The Troubled Man

February 1, 2013

10 Min Read
The Troubled Man

By The Informer

How long does a vote of confidence last? If you’re Lars Nyberg, the new former CEO of TeliaSonera, it lasts about about three and a half months. Back in October, shortly after he gave the firm’s head of mobile the boot with a statement that read like an homage to the bleak Nordic fatalism of Henning Mankell (“we need to change the leadership,” he said. “Therefore Håkan Dahlström leaves his position.”), Nyberg was told that Anders Narvinger, chairman of the TeliaSonera board, had full confidence in him.

This needed to be said because TeliaSonera was under investigation for corruption and money laundering relating to its investments in Uzbekistan. This really does sound like the plot of a Kurt Wallander novel, doesn’t it? TeliaSonera appointed law firm Mannheimer Swartling to investigate the allegations, as well as its wider dealings in the Uzbek market.

On Friday this week Mannheimer Swartling’s findings were revealed by TeliaSonera, which said that no “substance to the allegations that TeliaSonera has been involved in bribery or money laundering” were found.

That was the good news. The bad news was that the operator’s business processes in relation to its Uzbek investments were found to be seriously wanting. The firm now concedes that it didn’t perform a sufficiently thorough investigation of its local partner and that its “internal controls were not sufficient to ensure that it did not risk becoming involved in any unethical business, and that thereby the company’s internal ethical guidelines were not followed completely.”

This rather makes it sound like TeliaSonera only avoided doing something wrong by accident. It put forward a pretty feeble mitigating circumstance, saying that a high number of personnel changes around the time of the alleged misdeeds “may have contributed to a loss of information”.

On the back of Mannheimer Swartling’s report TeliaSonera is cleaning house and, in a statement released Friday, Nyberg announced his departure. “In order to continue as chief executive I need a functioning board and their explicit support. I was informed that as a result of the pending changes to the board they were not prepared to express that support.

What we don’t know is whether this will affect Nyberg’s position on the board of Russian operator MegaFon, in which TeliaSonera holds a substantial share. In November Nyberg announced that he was investing $2m of his own money in Megafon’s IPO.

Nyberg’s departing act was to report some pretty positive financials for TeliaSonera, which were due in part to a solid performance from MegaFon. Fourth quarter net profit was up 34.9 per cent year on year to SEK6.9bn ($1.09bn) and full year net income (attributable to the parent company) up 8.1 to SEK19.9bn.

In other Nordic number news, Ericsson saw its annual profits drop by half after a SEK6.3bn loss in the fourth quarter caused in no small part by its troubled ST Ericsson silicon JV. Network sales dropped by 11 per cent for the full year, although there were upturns for the services (16 per cent) and support solutions (26 per cent) units.

“If you asked me to grade these results, I would say that they are a ‘B’,” the firm’s CFO Jan Frykhammar told “What is good is that the company saw growth in the networks business in the fourth quarter and also that we managed to reduce working capital – which has been a big challenge for us.”

Ericsson badly needs to get shot of ST Ericsson. Its partner in the JV, STMicroelectronics, said in December that it wanted out, although it won’t be able to extract itself without some serious financial grease. Ericsson is “exploring strategic options” for ST Ericsson, according to Frykhammar—in much the same way, the Informer imagines, that someone running round their kitchen holding a flaming chip pan and screaming is exploring strategic options.

Nokia Siemens Networks recorded an annual loss of €799m for 2012, it said this week, although it saw operating profit for the fourth quarter leap by 275 per cent to €251m. Net sales for the quarter were up five per cent to €4bn, although down two per cent for the full year to €13.8bn.

NSN is in the midst of an exhaustive reinvention, cutting jobs and units with grim determination in a bid to stay competitive. With this in mind analysts say the firm is going well. “The last five quarters have been going in the right direction for NSN, and the second half of 2012 was much stronger than the first half,” said Kris Szaniawski, principal analyst at Informa. “For a company going through such an extensive restructuring process, the results are going in the right direction.”

What about Blackberry; is that going in the right direction? The firm unveiled its BB10 operating system this week, and ditched its old name. Research In Motion is no more. But before we get to the platform itself, let’s talk about Alicia Keys. Keys, as some of you may know, is a singer-songwriter of some renown. But there is now another string to her bow as, in a move that is most politely described as baffling, Blackberry has hired her as its Creative Director.

No doubt this is a lucrative gig for Keys (a mildly humorous choice given that Blackberry is looking to focus more on full touchscreen devices) but, really, what the hell is the firm thinking? What is Keys going to bring to the role? Does CEO Thorsten Heins really believe that he is going to dent the iOS/Android duopoly (more than 92 per cent of smartphone sales in 4Q12, according to Strategy Analytics) by thumping it repeatedly with R&B?

