Uber Data Breach Scandal

Olivia Warwick

Uber revealed last Tuesday that it paid a $100,000 ransom to hackers in an attempt to cover up a data breach that impacted 57 million accounts in October last year. Uber said they had identified the hackers and ensured they had destroyed the stolen data.

The names, emails, and phone numbers of millions of customers and drivers, and the licence plates of 600,000 drivers were taken. Financial information such as credit cards and social security number were not accessed. Uber is offering free credit monitoring for drivers, and fraud monitoring for those customers affected.

Former CEO Mr Kalanick discovered the breach in November 2016, a month after it happened. The company took immediate steps to secure the data, shutting down unauthorised access and strengthening its security controls. It did not, however, report the breaches to the authorities. After Mr Khosrowshahi, newly appointed CEO, learned of the cover-up he ordered an investigation. Chief Security Officer Joe Sullivan and Craig Clark, the deputy, have been fired for their part in the cover-up. Uber has hired cyber security expert and former general counsel of the National Security Agency, Matt Olsen, to advise the company.

Uber disclosed the breach ahead of a tender offer from SoftBank as it could influence the decision of investors. Mr Khosrowshahi has spent weeks negotiating with SoftBank in an investment deal upward of $10 billion. It is unclear whether SoftBank may use this disclosure in negotiations.

The scale of the breach, though not as extreme as the recent Yahoo and Equifax disclosures, raises questions as to who else knew about the cover up, and who else was involved. A spokesperson for Uber declined to reveal who authorised the $100,000 ransom payment.

This adds to the string of scandals and legal troubles Uber faces. A prominent revelation in March 2017 was that Uber had secretly designed and used software called ‘Greyball’ to evade the sting operation of city officials who were attempting to catch Uber drivers that violated local regulations. Bloomberg reported this most recent data breach cover-up is an additional challenge for Mr Khosrowshah, who has been trying to bring stability to the firm in his first three months of the role. Mr Khosrowshah has inherited multiple federal investigations into the company’s programmes aimed at regulators and competition, in addition to violations of the Foreign Corrupt Practices Act. Additionally, Uber is currently in a heated legal dispute with Alphabet (Google’s parent company) who accuse Uber of stealing trade secrets on self-driving cars. Uber denies the allegations. Uber is also still recovering from a legal dispute with a female engineer over the neglect of complaints of harassment and sexism towards her and other women.

Currently valued at $68 billion, the company has developed a reputation for pushing the limits of the law in their aim of being the market leader in the ride-hailing market.

Tesla production slump — Can they stay afloat?

Olivia Warwick

The electric car maker Tesla has hit snags in its attempt to become a mass market player through production of affordable Model 3 automobiles. Quarterly results released 1st November showed a rise in post-tax losses by 67% to $671m. Tesla’s shares fell by 6.8% on the 2nd November partly due to US government tax changes that reduce incentives for electric car buyers; a significant blow to the appeal of affordable electric cars including the Model 3. Other contributing events add to the struggles Tesla are facing. Holdups are partly caused by the company themselves, with bottlenecks in the production line causing serious delays to their short-term targets, resulting in only 260 Model 3s being produced out of the 1,500 target from the last quarter. This has led the company to push back its target of making 5,000 Model 3’s a week by three months. Tesla has so far produced 250,000 cars in its 14 years, and aims to make 1m cars by 2020.

Problems include workers manually operating robots that should be automated, multiple cost overruns, in addition to delays from suppliers due to last minute changes to design specifications. Further difficulties in sequencing parts once they arrive at the plant has led to unfinished cars at the end of the production line. Expert automotive manufacturers describe the operational problems Tesla are facing as ‘basic’, that come from the fixation on speed, in both product development and the manufacturing process.

