Netflix doubles profit but Wall Street not very happy

Netflix has increased its annual revenues by 35% and doubled profits over the course of 2018, but that didn’t prevent a 3.8% share price drop in overnight trading.

Total revenue across the 12-month period stood at $15.7 billion, though growth does seem to be slowing. Year-on-year revenue increases for the final three months were 27.4%, with 21.4% for the first quarter of 2019, though this compares to 40.4%, 40.3% and 34% in Q1, Q2 and Q3 respectively. However, when you consider the size, scale and breadth of Netflix nowadays this should hardly be considered surprising.

“For 20 years, we’ve been trying to please our members and it’s really the same focus year-after-year,” said CEO Reed Hastings during the earnings call.

“We’ve got all these ways to try to figure out, which shows work best, which product features work best, we’re a learning organization and it’s the same virtuous cycle, improve the service for our members. We grow. That gives us more money to invest. So, it’s the same things we’ve always been doing at just greater scale.”

This is perhaps the reason Netflix has succeeded in such a glorious manner where others have succumbed to mediocrity or failure. Investments have been massive to build out the breadth of content, while the team has not been afraid to alter its business or invest in content which others might snub. Bird Box is a classic example of a movie some might dismiss, whereas we find it difficult many competitors would have given the greenlight to the original Stranger Things pitch.

On the content side of things, investments over the last twelve months totalled $7.5 billion and Hastings promises this will increase in 2019. Perhaps we will not see the same growth trajectory, as despite the ambitions of the team, another objective for Netflix pays homage to the investors on Wall Street. Operating margin increased to 10% during 2018, up from 4% a couple of years back, though the team plan on upping this to 13% across 2019.

Content is where Netflix has crowned itself king over the last few years, aggressively pursuing a varied and deep port-folio, though it will be pushing the envelope further with interactive story-telling.

“I would just say there’s been a few false starts on interactive storytelling in the last couple of decades,” said Chief Content Officer, Ted Sarandos. “And I would tell you that this one has got storyteller salivating about the possibilities.

“So we’ve been talking to a lot of folks about it and we’re trying to figure it out too meaning is it novel, does it fit so perfectly in the Black Mirror world that it doesn’t – it isn’t a great indicator for how to do it, but we’ve got a hunch that it works across all kinds of storytelling and some of the greatest storytellers in the world are excited to dig into it.”

The team are attempting to figure out what works and what doesn’t for the interactive-story segment, but this is one of the reasons why people are attracted to Netflix. The team are exploring what is capable, brushing the dust away from the niche corners and experimenting with experience. They aren’t afraid of doing something new, and the audience is reacting well the this.

Looking at the numbers, Netflix added 8.8 million paid subscribers over the final three months of 2018, 1.5 million in the US and 7.3 million internationally, taking the total number of net additions to 29 million across the year. This compares to 22 million across 2017, while the team exceeded all forecasts.

However, this is where the problem lies for Netflix; can it continue to succeed when it is not diversifying its revenues?

According to independent telco, tech and media Analyst Paolo Pescatore, the Netflix team need to consider new avenues if they are to continue the exciting growth which we have seen over the last couple of years. New ideas are needed, partnerships with telcos is one but we’ll come back to that in a minute, some of which might be branching out into new segments.

This is perhaps most apparent in the US market, as while there is still potentially room for growth, this is a space which is currently saturated with more offerings lurking on the horizon. Over the next couple of months, Disney and AT&T are going to launching new streaming services, while T-Mobile US have been promising its own version for what seems like years. If Netflix is to continue to grow revenues, it needs to appeal to additional users, while also adding bolt on services to the core platform.

What could these bolt-on services look like remains to be seen, though Pescatore thinks a sensible route for the firm to take would be into gaming and eSports. These are two blossoming segments, as you can see from the Entertainment Retailers Association statistics here, which lend themselves well to the Netflix platform and business model. Another area could be music streaming, though as this market is dominating by Spotify and iTunes, as well one with low margins, it might not be considered an attractive diversification.

The other area which might is proving to be a success for the business are partnerships with telcos.

“It’s sort of been this March from integration on devices and just makes that a point to engage with the service to doing things like billing, on behalf of or we do billing integration,” said Greg Peters, Chief Product Officer.

“And now the latest sort of iteration that we’re working with is, is bundling model, right. And so, we’re early on in that process, but I would say we’re quite excited by the results that we’re seeing.”

