Posts Tagged ‘Vodafone’
Vodafone has called on European regulators to ensure that non-incumbent-owned mobile network operators have access to fibre backhaul on the same terms and conditions as their in-house operators or face a declining competitive ecosystem.
The call stems from a looming shortfall in microwave capacity and prohibitive pricing of incumbents’ fibre, poles and ducts to cope with the fast-rising volume of data traffic.
Research by Analysys Mason commissioned by Vodafone found that incumbent operators favour their in-house mobile operators when it comes to accessto a fibre-based backhaul. “These inputs are not always made available to competing operators as a wholesale or retail product with the desired interface, quality, speed or price.
“The fact that the required inputs are not available, or are extremely expensive, may dampen competition in the mobile market in some countries because the fixed incumbent operator is usually (with the exception of the UK) also a major mobile operator and can gain benefits as a result of this vertical integration – specifically the much greater capillarity of its fibre network,” it said.
The leased line market, in which the mobile operators are a large segment, contributed £2bn/y to BT’s £18bn turnover, the researcher found.
Ben Wreschner, who leads Vodafone’s regulatory economics section, said all Vodafone wants is access on equal terms and conditions as the in-house mobile operator. He said Vodafone accepted that there couldn’t be a single price across Europe, if only because labour prices differ. Instead he called for a harmonised approach to access to fibre for mobile backhaul.
He called on the European Commission to provide guidance to BEREC, the European telecoms arch-regulator, for directives that national regulatory agencies (NRAs) can implement to give effect to this.
The study showed that independent mobile operators use microwave extensively to backhaul their traffic. But they are running out of spectrum. The shift to small cells for LTE traffic is quickly eating up the available capacity. Vodafone’s preliminary report for 2014 revealed that 4G smartphone users use about twice as much data as 3G users, mainly to stream video. Smartphone penetration in Vodafone’s European markets is around 45%. Both factors are pushing mobile operators toward fibre, which has the required capacity to ensure an acceptable user experience.
The MNOs’ options are to switch to so-called E-band microwave in the 60-90MHz band, which due to rapid attenuation of signals, will require many more sites to be rented; to rent access to commercial fibre where available; to rent regulated fibre from the incumbent operators, or to build their own fibre networks.
Vodafone has bought some of its own fibre backhaul (eg Cable& Wireless), but it has cost billions and doesn’t always cover the cities where demand is greatest. Building new fibre would duplicate existing fibre networks, take a long time, and cost a lot more on top of their expensive mobile licences.
Last week Ofcom said it would give BT a further period of non-regulation of fibre prices for high speed (above 1Gbps), where it holds an effective monopoly outside London. It also promised to rule soon on a TalkTalk complaint that BT operates an illegal margin squeeze on fibre prices.
Wreschner said he was watching the margin squeeze decision with interest, but stressed that that is a different market (retail) to Vodafone’s concern (wholesale) about backhaul. “We think the wholesale market needs specific regulation,” he said.
This is why, although they face similar problems as altnets trying to provide fibre to rural homes and businesses, the mobile industry did not speak out when the BDUK process was being set up, he said.
Freshly triumphant from a successful Olympics (with more to come from the Paralympics) culture secretary Jeremy Hunt has been outlining his ambition to have not only the “best broadband in Europe” but also the fastest.
In a speech this week week he said, “We simply will not have a competitive broadband network unless we recognise the massive growth in demand for higher and higher speeds.”
He added government is considering how to allocate the £300m from the BBC licence fee earmarked for broadband investment. “In particular we will look at whether we can tap into to this to allow those able to access superfast broadband to be even greater than our current 90% aspiration,” he said.
Is that good news for rural communities? Not necessarily.
Hunt quoted Ofcom’s recent finding that average UK broadband download speeds had hit 9.1Mbps. However, the small print in the Ofcom release said the SamKnows study “includes only ADSL customers within 5km of the exchange and in geographic Markets 2 and 3 and in the Kingston-upon-Hull area”.
So the 9.1Mbps does not include Market 1, roughly two-thirds of geographic UK where BT is the sole supplier. Had it done so, the average download speed would be more modest.
Hunt is clearly hoping that the mobile network operators will fill in the gaps. The government has allowed Vodafone to pick up Cable&Wireless Worldwide’s national fibre network, essential for backhaul. Ofcom’s decision to allow mobile operator Everything Everywhere (EE, aka T-Mobile UK and Orange UK) to refarm its 1800Mhz spectrum for LTE will help extend high speed access. This assumes EE and Three, which is buying the chunk of spectrum EE is forced to sell to comply with its merger conditions, can lay their hands on affordable consumer connection devices. Barring legal challenges, this may come ahead of the auction of 800MHz and 2.6GHz bands sometime net year, which stipulates in-house coverage of 98% of UK homes.