Regarding production bottlenecks, delays in Tesla’s Nevada battery factory are to blame, where workers build battery packs by hand instead of using the automated systems installed, a situation Elon Musk has described as being “really inefficient”. Nevada is not the only plant experiencing difficulties with manual operation. Witnesses of the production process in the Fremont assembly plant in California have observed the newly-installed Kuka robots (designed to increase speed of production) being manually operated. One visitor, who inspects car plants across the globe, claimed they had “never seen so much manual labour on a line”.

Another potential weakness is Tesla’s supply chain. In at least one instance, Tesla has made alterations to crucial components mid-production which has meant re-starting the process, causing a ripple effect of hold-ups down the production line. These late alterations may well have resulted from Tesla skipping a manufacturing prototyping stage. When questioned on automation, a Tesla spokesperson said that the production line contained both manual and automated elements and that there are no fundamental issues with the supply chain nor production of Model 3s, adding that they have always anticipated time taken to fine-tune the production line and that they are confident in addressing the current bottleneck issues within a timely manner.

Having a high level of automation is part of the company’s efforts to streamline production. Elon Musk highlighted the aerodynamics of robotic arms as an area for increased efficiency. He thinks “speed is the ultimate weapon when it comes to innovation or production”. It is not unusual for Tesla to take unconventional approaches in the interest of saving time, for instance in the shipment of incomplete vehicles to Tesla-owned dealers, who finished assembly before delivering the vehicles to customers. This practice, though an unorthodox process, does not break with regulation. It does however encourage questioning of the adequacy of vehicle checks and calibration before being delivered to customers, particularly at higher volumes of production.

As aforementioned, Tesla is also facing problems with its ‘sequencing’ of components (matching up parts with their intended vehicles once they arrive on site as fast as possible). Tesla’s inefficient sequencing has led to the pile up of components coming into the factory to be stored, along with incomplete cars coming off the line. Analysts have calculated that Tesla’s ‘work in progress’ (costs tied up in unused goods and materials) is 14% of its total sales; significantly higher than other more established carmakers, such as BMW (2%) and VW (4%).

There is now a greater risk that some of the nearly 500,000 waiting customers with $1,000 deposits will withdraw their deposits and choose a different car manufacturer after those who have reserved Model 3 cars received emails this week informing them that their orders would be delayed.

The largest technology M&A in history: stranded?

Jim Lee

Singaporean-American semi-conductor giant Broadcom offered Qualcomm, a Silicon Valley semi-conductor giant, a $105 billion acquisition deal, involving a 28% premium on Qualcomm’s closing price. Although potentially the largest ever technology acquisition, both Qualcomm’s investors and its board declined Broadcom’s offer. Behind this potentially historical deal there are various problems, and possible conflict between two technology colossuses.

Broadcom is ranked fourth in terms of market cap in the semi-conductor industry, and Qualcomm third. The acquisition of Qualcomm will grow Broadcom’s market share to third, allow it to expand its operations in hi-tech industries, such as connected cars. Qualcomm may equally benefit from its acquisition, as the arrival of new leadership may assist in its ongoing lawsuits, which have caused a fall in their share price.

Broadcom has capitalised on what Qualcomm’s investors believe is an undervalued share price; these shareholders are unwilling to consider an offer under $80 per share. Additionally, investors are concerned that the deal could fall foul of an antitrust regulation. In response, Broadcom is considering sweetening their offer to over $80 per share to meet the investors’ demands. Since M&A through Qualcomm’s board seems unlikely, Broadcom is preparing for a hostile takeover battle by persuading investors to sell their shares, and asking for their support. Broadcom could convince the shareholders to nominate friendly directors to Qualcomm’s board, and deal-friendly shareholders could vote in the shareholder meeting on March 6th. Due to Qualcomm’s shareholder-friendly organisation, Qualcomm would be vulnerable in such a takeover battle.