This is a relatively small acquisition channel in comparison to others, but it is opening up the brand to new markets in the international space, a key long-term objective, and allowing the team to engage previously unreachable customers. This is an area which we should expect to grow and flourish.

The partnerships side of the business is one which might also add to the revenue streams and depth of content. Pescatore feels this is another area where Netflix can generate more revenue, as the team could potentially offer additional third-party content, hosting on its platform for users to rent or purchase. Referral fees could be an interesting way to raise some cash and Netflix certainly has the relationships with the right people.

Netflix has long been the darling of Wall Street, but it might not be for much longer. The streaming video segment is becoming increasingly congested, while the astronomical growth Netflix has experienced might come to a glass ceiling over the next couple of years. The businesses revenues are reliant on how quickly the customer base grows; such a narrow focus is not healthy. Everyone else is driving towards diversification, and Netflix will need to make sure it considers it sooner rather than later.

Huawei facing US trade secret theft indictment and ZTE-style ban

The US Department of Justice is rumoured to be pursuing charges relating to trade secrets theft against Huawei, while four politicians have tabled a bill for a ban similar to what ZTE faced last year.

Leaving the Department of Justice for the moment, a bi-partisan collection of politicians have tabled the so-called ‘Telecommunications Denial Order Enforcement Act’, a proposed bill which would compel the White House to ban Huawei from using US components and IP within its supply chain. The ban would be the same punishment ZTE faced early last year.

“Huawei and ZTE are two sides of the same coin,” said Democratic Senator Chris Van Hollen. “Both companies have repeatedly violated US laws, represent a significant risk to American national security interests, and need to be held accountable. Moving forward, we must combat China’s theft of advanced US technology and their brazen violation of US law.”

Aside from Van Hollen, Republican Senator Tom Cotton, as well as Representatives Mike Gallagher (Republican) and Ruben Gallego (Democrat) are also supporting the proposed bill. This should hardly come as a surprise as the ZTE ban was imposed for violating the exact same trade sanctions which Huawei has allegedly ignored.

The saga surrounding the ZTE ban was short-lived, incredibly volatile and almost fatal. After being found violating trade sanctions, US Department of Commerce’s Bureau of Industry and Security (BIS) imposed a denial of export privileges order against the firm, denying it access to any US suppliers. President Trump stepped in to save the firm, which looked doomed as a result of the ban, before Congress blocked his efforts. Eventually a resolution was reached, though ZTE has been skating on thin ice since.

If precedent is anything to go by, Huawei should face the same punishment should it be found guilty of the same activities. Last month, Huawei CFO Meng Wanzhou was arrested in Canada, accused of violating the same trade sanctions with Iran using a suspect firm known as Skycom. Meng has been released on bail and awaits trial, though it appears the four politicians are already presuming guilt. Or maybe they are just being prepared.

Perhaps this is a sign the politicians do not believe President Trump is committed to precedent and appropriate action. The actions against ZTE smelt suspiciously like one of Trump’s strategic moves in the on-going trade war with China, though perhaps he did not realise he would have to do the same 12 months later, potentially antagonising the Chinese government with a move which is not in the grand plan.

The politicians might be tabling this bill to make sure Trump can’t find a reason not to ban Huawei. Following the arrest, Trump seemed to suggest in an interview with Reuters that he would be willing to make the Canadian charges go away if it would help him the US in its dispute with China.

“If I think it’s good for the country, if I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary,” Trump stated.

Not only does this completely undermine the standing of the Canadian judicial system, but also suggests Trump is willing to bend (or break) rules to bring the Chinese government to its knees. Perhaps Congress does need to be proactive to make sure the President follows the rules, taking appropriate action instead of whatever ludicrous idea floats in the breadth between his ears.

What is worth noting is the stance of Huawei executives. Clearly, they do not agree with anything which is going on, but both Rotating Chairman Guo Ping and Rotating CEO Ken Hu put across messages stating the resilience of the business. Ping and Hu suggested a ban would not impact the Huawei supply chain in the same manner as it did ZTE.

Heading back to the Department of Justice, the Wall Street Journal has reported the agency is pursing charges against Huawei concerning theft of trade secrets.

