Telefonaktiebolaget LM Ericsson (publ) (ERICB) Earnings Call Transcript & Summary

Welcome to Ericsson's business update. [Operator Instructions]. Peter Nyquist will now open the call.

Hi all, and welcome to today's call, Building Blocks to Reach Profitability within Digital Services, with our Head of Digital Services, Jan Karlsson. This is the first event of 2. Next week, Tuesday, on December 7 at 4:30 p.m. Central European Time, we have another one with Fredrik Jejdling, who's heading up our network business, talking about the 5G and the RAN market. So today, we will start with the presentation of 30 minutes with Jan and then leaving about 30 minutes for Q&A. And please keep the questions that you have today in the area of Digital Services. With those words, I would like to hand over the word to you, Jan. So please, Jan.

Thank you very much, Peter. So thank you. Great to be here with you today. I'm Jan Karlsson. And I have the privilege to head up business area, Digital Services. I'll focus on 2 things today: number one, I'll focus on some details on the nature of our 5G Core business, the life cycle and commercial components of a typical customer contract; and then I'll also talk about the financial improvements we expect that our strategy will result in. But first, I want to start with our customers' situation, with what are we helping our customers specifically. Let's highlight a few needs here, which are central to our customers. Number one, our customers want to be capable of applying different commercial models to their offering and not be stuck in traditional bucket type of price [ scheme. ] And this is, of course, particularly important when they commercialize 5G across both consumers and enterprises. Number two, both consumers and enterprises obviously want their voice and data services to be delivered with agility, quality and security. Number three, we see demands for much increased automation driven by the need to drive cost down but also to achieve increased agility by reducing complexity. With the increased focus on the enterprise market, our customers require high-performing programmable networks, which are open for different ecosystems to innovate them. And finally, for enterprises to fully make use of the low-latency 5G services, it must be possible for the network edge to seamlessly meet the enterprise edge. Digital services portfolio areas or solution areas, as we call them, are all central to address these needs. And I'd like to give you a very simple overview of digital services software is used for, even if this might only be useful for a few of you on the call. The functions that our software solutions provide are essential to run and monetize a mobile network. A mobile device connects via an antenna and its radio base station to our core network software, which manages the routing of the traffic to and from the device to the Internet, to other devices, to enterprise data centers, to public cloud, et cetera. Now this core network is needed for old traditional services like voice and mobile broadband and for emerging 5G services like mobile gaming, virtual and augmented reality applications and different use cases across industry vertical. So very simply put, we provide both voice core and data core software. We also provide charging, billing, catalog, order management, network management, orchestration, assurance software for our customers in order to be able to manage many different types of business relation, price model and to deliver simple to very complex services easily and efficiently. In line with changing customer needs and the market dynamics, we continuously evolve and evaluate the business competitiveness of our portfolio. And as you can see on the slide, the revenue share of the different solution areas ranges from 10% to 25%. And the split has varied over time, and we expect it to continue to do so. All 5 solution areas create strong customer value. All 5 are progressing well, and all 5 are expected to contribute to digital services profitability. And on that note, reiterating from the Q3 earnings call, the BSS strategy we communicated in 2018 has been successfully executed. And the gross margin is now in line with the group's average level. And all the 45 nonstrategic and critical projects we committed to address back in November 2017 are now managed. Packet core has stayed flat relative to the other solution areas over the past 3 years. But based on the good business momentum and that the 5G Core network transformation has just started, we expect packet core to grow faster than the other solution areas in the coming years. And to back that statement up, to date, we are winning cloud-native 5G Core stand-alone contracts across all geographical areas where 5G is being rolled out. We are gaining market share in, for instance, Japan, South Korea, North America and Western Europe. Some market share gains include competitor swaps, and that's easier said than done in this type of multiyear business at the heart, I was going to say, core of our customers' networks. Solid technical, solid commercial proof points