Sonera Corporation

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Sonera Corporation

Teollisuuskatu 15
Helsinki
Finland
Telephone: +358 (9) 20401
Fax: +358 (9) 2040 60025
Web site: http://www.sonera.com

Public Company
Incorporated: 1994 as Telecom Finland Ltd.
Employees: 10,000 (2001 est.)
Sales: EUR 2.187 billion (2001)
Stock Exchanges: NASDAQ Helsinki
Ticker Symbol: SNRA (NASDAQ); SRAIV (Helsinki)
NAIC: 513322 Cellular and Other Wireless Telecommunications; 513310 Wired Telecommunications Carriers; 421690 Other Electronic Parts and Equipment Wholesalers; 514210 Data Processing Services

The largest provider of mobile and telecommunications services in its native Finland, the Sonera Corporation offers mobile communications, fixed network business, and the development of services and applications. With over 2.4 million mobile subscribers and a market share of 60 percent, Sonera remains, at heart, a mobile communications company, providing local, international, and long-distance voice services to its customer base. Sonera enjoyed a massive growth spurt in 1999 and 2000, taking advantage of the market’s frenzy for new technologies that joined wireless and the Web, but the company’s mounting debt and the downturn of the market forced Sonera to re-strategize. Sonera now concentrates on profitable business growth, improvement of customer focus, increasing cost-effectiveness, and capping their investments to ensure competitiveness in the long run. As its mission statement clearly indicates, Sonera “intends to be ready, when the pace of development in the telecommunications market quickens again.”

Towards Deregulation in Finland: Sonera’s Beginnings

The history of Sonera Corporation is closely tied to the early history of telecommunications in Finland. In 1855, when the first Finnish telegraph offices were opened, Finland was an autonomous Grand Duchy within the Russian Empire, and the telegraph offices were a state-controlled monopoly.

When Finland gained its independence in 1917, the Telegraph Office continued as a state controlled body. In 1927, the Telegraph Office merged with the Post Office. The Post and Telegraph Office had a dual role as regulator and operator of all forms of Finnish telecommunications. By 1935, the almost all Finnish long distance telephone traffic was transferred to the control of the Post and Telegraph Office.

This regulated telecommunications monopoly continued in Finland for over 50 years. By the mid-1980s, increasing internationalization and global competition made it evident that an industry-specific monopoly could economically cripple Finland. In 1981, the Post and Telegraph Office was renamed Posts and Telecommunications of Finland, and the Finnish state began to prepare for an eventual deregulation of the industry. Six years later, Finland passed the National Telecommunications Act of 1987, legislation geared towards quickly turning Posts and Telecommunications of Finland into a limited liability company. The first step was to transfer the regulatory functions of Posts and Telecommunications to another body, the Ministry of Transport and Communications, and to separate the operations of Posts and Telecommunications from the state budget. The second step was the actual formation of the state-owned limited liability company, now called Telecom Finland, which operated on more commercial terms than those of Posts and Telecommunications of Finland.

Telecom Finland was a very successful venture, connecting its 1.5 millionth mobile customer by 1997. One year later, the Finnish state released 18,850,000 shares of Telecom Finland. After this, the move toward the deregulation and privatization of the industry proceeded quickly. By the middle of the year, Telecom Finland’s name was changed to Sonera, and the company was listed on both the Helsinki Stock Exchange and on the NASDAQ. Sonera’s IPO attracted strong retail and institutional demand, and on October 13, 1998, the public sale of Sonera shares commenced.

1999: Newly Privatized, Poised for Expansion

The newly privatized company hit the ground running, beginning the year by becoming a charter member of the Bluetooth cooperation, hoping to help construct a new wireless communications standard to connect various applications using radio technology instead of standard cable connections. It was this type of innovative drive that drew immediate positive attention to Sonera, who garnered various prestigious industry awards that year, including the World Billing Award for best customer care, the World Communications Award for Best Branding, Data Communications’ Hot Product of the Year, and an award in Cannes for the most rapid GSM (global system for mobile communications) customer growth.

Sonera became the first operator in the world to launch commercial Wireless Application Protocol (WAP) services to mobile subscribers. WAP is an open, global specification that allows mobile users with wireless devices to access and interact with information. With Sonera’s launch of Sonera Zed, a mobile portal, Zed users could access on-demand services such as news, games, dating, movie and restaurant guides, sports information, horoscopes, multi-language dictionaries, traffic reports, and directory information services. It also became a charter operator of CNN Mobile, the first mobile telephone news and information service to be available globally with pan-regional content, targeted at GSM mobile phone customers in Europe and Asia/Pacific.