An indictment should be heading over to the Huawei offices in the near future, focusing on allegations the firm stole robotic mobile-testing technology from T-Mobile. The technology, known as Tappy, mimics human fingers and is used to test smartphones. A civil case between T-Mobile and Huawei over the technology was filed in 2014, though after a criminal investigation the Department of Justice feels it is appropriate to step in and raise criminal charges.

This case is a separate concern from all the other chaos which has surrounded the firm in recent months, though it will be just as concerning as the punishments can be incredibly severe.

The primary federal law that prohibits trade secret theft is the Economic Espionage Act of 1996, which allows the US the U.S. Attorney General to prosecute a person, organization, or company that intentionally steals, copies, or receives trade secrets. If the case if brought against an individual, the punishment could be as much as 10 years in prison or a $500,000 fine. However, we suspect the government would want to punish the firm not an individual, as Huawei would simply claim that person did not represent the company culture, in-line with White House aggression against China.

If a conviction is made against a company the fine can be increased to $5 million. However, if the Attorney General can prove the theft was made on behalf of a foreign government, this would be considered the silver bullet for the White House, corporate fines can be doubled, imprisonment could be 15 years and proceeds derived from the theft can be seized.

In short, Huawei has found itself in another uncomfortable position in the US. It does not appear 2019 is going to be any better than 2018 on the US side of the pond for Huawei.

Nordic winter hits hard as Ericsson loses exec and Nokia cuts more jobs

Swedish Ericsson and Finnish Nokia both announced they’re losing people as the endless winter nights take their toll.

Ericsson’s SVP, Chief Marketing and Communications Officer and Head of Marketing and Corporate Relations, Helena Norrman, is calling it a day after 21 years at the company, with ten of those on the executive team. She’ll be hanging around for a quarter or two, to keep the transition smooth and presumably have a hand in finding her replacement.

“Helena has been instrumental in reshaping and modernizing Ericsson’s global marketing and communications strategy and function,” said Ericsson CEO Börje Ekholm. “With a deep understanding of the company’s priorities she has helped Ericsson navigate through periods of both massive change and considerable challenges. Helena has been a valued member of the Executive Team and I wish her all the best in her future ventures.”

On a personal note, I got a chance to hang out with Helena when I was over in Stockholm last summer and found her to be smart and tough, but at the same time friendly and approachable, in other words great at her job. I’m sad to see you go Helena, but wish you all the best with your next thing. Here were are getting the beers in, on a boat in Stockholm, with Helena on the right.

Ericsson tour boat beers

Over in Helsinki Nokia is trimming another 350 Finnish employees in a further dive to cut costs, as previously reported by Light Reading. “Our industry is one where a constant focus on costs is vital and the planned transformation measures are essential to secure Nokia´s long-term competitiveness,” said Tommi Uitto, Nokia’s Country Manager in Finland. “Such decisions are not easy, but we will do our utmost to support our personnel during the change process.”

“Nokia has made good progress in executing on its strategy, with momentum in providing high-performance end-to-end networks, targeting new enterprise segments and creating a standalone software business. Our early progress in 5G is strong and we continue to increase our investment in this critical technology.

“We will redouble our efforts to ensure that Nokia’s disciplined operating model remains a source of competitive advantage for us, and that we maintain our position as the industry leader in cost management, productivity and efficiency. Finland will continue to be an important country for Nokia to achieve these goals. To this end, we are also currently recruiting into key new technologies in all our campuses in Finland.”

On one hand any job loss announcement sends out the message that the company is struggling to make a profit. But as Uitto noted, this sort of thing is not uncommon among kit vendors and Ericsson has been on a massive downsizing of its own, so these 350 redundancies need to be kept in perspective. Meanwhile Norrman’s departure is a loss to Ericsson, but maybe it will take this opportunity to get someone in from the outside with a different perspective on the company.

Where is the evidence of Huawei espionage?

Before we get carried too carried away with the recent arrest in Poland, let’s remember something; this is a Huawei employee accused of espionage, not Huawei.

Right now, Huawei is the world’s whipping boy. This is a company which is taking the punishment for the nefarious activities of the Chinese government. In Poland, a Huawei employee and another from Orange have been arrested, accused of espionage. But the condemnation should be directed towards the Chinese government and these individuals, not necessarily Huawei.

For the record, we are not suggesting Huawei is completely blameless. The company might be in bed with Beijing, but as it stands there is no concrete evidence to support this theory. The arrest in Poland is circumstantial, evidence that relies on an inference to connect it to a conclusion of fact. It most judicial systems, reasonable doubt is tied into circumstantial evidence meaning it can contribute to a verdict, but alone it is rarely enough to assign guilt.