are needed for a communication service provider, a CSP, to decide to switch suppliers. With these 45 5G Core stand-alone customer engagements under our belt, 15 added since the end of October 2020 and more wins, which are formally signed or being formally signed with a contract, we have won 5G Core with 80% of the 20 largest communication service providers in the world by revenue. And here, we only count -- you can count statistics in different ways. We only count one customer once regardless of how many 5G call contracts the engagement entails. Importantly, of course, 9 of these customers are now live with full commercial offerings. For instance, Singtel, Vodafone Germany and SoftBank in Japan, meaning that the customer, the CSP, and Ericsson start to see revenue coming in from those contracts. In addition, we have a number of soft launched live networks, meaning that the commercial offerings are not yet available to their commercial customers, for instance, in Optus in Australia and Vodafone Spain. This is a very solid foundation to grow and expand our business as our customers evolve their 5G offering and consumer and enterprise customer base. In this area, customer decisions made now mean many years of future business. Their supplier choice of 5G Core is a long-term commitment. Almost all Tier 1s in North America, Northeast Asia and Western Europe have made their choices by now. Smaller operators in North America and Northeast Asia and Western Europe and operators of all sizes in Latin America, the Middle East and parts of Southeast Asia, India and Africa with some few exceptions are still to make their choice. So roughly 15% of operators worldwide have made their choice of 5G Core vendor, with 85% still to go. And this also applies for the Ericsson 5G packet core -- 4G packet core customer base of more than 300 customers. A big opportunity ahead of us to ascend and hopefully expand our market share. With our proven maturity and experience and containerized cloud-native technology, we anticipate that we will continue to lead the 5G Core market and add more customers and live networks to this business. And a little bit of a reminder, in Telstra, Australia, we were first with a live cloud-native core network already in Q2 2019, years ahead of some of our competitors. I've been speaking about packet core a lot here. But of course, 5G Core and 5G stand-alone is not only about packet core products. A change in other areas like orchestration and BSS is needed to fully reap the benefits of the 5G stand-alone network. So you can really see 5G Core as a beachhead or an anchor offering to pursue business opportunities for Digital Services full portfolio. Very simplified, our customers do not only need 5G packet core. They also need orchestration of services and cloud resources. They need assurance and signaling, policy management, 5G voice, functions enabling monetization, et cetera, et cetera. And of course, all that software needs a cloud infrastructure execution environment to run on. To that end, we have harmonized our portfolio to address our customers' needs and to capture what we call the attached sales opportunity. We go to the next slide. This is an example of a customer contract with a Tier 1 CSP, communication service provider, with a large initial scope, with products from all of the 5 Digital Services solution areas. Opportunities to monetize in new ways require new charging solutions. Introducing cloud-native software requires new orchestration solutions. And the list goes on and on, all driven by the technology shift to the 5G Core stand-alone architecture that follows the 5G radio rollout in the 5G network evolution journey. Of course, with different customers, the initial contract scope spans from this type of almost full-fledged contract to contracts that are small with, for instance, 2 or 3 core network functions and then expanding as customer plans evolve and mature. This slide shows the typical structure or phasing for a Tier 1 large CSP with a very large network. And the dates that I'm sharing for the different phases, the stages you can see on the slide, can vary depending on which use cases the customer will deploy. The less use cases, the shorter the phase is; the more use cases, the longer. So in the first phase, the first, we call it network preparation phase from contract to first go-live, this phase can take 9 to 18 months. And it includes network and software deployment work for both the customer and for us with very limited sale for Ericsson. This phase also includes the development of customer and country-specific requirements, if any. The next phase for the initial launch and customer onboarding can take 9 to 15 months, with initial software sales and service delivery sales for us. So this is really the first time that we see the money out of the 5G Core contract. And this phase includes, of course, continued deployment costs and life cycle management costs for Ericsson. And the third phase, more long term, is really a multiyear expand and upsell phase and includes subscriber and capacity growth. It includes the