What it reflects, of course, is that Blackberry does not believe that its product is good enough to win consumers purely on its own merits. Or perhaps Heins was moved by some of Keys’ song titles. New Day is appropriate enough, as is Brand New Me. Although neither of these expresses Keys new position at Blackberry quite as effectively as Doesn’t Mean Anything.

Anyway, Heins says BB10 is future proof for the next ten years (which is probably not true of Alicia Keys) and there seems to be broad agreement that the platform is decent enough from a user perspective. It brings music and video hubs to the table in a bid to woo those consumers who aren’t moved by Keys’ involvement alone and the flagship device, the Z10, is clearly pitched at the top end of the consumer market.

But Ovum reckons that the new OS is focused on providing “the best Blackberry for Blackberry users” rather than looking to appeal to new users. “The points of differentiation RIM has focused on in teasers for the new platform confirm this – better multitasking, productivity, email, contacts and calendar applications and so on, rather than a better gaming, content consumption or social networking experience,” said chief analyst Jan Dawson.

Malik Saadi, principal analyst at Informa, was more impressed but cautious nonetheless. “This is a completely new platform, with a unique user experience, which requires customers to accept and adapt to it,” he said. “For RIM to sell between one or two million units of the Z10 in the first quarter of its launch would be acceptable; three to four million would be very good; anything higher would be exceptional. But anything less than one million would be deemed as totally unacceptable by shareholders.”

In other device news there were reports this week that Motorola is working on a new high-end Android handset called the X-phone. To which you might well respond: Y?

And Apple has launched a 128GB version of its iPad, available from next week, which will retail at almost $1,000 for the wifi/LTE version. Silly money. It could cost even more in Portugal, where the government has proposed a device tax based on storage capacity, in a bid to balance content piracy (or what used to be called taping an album for a friend). There’s a similar tax applied to blank media in France.

Things could be worse for Blackberry, it could be a mobile operator—then it would have a real brand loyalty challenge on its hands. Almost 40 per cent of respondents to the Intelligence Industry Survey 2013 said they believe that OTT players, including Google/Android and Apple, have defeated mobile operators in the battle for brand loyalty.

37.7 per cent of respondents agreed or strongly agreed that OTT players have won this battle, compared with 32.6 per cent who disagreed or strongly disagreed with the statement; more than twice as many respondents strongly agreed than the number who strongly disagreed.

Nonetheless, almost half of all respondents believe that mobile operators are capable of competing with OTT service providers in service innovation. Furthermore, the majority (54.6 per cent) of respondents believe that OTT players should subsidise the cost of traffic that their services generate, and almost as many (48.7 per cent) reckoned that OTT players could be persuaded to do so. Proof that our readers are optimistic people!

Operators need to get on with operatory things and that’s just what they’ve been doing in the US this week. AT&T has entered into an agreement with rival Verizon Wireless to acquire 700MHz spectrum licenses for $1.9bn in cash, plus AWS licences in several states. The 700MHz licenses cover 42 million people in 18 US states including California, Florida, New York, Texas and Washington.

According to AT&T the acquisition complements its existing holdings in the 700MHz B band and will allow the operator to quickly expand its 4G LTE services to meet demand, it said.

It will also sell another of its AWS licences to Grain Management, a US private equity firm focused on investments in the telecommunications sector, and will lease back spectrum from Grain in three markets. The transaction is subject to regulatory approval. AT&T anticipates closing the transaction in the second half of 2013.

Meanwhile Sprint has expanded its LTE service in the country, as it continues build out project Network Vision. The operator introduced its LTE network in July 2012 and has now extended its coverage to include Austin and Bryan/College Station in Texas; Columbia, Tennessee; Emporia in Kansas; Fort Wayne, Indiana; Gettysburg, Pennsylvania and Framingham and Boston in Massachusetts.

The firm added that it has also significantly improved its 3G service in Puerto Rico and expanded 4G LTE to reach more regions in the country, including Aguadilla, Isabela, Cabo Rojo and Mayagüez.

We started this week’s edition with tales of (alleged) errant behaviour so let’s end the same way. South Korean operator SK Telecom’s chairman Chey Tae-won  has been handed a four-year jail sentence after being found guilty of stealing close to $50m from his own company. The ruling comes as the country’s president-elect has vowed tougher action against the nation’s corrupt business leaders. In previous years, executives at South Korean firms including Samsung, Hyundai and Hanwha had only been given suspended sentences when found guilty of corruption.

Chey, as they say, has form as long as your arm. In 2003, he was convicted for fraud and spent several months in jail, although for some reason that did not prevent him from returning as chairman on his release.

“As the head of SK, which has a large influence on the nation’s economy, Chey Tae-won should be an example of corporate governance and transparency … but instead embezzled several tens of billions of won in affiliates’ funds and tried to pass on the responsibility to the other defendants,” Seoul’s Central District Court’s Judge Lee Won-beom said in his ruling, according to Reuters.

SK Group, the operator’s holding company, said that Chey Tae-won would appeal the ruling. Gangnam Style.

Take care

The Informer

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