Huawei could well be a puppet with strings attached to Beijing, but evidence needs to be produced to ensure ‘democratic’ nations are not presuming guilt, a contraction of their legal principals.

The prospects for Huawei are not currently looking good. Effectively banned from any meaningful work in the US, banned in Australia and Japan, under close watch in the UK, ignored in South Korea, condemned by the European Union and in a very suspect position in New Zealand. Eastern Europe was one area where it looked like business was safe, but now the Polish are talking about a ban as well.

With all this heart-ache and headaches for the Huawei executives you have to question how much evidence there has been of espionage. As far as we are aware, nothing of note.

This is of course not to say there isn’t any but look at the situation. The US government is trying to rally the world against Huawei and China on the whole, it has been for years now, and you have to think it would use evidence to turn the tides if it had any. Back in 2012, a House Intelligence Committee told the US government Huawei was a ‘National Security Threat’, but in the six years since this point no evidence has been produced to support this statement. Yet this report has been used as the foundation of all negative sentiment directed towards China and Huawei.

This report, which was the result of a yearlong investigation by the committee, came to the conclusion Huawei and ZTE were a national security threat because of their attempts to extract sensitive information from American companies and their loyalties to the Chinese government. The report stated it had obtained internal documents from former Huawei employees suggesting it supplied services to a ‘cyberwarfare’ unit in the People’s Liberation Army, but this evidence has never made it to the public domain.

For most, the sustained rhetoric of espionage could be viewed as politically and economically motivated. Chinese companies are making an impression on the world and Silicon Valley’s vice-like grip on the technology industry is loosening. This would be incredibly damaging for the US economy on the whole, which has partly relied on the dominance of this segment for success in recent years. In recent months it has been flexing its muscles and some are bending to its will. Deutsche Telekom is an excellent example.

Only last month, DT suggested it was reviewing its relationship with Huawei to ease concerns from the US government. It just so happens government agencies are reviewing its US businesses potential merger with Sprint. Breaking ties with the Chinese vendor would certainly gain favour with Washington, but is this culture of paranoia and finger-pointing something we should be encouraging?

Again, this is not to say there is no evidence to support the accusations. However, if the US government had the smoking gun, surely it would have shown it to the world. Some might suggest it had an obligation to inform its allies of such nefarious activities. Some even more sceptical individuals might also suggest that if there was classified evidence, it would have been leaked by someone over this period. In today’s world it is impossible to keep big secrets secret. Just look at Edward Snowdon’s revelations.

Over in Germany, the Federal Office for Information Security (BSI) has said it would take this very approach. Arne Schoenbohm, President of BSI, said that for his agency to consider banning Huawei from the country he would have to see evidence. This statement came at the same time a US delegation had been meeting with officials from the Foreign Ministry to discuss a ban. As no ban has emerged, it would appear the US delegation was unable to table any evidence.

Going back to the arrest in Poland, some might suggest this is enough evidence to ban Huawei from operating in the nation. However, governments have been catching spies for decades and punishing individuals. There is little (or any) precedent to ban the company than individual works for unless there is a direct link between the organization and the nefarious government. Over in the UAE, 31-year-old PhD student at Durham University has been arrest for espionage also, but the University has not been punished. MI5 and MI5 catch spies and potential terrorists every year, but the companies they work for are not accused of espionage.

We suspect the Chinese government is obtaining information through reprehensible means, but if the world is to hold China accountable, ‘western’ governments need to stand by their principles and not undermine the foundations of fair society. The principle which is being forgotten today is the assumption of innocence until a party has been proven guilty.

Two wrongs do not make a right, and we have to ask ourselves this question; are we any better than the oppressive governments if we forget this simple principle of a fair and reasoned judicial system; innocent until proven guilty.

Huawei employee arrested in Poland on spying allegations

Huawei’s sales director in Poland, who previously served in the Chinese diplomatic corps, has been arrested by the Polish authorities on spying allegations. Huawei immediately terminated his employment.

More details have been disclosed related to the arrest of Wang Weijing, who also goes by the name Stanislaw Wang. After serving as attaché at the Chinese general consulate in Gdansk, Wang joined Huawei’s Poland office in 2011, first as its PR director then as its sales director responsible for selling to the Polish public sector. Wang was detained on 8 January, on allegations of spying, as was first reported by the Polish public broadcaster TVP.