deployment of additional use cases, and it includes the deployment of any attached product that we manage to sell to the customer. And this phase generates recurring revenue for us across software and support and also revenue for any additional capacity and the additional use cases and new attached product sales. Costs are related to life cycle management of the deployed solutions and deployment costs of new use cases and new products. When I say life cycle management in the second and third phases, it essentially means to deploy software updates and upgrades. The time lines I just shared are for 5G Core deployments for large CSPs, also called Tier 1s in the industry, and in the current early adoption of 5G stand-alone and with the current industry maturity. With increased automation, we expect these phases to be shortened. For smaller CSPs, the time lines can really now be shorter because of less-demanding requirements, smaller networks or a willingness to go with a larger number of pre-integrated software products from us. And the time lines can also be shorter when it's an existing customer. R&D at the bottom of the slide here is generic and it's fundamental, of course, foundational you can say, for all the contracts. And as a reminder, we do not capitalize R&D, and we have amortized all previous R&D capitalization. Staying in R&D, there is limited country-specific and limited customer-specific R&D efforts typically. But break-in and competitor swaps drive additional product customizations, which is one of the reasons we're increasing our development costs, our R&D costs in parallel with our market share gain. Let's go to the next slide. The 5G network evolution has started in the leading market region. 20%, 25% of the subscribers are on the first version of 5G today. And the first version means 5G nonstand-alone with new radio in combination with a node core architecture. Most, let's say, practically all existing 5G deployments are focused on consumer use cases across MBB, mobile broadband, and fixed wireless access. And as the network evolves to the stand-alone deployment version, the basic enhanced mobile broadband offerings can evolve and advanced business-to-business and business-to-business-to-consumer offerings can be created and offered. In other words, the 5G enterprise opportunity can materialize and scale. And these new use cases will drive increased connectivity and core network capacity with new types of devices. For instance, starting with the advanced wireless WAN devices from Cradlepoint available today, managing connectivity to, for instance, sites and vehicle; the high-definition 5G video cameras used for [indiscernible], a remote live event and broadcasting production, and the latter not only adding devices to the network [ here, ] requiring reliable, massive uplink data capacity. To enable and support those use cases, there is also a need for additional BSS, OSS and network functionality. For the enterprise opportunity, we developed portfolio capabilities used directly by the CSPs themselves and also by business area, Emerging Business for the prepackaged solutions sold to enterprises via the communication service providers, for instance, the on-prem private networks on this slide. In our latest mobility report, we forecast that this evolution will lead to more than 4x increase in data from today to '27, and 62% of that traffic is expected to be on 5G. And by then, 80% to 90% of the subscribers in the leading markets will be on 5G by that time, dominated by the stand-alone architecture. While in the lagging markets, the penetration will be between 10% to 40%, most likely, many still on nonstand-alone architecture. In addition to deploying 5G for consumer use cases, market-leading CSPs are trialing today the initial enterprise use cases, such as network slicing use cases. And again, today -- and I won't emphasize why we're still on this slide, but there's a significant difference in time between when market-leading CSP deploys 5G and when the mainstream CSP deploy them. We're talking years. Our strategic choices, our gained market position and the market evolution are the fundament for improving our performance towards profitability. Our long-term target remains at 10% to 12% EBIT as visible to the right on the slide. And let's go through the main drivers to get there: sales, gross margin and OpEx. Let us start with sales. As you saw from the previous slide, the 5G Core stand-alone market window is open. And the contracted 5G Core and attached sale will drive our sales volume. The net sales of the awarded 5G Core contracts start to become visible when the networks go live. And the revenue from those contracts grows with the number of registered subscribers. So logical revenue is starting now in late '21 and will then continue to grow quarter after quarter. And like I said before, customer decisions made now mean many years of future business. There, supplier choice of 5G Core is a long-term commitment. With the continued evolution of our customers' 5G business and use cases, our leading position in 5G Core provides opportunities