What’s up with… Telefónica, Orange, Crown Castle

  • Telefónica looks set to cut more than 2,000 jobs in Spain
  • Orange is no longer keen on an Ethio Telecom stake
  • Crown Castle is under activist investor pressure

In today’s industry news roundup: Telefónica is set to make staff redundant for the first time in more than a decade as it looks to cut costs; Orange has decided not to continue talks to potentially acquire a 45% stake in Ethio Telecom; Elliott Management piles the pressure on Crown Castle; and much more!

Telefónica is set to make about 2,500 staff in Spain, about 12% of its 21,000-strong domestic workforce, redundant in the telco’s first enforced job cuts programme for more than a decade, according to reports, including this one from Reuters, that cite local unions. Preliminary talks have taken place with a number of unions and the exact plans will be revealed over the next week. The move is part of the Spanish operator’s efforts to cut costs and remain profitable in the coming years: During the company’s recent capital markets day presentations, chairman and CEO José María Álvarez-Pallete noted that Telefónica – one of the world’s largest telcos, with almost 385 million connections across its European and Latin American markets and annual revenues of more than €40bn – is expecting an annual revenue growth rate of about 1% and earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 2% for the 2023-26 period, but that it also wants to channel more of its earnings towards shareholders. To do that it needs to cut costs and, while it is doing that partly by cutting its annual capital expenditure over the next few years, with its capex-to-revenues ratio dropping below 12% from about 14% currently, it also needs to reduce its operating expenditure (opex) and that’s where reducing the company’s headcount comes in. The operator has undertaken a series of early retirement schemes in recent years to reduce the number of full-time staff it has on its books, but now it is implementing what is known in Spain as an Expediente de Regulación de Trabajo (ERE) to make some staff redundant for the first time since 2012, according to Spanish tech news site Gearrice.

Reuters has reported that Orange is no longer in the running to acquire a 45% stake in national operator Ethio Telecom, which is being partly privatised by Ethiopia’s government. The decision will come as a blow to the country’s efforts to liberalise its telecom sector: The African country, the second most populous on the continent with about 120 million residents, opened up its telecom market in 2021 by awarding a licence to Safaricom Telecommunications Ethiopia, a local telecoms operating company owned by a consortium that includes Vodafone, Vodacom and Safaricom, and had been seeking applicants for an additional licence while hoping to sell a stake in state-owned operator Ethio Telecom. But it recently cancelled the process to award an additional licence, and Orange’s decision will likely lead to other potential bidders becoming more cautious about the value of a stake in Ethio Telecom.  

Activist investor Elliott Management is piling pressure (not for the first time) on the board members and top executive team at shared infrastructure operator Crown Castle, in which Elliott holds shares worth around $2bn (equivalent to a stake of about 4.3%). The Elliott team has written a letter to the board of Crown Castle, which runs two main operating units (one focused on telecom towers and the other on fibre network infrastructure), that pulls no punches. “Crown Castle suffers from a profound lack of oversight by the Board, which has contributed to its irresponsible stewardship and flawed financial policy. The Company’s strategy, led by CEO Jay Brown since 2016, has been a failure, as demonstrated by the breathtaking magnitude of its underperformance…. During the tenure of the current executive team, Crown Castle has underperformed its direct peers by an average of 85% in total return, which translates into nearly $26bn of unfulfilled shareholder value.” Come on folks, stop sitting on the fence!! You can read the full letter – which includes the Elliott team’s proposed remedies such as “comprehensive leadership change” and the potential sale of the fibre network division – here. Crown Castle responded to Elliott, which previously suggested a change in strategy at Crown Castle in 2020, with a short statement: “We value the views of all our shareholders as we seek to better understand their perspectives on our strategy, performance and business objectives. We look forward to reviewing Elliott’s materials and are open to commencing a constructive engagement with Elliott. The Company’s Board of Directors remains confident in Crown Castle’s executive leadership as the Company continues to act in the best interests of all shareholders.” Gulp! Crown Castle’s share price currently stands at $107.15, down by 22.5% since the start of this year. In October, Crown Castle, which has just appointed a new chief operating officer (COO) who has day-to-day responsibility for running both the towers and fibre network units, issued a disappointing 2024 financial outlook that suggested the company would generate lower total sales and less profit next year compared with 2023 and that won’t have helped the company’s cause.  

