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The 5G deadlines just keep getting nearer, regardless of the progress of real standards or spectrum policies. While Verizon says it will start testing '5G' in the field next year, Nokia is promising commercial 5G hotspot equipment the year after that, with an eye to the operators which want to deploy at least limited services as early as 2019.
Verizon talked about its plans at its 5G Technology Forum recently and has now set up dedicated teams, with chief information and technology architect, Roger Gurnani, saying the carrier feels "a tremendous sense of urgency to push forward on 5G".
The carrier's need for a network which offers more capacity and also improved performance for emerging business models in the internet of things (IoT) may indeed feel urgent. Its normal head-to-head with AT&T is only one of its challenges as the large MSOs get more aggressive about wireless with their WiFi-first networks, and as Verizon tries to combat them, and the over-the-top players, by becoming a content provider.
In this rapidly changing market landscape, it is notable that Verizon is relying on its usual suppliers for its 5G field trials. It said it is working with Ericsson and Alcatel-Lucent, its 4G RAN providers, as well as Cisco, Nokia and Samsung, plus the inevitable Qualcomm on the device side. Operators talk a lot about 5G enabling them to move towards a more diverse ecosystem and to introduce new innovators to their supply chain, but there is little sign of that here.
The technologies will be tested initially in sandboxes in the Verizon innovation centers in Waltham, Massachusetts and San Francisco and the operator is the first in the US to announce such activities, though several Japanese and Korean counterparts are likely to be ahead - Softbank and SK Telecom have already conducted field trials.
Rima Qureshi, Ericsson's chief strategy officer, said the move to accelerate 5G innovation had been very much Asia-driven and that it was "exciting to see a US company accelerate the rate of innovation".
The Verizon 5G Technology Forum also includes venture capital groups that are focused on emerging technologies and which Gurnani says account for over $50bn a year in R&D, technology investments and patents.
Meanwhile, Nokia Networks says it will launch 5G-ready cell sites with 10Gbps capacity by 2017 to offer fiber speeds to users. The Finnish firm said the equipment will be targeted at service providers who initially want to use 5G to address areas of congestion, or or homes which lack fiber in the last few meters. The small cells will typically be placed on lamp posts to fill those gaps.
Nokia said the equipment will be software upgradeable to 5G, however the final standards look, because it is built around virtualized baseband software, which will also make the product easily adaptable for other use cases such as M2M.
The company has been talking a lot lately about designing highly flexible platforms throughout the network, which can be readily adapted for future, undefined standards - although those with memories of WiMAX and early WiFi may wonder if it will really be that simple.
Nokia will trial its kit next year as a way to bring fast broadband to locations close to fiber, but lacking superfast connectivity in the final link. The company sees this as a low hanging fruit in terms of a real application for 5G. EVP of mobile broadband, Marc Rouanne, said: "We have all the building blocks in place to make the first concrete 5G use case a reality as early as in 2017. This marks an important foundation for shaping the future of mobile broadband and enabling a personalized gigabit experience for the broadband subscribers in the comfort of their home."
Despite the risks of a long regulatory process and a new competitive landscape, US's third and fourth cellcos set to table merger plan
Their argument - echoed by many European would-be spouses - is that a combined third player would be in a better position to compete robustly with AT&T and Verizon. The real logic is that the competition is no longer just about mobile - the real power will lie with converged wireline/wireless/video providers, which means the major WiFi-toting cablecos, and potentially Dish, are in the frame too. Indeed, the merger of two mobile-only players is somewhat old-fashioned, since it will position the cellcos better in the increasingly price-sensitive war for megabytes and minutes, but do nothing for quad play or content offerings - in that respect, a merger of either with Dish would make more sense, and invite less regulatory scrutiny.
As European cellcos such as Telefonica, KPN and Hutchison 3 have discovered, competition agencies remain, perhaps anachronistically, focused on not reducing the number of like-for-like rivals, rather than accepting the broader definitions which quad play is bringing to communications and media. Sprint and TMo will have to argue their case on the basis of providing a stronger, better funded mobile-only operator in the US, at a time when the mobile-only business case is weakening, and their larger rivals are building up acquisitions and partnerships in converged networking and content (as seen in AT&T's bid for DirecTV).
So Softbank's ambitions to turn its majority stake in Sprint into a US powerhouse are actually less threatening to the big two than they would have been a couple of years ago, but they will attract just as much regulatory scrutiny - a process which could be harmfully distracting. Softbank CEO Masayoshi Son would do well to remember the sorry saga of AT&T's bid for T-Mobile (smaller in those days, prior to its own merger with MetroPCS). That tied up AT&T resources and put some key decisions on hold for a year, while Verizon took advantage of its rival's tied hands to make its own moves, primarily a spectrum deal with four cablecos - just as valuable in terms of network capacity, and less worrying for competition agencies.