According to TVP, an Orange employee arrested on the same allegations, identified as Piotr D, had worked at the country’s Internal Security Agency (ISA, or “Agencja Bezpieczeństwa Wewnętrznego (ABW)” in Polish), which carried out the arrests. While at ISA one of his responsibilities was issuing security certificates for equipment used by Poland’s public-sector offices. He left the agency earlier after being accused of corruption but was not formally charged.

The offices of Huawei and Orange were searched respectively following the arrests, though a spokesperson for ISA told Reuters that the allegations against Wang were related to individual actions, not directly linked to Huawei. This is also the line Huawei adopted when it promptly severed the employment relationship with Wang, citing that “in accordance with the terms and conditions of Huawei’s labour contract, we have made this decision because the incident has brought Huawei into disrepute.”

Orange said it did not know if the investigation in Piotr D. was linked to his professional work but would continue to cooperate with the authorities.

Despite the troubles it has run into in markets like the US, New Zealand, Japan, and the UK, Huawei’s business in Eastern Europe has been largely unperturbed. However the latest twist in Poland and the earlier arrest of Meng Wanzhou, Huawei’s CFO, in Canada might put this position under pressure. On Saturday 12 January, Joachim Brudzinski, Poland’s interior minister, called for a EU-NATO joint position with regard to banning Huawei from these markets when speaking on a Polish commercial radio station. “There are concerns about Huawei within NATO as well. It would make most sense to have a joint stance, among EU member states and NATO members,” said Brudzinski.

Then on Sunday 13 January, Karol Okonski, a government official responsible for cyber security, told Reuters that Poland could consider forbidding the public sector from using Huawei products while probing the legal measures to limit Huawei’s access to the private sector. “We do not have the legal means to force private companies or citizens to stop using any IT company’s products. It cannot be ruled out that we will consider legislative changes that would allow such a move,” Okonski said.

Huawei has always denied that it poses security threats, or it spies on behalf of the Chinese government. In a statement it sent out to media after its CFO’s arrest and it sent again after the arrests in Poland, Huawei stressed that it “complies with all applicable laws and regulations in the countries where it operates, and we require every employee to abide by the laws and regulations in the countries where they are based.”

Incidentally, the South China Morning Post reported earlier that, shortly before her arrest in Canada, Meng Wanzhou and Ren Zhengfei, the founder of Huawei and Meng’s father, hosted a town hall meeting for Huawei employees. According to a transcript distributed to Huawei staff and seen by SCMP, both executives discussed extensively on compliance. Cases were divided into “red” and “yellow” lines. By red line, Meng meant the rules where there is “no bargaining and must be strictly complied with”, while by yellow line she referred to cases where strict compliance is not operationally feasible, and the company can build in the costs of flouting the rules as “sunk costs.” She cited labour risks as an example.

“Of course, beyond the yellow and red lines, there may still be another scenario, and that is where the external rules are clear-cut and there’s no contention, but the company is totally unable to comply with in actual operations. In such cases, after a reasonable decision-making process, one may accept the risk of temporary non-compliance,” quoted by SCMP.

Ren also urged his staff to consider both cost and benefit in compliance cases, especially related to laws of the US and EU. SCMP quoted him challenging those present when answering a question: “We must not bind ourselves up just because the US is attacking us. If our hands and feet are bound, then we will not be able to continue producing, then what’s the point of compliance?”

Europe launches new AI initiative to begin catch-up mission

This month has seen the launch of the European Commission’s AI4EU project, an initiative to create an AI-on-demand platform for Europe and challenge for leadership in this blossoming segment.

Having been agreed during December, the AI4EU project already has 79 partners in 21 countries across the bloc, firstly focusing on developing eight industry-driven AI pilots which will demonstrate the value of the AI-on-demand platform as a technological innovation tool. Led by Thales, the group will receive €20 million in funding to begin with.

“The European Commission has published its coordinated plan on artificial intelligence, as well as new guidelines on how to deal with the ethical issues relating to AI,” said Roberto Viola, the Director General of DG Connect at the European Commission, in a recent blog post. “Both put humans firmly at the centre of this key technology that has the potential to revolutionise all our lives.”