In India, Vodafone Idea’s existential struggle continues with the news that the telco will be unable to meet the end-of-December deadline by which it is supposed to finalise a fundraising agreement with disappointed and wary investors. Vodafone Idea (Vi) was formed in 2018 following a merger between the Indian arm of the UK’s Vodafone and Aditya Birla Group’s Idea Cellular. Since then, it has posted a loss for each and every quarter of its existence as its main competitors Bharti Airtel and Reliance Jio cut prices to the bone, ate Vi’s lunch and watched as subscribers left the operator in their droves. When, rather than if, the deadline for the injection of new cash is missed, Vi will suffer another body blow as it will be unable to realise the potential of its mooted commercial 5G service, something (probably the only thing) that just might give it a chance of a comeback. According to a report from The Economic Times of India, Vi has been trialling Open RAN 5G technology from Mavenir of the US and is negotiating with the Export-Import Bank (Exim), also of the US, to raise capital to pay for 5G equipment, but these moves are separate from the fundraising efforts.  

There has been lots of activity and publicity recently in the international quantum computing arena, both governmental and commercial, most of which has been at least bullishly optimistic and, in some cases, more like wishful thinking than plausible reality. Now comes a countervailing story that maybe puts things into a slightly more balanced perspective or is, perhaps, yet more evidence that quantum computing is both difficult and incredibly expensive. So difficult and expensive, in fact, that the giant Chinese technology company Alibaba has closed its quantum computing laboratory, reports Reuters, and rusticated the team of scientists who worked there. The lab and all related equipment has been donated to Zhejiang University and most of the team of 30 quantum computing research scientists who were employed at the facility have transferred to the ‘new’ facility in Hangzhou. The quantum laboratory was jointly established by Alibaba Cloud and the Chinese Academy of Sciences in July 2015 and was equipped with the best available quantum experimentation, focusing mainly on quantum chip preparation and quantum error correction. It became an integral part of Alibaba’s DAMO Academy, the massive company’s in-house research initiative. According to Alibaba the name “Damo” is an acronym for “Discovery, Adventure, Momentum and Outlook,” but persistent rumours have it that the name is a reference to a martial arts school that features heavily in books written by the Chinese fantasy author Jin Yong, and, it seems, several senior Alibaba execs were/are fans of the novels. The DAMO Academy runs “a global research programme in cutting-edge technologies that aims to integrate and speed-up knowledge exchange between science and industry.” The academy says quantum technology equipment and results of experiments also will be made available to other universities and scientific research institutions. No reason has been given for the sudden shuttering of the lab, but it seems to be down mainly to the sheer cost of keeping the facility open. As such, it is evidence of the ongoing restructuring of Alibaba that began in March this year when the company announced it would be carved-up into six separate business units and its cloud division spun off. Now those plans are being reviewed: The company’s new CEO, Eddie Wu, who was appointed in September, is to undertake a series of strategic reviews to determine which units are to be designated as “core” and which are “non-core”. Evidently quantum computing is non-core and the academy will now focus on becoming a world leader in AI. Exiting quantum technology research is a significant step but, given that as at the end of July this year, Alibaba had a workforce of 235,216 people on its books, offloading 30 employees is not going to make much of a dent in the payroll bill.

Still with Alibaba… The ongoing review involves a shift in strategy for the cloud division too, following the introduction in October of tighter AI technology export controls by the US administration. As a result of that announcement, Alibaba has decided not to spin out its cloud business. It noted in a recent earnings announcement: “In October 2023, the United States expanded its export control rules to further restrict the export to China of advanced computing chips and semiconductor manufacturing equipment. We believe that these new restrictions may materially and adversely affect Cloud Intelligence Group’s ability to offer products and services and to perform under existing contracts, thereby negatively affecting our results of operations and financial condition. These new restrictions may also affect our businesses more generally by limiting our ability to upgrade our technological capabilities… The recent expansion of US restrictions on the export of advanced computing chips has created uncertainties for the prospects of Cloud Intelligence Group. We believe that a full spin-off of Cloud Intelligence Group may not achieve the intended effect of shareholder value enhancement. Accordingly, we have decided to not proceed with a full spin-off, and instead we will focus on developing a sustainable growth model for Cloud Intelligence Group under the fluid circumstances.” Fluid circumstances! That calls for a cup of tea…

