising that it was ranked in first place across all metrics. EE CEO Olaf Swantee described Root Metrics’ testing as “rigorous” and “independent”.

Vodafone’s concerns about the report could stem from the fact that it has invested much into its UK network since the time it claims RootMetrics carried out its testing. The operator said it believes that some of the data used “may well be over six months old”, and Vodafone went live with its LTE network in August last year and has also invested in extending its coverage of the UK, following criticism from UK regulator Ofcom that it had failed to meet the coverage obligation attached to the 3G spectrum it won in 2000. The operator was required to provide coverage to 90 per cent of the UK population by June 30th 2013 but had only covered 88.66 per cent of the population by this time. However, Ofcom announced last month that Vodafone has now met this requirement.

“The evidence we have seen of how Root Metrics conducted some of its tests leads us to believe that they were carried out in an inconsistent manner,” read the statement sent to by Vodafone. “Those looking for more robust research should be approaching more established researchers, such as Ookla, who are completely independent and use hundreds of thousands of real, unbiased customers across the country for their results.”

“We cannot take the results of this report seriously and neither should our customers.”

Vodafone UK was not the only operator to hit out at RootMetrics’ research. The performance monitoring firm published a similar report on the US telecoms market last week and named T-Mobile USA as the country’s worst network provider. T-Mobile scored similar results to Vodafone in the UK, ranking lowest on network reliability, mobile internet performance, call and text performance but beating rival Sprint to third place in terms of network speed.

John Legere, CEO at T-Mobile USA, famously takes to Twitter to make his point and last week he also questioned the reliability of the data used in the test.

“The data from @rootmetrics #1yearlater might still be true for our competitors, but when you move as fast as @TMobile – it’s #oldnews,” he tweeted. “Congrats to our competitors –you guys really knocked it out of the park on that report, LAST year when the tests were done. #uncarrier #BGR.”

“We’ve said it before, but I’m happy to say it again. We look at REAL results from REAL people when we make network claims. #uncarrier.”

RootMetrics defended its processes and said that its report offers an “unbiased, transparent characterisation of UK mobile performance from a consumer’s perspective”. The firm added that during its testing of UK networks, the firm drove more than 23,000 miles and collected more than 840,000 samples, which it claims represents approximately one sample for every 100 mobile phone contracts in the UK. The firm said that it used handsets bought off-the shelf to test outdoors, during driving and at over 1,000 indoor locations.

Australia’s Telstra was another operator that found itself in hot water this week after having made the personal details of almost 16,000 customers searchable via Google. The operator has been penalised by the Office of the Australian Information Commissioner (OAIC) and telecoms regulator the Australian Communications and Media Authority (ACMA) for breaching privacy laws.

The operator was found to have made the personal details accessible between February 2012 and May 2013 after a local journalist found several spreadsheets containing customer data dating back to 2009 through Google Search.

As a result, Telstra has undertaken to cease use of the Oracle‘s Right Now SaaS CRM system although it is not clear whether this was a voluntary decision or a requirement of the Australian regulatory authorities.

“Following the breach, Telstra agreed to undertake a number of actions, including exiting the software platform on which the incident occurred, establishing a clear policy for central software management, and reviewing contracts with third parties relating to personal information-handling,” ran a statement from the OAIC.

The  OAIC found that the operator had failed to take “reasonable steps” to ensure the security of the personal information it held; failed to destroy or permanently de-identify that information; and that it disclosed personal information for a reason other than its permitted purpose.

The operator was fined a mere AU$10,200 for failing to comply with a previous ACMA decision on a data breach. In a December 2011 incident Telstra was found to have leaked the names and in some cases the addresses of approximately 734,000 Telstra customers, along with the usernames and passwords of up to 41,000 of those customers online. The details were found to be publicly available and accessible on the internet between March 2011 and December 2011.

The OAIC’s investigation found Telstra requested an unnamed third party provider to extend an access control to enable authorised partners to access Telstra’s retail information via the platform, which according to the regulator “inadvertently turned off the access control, making the source files publicly accessible online.”

The third party data management firm also failed to prevent Google from caching and indexing the private information by incorrectly configuring the robots.txt file.

“The Commissioner found that this indicated a failure by Telstra (or the third party provider on Telstra’s behalf) to take reasonable steps to monitor the security of personal information held by Telstra,” the investigative report reads.

According to Laurent Lachal, senior analyst within Ovum’s software group, although the breach was also related to Telstra’s use of Oracle RightNow, this does not mean the system is flawed.

“There is nothing to suggest Oracle’s software is inherently unsafe. Nearly half of the world runs on Oracle, and like most security flaws with Oracle users would have been up in arms about this from the outset,” he said.

“The sense that I get is that the ball really is more in Telstra’s court and the data management provider than Oracle,” he said, echoing the findings of the Privacy Commissioner’s report.

