Markets, Enablers & VC in Telecoms, Media & High-Tech | Week 15, 2019

MEDIA & STREAMING

TV & VIDEO The incentives for US customers to “cut the cord” and leave PayTV providers for (similar) new streaming services are decreasing, as live-TV apps’ offers get bigger and more expensive, and prices have started to converge with cable bundles. Meanwhile, on-demand apps remain much cheaper, but are increasingly fragmented.

As an example of this fragmentation, Disney presented its new on-demand video streaming app, which aims to undercut Netflix with a much lower price (at USD 7/month or USD 70/year) and that, as expected, will be based on the companies massive content franchises, including Star Wars and Marvel Studios.

On the AT&T front, the challenges of combining a telecom operator with a major content production firm are starting to show up with top Time Warner / HBO talent leaving, and with AT&T potentially making some efficiency oriented moves (e.g. selling HBO’s European unit) to help with deleveraging.

An activist fund, Third Point, is entering Sony’s capital, and rumors are spreading that they’ll try to force a sale of Sony’s content production unit (at least the less profitable video part), as they already tried this in 2013. Netflix and Amazon could be potential buyers, to reinforce their portfolios for global “streaming wars”.

Apple will be investigated in Netherlands to analyze if they favoured own apps in the App Store (e.g. vs. rival Spotify).

MUSIC Apple’s bet on services instead of products might be paying off, as Apple Music has surpassed Spotify in number of paid subscribers in the US, as it grows more rapidly than its Swedish rival — a monthly growth rate of about 2.6% to 3%, compared with 1.5% to 2% for Spotify. Although the service has a gross margin of roughly 15%, the lowest of any of Apple’s services, so the Cupertino company is still far from using services to offset hardware declines. Spotify remains leader globally.

NEWS India may be following China’s example to create local “internet champions” playing the role that global tech giants play in the rest of the world. And in the case of India a telecom operator, Reliance Jio, seems prepared to take advantage of that. They just launched a new JioNews app that looks quite similar to Apple News.

CONNECTED MOBILITY

The European Parliament transport and tourism committee rejected on Monday a draft legislation to push for WiFi as the technology for the connected car, after facing opposition by the telecoms industry (represented by the ETNO), plus Finland and Spain, who want a technology-neutral standard. The debate has triggered, since last year, a heated participation of telecoms service providers and automakers, as a WiFi push would allegedly relegate Europe to a ‘slow lane’ in 5G deployment. But draft legislation could still obtain the approval by the European Parliament, as it is strongly supported by some carmakers including Volkswagen. It’s an odd situation, as the draft would definitely play against the only two 5G equipment makers (Ericsson and Nokia), who are European, and are the only ones who can still face China’s (Huawei) push.

Ownership of the data that drivers and vehicles generate is a growing sensible matter. And Nissan is ready to give up its monetisation in order to keep its customers happy, suggesting that, if the customer choses to share its data with the automaker, the “value we give them back” will be based on an ecosystem of third party service providers, like insurance companies.

And German automotive components supplier Bury echoed carmaker Daimler by making a complaint to the European Union about Nokia’s patent practices, accusing the tech giant of failing to take a fair approach to licensing.

TECHNOLOGY ENABLERS

5G & NETWORKS As the country aims at garnering “15 per cent of the world’s [5G] market share by 2026”, South Korea will support the development of its 5G ecosystem, beyond just the wireless infrastructure (the government announced that it will cut taxes on network construction by up to 3 per cent to support the nationwide rollout of 5G), by investing more than USD 26.2 billion over the next four years, focusing on autonomous driving, smart cities, digital healthcare and smart factories.

These news come in need, as the MNOs’ investments remain flat globally: LTE is pretty much already deployed, and 5G is still mostly in a trial or pre-commercial phase. This actually explains the 1.3 percent revenues dip for Huawei’s carrier business, which has been relying over the two past years on its consumer unit for growth.

The trial phase might have to last, as 5G (with speeds 50% better than 4G) has been disappointingly unreliable so far (with up to 30% of downtime in the SK Telecom pre-commercial tests), reports concluding that it might be too early to buy the service, as it still based on “a few cell sites running early firmware that lacks key features” (e.g. latency remains the same as in 4G), and with the Belgian government that has decided this week to halt a 5G pilot project in Brussels over concerns that the new cellular standard cannot meet the city’s strict radiation rules.

Another barrier for future 5G deployments deployments are cities’ regulations on urban aesthetics, so network vendors are working in solutions to integrate equipment into existing urban elements.

Meanwhile, OTT service providers continue to make steps in the building of networks. For starters, Google is rolling out a new cross-Atlantic cable next year, that the company estimates will transmit around 250 terabits per second, fast enough to zap all the contents of the Library of Congress from Virginia to France three times every second. That’s about 56 percent faster than Facebook and Microsoft’s Marea cable, which can transmit about 160 terabits per second between Virginia and Spain.