Despite Qualcomm leadership’s rejection and investors’ disagreements, Broadcom is displaying its confidence. Broadcom’s hopes are pinned on the potential synergy of both firms’ technologies, and as many of Qualcomm’s investors are fatigued by prolonged lawsuits in Asia and the United States it looks to convince them of the acquisition’s merits. While Qualcomm expressed confidence in its ability to resolve its problems in the near future, some investors have run out of patience, and worry that Qualcomm will recover, but too slowly. Their opinion is that new leadership will bring faster and better solutions. It is likely that such investors would support the deal once Broadcom decides to offer $80 per share, and Broadcom is looking to do so.

The overall circumstance is in favour of Broadcom. However, there are not any solutions for potential antitrust regulation. European regulators are already condemning this acquisition attempt, and US regulators are also not pleased to have Singaporean Broadcom attempting to acquisition American Qualcomm, though Broadcom having US headquarters acts in its favour. As regulatory uncertainty was one of the main reasons to decline the deal, if Broadcom does not come up with a suggestion for antitrust regulation, it may compromise Broadcom’s takeover, should it be successful. It seems a happy ending for history’s largest technology acquisitions is not yet to come.

Smart(er) Personalised Marketing

Estia Ryan

Pop up ads have been around for quite some time now, but only now are they becoming more enticing. Welcome to the age of smart personalised marketing, where ads and services are tailored to suit your online identity.

One Canadian startup, Vidyard, is at the forefront of personalised marketing. It creates individual video advertisements with your name green-screened onto posters or billboards. It has helped the likes of Lenovo and LinkedIn strategically target prospective customers.

Vidyard offers marketing, sales, secure comms, and support solutions programs. It brands itself as a ‘new generation’ video platform, ready to push marketing a step further.

So how successful is Vidyard? Their GoVideo launch, an accessible and free way of creating content, provided company League with a 3x increased response rate. Another company, Terminus, saw a 40% increase in their ad’s open rate, a 37% increase in click-through rate, and a 3x increase in the reply rate. Terminus is part of the account-based marketing sector. Both League and Terminus have shown how Vidyard is changing the landscape for marketing. But how does Vidyard help other sectors perform?

Vidyard has also worked with the education sector to boost performance. Two such examples are University of Waterloo and Boston University (BU). Waterloo’s personalised video email campaign to attract future students had a 71% clickthrough to operator (CTOR) rate. This helped the Marketing and Recruitment team blast their enrolment quota, topping 137% of applicants relative to their quota.

BU could also do with revised marketing. It was failing to make alumni donate sufficiently during fundraising campaigns. So Vidyard helped the university devise three prongs to their new strategy –  direct messaging, data-driven personalisation, and video. The glammed-up video had a 49% open rate, or double the average in the education sector. An impressive $22,000 in gifts were directly attributed to the personalised video campaign.

Another heavyweight tech company, Spotify, has also mastered the art of personalisation. Whether it’s Discover Weekly, Your Time Capsule, or Summer Rewind, Spotify now styles playlists to your tastes. These playlists use an algorithm to determine which songs you’ll be interested in based on which songs you’ve listened to. When Discover Weekly first launched, a weekly 2-hour playlist full of suggested tracks, 40 of the 100 million Spotify users used the playlist. Your Time Capsule guestimates which songs you would’ve listened to in your teenage years (if you’re past that stage in life) and compiles them neatly into an easily digested playlist. Your Summer Rewind features songs you’ve listened to on Spotify during the warmer months. The result? A deeply intimate music service that connects you with your older and future self.

Amazon too has upped it personalisation game. It gives you the choice of your own personalisation settings through Gifts & Wish Lists. You’re able to ‘help Amazon help you’ through various other tweaks such as to ‘improve your recommendations’ and even edit ‘Amazon advertising preferences’. Amazon keeps track of your browsing history too, helpful for future product suggestions.

This strategy delivers. ‘Response to buying suggestions’ generates an increase of 35% in revenue. Four of five UK consumers agree that Amazon is the best at web-personalisation, in a survey conducted by BloomReach. Amazon promises to keep delivering on personalisation – it launched AI technology DSSTNE in 2016. DSSTNE is a deep learning tool that extends “beyond speech and object recognition to other areas such as search and recommendations.”