Sprint and TMo need to be very sure that their deal will be approved to risk all this time and distraction. Sprint is already lagging behind with its hugely ambitious Network Vision and LTE program. T-Mobile has had a disruptive impact in recent months with its 'Uncarrier' series of initiatives, and would worry AT&T more by carrying on with that activity, than engaging in a merger process. So it is bad timing to engage in a complex approval pitch to regulators and shareholders - and even if the deal were green-lighted rapidly, the companies would have to face the challenges of merging their networks, customer propositions and business plans.
But corporate ambitions do not always listen to history or logic, so it seems that the two cellcos - and their respective primary shareholders, Softbank and Deutsche Telekom - will indeed put their proposal on the table, after almost a year of speculation, in July. According to Bloomberg sources, price has been a major sticking point, with DT demanding $40 a share and Softbank angling for about $37. The final price is likely to be around $39, say the sources. That would value TMo at $31.3bn, but the total cost would be about $40.8bn including debt and cash considerations. Sprint is likely to offer 50% stock and 50% cash, leaving DT with a stake of about 15% (it currently owns 67% of the enlarged TMo).
If regulators reject the plan, Sprint would have to pay TMo more than $1bn in cash and other assets, according to the reports.
By Peter White, principal analyst, media and content
Raising a pile of cash from a massive sell-off can take a company in one of two directions, either financing consolidation and expansion, or being acquired itself. Vodafone became one of the biggest ever examples of this phenomenon after selling its stake in Verizon Wireless for $130bn, arming itself with oodles of cash but also in the process halving its market capitalization to around $100bn.
This brought it within the compass of a few big telcos with expansionist plans, notably AT&T, capitalized at $170bn. However, nobody else seems in the running at present, with Verizon itself concentrating more on increasingly intense domestic competition in the wake of Comcast’s $45bn proposed acquisition of Time Warner Cable. This leaves AT&T as the only realistic contender given the noises it has been making lately about European expansion, although the window of opportunity in this case is closing fast.
Vodafone’s $10bn acquisition of Ono makes the company that much harder to swallow, so we can largely forget the idea of Vodafone being acquired and instead plot its course to expand across Europe as a multiplay operator, having decided to concentrate its resources at that level for now.
Firstly it is worth considering that the price paid for Ono does represent value for money. It was just under 10.5 times its EBITDA earnings, less than the 11.3 ratio for Ziggo agreed by Liberty Global or the 12.4 Vodafone itself paid for Kabel Deutschland recently. Of course these differences reflect a range of factors such as prospects for growth in a given market, but then Vodafone can point out that when its proposed $4bn cost savings within Ono are taken into account, EBITDA would be only 7.5. Vodafone was acutely aware of the risk of overpaying given that Ono had been contemplating an IPO, partly with a view to maximizing the price. We do not think it achieved this, and as Spain’s largest MSO with around 1.4 million broadband subscribers, Ono strengthens Vodafone’s position there, dovetailing with its FTTH roll out programme through its joint $1.3bn program with Orange in Spain to reach 6m homes by 2017.
Vodafone became the force it is purely as a mobile operator, which went well while that sector was enjoying seemingly exponential and everlasting growth over a 20-year period, but hit the buffers as it became clear that future converged media and communications, call it quad play, would actually revolve around broadband. For Vodafone this has meant a headlong rush into fixed line assets, selling its stake in Verizon Wireless and now aiming to establish itself as one of Europe’s big converged players, which it will surely succeed in doing.
The question will be who will line up beside Vodafone after the inevitable consolidations and mergers over the next two years. Content strategy has a role to play here, with Vodafone setting its stall out like Liberty Global as an aggregator ready to deal with whichever broadcasters and rights holders are willing to provide the premium material in each given market.
In the UK Vodafone already has a large fiber network following its $1.6bn acquisition of the Cable & Wireless UK business in 2012. Although this was largely focused on the enterprise sector, it did bring substantial broadband infrastructure, which would overlap with BT’s in the event of a merger. So perhaps BSkyB might be a target, being smaller with a capitalization around $24m and remembering that it is only minority owned by 21st Century Fox with 39.14%.
Furthermore Vodafone and BSkyB have been ganging up against BT as a common enemy and by merging they would present a formidable force, despite nearly all of Vodafone’s backhaul coming from BT. BSkyB may feel it is in danger of losing the broadband battle against BT on its own, so such a move could be recommended to shareholders. For Vodafone it would mean becoming the UK’s dominant converged player, number one in pay TV with 11m subs and in number two or three spot for both mobile and fixed broadband, depending on which data we look at.
Vodafone’s other target market is Italy, where it has just under a third of the mobile market a whisker behind Telecom Italia, still the clear leader at just over 50%, although that has been falling. Vodafone’s Italian job may come next, but any UK move will be the one that will show whether it is able to flex the muscle to get right to the top of Europe’s converged communications market.