for additional sales in capacity, in core network features and in additional software solutions from other areas of the portfolio, what I described as the attached sales. Our ambitions with the CSP enterprise and service orchestration portfolios are expected to be visible in net sales in '23 and onwards, as dedicated networks business scales up and edge and network slicing-based offerings are commercialized. Moving on to gross margin. We are on a gross margin improvement trajectory since early 2018, increasing our gross margin from 30% to more than 40%, and this journey will continue. Our transformation towards software-based solutions will lead to long-term gross margin improvement to increased ratio of software and recurring revenue driven by 5G Core and the attached portfolio. Cloud-native technology comes with a lot of advantages, and one is a possibility to create an automated software pipeline with updates and upgrades from us, a software provider, all the way to the live environment of the customers. We call this in the industry continuous integration and continuous deployment, or CI/CD for short. And the increasing number of customers subscribing to this concept means also an increased number of software subscriptions that drives up our recurring revenue ratio. Investments in automation in our operations will make us more efficient across both R&D and service delivery or systems integration. Accelerated by the pandemic, we're approaching our next level of delivering services more efficiently through increased remote delivery, test automation and reuse of assets. And I want to emphasize that the gross margin improvement up to '22 are offset by the initial 5G Core deployment costs associated with introducing new products to the market and the higher costs associated with swapping out some of our competitors. We underestimated the pace of our business success and the rate of swap-out deals in our previous plan. Let's take bucket #3, OpEx. The evolution of our portfolio towards cloud native will increasingly create efficiencies in R&D. For instance, through easier reuse of contained pieces of software, less dependencies between different software modules and easier to automate testing. Earlier this year, we decided to prioritize our long-term ambitions to secure a market-leading position with a competitive cloud native portfolio, especially related to 5G Core. We chose to not sacrifice the long term in order to reach short-term goals. We are convinced that 5G Core is a vehicle for Digital Services future, and we're investing to ensure it holds true, the consequence being a significant R&D investment in 5G Core, adding expense in the P&L short term, peaking at the end of this year and the beginning of '22 to build the value for the mid- and long term. We also increased the R&D investments in service orchestration, including network automation of both core and radio and in evolving the portfolio to enable our customers to support their enterprise customers' digitalization using 5G, slicing, edge solutions when doing so. So to conclude, we've made choices, and we've set the strategic direction and going forward in our strategy execution, starting with a business perspective. In the short term, we prioritize to grow revenue through 5G Core and attached sales, which improves the business mix through an increased share of software and recurring revenue. We will continue to lead in 5G mobile broadband. But our ambition is to also capture 5G enterprise value together with the leading customers with a clear strategy to expand their enterprise business. Looking at the portfolio, we focus our R&D investments to have our entire growth portfolio cloud native in orchestration solutions and to enable an increase in automation for both us and our customers. We're also evolving the portfolio to enable the emerging 5G enterprise business opportunity and with our portfolio and through contributing to the business area, Emerging Business portfolio, and this will just get stronger over time. And then from an operations point of view, we focus on accelerating our transformation, making it more streamlined for software-based and industrialized solutions and increasing the cloud native and automation skills in the organization even more. Over time, we're aiming for a full customer adoption of cloud native and automation with the capability to, together with our customers, automatically update and upgrade our software in their live network. These priorities are the foundation for our long-term success and are ever present in our decision-making. We're convinced our strategic choices are the right ones, and our business momentum underpins it. We're past restructuring a major portfolio shift. In fact, the business area is really completely different to a few years ago in terms of competence, especially cloud native competence as a portfolio, business profile and business momentum. And I dare to say that the coming years are really all about strategy execution. With that, thank you very much for your attention. I'm now very eager to hear and discuss your questions.