Looking at the specific work-groups, the first eight will focus on the European citizen, robotics, industry, healthcare, media, agriculture, IOT and cybersecurity, with the work being built on the idea of ‘human centred AI’. As part of AI4EU, an Ethics Observatory will be established to ensure the respect of human centred AI values.

The power and potential of artificial intelligence has certainly been a talking point over recent months, as dreams become reality and new products emerge. Every region around the world is attempting to plant its flag and dominate the area, with AI4EU as the European effort. While the initiative will aim to encourage industry collaboration, it will also draw out a strategic agenda and also aim to fill technology gaps which might emerge should a fragmented approach to development arise.

While this is certainly a good start, the European Commission certainly has some work to do to make sure the bloc isn’t left behind as Silicon Valley and China charge ahead. That said, it does look like AI will get the rightful attention it deserves over the coming years.

“The EU has been supporting artificial intelligence for many years, and for the next seven-year EU budget period, which is due to start in 2021, AI and the wider digital economy will play an even more central role: a new funding programme, Digital Europe, has been proposed, with €9.2 billion potentially available to support the further development of the EU’s digital single market, including €2.5 billion specifically to support AI,” said Viola.

“For all its ambition, the EU is still lagging behind other parts of the world when it comes to investing in AI. This is why the European Commission has already agreed to increase EU research funding for AI to €1.5 billion between now and 2020.”

Huawei R&D faces export ban in Silicon Valley

The US Commerce Department has refused to renew an export licence at a Huawei subsidy in Silicon Valley, meaning China cannot access new developments at the site.

According to the Wall Street Journal, Huawei R&D outfit Futurewei was informed over the summer that the US Department of Commerce would not be renewing the license meaning some of the technologies developed at the site, but not all, could not be exported back to China. It’s a new strategy in the conflict between the US and China, but it could prove to be an effective one.

Silicon Valley is not the hotspot of the technology world because of the favourable climate or the presence of helpful regulations, it has one of the most talented workforces around the world. There are of course challengers to this claim emerging, India or Eastern European for example, but companies flock to Silicon Valley to open up R&D offices to tap into this resource. Such a ban from the US Commerce Department means Huawei is going to miss out on some of these smarts.

The block will prove problematic to overcome as there does not appear to be any logical way to combat the move. The rationale behind the blockage is quite simple; national security. Seeing as Huawei is currently being trialled and punished without the burden of evidence, there seems to be little the vendor can do to combat such passive aggressive moves by the US.

This is of course just another stage is the incrementally escalating conflict between the US and China. The tension between the pair does seem to have escalated over the last few days following a minor hiatus at Christmas. Rumours are circling the Oval Office concerning an all-out ban on Huawei and ZTE technology in the US, while suspicions will only increase following the arrest of a Huawei employee in Poland on the grounds of espionage.

With all the drama before Christmas and the hullaballoo kicking off again now, perhaps we should expect some sort of retaliation from Beijing. The Chinese governments has not been anywhere near as confrontation as the US, though there might be a breaking point somewhere in the future.

Ericsson calls BS on its full-stack BSS

Kit vendor Ericsson has started the year by writing down almost $700 million to account for the fact that its latest BSS efforts have turned out to be a non-starter.

Its Q4 numbers will feature costs of around SEK 6.1 billion related to the ‘reshaping’ of its BSS (Business Support System) business, half of which will be customer compensations and write-downs, and half of which will be restructuring charges. It looks like Ericsson has concluded this is the only way to get its struggling Digital Services division back on track.

“The company’s past BSS strategy included pursuing large transformation projects based on pre-integrated solutions, including development of a next generation BSS platform, the full-stack Revenue Manager,” said the announcement. “The strategy has not been successful and to date the full-stack Revenue Manager has not generated any revenues.

“The anticipated customer demand for a full-stack pre-integrated BSS solution has not materialized. Delays in product and feature development has also made the full-stack Revenue Manager less competitive. R&D resources in BSS have been focused on full-stack Revenue Manager, causing further delays in product releases of the established platform. In addition, certain complex transformation projects experienced delays and cost overruns.”

No revenues at all? Damn! You have to question the due diligence that ‘anticipated customer demand for a full-stack pre-integrated BSS solution,’ when none whatsoever materialised. Furthermore another SEK 1.5 billion will need to be accounted for over the course of this year, taking the total bill to around $860 billion. Ericsson does still see value in its established platform, Ericsson Digital BSS, which apparently has a decent installed base, so it’s not pulling out of BSS entirely.