In a push to boost its sustainability credentials, Orange has unveiled joint plans with the United Nations Industrial Development Organization (UNIDO) to pioneer an initiative aimed at “revolutionising Egypt’s mobile device and network equipment markets”. The telco group will join Nokia, as well as several other local and international players, in a pilot that is part of the Switch to Circular Economy Value Chains project (SWITCH2CE), a programme recently established and co-funded by the European Union and the Finnish government. The main goal is to create a circular economy for the value chain of Egypt’s ICT and electronics products, from product inception to delivery to customers and all the way through to product disposal. It aims to educate citizens and advocate behavioural change towards recycling and circularity in a bid to reduce carbon footprints. Participants of the initiative will also establish centres for the refurbishment of network equipment and mobile devices, with the aim of turning this local infrastructure into an Africa and Middle East hub. Other efforts will focus on recruiting local technicians, developing new uses for products so they can be reused in different capacities, extending product longevity and thereby reducing e-waste, and increasing the re-entry of refurbished network equipment and devices into the local market. And, it seems, Egypt is not an accidental choice for such an ambitious project: Orange highlighted the country as being “among the highest generators of e-waste in Africa”, and yet, recycling companies struggle to find economically viable methods to collect and convert materials into secondary resources. Find out more.

Next Monday, 4 December, will be the 25th anniversary of the signing of the 3rd Generation Partnership Project (3GPP) agreement, which resulted from discussions between telecom standards bodies in Asia Pacific, Europe and North America. The initial scope of the 3GPP in 1998 was to “produce specifications for a 3G Mobile System based on evolved GSM core networks and the radio access technologies that they supported.” That was a success and the body went on to create specs for 4G and, of course, 5G, which is still a work in progress, as the timeline in this 3GPP blog shows. The 3GPP noted: “Throughout, our mission has been to create a Mobile Broadband Standard. However, with the network now a vital part of the internet of things – whether for ultra-reliable low-latency communications at one end of the scale or for energy-efficient, low-cost, low-power sensors and devices at the other – there is now a need for the right level of service at the right time. The 5G and LTE-Advanced ecosystem is facilitating network evolution, at the appropriate rate of change for market demands. For 25 years, 3GPP has allowed a high degree of compatibility with the legacy 3GPP infrastructure and equipment. This continuity has delivered on the promise of the early 3G system, creating a global ecosystem that has developed to support an ever-growing number of users’ needs.” Indeed it has – and it continues. “2023 and early 2024 will bring the completion of the latest Rel-18 features, as plans are put in place for Rel-19 – which will bring more 5G-Advanced projects into play,” noted the 3GPP, adding that a “6G timeline is also under discussion.”  

US regulator, the Federal Communications Commission (FCC) has issued a Notice of Inquiry (NOI) to help it evaluate the “state of broadband across the nation.” A periodic ‘snapshot’ of the national network is required under the terms of the US Telecommunications Act of 1996. The focus of the investigation will be on the universal service goals as defined by Section 706 of the 27-year-old legislation. It includes universal deployment, affordability, adoption, availability, and equitable access to broadband throughout all states. A lot has happened in telecom since 1996 and the law is creaking and showing its age. As Jessica Rosenworcel, chairwoman of the FCC, noted in this announcement about the evaluation, “During the pandemic, and even before it, the needs of internet users surpassed the FCC’s 25/3 standard for broadband. This standard is not only outdated, it masks the extent to which low-income neighbourhoods and rural communities are being left offline and left behind… to get big things done, it is essential to set big goals. That is why we are kicking off this inquiry to update our national broadband standards and also set a long-term goal for gigabit speeds.” The NOI contains the proposal to increase the US national fixed broadband benchmark speed to 100 Mbit/s downstream and 20 Mbit/s upstream. Since 2015, the benchmark speed has been 25 Mbit/s download and 3 Mbit/s upload. The NOI also posits a future national goal as 1 Gbit/s downstream and 500 Mbit/s upstream but does not set a timeframe for that goal to be achieved. The new enquiry will, for the first time, use information gleaned from the Broadband Data Act of 2020, which provides broadband data figures to be updated on a biannual basis and covers the availability and quality of service of fixed and mobile broadband internet access that can be applied to make much more accurate and timely location-by-location broadband coverage maps. Attaining such speeds requires investment but that is being made available: Set against the background of ever-increasing demand for ever-faster broadband access, the US Bipartisan Infrastructure Law contains several binding congressional directives. The Act in its original form was a US$547bn to $715bn infrastructure package related to federal-aid highway transit, highway safety, motor carrier, research, hazardous materials and rail programmes of the Department of Transportation. However the Act was later amended, expanded and renamed as the Infrastructure Investment and Jobs Act, and now includes the biggest ever federal investment in broadband buildout. 

- The staff, TelecomTV

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