Once that is done, the mobile operators can apply for £100m to reach into rural areas, and compete with fixed operators for a further £150m to upgrade broadband speeds in selected cities.
With Hunt confident that DG Competition will clear the way to release £530m in state aid for county broadband projects, it is hard not feel buoyed by the prospect of so much money pumped into networks.
However, there is a danger that the impending investment will deepen the existing digital divide between town and country communities.
Hunt will do well to make sure that every penny of the £530m is spent outside the suburbs, so too the £100m for mobile coverage, and the BBC’s £300m. If he could find a way for communities like B4RN to invest their own money with confidence, he could unlock more millions, and ensure Britain gets the broadband network it needs. That would be a legacy no-one could take away from him.
The government has released a schedule of seminars designed to gather information that will inform the Green Paper that will lead to a new Communications Bill in 2015. The supporting rationale suggests it is bent on solving last century’s issues, not those of a fully digital, hypernetworked, globally competitive economy. In short the department of culture, media and sport (DCMS) just doesn’t get it.
Starting in July delegates will address
- The Consumer Perspective (4 July)
- Competition in the Content Market (9 July)
- Maximising the value of spectrum to support growth and innovation (12 July)
- Driving investment and growth in the UK’s TV content industries (16 July)
- Supporting growth in the radio (audio) sector (September)
Fundamental to the debate is the broadband market in the UK, which underpins everything DCMS would like to happen. The government appears to think this job is done. It is wrong.
It says it “is already investing a total of £830 million by 2015 into improving broadband connectivity in poorly served, mainly rural areas, upgrading mobile infrastructure and establishing some of Europe’s best connected cities. Government must now also consider the other crucial building block of digital infrastructure: spectrum.”
In fact, there is not yet a single live line in the country that has come through the BDUK procurement framework process, which governs the £830m. The nine firms invited to pitch for the business resulted in two suppliers – BT and Fujitsu – hardly a rampantly competitive scenario.
Furthermore, the European Commission has stalled the release of BDUK’s funds because none of the UK proposals put forward so far meet its target of a universal 30Mbps broadband service by 2020. There has been some movement on this; existing contracts such as Cornwall, which offer “up to” 24Mbps, will be allowed to go ahead, but new ones must meet the 30Mbps target.
The timing of the seminars is curious. Not only is DCMS distracted by the Olympics, but the House of Lords communications committee is looking at the broadband issue. It has heard evidence that the fibre to the cabinet solution proposed by both BT and Virgin Media is a technological dead-end, unlikely to meet Europe’s secondary target of 50% of users receiving a 100Mbps service. The committee’s findings and recommendations are unlikely to inform the seminars, but may be out in time for the Green Paper DCMS hopes to publish early in 2013.
Similarly with Ofcom’s business connectivity review. This three-yearly review of the network services available to businesses, such as leased lines and backhaul, will not start before July, an Ofcom spokesman says. Its conclusions, which will assess issues such as competition levels and barriers to entry in this £2bn/y market, are unlikely to be available much before year-end. This leaves little time to absorb and debate them before they are incorporated, or not, in the Green Paper.
Fit for purpose?
It is true that DCMS has some important issues to put to bed. These include online copyright, content creation and protection, and access to content. However, these issues derive from rather than drive the physical networks.
The government appears to believe that the UK has a network infrastructure fit for purpose for the networked age. There is plenty of evidence that this not the case.
At the consumer level there are just two physical networks, BT’s and Virgin Media’s. They presently overlap, duplicating coverage for about 50% of the UK’s houses. It is unlikely that VM will go much further than this for fear of being forced to provide third parties like BT with physical access to its ducts or wholesale access to its fibres and cables.
This is likely to leave BT with an effective fixed network monopoly in the two-thirds of the country where the “Final Third” of the people live. Of course, there are other fixed networks, such as those of Geo, of Cable&Wireless Worldwide, of Vtesse Networks, that criss-cross the country. But they do not offer connections to residential customers. Some, such as Gigaclear, do. But they are very small and their business models fragile.