Vidyard, Spotify, and Amazon’s successes all point to one key truth – personalisation pays. In an online world where brands fight for attentive consumers, making ads and services identity-related increases their likelihood of being noticed. Spotify and Amazon already have the scale to sustain personalisation growth. As for Vidyard, Cisco estimates that IP video traffic “will be 82% of all consumer Internet traffic by 2021.”  Hopping on this video personalisation bandwagon isn’t optional – it’s necessary.

 

Disney and Fox M&A Whispers

Estia Ryan

Disney and 21st Century Fox have been holding M&A talks behind closed doors. Walt Disney Co (DIS) could be buying shares from the mass media company to increase competition with ever-growing rivals Netflix and Amazon. Moving away from their traditional business model into a digitized, modern company could end Disney’s profit dry spell.

The CEO Bob Iger of DIS agrees that the company needs to reposition itself in a changing media landscape. Walt Disney aims to launch a streaming service next year, so the acquisition of 21st Century Fox (FOXA) could help Iger redefine the classic House of Mouse.

DIS has been particularly struggling in its cable TV business. This is part of a larger cable cost cutting trend in the industry. Q3 operating income dipped 23%, with shares falling from $115 in April to $100 present day.

What’s in this for Disney? For one, it could acquire the Fox studio based in LA. The studio holds 15 different sound stages – rooms designed for film production. They offer everything producers need – from drapery to sound mixing to rental golf carts.

DIS could also gain FX and National Geographic channels. The two could be of immense help when launching content for Disney’s new online streaming platform. FX rivals the likes of HBO and Showtime, which create well known high quality TV shows – Game of Thrones, The Sopranos, or Homeland. National Geographic provides immense scope, being available to 74% of US households. An acquisition focused on premium TV services and market reach could be welcome news for Disney shareholders.

But a possible M&A goes further than production studios and content creation. FOXA has a strong foothold in an international landscape. DIS could get access to the UK, Germany, and Italy. Not only through Fox’s networks but also through FOXA’s 39% ownership of Sky.

Both 21st Century and Walt Disney Co. could use some diversification. One needs to move away from a narrow sports and news focus, and another from family entertainment. Stephen Battaglio from the LA Times notes, “Netflix is coming, Google is coming, and price of entry is going up.” Two media giants coming together is a great way of challenging Netflix’s status quo in the digitized media sector. Of course, Battaglio’s comment doesn’t just refer to streaming services, but to the entirety of the film entertainment sector. Which means that by diversifying, DIS and FOXA will be holistically competitive against other media conglomerates.

The markets have reacted well to these whispers – 21st Century Fox shares jumped 9.9% on Monday. Disney also excited markets, with a 2% share increase at the closing bell. Investors seem to be thrilled at the idea of two multinationals joining at the hip. But is it only good news?

It is uncertain whether 21st Century Fox approached Walt Disney Co, or the other way around. This is crucial information when determining if other companies could bid for FOXA assets – possibly even Netflix itself. Some sources suggest Sky could be another potential bidder. Until more information is revealed, investors are left in the dark.

FOXA also has some questionable units. Broadcast assets including local stations saw a 36% decrease in operating income over the past year. This comes down to increasing sports programming costs and decreasing political-related advertising. So, is it wise for DIS to want to move into the sports broadcasting world? Accurately assessing what people want to consume is going to be pivotal for Disney’s repositioning.

Essentially, it all comes down to this – is an M&A inevitable for Disney? Absolutely. To compete in a direct-to-consumer entertainment business, you can’t simply churn out family media. Bob Iger needs to adapt his strategy and deliver on a new platform. If he can secure FOXA, it may be a step in the right direction. But this will depend on FOXA’s commitment to selling to Walt Disney Co, and the true value of FOXA’s assets.

Legally Divorced but still Cohabitating?

