Signals of change in connectivity?
And also: the digital acceleration; a new war on digital payments; more candidates to lead the Metaverse; car manufacturers building their own chips; genetic engineering as a strategic technology
Connectivity business models are evolving, and investors are contributing to change
We finished the week with the news that KKR (the leading Private Equity fund) has made an offer to acquire the whole of Telecom Italia, at a +46% premium. The operator’s board was meeting this Sunday to evaluate the proposal. If confirmed, this would support our view that deep changes are coming for telecoms, with physical infrastructure, active (computing) network platforms and commercial aggregation increasingly perceived as independent layers, just like in the technology / cloud world
KKR already owns telecom infrastructure vehicles in several markets (including Italy), and this could be an attempt to fully control the Italian fiber access network (now they just have a 37% stake), i.e.: the physical infrastructure layer. But it is unclear what these new owners would do with the rest
Another European incumbent where changes could happen soon is BT. Altice acquired 12% last summer, and there are rumors that they want to increase the stake. Altice’s approach is close to Private Equity,’s, focused on cash generation
Altice’s boss Patrick Drahi looks fully committed to transforming the telecom industry and would have made a $2.8bn offer to acquire Eutelsat, a vehicle to compete in the emerging satellite broadband access space
Finally, another “disruptor” in telecoms, Japanese tech group Rakuten, seems to be having problems to successfully exploit its new Open RAN network
The week
1. Consumers and businesses, after COVID
What is happening
Consumer trends
The supply chain crisis is making it difficult for parents to find the most popular Christmas gifts, and they’re moving to use “shopping bots” to hunt for them (WSJ)
Emerging consumer risks
Cryptocurrencies are becoming popular amongst teenagers, so it is urgent to address the current gap in financial (high school) education, according to the FT (FT)
Supply issues remain at the center of the economic debate
Pessimism is back about inflation, with claims that the US Fed should start to act, and with the UK data showing the highest surge in a decade (FT)(Bloomberg)
The problem might be more linked to excess demand (after the pandemic) than to supply bottlenecks, according to Bridgewater (an investment bank). As a result, inflation would not really be a short-term problem (FT)
On the other hand, Martin Sandbu from the FT, argues that believers in long-term inflation should not declare victory (FT)
What it means
The pandemic, and its collateral effects, keeps pushing people to adopt digital technologies. This week we learned about an increased use of shopping bots as a tool to address the challenge to find popular gifts amid the current supply chain crisis
Digital technologies are accelerating the need to cover the current gap in financial education at a high school level. As with trading apps (like Robinhood), the cryptocurrency hype is emerging as a threat for uneducated kids
The debate continues between those who think that the current inflation problem is a long-term one (like the one in the 70s) and requires urgent actions, and those who believe it is a short-term effect linked to the pandemic
2. Platforms and digital enablers
What is happening
A big fight is under way between Amazon and Visa. The e-commerce giant announced they will stop accepting Visa payments in the UK, and Visa says they’re negotiating (WSJ)(Bloomberg)(NYTimes)(FT)
Alphabet’s CEO suggests they won’t need any Metaverse to capture the next $1trn in value. Search and AI will be enough… (Bloomberg)
Partnerships proliferate between traditional retail firms and e-commerce groups:
Amazon providing cashier-less technology to Sainsbury’s in the UK (Bloomberg)
Deliveroo partnering with Picard for fast deliveries in France (Bloomberg)
Artificial Intelligence:
Alphabet’s X is working to ”make robots useful”, focused on everyday tasks ”in the wild” (e.g.: in restaurants and other not-fully-controlled environments) (Wired)
Connectivity:
KKR’s offer for Telecom Italia could be a trigger for deeper changes across European incumbents. (Bloomberg)(FT)
Altice’s owner is interested in buying Eutelsat (Bloomberg)
American operators keep fighting with aviation safety regulators about 5G spectrum (WSJ)
Semiconductors:
