Ericsson to pay Veon $350m for failed software rollout

Yogesh Malik.jpg

Ericsson’s disastrous $1.7 billion adventure into telecoms software has cost the company even more than it disclosed in January.

Last month the company said it was writing off $690 million when it stopped selling its Revenue Manager suite.

Today Veon announced that Ericsson is paying it $350 million compensation to “vary existing agreements” under which the Swedish vendor was supposed to upgrade its IT infrastructure.

“Existing arrangements” seem to be to cancel the rollout of Revenue Manager beyond Algeria and Georgia, leaving Veon to find other solutions in its other operations.

In a statement issued today, on day one of Mobile World Congress – alongside hundreds of other announcements that media and analysts have to sift through – Veon said it was going “to release Ericsson from the development and delivery of the Full Stack Revenue Manager Solution”.

It is not immediately clear whether the $350 million that Ericsson is paying Veon – the former VimpelCom – was included in Ericsson’s January statement or whether the $350 million is additional to the $690 million announced then.

Ericsson’s adventure into the world of telecoms software stems from two expensive acquisitions. In June 2007, Ericsson acquired 75.1% of the shares in German telecoms software company LHS for $420 million and then bought the other 24.9% in two stages, without announcing the final price – though likely to be another $140 million on the basis of the first tranche, putting the total up to $560 million.

Four years later the company bought Telcordia, a US software company – once owned jointly by Bell operating companies – for $1.15 billion.

Hans Vestberg, now CEO of Verizon, was CFO at Ericsson for the LHS purchase, and CEO for the Telcordia purchase.

Ericsson’s total costs for acquiring the two companies is thus believed to be about $1.7 billion.

Last month Ericsson admitted that Revenue Manager has earned zero revenue.

Today Ericsson did not announce the Veon settlement, though on the first day of MWC it said it was buying a hardware operation, Kathrein’s antenna and filters business, for an undisclosed price. The acquired business has annual sales of €270 million.

But Veon said it has “signed binding terms” with Ericsson “to vary the existing arrangements”. It added: “As a result Veon will receive $350 million during the first half of 2019.”

Veon group CTO Yogesh Malik said: “We have successfully digitised the core of our operations in Algeria and Georgia during the past year, and can see its positive impact.”

However it looks as though Revenue Manager will go no further, though Malik did not say where Veon will be going next. “This revised arrangement is a further sign that Veon is fully committed to introducing best-in-class IT platforms in all of our markets,” he said.