BT has a product, PIA or physical infrastructure access, that allows third parties access to its poles and ducts. So far only Andy Conibere’s CallFlow Solutions has taken it up. Matthew Hare, CEO of Gigaclear, says CallFlow can do it because it gets its money upfront from customers. Hare has looked at PIA and rejected it. He’s put off not so much by the price (which Fujitsu and Virgin Media say is way higher than cost) but by the terms and conditions.
“You can use PIA only for residential customers,” he says. “BT knows that any viable business plan to service rural areas relies on being able to go to all customers, including businesses,” he says.
That’s not all. Hare says, among other things, you have to disclose your entire roll-out plan, and pay BT to survey the ducts you want to use. “They should know what’s available and what condition it’s in,” he says.
Other firms, such as TalkTalk and Sky, simply rent BT’s local access networks to deliver TV, broadband and voice services to customers. The rent they pay BT, or rather Openreach, ensures that BT still profits from the transaction. This is common practice throughout Europe
Then there are the wireless network operators, led by the mobile phone companies (MNOs and MVNOs like Virgin Mobile who rent their entire network infrastructure from Vodafone, Orange, O2 or Three). They are increasingly interested in serving data products to consumers, but preferably only in towns. Besides, they have to rent space on fixed networks to hook up with the UK’s core networks and internet peering points.
This is why Vodafone’s mooted takeover of CWW is a possible game-changer; it gives the mobile operator instant access to a fixed network whose backbone is probably as extensive as BT’s and which could backhaul wireless local access links in competition to BT. It also responds to the £100m, eight year backhaul deal between Virgin Media Business and MBNL, the network company for Everything Everywhere (O2 and Orange) and Three, signed in September 2011.
The only wireless network operator with coverage comparable to BT is Arqiva, whose main job is distributing TV and radio broadcasts. BT and Arqiva are in a joint venture with Detica to compete for the network for the smart meter project that will connect the UK’s 28 million homes and offices.
The UK has the world’s second largest independent television production sector, is the second biggest exporter of music, the largest video games industry in Europe, and the fourth largest film market. That suggests the UK’s content businesses are doing all right.
DCMS says the “creative industries” including publishing, contribute 2.5% of GVA (gross value added), about £36bn, and employ 1.5 million people. Ofcom’s Communications Market report for 2011 largely corroborates it. It says TV revenue was up 5.7% to £11.8bn, radio was up 2.8% to £1.1bn, recorded music was down 8.6% to £1.2bn (but legal downloads were up 5% to 24% of sales), advertising was £16bn, 24% of it online, about the same as TV.
But that hides some problems. Publishers and other rights holders worldwide have been stunned by the proliferation and fragmentation of media. Facebook, Twitter, YouTube, Huffington Post, Google, Amazon etc have made mincemeat of business models that depend on high-priced access to exclusive content.
Even so, it is staggering to find DCMS wants to debate “whether convergence in the content market should require a degree of convergence in the telecoms/broadcast competition regimes”. It is hard to know what this actually means. It makes no sense unless it is a veiled threat to the ability of the likes of Google, Amazon, Apple and Sky to do deals that aggregate content and deliver it to customers for a price they are willing to pay.
These firms provide platforms for ordinary people to create and distribute their own content, without bothering cartel-like middlemen like record companies and book publishers.
There are things to be said about excessive market power and abuse of personal information, whose disclosure is often the price paid. But that is a different issue to one that should inform a Communications Bill.
By ignoring the issue of competition at the network infrastructure level, the government is in danger of condemning the UK to a sclerotic digital infrastructure that is not fit for purpose in the 21st century.
By missing or ignoring the fact that the future networks are as much about uploading and sharing as downloading and consuming, the government risks duplicating the content distribution cartels of the previous century.
Let the debate begin.
The UK’s mobile operators, Vodafone and O2 in particular, may have been too clever by half in threatening to litigate their way through the proposed auction for high speed broadband frequencies.
Ofcom CEO Ed Richards told the European Competitive Telecommunications Association (Ecta) regulatory meeting yesterday, “some major companies will have to reflect upon whether they have inadvertently jeopardised the benefits of objective, independent regulation in this area by virtue of their willingness to game the system.”
Richards said he recognised the need for companies to defend their commercial interests and to use the law to do so. But it had been “very disappointing” to see how far the incumbent mobile operators were prepared to “entangle this process in litigation or threats of litigation”.
Richards said that only a few weeks ago, the department of culture, media and sport, which oversees communications policy, had realised “the stance of the operators made it harder for important decisions to be made and implemented”.