Qualcomm convinces investors about their future without Apple (WSJ)(WSJ2)
Nvidia posts record revenues and creates expectations about the Metaverse (WSJ)(WSJ2)
What it means
A high-stakes battle was already under way in digital payments, but this week it hasemerged with special virulence, with Amazon threatening to block Visa transactions in the UK. Amazon is apparently working to develop a co-branded card with MasterCard, so this looks linked to the Seattle giant’s ambitions to control more of the value chain (same game as in logistics)
Meanwhile, Amazon has started to sell its cashier-less technology for physical stores as a platform that others can use, just like they did with the cloud and other assets. UK’s Sainsbury’s is a first customer
Qualcomm succeeded this week in convincing investors about how premium Android phones and 5G demand from IoT could offset the impact of Apple’s shift to its own chips
3. Financing digital innovation
What is happening
Macy’s is moving ahead with the spin-off of its e-commerce unit. The WSJ warns about the challenges for a “generic” online brand to deliver on the expected valuation (WSJ)(WSJ2)
The ex-CEO of Time Warner suggests that the reason why the deal with AT&T didn’t work was the (intrusive) way the operator managed the acquisition. He’s quite explicit about all this (WSJ)
SPACs are back, so we saw new calls for investors to be careful (FT)(Bloomberg)
The transition to green technologies could mean significant write-offs in many companies’ balance sheets (WSJ)
Emerging themes for investors:
Next computing platform: Epic Games see a “multitrillion-dollar” opportunity in the Metaverse (Bloomberg). Roblox is working on Metaverse apps for the education sector (WSJ). Nike is launching a virtual store within Roblox (free, for now) (WSJ)
Cars: Ford and GM are planning to design their own chips (WSJ)(WSJ2)(FT). Apple is shifting its effort to develop an autonomous car (Bloomberg). Toyota will build a battery plant in the US (Bloomberg)
What it means
The public comments by the ex-CEO of Time Warner reveal the cultural clashes that are typical of cross-industry M&A deals. Merging a media company into a telecom operator is a challenge for many structural, business reasons. But if the deal is managed in an active / aggressive way (unlike what Comcast did with NBCU), that can be a recipe for disaster
Companies like Epic Games and Roblox could be the big winners of the Metaverse, if it finally becomes a massive commercial reality. This is their core business, unlike for Facebook, which still needs to manage multiple challenges linked to its mainstream apps
Chips could become a differentiating factor for electric cars, just like batteries. Theannouncements this week by Ford and GM would point in this direction
4. Building new rules for the (digital) game
What is happening
Customer protection: privacy & safety:
A group of States in the US are investigating Instagram’s effects on children (WSJ)(FT)
In the UK, Google and Apple are being probed for the same reason, with focus on both companies’ online services (FT)
Antitrust:
In its quest against App Store fees, Epic is now attacking Google, accusing them of working to “maintain a monopoly” (Bloomberg)
The European Parliament reached an agreement on how to target Big Tech companies. But the data protection chiefs of member states are not happy with the new rules (FT)(Bloomberg)
The “Tech Cold War”:
The UK has launched a national security probe of the proposed acquisition of Arm by Nvidia (FT)(FT2)
Australia has signed a security pact with the US and will invest in quantum computing, 6G connectivity, genetic engineering and alternative fuels (WSJ)
Genetic engineering is increasingly perceived as a strategic technology with potential military applications (FT)
What it means
The emergence of “genetic engineering” as a strategic priority within national security deals like the one that Australia just signed with the US is a cause of concern. The Financial Times this week tells us about government funding for work to amplify the transmissibility of some viruses, which could lead to a man-driven pandemic
States in the US have taken the lead against Facebook on the online safety space. This could potentially have more impact on the company than (slower) Federal initiatives
Europe is moving to control Big Tech, but (as with many other things) internal fights are slowing down / paralyzing some of the efforts. Lobbying efforts by Big Tech companies could try to exploit this weakness