What’s up with… Rakuten Mobile, BT, Ericsson

• Rakuten Mobile gets closer to break even
• BT under pressure from short sellers 
• Ericsson CEO issues digital warning to political leaders 

In today’s industry news roundup: Japan’s Rakuten Mobile is still losing money but its numbers continue to head in the right direction; short sellers are trying to drive down BT’s share price just ahead of its full year financial results report; Ericsson’s CEO is the latest telco industry executive to warn European leaders of the region’s digital shortcomings; and much more!

Japan’s Rakuten Mobile is edging ever closer to being a break-even operation, if not an operator with major scale or a significant market share. The alternative mobile operator, which has been competing with the country’s incumbent service providers for just over four years, is growing its revenues at a relatively slow pace and is still losing money. In the first quarter of this year, it reported revenues of 62bn yen ($396m), up by 7.1% year on year, and an operating loss of 73bn yen ($469m) (an improvement of about 25% compared with a year earlier) as it continues to invest in its network. Its earnings before interest, tax, depreciation and amortisation (EBITDA) came in at a loss of 33.5bn yen ($217m) for the quarter, an improvement of 46% compared with a year earlier, and the operator says it is on course to break even at an EBITDA level this year. It currently has 6.8 million customers, so subscriber base growth continues to be something of a challenge. By comparison, NTT Docomo has almost 90 million mobile customers, while KDDI has almost 68 million. Its parent company, Rakuten Group, has long said that building out its own mobile network fits in with its larger group digital services strategy and it has always said there would be financial pressures at the start before, eventually, a return on investment would be forthcoming. That return still looks some way off but the numbers are at least heading in the right direction, albeit slowly. Fortunately for Rakuten Group it has the scale to deal with Rakuten Mobile’s losses: It reported record first-quarter revenues of 513.6bn yen ($3.3bn), up by almost 9% year on year.   

“Infamy, infamy, they’ve all got it infamy!” BT's relatively new CEO Allison Kirkby, who has been in the hot seat since the beginning of February, could hardly be blamed for exasperatingly repeating the famous line from the venerable British comedy film Carry on Cleo, on hearing the news that two hedge funds and two big institutional investors are shorting the telco’s stock by essentially betting some £300m that Kirkby will fail to lift BT’s long-languishing share price, and that it will continue to fall. They are doing what they can to bring that about by borrowing shares, selling them on the open market and later buying them back at a lower price and trousering the difference – as long as, of course, the share price does indeed fall. According to a post on the Proactive Investors website, and following a report from the Financial Times, the UK’s incumbent telco is currently facing the biggest short bet in the European telco sector. The move by hedge funds Kingsbury Capital and Ako Capital, together with two large institutional investors, Blackrock Investment Management (UK) Ltd and the Canada Pension Plan Investment Board, means that BT is now the sixth most shorted stock in the FTSE 100 Index. The investors and hedge funds have, between them, taken a combined short position of 2.79% of BT shares. That doesn’t sound much, but as the investment data company Breakout Point reports, it is the biggest publicly disclosed wager to be made against the telco since the UK’s Financial Services Authority (FCA) began to keep such records back in 2012 and will worry not only Kirkby but also the BT board. In December last year, Kintbury Capital said it had no confidence in the BT Group because it exhibits “no growth” whilst providing a “high priced product with poor service”. Meanwhile, research from S&P Global shows that some 14.9% of BT shares, a very high number, are out on loan and there are rumours that Patrick Drahi’s Altice UK, which already owns 24.5% of BT’s stock, could be lending shares to the shorters. Late last year, the CEO of BT Business, Bas Burger, admitted that pledges to growth the telco had “not all materialised” and that it had been “slow to migrate away from legacy products.” BT’s share price has been in decline for years. Its value has halved over the past five years and fell by a precipitous 31% between April 2023 and April this year. Ironically, as the news of the short selling percolated through, BT’s share price rose by 2% to 111.2 pence. It may not be a permanent improvement but it could be a harbinger of better days to come – and it would be something if some of BT’s smaller investors, seeing a glint of silver lining amongst the grey clouds, were to hang on to see if BT’s profits can grow and its dividends increase once its massive investment in the telco’s fibre access network is largely completed. It would, after all, give some kind of satisfaction to see the shorters suffering for their greed. BT reports its full financial year results early on Thursday 16 May. 