This may be unfair; culture minister Jeremy Hunt and communications minister Ed Vaizey are both said almost 18 months ago they hoped the MNOs would not turn to the courts but cooperate with government in creating a vibrant 4G mobile market.
Richards said, “This may well be a consideration as British lawmakers consider their approach to a promised new communications bill for the UK.
“I am sure legislators would be all too willing to accept an argument which returns power in such matters to politicians, in light of the apparent inability of the current model to make timely decisions where the national interest is at stake.”
Richards was speaking ahead of Ofcom’s imminent release of the terms and conditions for the auction of 800MHz and 2.6GHz spectrum, the so-called 4G frequencies, now delayed until mid-2012. These will permit local operators to introduce high speed mobile broadband services in urban and rural communities.
The threat of litigation and the need to free up 800MHz frequencies has delayed the auction to the point where the UK is now far behind competitor economies such as Germany and France in 4G mobile roll-outs.
While the lack of cheap 4G handsets has minimised the gap up to now, this is less and less the case. It has also dampened projects to explore the use of LTE (Long Term Evolution) as an alternative to copper in local access networks.
Vodafone’s shareolders will be buoyed by the announcement that Verizon Wireless, the US mobile network operator in which Vodafone has a 45% stake, will at last pay a dividend of $10bn. This will enable Vodafone to pay a 4.0p special dividend, with the £800m balance going to pay down debt.
The Verizon dividend, announced last night, will be paid on 31 January 2012. It is the first money Vodafone has seen from its investment since 2005, since when Verizon concentrated on paying down debt. The timing of the Vodafone distribution will be announced on 8 November 2011.
Vodafone’s share price on Thursday closed at 165.40p, up from its opening at 163.20, up almost 11% on a year ago when the company started selling off firms in which it did not own a controlling stake.
Verizon’s dividend suggests Vodafone may hang on to the American carrier for a while yet. Vodafone CEO Vittorio Colao said, “Our long term partnership in Verizon’s strong and successful wireless business has seen the value of our investment increase significantly over recent years.
“The dividend from Verizon Wireless allows us not only to reward our own shareholders with an immediate and sizeable cash return, but also to continue to reinvest in our business to improve our customers’ experience, further strengthen our competitive position and create additional value for shareholders.”
Mobile data revenues surged almost 25% to form just under 14% of Vodafone’s total sales for the quarter to June, the mobile network operator reported this morning.
Excluding the effects of regulatory cuts in the price of mobile termination rates (MTR), business in northern Europe grew strongly in Germany (4.0%) and UK (5.3%), but southern Europe, Italy (-1.5%) and Spain (-9.9%) continued to reflect the wider economic problems facing the countries. Business in Asia, Middle East and Pacific regions continued to grow strongly, particularly India (16.8%) and South Africa (7.8%).
CEO Vittorio Colao said the company had made a good start to the year. “Revenue from our key focus areas of data, enterprise and emerging markets continues to grow strongly,” he said.
He confirmed dividend guidance for the year ahead. Vodafone’s currently pays 6.3% on a share price which 12% up on a year ago at 164p.
The Competition Appeal Tribunal has asked the Competition Commission to judge an appeal by BT and UK mobile operators against an Ofcom plan to lower the costs of calls between networks.
Ofcom said in March it wanted the so-called mobile termination rate to drop from 4.18p (4.48 for Three) to 0.69 between 1 April 2011 and 1 April 2014.
Mobile termination rate caps (pence per minute)*
|Current rates until 01/04/11||20011/12||2012/13||20013/14||2014/15|
|02, Everything Everywhere
The network operators claim that the regulator used the wrong formula to work out the cost. If the Competition Commission upholds the appeal, the cost of phone calls from one network to another will stay relatively high, pumping billions in operators’ coffers.
The extra cash could give the operators more latitude in bids for spectrum in the upcoming auction for frequencies in the 800MHz and 2.6GHz bands, the so-called 4G mobile bands. It could also help speed up investment in LTE (Long Term Evolution) technology for 4G networks.
Europe’s Digital Agenda chief Neelie Kroes has called on national regulators to drive down the cost of mobile “roaming” nationally and internationally to the cost of terminating landline calls.
Regulators use a variety of accounting formulas to calculate operators costs. Ofcom used a formula call pure LRIC (long run incremental cost). The operators say it should have used LRIC+, which includes “common costs”.
This would raise the operators’ claimed cost base and therefore the ultimate retail price Ofcom allows them to collect.