Thank you, Jan, for that presentation. And so the next step then, operator, is -- or Mark, is to open the Q&A. So Mark, can you do that, please?

[Operator Instructions]

Mark, I don't have the vision here. I don't see who's actually on the list. Can you maybe open up for the first question? I have -- okay, I see it now. The first question is from Frank Maaø at DNB.

My first question is relating to actually the part that you mentioned about CI/CD and gaining the bridge on R&D using that cognitive capability as a way to gain gross margins and operating leverage in the business over time. To deploy -- so far, from what I've heard from some industry contacts is really that customers in the CSP space typically are quite conservative, right? And you also mentioned that increasingly, we have seen some -- more and more customers buying into the concept of CI/CD and the whole product being delivered more as a Software-as-a-Service offering perhaps, where you can actually gain leverage on economies of scale through centralized way of delivering things. Would you say that, that is still challenging, especially with the Tier 1 customers that you were referring to? So would that be more easier to get acceptance from the more mainstream and smaller operators? And how do you -- would you manage customization requirements from customers and so on and really in practice gain that leverage?

Yes. No, great. Thanks for the question. So the -- you would not believe when we spoke about CI/CD 3, 4 years ago, the level of the awareness and interest and confirmed plans to go down that route was not very high. But today, it is very much the case. It's a requirement for many operators. And then the -- how to say, the competence and the capability to actually go down the CI/CD route varies operator-by-operator. But I would say to answer your question that we have some of the biggest Tier 1 CSPs in the world, who are one of the most demanding actually with regards to CI/CD. But you also see some of the more smaller Tier 3 -- Tier 2, Tier 3 operators who are also very involved. So it depends. It's not so much the size, actually. It's more within the CSP, the competence, the maturity, the level of investment, the level of preparation that they have done in order to go down this path. And so it's not I can't go to a country and say, here, they will be more conservative. It's really defined by that particular CSP, how they work. But over time, like we say in one of the final slides, we see that everybody will go down this route. It is absolutely fundamental. It's an opportunity and it's a way also to improve quality and to reduce costs. So we -- I don't know if that answers your question, but it's -- that's how we see it basically. And we are so totally committed to go down this path. This is one of the opportunities we have with the new technology to be much more agile compared to how we've been operating in the past. Maybe another comment on this is from a security point of view as well. It's extremely important to have this -- to ensure a higher degree of software freshness, it is also fundamental to implement CI/CD. Thanks for the question.

Thank you. You're good with that, Frank?

Yes. I would have a couple of other questions as well, but we can have them later if we have room for that perhaps.

Sure. Sure. We will move to the next question. Thanks, Frank. I have the next question coming from Simon Leopold from Raymond James.

I imagine the question I have is fairly complicated. So I'm sort of looking for maybe broad strokes to understand a little bit more about the structure of how you present your contracts to customers. In other words, are these deals typically perpetual licenses? Are they subscriptions? Are they often written based on the number of subscribers that the operators have? So the first part is understanding what the mix is of contract types. And the second part is trying to get a better understanding of why historic deals have been unprofitable in that. I assume the scope of work was different than what you had assumed. I want to understand why you couldn't charge the customers for a change in scope. It just feels to me that the contracts maybe weren't written well, and that's sort of the root of my question.

Great. Great question. So I'll take the first one first. So our contracts used to be more along the lines of perpetual licenses but then with some capacity limitation. So, "Here you go, you can use the software for whatever you want" but some boundaries, but more of the perpetual type. And we, like many others in the industry, have gone then from these perpetual licenses to more subscription-based licenses. And what we've seen is -- I didn't talk about it so much here. I touched upon it, but I didn't really quantify it. We've seen a significant increase in our recurring revenue from late 2017 to now in the end of Q3 this year on the back of this. It's both driven by increased support revenue but also by an increasing portion of recurring license revenues compared to what we had in the past. It's a significant increase, and it gives us so much more stability when we go into a new year with this recurring profile. The contracts were also defined here, and it's essential when I went through here, the journey that our software can enable for the CSPs as we have to limit it by functionality, of course, capacity and use cases. Is this for MBB? Is this for massive IoT? Is this for critical IoT? Is this for slicing? So maybe initially the CSP, the customer doesn't want to -- doesn't have defined plans to -- for all these different use cases and is not interested to spend x for all those use cases. So it's really important there to be able to structure the contract in a way that matches what the customer actually wants to use a software for. So I think we've become as an industry and definitely as well here much better at structuring our commercial packaging in a better way compared to what we did in the past. And then from what you talked about, change -- your question. So I think we -- I don't know how long you follow Ericsson, but we had -- back in '17, we had 45 critical and nonstrategic projects where, I think, we have taken on a scope, which was very large. And some of that scope was also coupled to transformation of processes and ways of working. So basically, a BSS, a full-stack contract, which is not just deliver this product and it will be accepted but simplifying catalogs for the customers' changing processes. And as we all know, right, these type of projects are quite complex. So it might be so that we didn't write the contract well enough. But I think a big part also of us having financial issues with those contracts was that the scope was simply very, very large. So we have gotten better. If I take the BSS journey, if I double-click on that, the type of contracts that we have now with BSS are not with those high-risk profile. It's really -- we've learned our lesson. We have the scar tissue here on our back. Now we are much more precise in our contracting and make sure that what we commit to, we can actually deliver. So thanks for the question.

