Positive prospects

Nokia Siemens Networks’ performance in 2012 took many industry analysts and commentators by surprise as the technology provider reported its best financial year yet, with forward momentum also being present for 2013 and beyond. Igor Leprince, NSN’s man for Middle East and Africa describes why the sense of surprise is not as animated internally, and what the company is doing in the region to ensure further gains

Leprince was appointed head of MEA at the start of 2013, and amongst his main priorities is the development of sustainable growth for NSN in the region

Earlier this year Nokia announced that NSN had reported a Q4 operating profit of €251 million (US$325 million), up 275 per cent year-on-year, on revenue of €3.99 billion, up five per cent.

NSN witnessed a full-year operating loss of €799 million, much of it accounted for by restructuring costs, compared with a €300 million loss in the prior year, on sales of €13.78 billion, down two per cent from €14.04 billion in 2011.

However, when considering NSN’s non-IFRS results, which exclude special items such as restructuring costs, the company’s strong performance in 2012 becomes apparent, reflecting non-IFRS operating profit for Q412 of €575 million up 227 per cent year-on-year, and full year profit of €778 million, up 246 per cent on 2011.

Making NSN’s progress even more impressive in 2012 is the fact that during the course of the year the company sold off a number of non-core units, and yet overall sales were impacted only marginally. In December, for example, NSN confirmed it was to sell its Business Support Systems (BSS) business to Canadian billing and charging specialists Redknee for up to €40 million, having already sold off its WiMAX unit to NewNet Communication Technologies, its Expedience proprietary fixed wireless broadband business to CN Tetragen, its fixed line broadband access unit to Adtran and microwave transport business to DragonWave.

In the Middle East and Africa (MEA) region, NSN recorded net sales of €388 million in Q412, down two per cent year-on-year, though the regional head, Igor Leprince, believes the company is in a strong position to leverage its deep relationships with service providers and their move to LTE to drive growth.

In January NSN announced it would be bringing together its business in the MEA under a new, single, regional organisational structure. Leprince, who had been leading the company’s business in the Middle East, assumed the role of head of MEA from January 1.

With this change, NSN is expanding its Asia and Middle East regional cluster to include business in Africa. Continuing under the leadership of executive board member Ashish Chowdhary, the new Asia, Middle East and Africa cluster (AMEA) manages the company’s customer operations in MEA, India, Asia Pacific, Greater China and Japan.

The company said as part of its transformation, the recently combined MEA region would allow NSN to further strengthen its quality of delivery for all its operator customers in the region. In addition, the move is set to allow it to serve its large multi-country operators such as Bharti Airtel, Etisalat, Qtel, Saudi Telecom Company (STC), Vodacom and Zain in a more integrated manner both within the MEA region and across AMEA operations.

NSN operates in 30 countries in the combined MEA region.

“NSN’s Q4 results reflected a fifth consecutive quarter of free cash flow, and was the best quarter ending the best year,” Leprince told Comm. “What these results show is that the right strategy is being implemented and that divesting in non-core businesses is paying off. Our headcount has reduced by 15,000 people since we started following the strategy in November 2011, and we now have 58,000 people overall. We are simplifying our structure.”

In its restructuring announcement in November 2011, NSN said it would look to focus on mobile broadband and services, with the view to reducing its global workforce, which stood at 74,000 at the time, by approximately 17,000 or 23 per cent by the end of 2013. Thus NSN’s head count of 58,000 at the end of January 2013 would suggest the technology provider has done much of the difficult work with respect to reducing numbers, with only a 1,000 more cuts to be made in order for it to reach its end-2013 target.

On a global basis, Leprince explains that Japan, South Korea, and the US are NSN’s priority markets given their early commercialisation of LTE. With 77 commercial LTE deals publicly announced around the world at the time of going to press, Leprince claims NSN is ranked a strong second in technology provider standings (see box out 1).

Dividing up the LTE opportunity

According to Technology Business Research (TBR), Inc., an independent technology market research and consulting firm, Ericsson took a commanding lead in LTE market share in 2012 due to its strong position with key operators in North America, Japan and South Korea. Ericsson is deploying LTE for five of the seven Tier 1 operators in North America: Verizon, AT&T, Sprint, T-Mobile and Rogers. Ericsson is deploying LTE for Softbank in Japan and all three Tier 1 operators in South Korea, LG U+, SK Telecom and KT. These operators were among the first adopters of LTE technology, and Ericsson’s key position within these accounts allowed the company to pull far ahead of competitors in LTE revenue.

NSN benefited from strong operator spending on LTE in Japan, South Korea and Canada, but the vendor largely sat out of the first phase of deployments in the United States, which prevented the company from nearing Ericsson’s market share.

In 2012 Huawei ranked third in LTE market share, but the vendor was prevented from becoming a bigger threat to Ericsson and NSN because it is largely prohibited from doing business in the United States. However, TBR expects Huawei’s LTE market share to increase in 2013 as its contracts in other regions, namely Europe and APAC, start to ramp up.