Sam Richardson

Regulator Ofcom is in pursuit of the legal separation of Openreach from it’s BT parent group, in what is only the latest step in an increasing bitter divorce. Since February this year, negotiations had been ongoing in an attempt to find a voluntary solution to the Openreach dilemma, but now Ofcom will take this battle to the EU to force legal seperation. At the crux of the issue lies BT’s (the largest telecom firm in the UK) ownership over the broadband infrastructure provider Openreach, a tense situation which harks back to the days of nationalised monopolies.

 

The basic arguments for separation follow the typical dictate that any free market enthusiast can be found reciting in their sleep from the age of two months. This would seem to be a marriage that encourages negligence and investment comatose, ills that can only be cured by fierce and refreshing competition. Not only does BT’s ownership of Openreach put it at a distinct advantage over competitors such as TalkTalk, Sky and Vodaphone, but it would also appear to harm customer service.

 

Take for example the issue of poor infrastructure service in rural areas. Here it is widely accepted that the development of telecoms has not kept up with the evolution of how vital these have now become in our daily lives. The National Farmers Union has said that many famers are desperate for faster internet connectivity, stating that only 4% have access to super-fast broadband whilst over 80% have upload speeds below 2MBPs. The argument is that these people would no longer be abysmally let down by Openreach if it was independent. However, as no competitors want to step in due to lack of profitability, is this solution really going to the solve the problem of rural broadband?

 

More generic is the viewpoint that a split will encourage the roll-out of cheaper and faster fibre broadband. Andrew Ferguson, founder of broadband news website ThinkBroadband, told the BBC that whilst fibre was now commonplace, the current system is ‘fibre-to-the-cabinet’, which leaves the final phase of connection to be conducted via a traditional copper wire, vastly slowing broadband speeds. Although a split will not directly influence this particular issue, the ability of an independent Openreach to make its own investment decisions would allow competitors to bid for more ‘fibre-to-house’ network’. It is this fresh approach to infrastructure investment that will bring a ‘fundamentally broken’ Openreach out of the dark ages, according to CEO of CityFibre Greg Mesch.

 

However, the numerous reasons for the regulator to force the split also provide BT with ample reason to resist it. In an attempt to console Ofcom, BT chief Gavin Patterson has offered the creation of an independent Openreach Board, separate from that of BT, to oversee the efficiency of day-today business. Furthermore, the announcement of a £6bn investment package in ultrafast broadband infrastructure is yet another reason why an in-house BT report recently found the UK to be leading the way in broadband service out of a host of European countries. But still questions remain. To what extent is this investment package going to be tailored to BT’s own service provisions? And why will the Openreach chief executive Clive Selley continue to report to Gavin Patterson, given the creation of this new independent board?

 

The answers for these may be found analysing BT’s current financial position, which contains one rather outstanding figure. As of June 2015, BT’s pension deficit alone was £9.9bn. And that is after BT has made contributions of £1.5bn last year as well, resulting in BT having the 2nd largest pension scheme deficit in the world. This sits aloft £53bn of liabilities, a mountainous obligation that would inevitably hugely exacerbate the complicities of a split.

 

Adding to the intrigue is the small matter of a Crown guarantee, which BT obtained when privatised in 1984. This has potentially enormous implications, as it basically requires the government to meet said pension obligations in the case where BT was to go bust. Considering the uproar when Sir Philip Green abandoned BHS with it’s pensions deficit of roughly £500m, the political ramifications of dealing with Openreach’s share of a £9.9bn deficit are beyond paling. Under these circumstances perhaps there is reason to understand the lengths Ofcom has gone to try to persuade BT to voluntarily split the firm.

 

This is not a divorce that appears likely to end civilly, nor at any time soon. The compelling reasons behind the split are backed by competitors and government ministers alike. Up against them stand BT, with much to gain from in-house integration and a devastating card yet to be played in the form of pensions. In the days of Britain post-Brexit, it says a lot when the regulator believes petitioning the EU is now the best method in which to end this fight cleanly and swiftly.