Security issues have been long been considered to be one of the main obstacles to the successful deployment of wireless e-commerce services. Sonera made this a prime business focus, launching, along with Gemplus and EDS, a global initiative to define a standard security platform for mobile e-commerce. The initiative, called Radicchio, was created to promote the use of an environment based on a Public Key Infrastructure (PKI), and more specifically, Sonera’s development of one such PKI-based framework, to provide security for financial transactions and information exchange over mobile networks. The Radicchio initiative was also formed to promote the use of this framework among certification authorities, mobile operators, systems integrators, device manufacturers, and financial institutions in order to create a standard security platform upon which all mobile commerce software, services, and devices can be based. Sonera teamed with Ericsson, the Swedish supplier of mobile systems, to work on the first digital signature for secure wireless e-commerce using WAP phones. This digital signature allowed mobile operators and service providers to offer secure, transaction-based services in WAP environments, not unlike Sonera Zed. During this time, Sonera also became the first non-U.S. operator licensed to use 3DES encryption, which encrypts message data with three passes of the DES algorithm (symmetric key cryptography to safeguard remote network communications).

Sonera announced its intention to continue expanding its business outside Finnish borders with several global ventures. The most notable was Sonera’s offering of QuickNet, its content-rich data-over-cable service, in the Netherlands.

Continued Growth in 2000

In 2000, Sonera was granted the opportunity to break entirely free of its past as a state controlled entity when the Finnish government authorized the reduction of the state’s total holdings in Sonera to zero. This did not happen, however, and the Finnish government continued holding approximately 53 percent of Sonera’s shares. During the year, the company continued to win accolades, awarded the Best Mobile Operator and Technology Foresight Award at 2000’s World Communication Awards. Also in 2000, Sonera Plaza, the company’s Internet transaction center and service provider, received over a million visitors per month.

The company made some organizational changes during this time. One such change was the transfer by Sonera’s board of directors of the company’s ASP (active server page) business to a new subsidiary called Sonera Juxto Ltd. Sonera Juxto was formed to offer solutions for wireless networks; services for external and internal communications; infrastructure management services covering workstations, mobile phones, and other wireless communications devices; LANs; remote networks; servers; and data processing platforms.

The year 2000 also found Sonera forming lucrative partnerships, one of which was with Equant, the Dutch data network operator, to offer GPRS (General Packet Radio Service) roaming solutions to mobile operators. Based on the concept of GPX (GPRS Roaming Exchange), a centralized IP routing network for interconnecting GPRS networks, the team’s solution facilitated roaming between the networks of different GPRS operators. With this solution, subscribers could access data services such as e-mail, graphics, and video while outside their home network. With the importance of roaming services for mobile providers, particularly in the European market, offering this solution was a benchmark for Sonera.

In June, Sonera acquired iD2 Technologies and later, combined forces with Across Wireless to strengthen their existing SmartTrust venture and enrich their security offerings. Smart-Trust offered wireless e-commerce enabling technologies, such as digital identification and digital signatures. The types of technologies developed by SmartTrust began to be used this year by institutions such as the Finnish Population Register Center (PRC) for electronic identification of a person into the wireless networks.

Company Perspectives:

Sonera’s goal is to grow as an operator and provider of transaction and content services in Finland and in selected international markets. In content production, we utilize our extensive network of partners. To achieve our goal, we combine its experience in mobile communications, the Internet, and customer-oriented services.

Sonera also spent time this year applying for digital TV licenses. Its cable television services had, by this time, over 50 networks, but Sonera’s interest was in developing a two-way, duplex network, or more specifically, interactive digital services accessed via a Web browser that plays on a television screen. This interest led to Sonera’s decision to refuse a 34 percent purchase of media company Digita Oy because the Finnish Competition Council stipulated that neither Sonera nor a company under its authority would be allowed to apply for any digital television operating licenses if it owned Digita shares.

2001-2002: Bumps in the Road

The year 2001 brought challenges to the entire telecommunications industry and quickly altered the climate in which Sonera was operating. A downturn in market growth and increasing lags between mobile communications advances forced Sonera to concentrate their attentions on decreasing their debt and mapping strategies to increase company profitability. The company made several moves in this direction, scaling down their service businesses and capping future investments.

