Stress relations

By The Informer

At times, the Informer has often imagined, managing a firm’s communications operation must be about as much fun as a trip to the dentist, when the dentist in question suffers from tremors and dismisses anaesthetic as needless pampering. And as he watched voice-to-text messaging firm Spinvox getting put through the ringer good and proper this week, the thought returned once again.

First up was the news that the firm is struggling financially. No shame in that at a time like this, of course. It’s hardly champagne and canapés at Informer Towers these days, truth be told. Still at least the brass aren’t trying to get us to take stock options in lieu of salary, which is what Spinvox is doing.

It’s not compulsory, and employees have the option to take all or part of their summer paychecks in stock. The risk for the firm if not enough employees take this offer up, is that job cuts will have to be made. Anyone that leaves the firm, Spinvox has promised, will be repaid the cash they forewent to take the stock, whether they get made redundant, fired or if they leave of their own volition.

This on its own would not have been that big a deal, but it coincided with more questions about just exactly how Spinvox works. This is an issue that arises periodically for Spinvox, mostly because the company prefers not to give anybody a definitive, proven explanation.

The firm has always claimed that the majority of the speech-to-text conversion is done by a closely guarded algorithm, and that human intervention is used “only when necessary”. For as long as these claims have been made, however, there have been plenty of nay-sayers on hand to argue that, while this might be true, it happens to be necessary a lot more often than Spinvox would have the rest of us believe. The bulk of messages, claim the detractors, are transcribed by call centre workers in Asia and Africa.

The BBC copped hold of the story and gave it some mass media attention and still Spinvox refused to cough up hard proof of its claims in the form of by revealing the proportion of messages that require manual intervention. Couple this with a reasonable number of bloggers and posters claiming to be Spinvox employees (past and present) badmouthing the firm’s strategy, business model and leadership and you’ve got a busy few days in the spin department of Spinvox.

The Informer was chatting to a mate who pitched for the original Spinvox PR contract a few years ago who told him that the technology issue came up at the time. The firm’s patents were in the public domain and those patents did not specify a particular technology, he said. Rather they specified a process; a workflow.

You might think that the best thing to do for Spinvox would be just to spill its guts. Tell the truth. After all, for end users and carrier customers who like the service-and Spinvox has only recently signed a pan-Latin American deal with Telefónica, so there’s no doubting its appeal (although the Informer never got on with it)-it shouldn’t matter whether it’s some whiz-bang computer, or someone in an offshore call centre.

But Spinvox can’t own up to that, if it is the truth, because it means that other people are listening to all of its customers’ voice mail messages; and nobody likes that idea. After all, just remember what happened when someone got hold of Prince Charles’ voicemails to Camilla Parker Bowles. And him to be King one day, and all. It’s a shame.

The Informer spoke to one of Spinvox’s partners, BestBefore Media, which uses the Spinvox API to do audio transcriptions as well as offer a service it describes as the “twitter of the spoken word,” known as AudioBoo. Mark Rock, CEO of BestBefore said that his firm used Spinvox because they were impressed by the quality, but added that he was surprised by the assertions that people managed most of the transcription manually. “The line we were spun is that humans were only used where necessary,” he said.

As well as the deception and the privacy issues that this would throw up, if it were true, it would threaten the business model. If the company uses people to transcribe messages, then the bigger the business gets, the more people it has to contract in to type up people’s messages. And that doesn’t scale nearly so well as a piece of software that does the same thing.

Spinvox has been extremely successful in the past at shrugging off criticism and allegation. And the firm posted a lengthy response to the recent reports on its blog, which you can read here.

Equally busy were the folks at Qualcomm, trotting out their trademark line in righteous indignation at the news that the Korean Fair Trade Commission is fining the Californian vendor $200m. The Koreans alleged that Qualcomm had been charging higher licensing rates for its CDMA technology to customers who chose to source their silicon from Qualcomm’s competitors (or, if you prefer, that it was discounting for its chip customers).

The vendor was cleared of dodgy dealings relating to its WCDMA business and claimed that the KFTC’s judgement on its CDMA behaviour was “based upon factual and legal errors and appears to ignore substantial benefits Qualcomm’s partnerships generate for Korea’s wireless industry,” and resolved to appeal. Does anybody do this stuff quite like Qualcomm? Nope.

Still, it was getting a run for its money in the indignation stakes this week from Canada’s Research In Motion. The BlackBerry vendor was snapping at the flesh on the Nortel carcass, but was prevented from sating its appetite by Nortel itself, RIM alleged.

You’ll remember that NSN proposed a bid of $650m for Nortel’s LTE and CDMA assets, with the bankruptcy auction scheduled to take place on this very day. It looked like NSN would be the sole bidder, however RIM’s outburst may change that, especially seeing as RIM is willing to almost double NSN’s offer.

Jim Balsillie, RIM’s co-chief executive officer said that the firm would be prepared to pay in the range of $1.1bn for the CDMA and LTE businesses and certain other Nortel assets. He also said that in its attempts to be qualified as a bidder in Nortel’s auction bidding process, RIM was told it could be qualified only if it promised not to submit offers for other Nortel assets for a period of one year-something which it intended to do.

“RIM is extremely disappointed that Nortel’s world leading technology, the development of which has been funded in part by Canadian taxpayers, seems destined to leave Canada and that Canada’s own Export Development Corporation is preparing to help by lending $300 million to another bidder…RIM has found itself blocked at every turn,” said Balsillie.

