Rakuten is the highest profile virtualised Radio Access Network project in the world, and CEO Mikitani’s MWC tub-thumping lifted vRAN to the top of the ‘hot topic’ list for 2019. Speakers at our recent 5G conference (key takeaways from the telecom team HERE and the tech team HERE), and plenty of other news flow, have indicated that virtualisation of the core and the RAN is the way forward for lower unit costs and more flexible, secure, and scalable networking.
We don’t see this as a change of trend – unit costs have been falling relentlessly for several decades – but virtualisation is one of the key drivers for continued declines over the next decade. Virtualisation has a large and growing band of global enthusiasts too, including heavyweight operators, and an increasingly wide ecosystem.
Precisely because Rakuten put vRAN front and centre in its extravagant pitch to MWC earlier this year, it’s natural to suspect that vRAN is at the root of its disappointing trajectory since then. But, just as vRAN isn’t central to Rakuten’s story, in our view (see HERE), it also isn’t why the launch is late and impact being downgraded. This diagnosis matters for the Japanese market, but it also matters for vRAN globally.
Continue reading “Rakuten stumbles (again); vRAN isn’t the problem, but it’s not a magic bullet if the basics aren’t right; implications for Dish & other new entrants”
In the past, EM growth has been a major driver for some of the developed market equity stories. Telefonica’s expansion into Latam was one of the big telco stories from the mid-1990s. Telenor’s aggressive Asian expansion in the early part of this millennium also made their equity story stand out as core EU earnings were under pressure. However, EM exposure for developed market telecoms companies has been gradually diminishing over the past 5 years and Telefonica’s announcement this week that it now defining all of its Latam assets ex-Brazil as non-core (see HERE for our view) marks a further retreat. However, arguably no EM market has been more volatile than India. Last week we took Vodafone management around London (see HERE for more details), and one of the key concerns that shareholders were bringing up was India and whether Vodafone could be liable for yet more cash injections into India on top of the £17bn already committed over the past 10 years. However, just as the roadshow was entering its final meeting, the Government announced a moratorium on spectrum fees, potentially marking a major inflection point in Government thinking and suggesting the risk-reward is now skewed to the upside (see HERE for more details) and EM exposure could potentially become a major driver for a developed market telco again.
Continue reading “Indian inflection? When EM can become very relevant for DM”
We got a fright when we saw T-Mobile announce a conference call for Monday morning with no mention of what it would focus on. We worried that they may announce that they were abandoning the deal. I am not sure why it didn’t occur to us that Legere might be stepping down to focus his energies on Slow Cooker Sundays.
As we broke open the models in preparation for the call and started running through scenarios around what might come next for each of T-Mobile and Sprint, we realized that the world had changed quite materially since we first set out our thesis for the deal. We have some work to do mapping out the no-deal scenarios in more rigorous detail, but in the meantime, we have some thoughts on what the options for both companies are, and the pros and cons of each.
Continue reading “If the Deal Fails, What Comes Next for T-Mobile and Sprint”
Trying to turbocharge Vodafone’s inflection
Is opening your network to wholesale partners a value-accretive move? This is one of the debates that has raged in European telecoms for as long as any of us can remember and Vodafone seems to have been at the heart of this debate for years. Hence, the announcement last week for Vodafone to sign a wholesale MVNO agreement with Virgin Media (see HERE) marks a substantive turning point that should help to turbo-charge their recovery; make life tougher for existing providers of wholesale access; and help out the MVNOs. We pick the winners and losers from this.
Continue reading “Trying to turbocharge Vodafone’s inflection – Global Weekly Review”
We have written about spectrum, its value, and its impact on competitive dynamics continually over the past decade. The past few weeks have delivered a particularly rich seam of new bands we haven’t thought about before, an old band we had forgotten about, and evolving thoughts on the big and obvious bands that have been at the forefront of investors’ attention.