A big part of Börje Ekholm’s strategy since he took over has been to dial back some of the over-reach that characterised the Vestberg era. “Ericsson is applying a selective approach to large transformation projects focusing on projects based on available products,” said the latest announcement, and it’s clear that Revenue Manager was just such a project. Ekholm deserves some credit for continuing to look facts in the face and take decisive action.

InterDigital says Huawei is setting a dangerous precedent with patent lawsuit

Huawei has filed a lawsuit challenging the royalties it’s charged, but InterDigital CEO thinks the saga could have a much more damaging and wide-ranging impact on the industry.

Lawsuits in the telco industry are not uncommon, while they are pretty much part of the daily routine for anyone who deals with patents. According to InterDigital CEO Bill Merritt, the dispute is not the problem, it’s the way that Huawei is hoping to get a resolution, heading towards localised judicial systems as opposed to international, and standardised, arbitration.

“Standards have done a great job at breaking down national walls, creating a single playing field, and we think pricing should be the same,” said Merritt.

As it stands, Huawei has filed a lawsuit with the Shenzhen Intermediate People’s Court (January 2) accusing InterDigital of not licensing patents on fair and non-discriminatory terms. The lawsuit follows the expiration of a prior licensing agreement (December 31) with the pair not able to come to an agreement on future terms.

Long story short, Merritt pointed out Huawei wants to pay less for the patents. It’s a simple dispute, based on the success of Huawei smartphones and devices over the last year or so. As Huawei is shipping more units, it feels it should be offered a more competitive rate due to economies of scale. InterDigital however, feels it is offering a fair and reasonable price. The court case will decide royalty payments for the next four years (2019-23).

From Merritt’s perspective, the issue is not the dispute but the lawsuit itself. In the past, with Huawei and other customers, InterDigital has chosen to go down the route of arbitration, an option which Merritt feels is best in this situation as well. In most arbitration cases, each party selects a professional arbitrator, before the pair jointly select a third independent one. The idea is that the trio would assess all the information in the contract, look at market precedent as well as future developments, to decide a competitive and reasonable price for the transaction. It’s (in theory) an independent and neutral way to resolve conflict.

In this case, arbitration was offered as a possible resolution, but Huawei declined, instead electing to head to the regional court. This is where the danger lies; the Shenzhen Intermediate People’s Court is a localised institution which has influence in China. The risk is regionalised rate setting which would cause chaos considering how many jurisdictions there are around the world.

To compound the issue of regionalised rate setting, not only are you likely to have varied approaches and opinions, an international supply chain does not lend itself well to this scenario. The majority of devices and products which are sold today are manufactured in a variety of different countries and regions; the economy has been globalised. Merritt said if you are having to factor in several different regionalised rates for production of devices, the whole supply chain could turn into a disaster.

“The number of disputes could easily be reduced if parties committed to arbitration,” said Merritt.

Unfortunately for Merritt and InterDigital, the two technology powerhouses of the world are increasingly promoting more nationalised agendas and policies which encourage isolationist thinking. It seems we can’t go a day without referring to the trade conflict between the US and China, but the idea of regionalised rate setting, which this lawsuit encourages, is another step away from the international ecosystem, the healthiest option for a profitable and sustainable telecommunications industry.

This is a case which might be worth keeping an eye on over the coming months, it might just lead the patent segment down a worrying and complicated red-tape maze of regionalised price setting.

75% of the telecoms industry think 2019 will be a great year

Three quarters of the respondents to the latest Telecoms.com Annual Industry Survey feel positive or fantastic about the industry’s prospects in the new year.

There is hardly a better way to usher in the new year with a reality check on the industry we are in, and an informed look into the era we are entering. The recently-published Telecoms.com Annual Industry Survey report can very well serve such purposes. Thanks to the enthusiastic responses by well over 1,000 telecoms professionals, the majority of whom having more than a decade’s experience in the industry, we are provided with plenty of optimism as well as sober assessment.

A strong contributor to the optimism towards 2019 is the fast rollout of 5G. Not only will the long-awaited 5G networks be switched on in different parts of the world, consumer mobile devices are so close to hitting the market. In addition to eMBB that has been offered on limited scale in the US and South Korea, more ambitious services will be launched to fulfil the 5G’s promises. But at the same time, 62% of the respondents believe the benefits of 5G have not been properly communicated to consumers.