But RIM and NSN aren’t the only interested parties. MPAM Wireless, an affiliate of investment firm MatlinPatterson Global Opportunities, which targets distressed securities (probably quite busy at the moment, then) has issued a proposal to acquire the LTE and CDMA for $725m.

While way short of the RIM bid, the investment firm may have an edge, as its advisory team on the proposed acquisition includes a line up of former Nortel executives including former North American president Dion Joannou; Richard Piasentin, former Nortel VP of sales; and Tony Pirih, former head of Nortel R&D. The advisory team also includes former executives of AT&T Wireless, Alltel and Motorola.

MatlinPatterson believes that it could spin the CDMA and LTE business off as a “New Nortel,” bolstered by additional bolt on acquisitions, partnerships, reinvention and new ideas from within the technology asset base. Swedish kit vendor Ericsson is also thought to be interested in Nortel’s leftovers, which are due to be auctioned off later on Friday.

In related news, enterprise networking firm Avaya signed an agreement to purchase Nortel’s enterprise solutions business for $475m. The proposed acquisition includes the Nortel Enterprise Solutions voice, data and government systems businesses.

From New Nortel to New Clearwire, which this week launched its Mobile WiMAX service in the glittering playground of the stars/tawdry hellhole (delete as appropriate) that is Las Vegas. But this wasn’t the only WiMAX news around this week, with the former CEO of Orange, Sanjiv Ahuja, unveiling his new firm’s emerging markets WiMAX play.

Founded in 2007, Augere is headquartered in London but will focus on emerging markets in Asia and Africa, where it will offer services under the Qubee brand. The launch market was Pakistan, with Bangladesh soon to follow.

The company’s senior management is made up almost entirely of ex-Orange executives, with director of networks Martin Swinburne previously director of radio design and strategy at France Telecom, director of spectrum and regulation Paul Franklin formerly group VP of regulation and policy at the French carrier, and Augere’s IT, HR and finance directors all Orange alumni.

Only Martin Harriman, director of commercial and business development does not herald from Ahuja’s former firm. Surprisingly, for a WiMAX-oriented outfit, Harriman comes from Swedish vendor Ericsson, which is known for its decidedly downbeat assessment of the prospects for WiMAX.

The France Telecom connection is reflected in the company’s ownership, with the French incumbent holding 22 per cent (FT’s CEO Didier Lombard also sits on the board). Two private equity firms-Vedanta and New Silk Route-hold 33 per cent between them, with Ahuja himself owning a 44 per cent stake.

Even those within the industry who lack belief in WiMAX concede that it has potential as a fixed substitute in emerging markets. Perhaps Ahuja’s new operation can prove them right.

In this week’s most tenuous link, you’ll remember that not so long ago, ad-funded MVNO Blyk (which partners with Orange in the UK) was denying suggestions that it was radically reshaping its business. This week the firm announced that it was radically reshaping its business. The firm has pulled the plug on its MVNO model, a move that some will no doubt see as an admission of defeat.

The firm, which launched its first operation in the UK in 2007, had planned to replicate its MVNO model in multiple markets but that expansion never happened. It looks likely that the MVNO model has proven unsustainable because it lacked the reach that advertisers look for. The UK customer base remains in the low hundreds of thousands and Blyk itself has suggested that advertisers are more drawn to its service for market research purposes than brand advertising campaigns.

Blyk revealed this week that it has shifted its focus to a managed service business model. The first partner to for the new model is Vodafone Netherlands, which had already formed a partnership with the company in 2008. Blyk said that the Netherlands has the third highest advertising spend per capita in Europe and is a hub for many global companies and ad agencies, making it an ideal market for Blyk.

It remains to be seen what will happen to its existing operation in the UK, seeing as the Blyk spokeswoman said the MVNO “is no more”. In this case it seems likely Orange will just absorb the few hundred thousand subscribers.

French conglomerate Vivendi pulled a plug of its own this week, meanwhile, ending its talks to buy the African assets of high growth regional specialist Zain. Apparently the price was simply too high ($12bn was the figure being bandied about). Zain said this week that net income for the first half of 2009 was up 4.4 per cent to $533.5m, while revenues jump 24 per cent to $4bn.

And it was results galore this week, with Ericsson leading the charge with the poor numbers. The Swedish vendor delivered an eye watering 61 per cent drop in net profits for the second quarter as losses at its joint ventures took their toll.

Profits for the quarter to end June fell to SEK800m, from SEK2bn in the same period last year. Net sales however, were up 7 per cent year on year to SEK52.1bn. Handset joint venture Sony Ericsson racked up a loss of €213m for the second quarter, while net loss at chip vendor ST-Ericsson hit $213m.

While this alone does not make a good advert for joint ventures, Ericsson’s network sales were down year over year because of the decrease in carrier spending.

There was ostensibly better news at Vodafone, however, with the world’s largest operator by revenues, held the fort during the quarter ended June 30, reporting revenues of £10.7bn, up 9.3 per cent year on year. But the global market is still tough, with organic service revenue down 2.1 per cent year on year, although data revenues helped rescue the firm’s revenues by climbing 19.4 per cent year on year on an organic basis to £888 million.

But maybe things aren’t entirely rosy over there as the firm offered little visibility into earnings and margins, saying only that, “the Group’s EBITDA margin decline during the quarter was consistent with management’s guidance for the current financial year.”

Whatever that means.

Take care

The Informer