Ericsson CEO Börje Ekholm has just played host to the political leaders of six European countries, ostensibly to give them a guided tour around the Ericsson headquarters and demonstrate the company’s “best products”, including demos of new mobile technologies.  The delegation comprised five prime ministers from the Nordic countries – Ulf Kristersson of Sweden, Jonas Gahr Støre of Norway, Petteri Orpo of Finland, Denmark’s Mette Frederiksen and Bjarni Benediktsson from Iceland – along with the German Chancellor, Olaf Scholz. The visit was arranged as part of the current summit meeting of the Nordic Council of Ministers who invited the German Federal Chancellor to attend. Interestingly, and this may have been Ericsson’s ulterior motive behind inviting such a high-ranking group to its HQ all along, Ekholm took the opportunity of having a captive audience of European politicians in front of him to warn, in no uncertain terms, that there would be serious consequences in terms of competition were urgent governmental support to help solve the European “digitalisation crisis” not to be provided. Immediately prior to the visit to Ericsson, the Nordic Council prime ministers had issued a joint statement on competitiveness and security, with a particular emphasis on the role of critical and emerging technologies. It read: “Like-minded nations need to step up and accelerate the adoption of these critical and emerging technologies. In particular, we need to work actively between governments and in close cooperation with industry and the scientific community to set standards that ensure open competition, trustworthiness and security.” Ekholm added his own message: “Ericsson also welcomes the recognition in the Nordic countries’ joint statement of the need for action on digitalisation. We look forward to subsequent actions being implemented with priority, not just in the Nordic countries, but across Europe.” He also expressed concerns that Europe is “approaching the point of no return regarding mid- to longer-term global digital competitiveness unless urgent action is taken.” He added, “We stressed that the reason why the US, India and China dominate early mid-band 5G deployment and innovation is because for decades they have recognised digitalisation as an economic paradigm changer. These regions fully embraced digitalisation through regulatory support for digital infrastructure and an economic environment that encouraged innovators, entrepreneurial risk-takers and investors.” Unfortunately, said Ekholm, Europe has failed to do the same because European nations have prioritised regulation over innovation. He told his audience that by the end of 2023, of 69 global digital businesses valued at US$10bn or more, just five are European, despite Europe accounting for 21% of global GDP. In turn, these five companies account for less than 1% of the overall value of those 69 businesses. He summarised his message with: “Europe has two of the top-three telecom providers in the world and yet other regions are way ahead in terms of digital infrastructure. Urgent actions are needed, otherwise Europe will become a very small player at a very big table.”

SEPI (Sociedad Estatal de Participaciones Industriales), the Spanish state-owned industrial holding company, has increased its stake in Telefónica to 8%. It plans to eventually hold a 10% stake in Spain’s national telco which, under Spanish law, is classified as a “defence service provider” and a “strategic company”. The holding company is building this stake in response to the move by STC (Saudi Telecom Company), in which Saudi Arabia’s Public Investment Fund (PIF) holds a 70% stake, to take a 9.9% stake in Telefónica via direct and indirect investments. According to SEPI, its investment in the Spanish telco “contributes to the protection of the strategic capabilities of a key company in the telecommunications sector.”  

Eric Schmidt, who was CEO of Google between 2001 and 2011, has maintained a lower profile in recent years. Together with his wife Wendy Schmidt, he is now the co-founder of Schmidt Futures, a New York City-headquartered philanthropic organisation that funds science and technology research and provides large-scale grants for what it refers to as “moonshots” deemed to be of potential technological excellence and relevance. Now Schmidt has taken that lunar reference further (from one small step for a man, to a giant leap for American kind, it seems). In an article just published in the estimable MIT Technology Review, Schmidt makes a case for the US to create “an Apollo programme for the age of AI” because “the global race for computational power” is intensifying and it is becoming ever more evident that “advanced computing is core to the security and prosperity of the US… We need to lay the groundwork now.” That groundwork will be the creation of “a US national compute strategy.” Schmidt explains, “The federal government played a pivotal role in enabling the last century’s major technological breakthroughs by providing the core research infrastructure. Now, with other nations around the world devoting sustained, ambitious government investment to high-performance AI computing, we can’t risk falling behind. It’s a race to power the most world-altering technology in human history. We need a moonshot for computing.” He adds, “Although the US currently still has the lead in advanced computing, other countries are nearing parity and set on overtaking us. China, for example, aims to boost its aggregate computing power more than 50% by 2025, and it has been reported that the country plans to have 10 exascale systems by 2025. We cannot risk acting slowly”. His pitch has three main strands, the first being a need for the development of more dedicated government AI supercomputers to be used for an “array of missions ranging from classified intelligence processing to advanced biological computing. In the modern era, computing capabilities and technical progress have proceeded in lockstep.” His second point is that while existing commercial cloud platforms might, for now, be adequate to ensure the US remains in the vanguard of technological development, the government should commit to spending big on building a high-performance federal computing infrastructure. He opines that “Whilst a hybrid model is necessary, studies have shown significant long-term cost savings from using federal computing instead of commercial cloud services, [although] in the near term, scaling-up cloud computing offers quick, streamlined base-level access for the project. In the long run, however, procuring and operating powerful government-owned AI supercomputers with a dedicated mission of supporting US public-sector needs will set the stage for a time when AI is much more ubiquitous and central to our national security and prosperity.” Schmidt is convinced that such “an expanded federal infrastructure can also benefit the public.” The third strand of his argument is that a national compute strategy “must go hand in hand with a talent strategy” and that means the establishment of a federal programme to attract AI talent “by offering workers an opportunity to tackle national security challenges using world-class computational infrastructure.” In conclusion, Schmidt states, “America has long benefitted from its position as the global driver of innovation in advanced computing. Just as the Apollo programme galvanised our country to win the space race, setting national ambitions for compute will not just bolster our AI competitiveness in the decades ahead but also drive R&D breakthroughs across practically all sectors.” The time to plan the process and lay the groundwork is now, according to Schmidt and it’s hard to argue otherwise.

- The staff, TelecomTV