Telefónicawatch Report #145 – July 2020

Executive brief

The US State Department held up Telefonica Group as a poster child for its5G Clean Path drive to have Huawei excluded from 5G infrastructure across the world. According to a statement from Secretary Pompeo, Group Executive Chairman Álvarez-Pallete had indicated to US authorities that it will have “clean” Huawei-free 5G networks across its core markets. The US claims are contrary to other signs from the operator that it is ready and willing to find a role for Huawei in 5G infrastructure, but it appears that the Trump administration’s clear, if brutal, messaging on Huawei is filling a policy gap left vacant by European political leaders. In the UK, the only OB where a final decision has been made by management on Huawei’s 5G role, O2 may be feeling relieved its plans are already dependent on Ericsson and Nokia as Huawei is further frozen out. Virgin Media’s Huawei deployments may mean it is not free of headaches should its merger go ahead, however. [pp.6-8,52-54.]

Nozomi Networks is the latest recipient of Group investment, with Telefónica Innovation Ventures participating in the latest round of funding for the cybersecurity specialist. The financial commitment follows a joint services agreement in place between ElevenPaths and the industrial threat monitoring company. [pp.9-10.]

Infrastructure management company Cellnex was moved to downplay suggestions that it could take a stake in Telefonica’s Telxius business, emphasising its commitment to operational control over assets. Despite the denials, with an additional €4bn being raised to fund major investments in the near future, some form of joint venture with “magnificent” Telefónica should not be ruled out. [pp.11-12.]

Telefonica I+D is pitching in to a consortium developing prototypes for a pan-European public safety network. The research unit is working with Austria’s Frequentis on a model system intended to replace a patchwork of technologies used across the continent. [pp.18-19.]

The Telefónica-led TIP project group examining Open Optical & Packet Transport has moved on a level with the selection of six vendors to help create a disaggregated optical transponder. Cisco, Fujitsu, Infinera, Infusion, Wipro and Wistron will be building Phoenix prototypes, with field trials anticipated in early-2021. [pp.20-22.]

Managed security service specialist Fortinet expanded its longstanding partnership with ElevenPaths, providing control systems promising support for operational technology and IT in the industrial sector. [p.23.]

IoT solutions provider Erictel is to bring its remote working solutions to all Telefónica’s core markets under a new agreement. The technology will underpin LUCA offerings that are being touted as increasingly relevant in a post-lockdown world. [p.24.]

Go Ignite, Telefonica’s startup accelerator collaboration with DT, Orange and Singtel, sparked back into life with a new call for submissions focused on leveraging the potential of 5G.The latest call promises the usual smorgasbord of mentoring, support, and financing opportunities, but a concrete example of the programme getting results can be seen in the partners’ investment in blockchain specialist Clear. [p.25.]

Telefónica looks set to convert more data centres into cash with a proposed sale and leaseback of its final twelve facilities to existing landlord Asterion Industrial Partners. Telefónica may go further and take a stake in Nabiax, a company established by Asterion to manage eleven data centres previously acquired from the Group. [pp.26-27.]

Vivo is edging towards a modest 5G commercial launch with eight state capitals expected to see services enabled using dynamic spectrum sharing technology by end-July. Management acknowledged that making do with existing spectrum allocations is “not ideal” for a legitimate 5G offering, but commercial pressure appears to be forcing the operator’s hand while regulators procrastinate. [pp.30-31.]

Telefónica and TIM Brasil are being joined by Claro in their bid for the mobile assets of distressed operator Oi. A stalking horse joint offer has now been made, but the market-leading triumvirate may face competition from private equity-backed Algar Telecom, with a bid that would maintain four national operators and prove more appealing to competition authorities. [pp.32-33.]

O2 Germany agreed an extension to the already revised deadline for it to finish an upgrade of its 4G coverage across the country. COVID-19 disruption cutting off supply chains was blamed for the hold up, and, while understanding, BNetzA is warning of the potential for fines if the next milestone is not hit. [pp.37-38.]

Mailroom digitiser Conduent secured a contract with O2 in Germany, helping the OB process an estimated annual two million contracts that still rely on the post. [p.39.]

Telefónica España is facing tricky negotiations with rivals and the regulator on re-distribution of dispersed 3.5GHz mid-band spectrum. Existing collaboration between Orange and Vodafone could see the partners gain an advantage while Telefónica wrestles with isolated spectrum. More promisingly for the incumbent, caps on bandwidth holdings appear to have been eased ahead of 2021’s 700MHz auction, improving Telefonica’s chance of picking up useable spectrum. [pp.41-42.]

SAP and Telefónica Empresas are working more closely together, with the telco’s enterprise unit promoting SAP cloud solutions as part of wider efforts to accelerate digital transformation among its customer base. [pp.43-44.]

Past and present O2 and Telefónica management may have to hand over personal devices as part of the lawsuit alleging operator collusion that led to the downfall of retailer Phones 4u. O2 has been implicated by peers in alleged malpractice as recordings on the former EE CEO’s iPad are sought. Meanwhile, tiptoeing through the commercial sensitivities of six competing operators in order to secure relevant documents is likely to prove a lengthy process. [pp.55-56.]

In Mexico, Telefónica is making use of a greater 4G reach facilitated by its switch to using AT&T’s network, to engage in an escalating price war in the country. The migration from its own spectrum is progressing well, with the OB on track to start handing back licences by the end of the year. [p.59.]