“Only time will tell what a future 5G truly holds, but it’s safe to say there’s a healthy dose of reality within the carrier market. While the promise of 5G and all its intended benefits are still on the horizon, it seems the industry is still identifying which industries can be best served with 5G,” said Sigal Biran-Nagar, Senior Director for Corporate Marketing at ECI. “It’s likely that confidence in the technology, and the willingness for consumers to pay for it, will only grow after its reliability can be assured, and it’s been implemented for a long time, which would also give critical industries and others the confidence they need that it won’t fail.”

All of 5G’s promises are supported by key technology advancements. One of the most frequently discussed areas is virtualisation. The industry continues to show strong belief in virtualisation, with close to 80% of the respondents recognising the significance of NFV for the success of their business. But it does not mean it would be an easy ride for the enthusiasts.

“We are seeing NFV gathering momentum to ‘cross the chasm’. Most respondents think that NFV is important or critical, and their spending in 2019 will be maintained or will increase.” said F5 Networks. “But challenges clearly remain. Only 8% of respondents think NFV is easy to implement. And two thirds thought that the process could be simplified and that automated systems for purchasing could help.”

All the new technologies that make 5G possible also pose new demands for the capability of testing, measuring, and monitoring. More than ever they should already be extensively implemented at the pre-commercial stage due to the new lead use cases, the complexity of its air interface, as well as the central roles played by software and virtualisation.

“5G is on the horizon bringing new opportunities for business growth. CSPs need to tightly control their ecosystem and ensure 5G is done right to deliver on promises for a whole range of new smart applications,” commented EXFO. “Partnering closely with 95%+ of the top CSPs worldwide, EXFO provides next generation test, monitoring and analytics solutions to support operators end-to-end, from lab to live and from the subscriber to the core. EXFO solutions feature real-time network, service and customer insights, process automation, NFV service assurance, prescriptive analytics as well as troubleshooting embedding machine learning and AI.”

Meanwhile, the industry also recognises that 5G is much more than a technology. For the CSPs, it is a significant step on the journey towards digital transformation. Many operators are seeing 5G as a watershed moment to seriously expand beyond the connectivity utility. One third of respondents believe 50% of revenues could be generated by new digital products and services in four years’ time. Opportunities abound.

“The survey provided an industry viewpoint on how much revenue operators will generate from services enabled by digital transformation. This is the foundation for why transformation is needed in the first place,” said Martin Morgan, VP Marketing, Openet. “The survey also provided a health check on how far the industry is advanced in its digital transformation journey and how far it needs to progress to be able to meet their digital services revenue goals. What this means for vendors is that they can set out realistic transformation roadmaps with their customers using the survey results as an industry benchmark.”

One of these growth areas is IoT. 56% of respondents saw IoT as an important driver to expand their service portfolio, while 46% saw it as significant channel to deliver new revenues. Both the short-range IoT, the largest part of the total number of connections, and wide-range including cellular-based IoT, are expected to grow very fast in the coming years, with the latter registering a much faster pace of growth.

“Never before has the digital world impacted the physical world as it does today. IoT drives autonomously driven cars, turns on lights, controls the quality of water, and lets you know who is standing at your front door,” said Ronen Priel, VP Product and Strategy at Allot. “This requires ubiquitous connectivity and security. With 5G mobility, wireless technology, and Fiber to the X (FTTx), connectivity is sorted. But, security is lagging far behind.”

Security is indeed one of the biggest threats to the industry, and that goes beyond IoT. 74% of companies responding to the survey have seen an increase in cyberattacks to their customers over the past year. Businesses are busy shoring up their defence, but they need to recognise that as attacking techniques constantly evolve, so should the defending technologies and business processes.

“We are privileged to contribute to the Telecoms.com 2018 survey report. The survey revealed that end-users and network operators still rely on legacy technology: 63% of network operators use DNS blacklisting for end-user protection. Also, 45% operators are not confident that they are ready to manage IoT security requirements for their customers. It’s crucial to use next-gen technology and start protecting users proactively,” explained Einaras von Gravrock, CEO of CUJO AI.

Now that this report is in front us to provide a panoramic view of the industry today and tomorrow, it will be fascinating to observe how our fellow professionals are turning those promises into reality. You can download your copy of it here. Happy 2019, everyone!