With “Project Simba”, Facebook is building an undersea cable surrounding Africa, with beachheads in several countries along the continent’s coast, to link Africa with the company European and Asian datacenters, while reducing bandwidth costs. The challenge for Facebook (as well as for the other internet tech companies like Google) is to balance whether to use the network for their exclusive use (i.e. a private network), or to allow telecom carriers (like MTN and Vodafone) to use the network overcapacity (facing then the cumbersome regulatory burdens of the network wholesale business).

And with “Project Kuiper”, Amazon wants to send satellites up into low orbit (LEO) at three different altitudes, joining traditional sat companies like Telesat as well as start-ups like OneWeb, something that would provide internet access to more than 95% of the global population.

The satellite service provider market seems actually booming indeed. SES Networks launched four Medium Earth orbit (MEO) satellites from the company’s O3b Networks unit, hoping the US-based MNOs in their 5G rollouts, as the demand for network backhaul capacity and new use cases increases.

And in yet another effort to expand their subscribers base in Africa, Facebook is using AI to map the exact locations where the 1.3 billion African population live, using data from satellite images as an input. This could help Facebook identify potentially attractive spots to deploy low-cost internet connectivity, but is also being sold as a contribution for more efficient humanitarian work.

DEVICES New rumors were published about the iPhone’s next generation, and the camera system could be one of the central innovations, as a key element to enable Virtual / Augmented Reality apps, which Apple has mentioned as a priority. The reports claim that the larger new models will include a three-camera array.

Healthcare could also be a big opportunity for Apple. According to Morgan Stanley analysts, which estimate that revenues from this could reach up to USD 313 billion by 2027 and believe that Apple has the right capabilities to build a new ecosystem around that.

But the absence of a 5G roadmap could become a PR problem for Apple, which might become one of the losers in the 5G race that has just started commercially (in South Korea and the US), as it’s the only handset maker that doesn’t have a roadmap to that new ‘G’, while Tim Cook has been fighting Qualcomm over several months now.

SEMICONDUCTORS Meanwhile, Huawei has not lost commercial aggressiveness, and is trying to take advantage of the current Apple conflict with Qualcomm, and the weakness this is creating for Apple, by offering to sell Huawei’s 5G modems for the new iPhones. However, the current ban affecting the company in the US makes this unlikely.

Merck, the German healthcare and life sciences group, has acquired the semiconductors company Versum Materials — who makes chemicals used in the production of circuit boards and wafers and its clients include Intel, Samsung and SK Hynix, and who has seen its revenues increase due to the increasing demand in 5G — for USD 6.4 billion, bolstering its performance materials unit, which the company has sought to buttress in the face of renewed pressure from Chinese rivals.

EDGE COMPUTING American Tower is moving into data centers, in a move that reveals their strategy to capture the edge computing opportunity that 5G is expected to accelerate. They just acquired a co-location facility in Atlanta, that they describe as “small, strategically located”, and as a tool for them to “work with the wider ecosystem”.

CLOUD COMPUTING The public cloud market could become an actual duopoly, with Google not being able to compete vs. Amazon and Microsoft. At least that’s what some people conclude from the Google Cloud Next event under way, where enabling coexistence with competitors’ clouds, with a new platform called Anthos, is being a central theme.

Amazon and Microsoft are now focused on the huge JEDI cloud services contract that the Pentagon will award by mid-July this year, for an amount of USD 10 billion. The process has been delayed by a court battle triggered by Oracle, on potential conflicts of interest with an ex-AWS employee.

And Amazon AWS and Microsoft Azure could be starting to have a lock-in on cloud app developers comparable with the one that Microsoft Windows had in the late 90s. The new emphasis that Google is setting on a new platform (“Anthos”) enabling app portability across clouds (including top rivals) would be a proof of this.

And conscious that AI is their major differential feature, Google has presented, at their “Next” event, lots of new AI tools for their Cloud offer, including a platform to analyze and manage digital documents, a contact center virtual agent, a visual search tool for retail stores, and tools for e-commerce sites.

As Google concentrates in the enterprise market segment though, the use of the public cloud by the start-ups is heating up.

And although the topic was approached a couple of years ago, when Dropbox announced that they would build their own cloud infrastructure, Pinterest’s recent IPO prospectus has now triggered alerts on the huge amount of money that some startups are spending in cloud computing services. Pinterest claims that their cloud bill with AWS reaches USD 750 million a year, and this has opened a debate on the actual value that startups get in exchange for this expense.

The public cloud issues with the start-ups might not just stay there. While seen as a smart initial move to grow rapidly and flexibly, the (massive) use of Amazon AWS cloud services by “unicorn” startups like Lyft, Slack or Pinterest, as shown by some of the data that they have revealed for their IPOs, is now seen as a potential vulnerability for them, e.g. if the AWS service ever goes down.

Carlos Ruiz Gomez — International Strategic Alliances

Telecommunications, Media & High-Tech | Madrid & London

cruizgomez@gmail.com 00.34.672.025.194 www.linkedin.com/in/carlosruiz @cruizgomez