Sonera first showed signs of the strain with major leadership changes, some fraught with controversy. At the company’s annual meeting in March 2001, six members of the Board of Directors were fired when the company’s stock dropped 10 percent. In June, Executive Vice President Harri Hollmen announced his resignation, and a few days later, President and CEO Kaj-Erik Relander offered his resignation as well. Re-lander stepped down amid a cloud of criticism. During his brief six-month stint as CEO, he led Sonera in a decision to spend billions of dollars on third-generation (3G) mobile phone network licenses. These licenses were to allow the company to offer new Internet, e-mail, and video services to mobile phones—but at the time such services were years behind in development, costing the company huge amounts of revenue with no guarantee of its eventual profitability. In October, Harri Koponen was appointed as Sonera’s new president and CEO and was charged with reacting quickly to the investor unrest and changing market conditions.

Sonera immediately began selling its shares in other companies as a means to strengthen its financial position. The company sold approximately 19.7 million Deutsche Telekom (DT) shares, reducing Sonera’s net debt to approximately EUR 2.8 billion. In May, Sonera sold 3.3 million VoiceStream shares for EUR 360 million and sold part of its fixed network business targeted at companies operating in Sweden to Song Networks (Tele 1 Europe).

Not all of Sonera’s businesses suffered that year. Many continued to make advances and impressive agreements. SmartTrust partnered with Thomas Cook to offer the world’s first secure mobile travel services using wireless devices. The Mobile FX Bureau service allowed customers to purchase, make conversion inquiries, arrange for remote collection of purchased currency, and access similar travel-related services. Sonera also introduced Sonera Shopper, a pilot program for mobile payment in the Helsinki, Finland, metropolitan area. Sonera Shopper turned a user’s wireless device into a means of payment itself, much like a credit card. In the Helsinki metropolitan area, Tiimari, Pizza Hut, and Videofirma Makuuni all extended the use of Shopper for use throughout Finland. Sonera Zed formed an agreement with Telecom Italia, one of the largest mobile service operators in Europe, to distribute Zed services to Italian mobile phone customers. Sonera Carrier Networks Ltd participated in a project building a cable network connection for high-rate data transmission between Europe and the United States, part of Sonera’s broadband connection that extends from Moscow to Western Europe and, with this project, into the United States.

Principal Divisions

Domestic Mobile Communications; International Mobile Communications; Media Communications and New Services; Sonera Telecom; Other Operations.

Principal Subsidiaries

Across Wireless AB; Across Wireless Ltd.; iD2 Holding AB; iD2 Technologies AB; Oy Infonet Finland Ltd. (90%); Primatel Ltd.; SmartTrust GmbH; SmartTrust Systems Oy; Sonera 3G Holding B.V.; Sonera Corporation U.S.; Sonera Entrum Ltd.; Sonera Gateway Ltd.; Sonera Info Communications Oy; Sonera Juxto Ltd.; Sonera Living Oy (51%); Sonera Plaza Ltd.; Sonera SmartTrust Holding B.V.; Sonera SmartTrust Ltd.; Sonera Solutions Ltd; Sonera Sverige AB; Sonera Systems Ltd.; Sonera Ventures Oy; Sonera Zed Ltd.; Spectrun Co Ltd (68%); Systems Consultant Partners Oy; Tedasys Inc.

Principal Competitors

Elisa Communications; TDC; Telia; Tele2 AB.

Key Dates:

1994:: The company is incorporated as Telecom Finland Ltd. in Finland.
1997:: Connects 1.5 millionth mobile customer; Finnish Parliament approves partial privatization of Telecom Finland, who changes its name to Sonera.
1998:: Changes name to Sonera Group Pic and is placed on the Helsinki Stock Exchange after Finnish government sells 22.2 percent of shares.
1999:: Sonera wins the World Billing Award for best customer care; the company partners with CNN Interactive to form CNN Mobile, and its subscription base passes two million.
2000:: Finnish Government reduces their holdings in Sonera to zero; Tedasys merges with Sonera, and the company sells its holding in VoiceStream.
2001:: Mounting debt induces the company to sell their Deutsche Telekom AG (DT) shares; CEO Kaj-Erik Relander resigns, and Harri Koponen is appointed Sonera’s new president and CEO; signs agreement with Nokia.
2002:: The company opens a third-generation mobile communications UMTS network in Finland.