And Google was another firm that this week found itself facing the law authorities. The firm, which has a fierce rivalry with Apple, was this week accused of making a similar mistake to its competitor; allowing children to make in-app purchases without first obtaining their parent or guardian’s permission.

The class action complaint against Google was made by a US customer, Ilana Imber-Gluck, in the US District Court for the Northern District of California on behalf of herself and other parents and guardians in similar situations. Imber-Gluck claims that children are encouraged to download a free or modestly priced app from the Google Play store, but then incur significant charges for in-game purchases without gaining parental authorisation.

Google requires Android users to authenticate their accounts by entering a password prior to purchasing an app or buying in-game currency. However, once the password has been entered, Google allows the user to make further in-app purchases for a period of 30 minutes without having to re-enter their password, according to the lawsuit.

The case is similar in scope to charges filed against Apple in January, in which the company agreed to pay $32.5m in refunds to consumers to settle a complaint made by the US Fair Trade Commission (FTC).

Meanwhile, the UK Government has been very active this week, drawing up plans to shake up the country’s telecoms industry. At the beginning of the week Prime Minister David Cameron was in Hanover, Germany to open trade show CeBIT with German Chancellor Angela Merkel.

Cameron pledged to work with Germany on research and development on the Internet of Things (IoT), 5G technology and the EU as a single digital market. He added that the UK government has drawn up a package of measures to work with Germany, including investing £45m of funding into the Internet of Things as well as a £1m ‘European Internet of Things’ grant fund to support firms aiming to take advantage of opportunities in the area. The UK government said that this is in addition to funding previously set aside for the technology and takes the total pot to £73m. Cameron’s package also includes a new collaboration scheme to develop 5G between the University of Dresden, King’s College University in London and the University of Surrey. He also pledged to form a new spectrum strategy that aims to double the economic benefits of spectrum to £100bn by 2025.

The pledge came just days before the UK’s National Audit Office (NAO) claimed that the country missed out on an extra £160m in revenue by reserving spectrum during the 4G spectrum auction in February last year.

In the auction, the UK’s four mobile network operators: Vodafone, O2, EE and 3UK, and a subsidiary of BT won LTE spectrum. The auction raised £2.34bn, a figure that the NAO has found to be within the range achieved in other European auctions. Hoowever, Ofcom had reserved part of the spectrum for the smallest operator, 3UK to ensure the operator could acquire the spectrum it needed to challenge its rivals. While it went on to successfully acquire this spectrum, the NAO cited research from think tank The Smith Institute, which calculated that the proceeds were £159m lower than they would have been had that spectrum not been reserved for 3UK or a new entrant to the market. This assumption was made on the basis that bidders would have bid in exactly the same way had spectrum not been reserved for a new entrant.

David Cameron wasn’t the only British politician talking about mobile spectrum this week. Ed Vaizey MP, UK minister for culture, communications and creative industries wrote in a report issued this week that the government wants the UK to become a global leader in driving better value from spectrum and aims to work with regulator Ofcom and with spectrum users to “adopt a holistic approach to managing spectrum”.

He explained that the government will encourage the use of spectrum by those who deliver best value from it, echoing the government’s intention to double the annual contribution to the economy from spectrum by 2025.

“For the future we will also encourage innovation through various sharing arrangements,” said the report, which was published by the Department for Culture, Media and Sport. “For example, Dynamic Spectrum Access technology, being tested in the spectrum used by TV, can in theory be deployed across all spectrum. The potential to radically increase the value derived from spectrum use is immense.”

Last month, telecoms trade association the GSMA warned against an over-reliance on spectrum sharing, suggesting that it could act as a disincentive to operator investment. The GSMA said sharing should be employed as no more than a complement to licenced exclusive-access allocation of spectrum for mobile broadband services.

Staying with the GSMA, director general Anne Bouverot has sent an open letter to EC Commissioner Neelie Kroes calling for policy reform that will encourage investment in Europe’s telecoms sector.

Bouverot secured endorsements from the CEOs of ten European operators with a combined European mobile customer base of almost three quarters of a billion subscriptions, according to data from Informa’s World Cellular Investors service.

The GSMA said that, despite Europe having the highest regional mobile penetration in the world, it was the only area in which revenues have declined, from €162bn in 2010 to €142bn in 2013. Despite this, the organisation said, “comprehensive policy reform” could enable the European mobile sector to drive investment, improve connectivity and enable innovation.

Bouverot’s letter warned that European operators are “facing decreasing revenues and reduced market values compared with operators in the US and Asia,” as well as other players in the sector, seemingly referring to OTT and OS players. “This is impairing our ability to invest in the communications infrastructure needed to put Europe back on the path to growth and jobs,” she added.

Bouverot stressed the need for a regulatory overhaul that would enable operators to act unencumbered by “unnecessary layers of regulation”, drive greater harmony across the region and permit operators to consolidate to restructure the market. She also called for “a level playing field for all”, a statement that again appeared to put internet players in her sights. Even-handed regulation “across the value chain” was needed, she said, as well as “consistent applications of rules irrespective of the technology being used, who is providing the service or where individuals are located.”