The Future of Mobile?

Samuel Richardson

Apple and Samsung have been rival antagonists since the first android smartphone hit the shelves in 2009, at each other’s throats, filing lawsuit after lawsuit in search of the perfect mobile device.  And there are those who think this fight between titans could have finally reached critical mass, with the market share of both brands’ phones falling in the crucial market for growth that is China. Nevertheless, this could be only the dawn in the search for perfection, for as Apple executive Jeff Williams so aptly said, ‘the car is the ultimate mobile device’.

This month Samsung Electronics have announced its acquisition of Harmon, a firm best known for it’s audio systems, but also one of the leadings suppliers of smart-car technologies such as infotainment, security systems and internet connectivity. At $8bn, this transaction is Samsung’s largest ever, and comes as a signal of intent from the company’s vice-chairman, Lee Jae-Yong, of Samsung’s aggressive ambition to move into the ‘connected automobiles’ market. It now seems evident that both smartphone giants now believe that the car is the future for interconnected technology.

In choosing Harmon, Samsung has acquired a firm with a revenue of $7bn, with two thirds of that coming from it’s automobile sector. Whilst undoubtedly good numbers, these alone are not what Samsung is purchasing. More importantly, they will be in a position to now take advantage of Harmon’s relationships with over 30 car brands, including mainstream players such as BMW, Toyota and VW. In it’s own promotional video Harmon boasts that 1 in 4 cars today contain its technology, a remarkable achievement and a strong indication of how connectivity is becoming the norm in the automobile sector. Furthermore, a line of future orders worth more than $24bn, according to the WSJ, means this deal has strong foundations for future growth. It will not come as a surprise then that the smart-car market is forecast to treble in size to $155bn by 2022, as claimed by the consultancy Stratgey&.

In a matter of days, Samsung has gone from a bystander to a major player in this new technological gamble. And although they may now directly compete with Apple’s, the two companies appear to be employing starkly contrasting approaches. Samsung’s purchase of Harmon has brought many existing relationships with car firms, leading to Kim Kyoung-you of the Korea Institute for Industrial Economics and Trade suggesting that this will enable the firm to offer those clients both computer hardware and software packages. Conversely, Apple’s Project Titan appears to focus more on building a complete new brand of car, complete with driverless technology, connected systems and an electric motor. Whether this approach is feasible remains to be seen, but even in dire circumstances, the option of partnering with an existing car firm is a strong path. There does exist an alternative however. Ford is spearheading the automobile industry’s response, promising a driverless vehicle by 2021, an idea that emphasises more the safety and security aspect rather than Apple and Samsung’s connectivity concept.

Which approach will be the more successful remains to be seen, but Samsung’s record acquisition certainly puts them in an ideal position to follow through on this plan. The $8bn investment includes a 28% premium over the share price, which arguably is steep considering that Harmon is not entirely dedicated to car connectivity, but less so as part of the larger picture.

Nonetheless, there are two particular historic failures to take stock of. Incredulous as it may seem, Samsung’s previous largest deal was to pay $840 million for computer manufacturer AST in 1997. That was another millennium. It was also a shameful investment failure, as Samsung had to shut the division down shortly after. But it highlighted the potential risk of such acquisitions, and consequentially, Samsung has decided to develop new technologies in house since then. This new move is therefore breaking with that tradition, possibly because of the advantage Apple, and also Google have over Samsung, having started their development of smart-cars earlier.

Of more pressing concern is Samsung’s failed release of the Galaxy Note 7, the phone cancelled after two versions became susceptible to spontaneous combustion due to a battery fault. Here it is vital to note how important image and consumer relations are to technology companies, something which is of incredible concern around the idea of mass produced driverless cars. Despite this, it may deliver another strength in Samsung’s approach, as teaming up with various other car brands may help disperse the inevitable negative backlash around a possible safety incident. On the other hand, Apple would remain very much fully exposed this, and so perhaps have chosen a path with more inherent risk.