Continue reading “New Bands of Spectrum and Their Impact on Wireless and Cable”
We took Millicom through the East Coast at the end of last week and, in addition to significant interest in this rather unique situation, we also detected rising interest in the LatAm cable “cohort” more broadly i.e. including Megacable and Televisa (both reporting late last week) and Liberty Latin America. We tend to find interest here correlates somewhat with US cable, so a strong print from Charter provides a positive sentiment in the space and encourages investors to look for the LatAm equivalent. In this sense, it’s helpful that Millicom’s CEO, Mauricio Ramos, is on the Board of Charter.
Continue reading “LatAm cable – follow the cash, not just the top line…and Malone might come knocking”
We’ve never bought into the idea that 5G is a magic wand for competitiveness and prosperity, or that being first out of the 5G starting blocks held any particular merit.
However, we are not dismissive of the idea that the early stages of 5G can illuminate important features of the telecoms landscape, or that 5G concerns will continue to energise politicians and regulators. Both of these aspects of 5G should be of concern to investors.
The landscape feature that we want to focus on here is the relative scale of the telecoms sectors in Asia, the USA and Europe – the three poles of the global industry. Our observation is that many investors have a false sense of the relative scale and importance of these three poles – partly because Asian EVs are relatively modest, but mostly the effect of investors’ proximity to their local telecoms markets in the US and Europe. This false sense of relative scale is reinforced by the confident projection by western operators of their own importance in the global pecking order.
The early picture of emergent global 5G may help to puncture this misperception –
Continue reading “5G’s not a competition, but Asia is winning”
This week we published on our evolving and more upbeat thesis on Asian consumer 5G (HERE), having visited the telcos in China (see HERE for feedback), Korea (HERE) and Japan (HERE) as well as Huawei (HERE).
Despite downbeat expectations we now see the potential for 5G to drive meaningful revenue growth improvements in those countries in Asia that are able to monetise as they have the capacity in place. The 5G handset price premium is dropping rapidly suggesting limited barriers to uptake. Operators are expected to see a c. 20% 5G ARPU uplift in the region, and we think the core use cases (including interactive TV and cloud gaming) could lead to a step up in high end data volumes from c. 20GB/month to potentially 50-100GB/month or even higher.
Continue reading “Getting bullish on Asian 5G – Global Weekly Review”
It’s the World Athletics Championships at the moment so a few shameless athletics metaphors. Watching the telecoms sector in Europe over the past 20 years has been similar to watching the flight of the javelin….soaring returns from 1998-2008, followed by a steady crash back to earth in the following 10 years from 2008-2018. However, with the sector now trying to haul itself out of the proverbial sandpit, we see three easy steps for the sector to start to regain its past glories and head to the top step on the medal podium. We wrote an updated view on our optimism on the European telecoms sector this week (see HERE), and see three easy steps for the sector to offer really attractive returns for investors and be positioned to outperform.
Read on to follow our European triple jump to gold.
Continue reading “Hop, skip, jump….the triple jump to value creation”
We hosted a client tour visiting all the telcos in the early 5G markets in Asia: Japan (feedback HERE), South Korea (HERE) and China (HERE), and finished the trip with a day at Hauwei’s HQ in Shenzhen (HERE). Our key takeaway is that we may have been too cautious on the likely revenue impact 5G & IoT is set to have on revenues in these markets. Thus our view shifts from seeing 5G as largely neutral to revenue and overall a negative because of the impact on capex, to potentially a meaningful positive driver of shareholder returns through higher growth. Running the math on this and it seems plausible for the winning companies in these markets (which we would see as Softbank, LG U+, China Telecom) to see mobile service revenue growth head towards high single digit, or even low double digit as the 5G wave impacts their business models, with potentially significant impacts on equity valuations. However, we would hesitate to read across from what is happening in these markets to a more positive view on 5G globally especially in markets which don’t have the site density and capacity to satisfy very high levels of traffic as high end packages shift from 20-30GB/month to 100-200GB/month (and to ‘properly unlimited’ services).
Continue reading “Learnings from the first large scale 5G deployments in Asia”