Ericsson on Hook for $350M Payment to VEON After BSS Cock-Up

Ericsson is on the hook for a $350 million payment to VEON, one of its service provider customers, after ditching a range of IT systems that were integral to VEON's digital transformation efforts.

VEON will fall back on an older product range after Ericson announced plans in January to scrap Revenue Manager, a business support systems (BSS) package launched in 2016, amid weak demand for a so-called "full stack" BSS offering.

In a brief statement released in advance of this week's Mobile World Congress event in Barcelona, VEON said it would receive a payment of $350 million from Ericsson during the first half of 2019 in apparent compensation for the project failure.

With the Ericsson contract originally valued at $1 billion, the Swedish vendor will continue to work on upgrading VEON's IT systems using existing software under a new arrangement. VEON said it had already deployed that software in some of its operating companies and finished IT overhauls in the markets of Algeria and Georgia.

The impact on Ericsson is not entirely clear. The vendor announced it would take a financial hit in January, when it revealed Revenue Manager would go, but the provisions included just 3 billion Swedish kronor ($320 million) in pure write-downs and a total of SEK4.6 billion ($490 million) in restructuring charges at its digital services unit, which develops BSS products.

The status of other customer relationships also remains unclear. Although Revenue Manager met with an unenthusiastic reception, both Ooredoo and T-Mobile Czech Republic were previously touted as customers. Neither company has responded to Light Reading's approaches on this subject.

Asked by Light Reading in January why Revenue Manager had failed so badly, Helena Norrman, the vendor's soon-to-depart chief marketing officer, said: "The strategy was based on the assumption that customers would want to do big transformation projects and that did not work out as intended and so it didn't become a very good business for us."

Declining at the time to comment on specific customers, Norrman said Ericsson would still be able to work on developing more customized solutions for companies.

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Ericsson insists its investments in Revenue Manager have not been entirely wasted because it can integrate some of the platform's different components into its older line-up of BSS products.

VEON's digital transformation activities have encountered various difficulties in the past couple of years. The operator, which counts Russia as its biggest market, recently confirmed plans to scrap a digital platform that underpinned a mobile app for customers.

That move will trigger the loss of about 200 jobs, including 100 roles at group headquarters in Amsterdam, where a development team had been working on the platform, and lead to the closure of VEON's London office, previously set up with responsibility for the digital strategy.

VEON had also been heavily reliant on China's ZTE as a supplier of network functions virtualization technology. The vendor is struggling to persuade customers it is a safe long-term bet amid a US-led backlash against Chinese equipment makers.

Last year, ZTE nearly went out of business when the US banned it from acquiring US-made components for several weeks. ZTE was previously charged with breaching sanctions against Iran and North Korea and is seen as a security threat in several countries.

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— Iain Morris, International Editor, Light Reading