Bouverot’s sentiments were reinforced by Telefónica’s chief commercial digital officer Eduardo Navarro, who used a speech at the EC Innovation Convention in Brussels to warn that Europe needs to redouble its efforts to move to the forefront of the global digital sector. Navarro chose to highlight the role that can be played by business, large and small, as well as educational institutions.

“In recent years we have seen much leading technology migrating east and west—away from Europe,” said Navarro. “But now we are starting to see the region regaining its momentum as new opportunities arise in ICT. To accelerate this momentum we need to ensure that technology is open and available to everyone,” he said.

He added that schools and universities must focus on digital literacy with the corporate sector reinforcing this work to bring about growth in digital skills and entrepreneurship.

Elsewhere, the battle to acquire French mobile operator SFR, a subsidiary of French conglomerate Vivendi, drew on. Rival operator Bouygues Telecom submitted an improved offer to for the ownership of SFR.

Bouygues appears to be going head to head with European cable operator group Altice for the French mobile operator. On March 5th 2013, Altice made an offer of €10.9bn in cash as well as shares representing 32 per cent of the share capital of a new entity that would be formed by SFR and cable provider Numericable, in which Altice owns a 40 per cent stake. However, time is running out on the offer as Altice said its offer will only remain valid until today, March 14th 2013.

Meanwhile, Bouygues’ new offer stands at €11.3bn in cash – €800m more than its initial offer of €10.5bn. Bouygues is also offering a 43 per cent stake in the new entity that would be formed by the merger, which is three per cent less than the 46 per cent stake it had originally offered to Vivendi. But Bouygues argues that the improved offer actually values SFR at nearly €20bn factoring in all synergies, which is €1bn more than the valuation implied by the original offer. Bouygues’ interest in the new entity following the merger would be 52 per cent, up from 49 per cent in the previous offer.

Earlier in the week, Bouygues also announced that it has entered into exclusive negotiations with rival Free, owned by parent company Iliad, to sell its mobile phone network and portfolio of frequencies for “up to €1.8bn”, if it successfully completes its bid for SFR.

Bouygues Telecom added that it is planning an initial public offering (IPO) of the new entity formed by the merger with SFR, as soon as it is completed. This would offer Vivendi an immediate opportunity to monetise its interest in the mobile operator, Bouygues added

Across the French border, Belgian incumbent Belgacom has chosen to drop the Belgacom brand name for all domestic services, choosing instead to market all mobile, fixed and IT services under the existing Proximus brand. The change will come into effect at the end of 2014.

The operator group said that it has drawn up an “ambitious plan” to restore growth to the firm by 2016. It explained that fixed, mobile and IT technologies are converging and as a result, users are no longer concerned whether they read emails at work, via the mobile network or at home via wifi. There will be no structural change to the firm and the group’s other brands, including wholesale services provider BICS, will remain unchanged.

Elsewhere in Europe, Telecom Italia has found it can double its network’s peak data rate, and vastly increase network capacity using High Speed Uplink Packet Access (HSUPA) technology from infrastructure vendor NSN. The operator tested NSN’s solution in a lab environment in the northern Italian city of Turin, and found that it could achieve uplink speeds of up to 11Mbps. According to a major difference between HSUPA and HSDPA is that there is only one transmitter per cell for HSDPA while for HSUPA, there might be many transmitters.

The firm’s carrier service arm, TI Sparkle, also announced its investment into a submarine cable system. The South East Asia-Middle East-Western Europe 5 (SEA-ME-WE 5) system is a project to build a 100Gbps, 20,000km long submarine cable system connecting Europe to Singapore. It has been backed by 15  operators from around the world, with infrastructure vendors NEC and Alcatel-Lucent supplying the equipment. NEC will deploy the segment spanning Singapore to Sri Lanka, and Alcatel-Lucent will deploy the stretch from Sri Lanka to France.

The cable system is planned to reach 17 countries including Indonesia, Thailand, Malaysia, Myanmar, Bangladesh, Sri Lanka, UAE. Yemen and Saudi Arabia.

Elisabetta Ripa, CEO of TI Sparkle explained that as a relevant share of the firm’s business is generated in the areas connected by the cable system, the firm’s investment in SEA-ME-WE 5 allows it to secure a leadership position in the Asia to Middle East and Europe route.

And finally, clear concerns emerged that the economics for mobile operators provisioning wifi services might not stack up. When respondents to the Intelligence Industry Survey 2014 were asked to rank challenges that operators might face in deploying their own wifi networks, return on investment was considered as the most serious obstacle by far. A total of 53.3 per cent of respondents ranked RoI six or seven out of seven in terms of seriousness (with seven being the most serious), with that number rising to almost 57 per cent among operators.

And that about wraps it up for this week,

Take care

The Informer


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