Whilst the outcome of Samsung’s $8bn acquisition may be years in the waiting, there are by no means very few certainties. The car business is one already characterised by heavy international competition, and may prove incredibly costly to plot a course through. Convincing consumers of the need for increased connectivity is another almighty hurdle that technology firms face, and that is without even mentioning the undeniable risks posed by safety concerns. The risks of smart-technology entrusted with people’s lives at 70mph are a considerable step-up from that of dropping a mobile and cracking the screen. The same may risks now apply to Samsung’s future.

Jump on the Broadband-Wagon

Chi hung

Broadband, media and the variety of communications and technology services have become an integral part of modern life in the developed world. But with western markets facing stagnant revenue growth, market saturation and declining profitability, the greatest revenue opportunities now lie in emerging market. To profitably target these opportunities, the next generations of TMT leaders will have capitalize on the rise of next generation broadband.

Next Generation broadband, also known as Next Generation Access, is an upgrade of the current broadband technology in terms of speed and quality of service. Capable of delivering upload and download speeds between 40Mbps to 100Mbps, Next Generation Broadband is an ultra high-speed optical fibre which uses fibre-optic cable that is significantly faster than the use of copper telephone lines by traditional broadband. As technology develops, it is likely that even faster speeds will be achieved.

Much of the heavy lifting required to enter the emerging markets had already been done with infrastructure provider. Necessary cables have been delivered to the emerging markets to enable the data to be transmitted to the users, mobiles network had been rolled out and ready for mobile 3G and 4G services to deliver much more data-intensive services to retail customers and to enterprises. In order to further exploit the opportunities presented by Next Generation Broadband, one of the critical success factors which are vital for TMT players lies within the ability to build profitable and continuous partnerships as effective partnering can resolve problems of greater scale, while also bringing essential local and in-depth industry knowledge.

Another factor that is critical to TMT players’ success in the emerging markets is the foresight to align with government strategies due to the significant appetite in many markets for government to invest in next generation broadband. Many of the policies that are being promoted with the effect of stimulating TMT markets are mainly politically motivated by emerging market governments – from national broadband policies to investment in mobile health projects. It is vital that TMT players carefully assess evolving government policies in target markets in order to position themselves to gain full advantage of the resources being made available by the government and avoid the local protectionism that had previously limited the amount of opportunities available to new entrants in some emerging broadband markets.

With the right approach, jumping on the broadband-wagon will no doubt be the most effective way to profitably target the great revenue opportunities lying in the emerging markets as TMT players seek to attract new consumers and businesses across Asia, Africa, Eastern Europe, the Middle East and Latin America.

Asia Pacific and Africa expected to provide most opportunities for TMT expansion.

Chihung

With the rules of the game in emerging markets changing fast, many of today’s TMT players are fundamentally shifting their focus to the promise of higher growth offered by emerging economies. Choosing where and how to participate in evolving and emerging markets will be key challenges for those active in the TMT space. Last year saw a significant increase in the level of M&A activity in the TMT sector as Global Telecom Media & Technology (TMT) M&A saw deals worth $296 billion in 2014. Among the three sub-sectors, Technology led the sector in both the volume and value of deals, recording 479 deals valued at $166 billion and contributing 56% of the total value of TMT M&A in 2014.

Capping of a stellar 2014, expectations are high for a repeat in 2015, with eyes focus on primarily Africa as well as other Asia Pacific countries. TMT has been active in this and a lucrative revenue generator for investment banks, making it the largest fee paying sector so far at $1.5 billion, rising nearly three-fold in the short span of a year according to data provider Dealogic. From Alibaba’s $25 billion record breaking IPO the acquisition spree among tech titans such as Lenovo, Asia’s TMT sector has been a deep vein for dealmakers to exploit. The accelerated advancements in technology and cheap finance available in Asia are driving deal making, especially in the space where convergence is leading to a plethora of new types of deals. Chinese Internet powerhouses such as Alibaba, Tencent and Baidu have been actively taking minorities stake in companies in attempt to boost and strengthen areas they are currently weak in. This has spurred deal-flow, resulting in cross-border outbound M&A in Asia TMT sector to more than doubled to $10.3 billion year-to-date compared to the same period last year. Some of the M&A opportunities are also believed to have been driven by US technology companies’ restructuring and sale of legacy assets. This offers opportunities for Asia companies that are looking to expand and strengthen their position in the global TMT sector.