Alcatel-Lucent placed fourth, as the bulk of the company’s LTE revenue stems from three operators — AT&T, Verizon and Sprint — that are also purchasing LTE from Ericsson. Alcatel-Lucent did not win LTE supply agreements with Japan and South Korea-based operators, which prevented the vendor from placing among the top three.

“The growth in our priority markets helped drive our performance last year,” Leprince said. “We are looking to become the leader in mobile broadband, and this is with respect to quality, innovation, and of course revenue.”

Focussing on innovation, NSN has continued to expand its Liquid Net portfolio, having recently introduced Customer Experience Management (CEM) for Liquid Net, which NSN considers to be a new approach that provides insight into the experience of people using a mobile network and converts that into specific investment and network optimisation projects.

It is an approach that NSN says enables proactive planning and implementation of investments to optimise both customer experience and business return.

CEM for Liquid Net uses the integrated capabilities of NSN CEM and Liquid Net software, supported by the company’s focused Services capability. It links capacity optimisation-related investments to customer experience, enabling operators to decide precisely when and where to optimise network performance to improve user experience and protect and grow revenue. The approach directly links customer and revenue insights to improving network performance.

In the MEA Leprince says his main priorities include keeping NSN as customer-centric as possible. The company is set to invest significantly in maintaining and building relationships with operators with group operations, and Leprince is confident that both the Middle East and Africa shall benefit from improved market conditions in 2013.

“We have some difficult contracts in the region that are now coming right,” Leprince said. “As a company we are much more focussed, and within the MEA we have 12-15 markets that we have identified as being absolutely priority. What combining the MEA region does for us is to provide one management team to work across the region, which we believe uses resources much more efficiently.”

NSN’s MEA region is further broken down into six sub-regional hubs that oversee activities on a localised basis, and feed that information into the regional headquarters based in Dubai.

Efficiency shall remain a central theme in NSN’s MEA region going forward considering that it remained the smallest contributor to NSN’s global revenues in Q412, with Leprince believing that 3G and 4G deployments shall be the largest mobile broadband opportunities in the MEA for the foreseeable future. Given the company’s primary focus in mobile broadband, Leprince is confident NSN stands in a strong position to take advantage of the momentum.

According to Analysys Mason, telecom revenue in the Middle East and North Africa (MENA) is expected to grow by 27 per cent between 2012 and 2017, at a compound annual growth rate (CAGR) of five per cent.

The Middle East and North Africa telecoms market: trends and forecasts 2012–2017 report forecasts revenue will increase from US$70.3 billion in 2011 to US$96.4 billion in 2017.

The report predicts that the number of 2G connections will peak in 2015, at which point 3G and 4G connections will start to take over. Specifically, 3G will be the dominant network technology, reaching 192 million SIMs (43 per cent of all SIMs in the region) by 2017.

Even though 4G connections are set to grow at a CAGR of 122 per cent between 2012 and 2017, 4G will only account for 10 per cent of SIMs by 2017.

Leprince believes that the progress that NSN has achieved in the last year is a good foundation for future success, with the company having come close to reaching its year-end 2013 milestones by year-end-2012

The fastest growth area during the forecast period will be mobile data services, with handset data revenue set to grow at a CAGR of 17.9 per cent between 2012 and 2017. However, growth rates in subscriber numbers will continue to decline, as will mobile voice prices.

The number of broadband connections grew strongly between 2009 (15 million) and 2011 (28 million), and the report predicts that the number of connections will nearly double again by 2017. Of these, 69 per cent will be mobile-based.

While the leading LTE technology provider Ericsson generated approximately twice the overall revenue that NSN did in 2012, Leprince does not believe this places his company at a disadvantage with respect to R&D investment and mobile broadband innovation.

“We have a wide portfolio of products in mobile broadband spanning radio, core, and transmission, and we’re still a company that generates €14 billion in annual revenues, which is no small amount,” Leprince said. “The divestments we have undertaken since the announcement of our strategy account for less than €1 billion in annual revenues, and so we remain in a strong position to invest in technology, innovate, and develop quality products.”

Leprince believes that the progress that NSN has achieved in the last year is a good foundation for future success, with the company having come close to reaching its year-end 2013 milestones by year-end-2012.

Continuous transformation is afoot in the telecom industry as well as within the organisations that participate in it, and Leprince is keen to see NSN achieving a sustainable future in the region as the company looks to continue to grow in its priority markets, benefit from the evolution of LTE, and service existing group operations and new customers alike with quality products and services.

The NSN vision

NSN is targeting end-to-end mobile network infrastructure and services, with a particular emphasis on mobile broadband.

The company is in the process of realigning its business to focus on mobile broadband (including optical), customer experience management and services. The company’s Services organisation will further strengthen its highly-efficient global delivery system. Business areas not consistent with the new strategy are being divested or managed for value. Quality and innovation will continue to be priorities for the company, with on-going investment in both areas.

The company is targeting to reduce its annualised operating expenses and production overheads by €1 billion (US$1.33 billion) by the end of 2013, compared to the end of 2011. While these savings are expected to come largely from organisational streamlining, the company will also target areas such as real estate, information technology, product and service procurement costs, overall general and administrative expenses, and a significant reduction of suppliers in order to further lower costs and improve quality.