At the same time, there is widespread interest in the role that regulation will play in these “combinations”. “Africa is higher than I expected as an area with opportunities for expansion, there are certainly some assets and hardware such as tower sales. There’s less competition for assets so companies might be looking to get a bargain here. Another area might be FinTech – we’ve seen the deal between M-PESA and Safaricom recently.”says Mr. Michael Knott, Head of TMT for FTI Consulting as respondents consider Asia Pacific and Africa as providing the main opportunities for TMT expansion.

Square IPO

David Allison

Square Inc. [NASDAQ:SQ], a 6-year old payment processing startup with a unicorn valuation went public at $9/share, significantly less than the expected value of $11-13/share. This has valued the company at $2.9 billion, a far sight from their previous $6 billion valuation in October 2014. Despite this, by the end of trading on Thursday the stock had risen 45% to $13.07/share (with a high of $14.78).

Square’s primary product is the Square Reader, a card reader which can be connected to a smartphone/tablet via the audio jack. This reader is sold at a low price to businesses, allowing them to reduce the time and money spent on a payment processing system, allowing them to immediately begin accepting bank cards and NFC transfers. Square handles the processing of these payments and charges a fee on a per-transaction basis. According to their IPO listing, Square processed 446 million card payments from approximately 144 million payment cards, with a total transaction value of approximately $23.8 billion.

Square has been in need of a capital injection due to its lack of profitability, prompting the low offer price. Despite experiencing huge growth (51% growth in total net revenue this year), they have yet to turn a profit, generating a net loss $77.6 million for the six months ended June 30, 2015. Although Square raised $243 million from this IPO, they were expecting to make $80-100 million more. This loss of potential capital could pre-empt a reduction in capex (and growth) over the coming years.

It is likely that Square’s growth will continue at a rapid rate for the foreseeable future. It currently only serves the American, Canadian and Japanese markets, with much potential for geographical expansion. Revenue streams have also been diversified recently via providing cash registers, online peer-to-peer money transfers, analytics, subscription based services and provision of capital advances. Although these additional revenue streams currently only account for 5% of Square’s total revenue, the pivot into diversifying revenues was a recent move and should provide additional avenues for growth in the coming years.

From the perspective of private investors, this IPO was lacklustre and is likely to compound with the general trend of scepticism about the valuation of unicorns, further decreasing the availability of capital in later private funding rounds for these companies.

Square’s previous round of funding (Series E) was at $15.46/share with a ratchet, promising their investors a return at least 20% above the price paid. As the IPO failed to meet $18.56/share by a large margin, 10.3 million additional shares were provided.

Ratchets are an increasingly common occurrence in late-stage funding of startups – especially in the technology sector, the near-guaranteed return allows for the negotiation of much larger quantities of shares, injecting more capital into the business. The downside of this is that early investors and employees will see their stock diluted if the IPO does not provide the expected returns.

Overall, the current state of the market foreshadows a reduction in the private valuation of late-stage startups/unicorns by unicorn tourists and investors, which is likely to push companies in the same position towards IPOs. With the increased risk for private investors, ratchets are likely to become more common, acting as a further incentive for a late-stage startup to use an IPO to raise capital.

Despite the overvaluation stemming from its final round of funding, every private investor would have made a profit if they sold at the first day closing price. Along with the 45% increase in share price on the first day of trading, this will go down as a successful (albeit conservatively-priced) IPO.