Thanks, Simon. I will move to the next question from Sébastien Sztabowicz from Kepler Cheuvreux.

Coming back to the loss-making nonstrategic projects, have you made any, I would say, progress on -- or do you see any issue in the execution of the remaining large noncore project? And attached to that, are you still comfortable with the level of provision that you have on your books right now? And the second one, what -- which is more linked to the swap cost. Could you help us a little bit quantify the size of the impact of the swap cost on your margin right now? And when do you expect the swap costs to decline or even disappear?

Great question. So the first one, the remaining few, which is why we don't report them anymore, have the risk profile of any other project. So we have finalized the great majority, and the other ones are now basically as any other project. And I think for me, it's -- I want to take the opportunity to really thank the teams that have worked so hard in concluding these projects. So it's really part of what we didn't do so well in the past and how we've executed on the decision we took. In terms of the impact of these competitor swaps on our margin, I can't think -- I don't think I can quantify here on this call, but it has -- it definitely has an impact. It's -- but it's, in a way, a positive problem because, what I said, these contracts are long-term contracts. The customers will stay with the 5G Core suppliers that they pick for a long time. So yes, it has a temporary pressure on our margins. The projects are a bit more costly to deliver compared to what we had planned. And what I also mentioned is we didn't plan for these market share gains that we've seen when we set out here in 2018 and '19 on our journey. So I would say really it's a little bit of a positive problem to have. Yes, it has a short-term financial impact. But I am quite sure that the margins will become more -- continue to improve. I want to emphasize as well that beyond the 5G Core -- the pressure on the margin for the 5G Core project, the SI margin, the service delivery margin across all other deliveries, be it BSS, be it OSS, be it cloud continue to improve. So the pressure is really related there on the SI side on the 5G Core project and, in particular, with the competitors swaps. I think maybe coupled to this as well is why it's so important for us to continue to invest in automation. This is -- will also help us to continue to improve our service delivery margins and our gross margin.

Great. Thanks, Jan. Thank you, Sébastien. We'll move to Richard Kramer at Arete.

I guess echoing Simon's question, a lot of us are concerned that the long-term contracts you're signing will have a commitment for Ericsson that are uncertain as you progress with the projects and deal with the legacy systems. And I guess you've addressed that up to the point you can. But my question would be slightly different, and it's also kind of for Peter. If we would look at a comparable software business, we would expect to have the management give us metrics like net dollar retention, annualized recurring revenue. I mean you -- Jan, I know you've seen some of our research on the software space and you're familiar with those sort of metrics. Do you have a plan to give us those sort of metrics to measure the growth of the software base that you're building up over time in '22 or beyond?

I think it's a very fair question, Richard. So yes, the top of metrics that you see, especially in the SaaS industry, I think we should take it away, Peter, as a message here from the analyst community to give a little bit more visibility, especially now that we shift to a more recurring profile compared to what we had in the past. I think it's a very fair question, Richard.

And I guess on that, Richard, we have tried to be a little bit more transparent on especially [indiscernible] like [indiscernible]. But I hear you, and I think maybe on a more recurring basis, as we report our quarterly result, if we can be more transparent here as well, I guess that would help. Thanks, Richard. We will now move to the next question, which is from [indiscernible] at SEB.

One question -- coming back to what you said that there's a significant kind of time lag between when the leading kind of, I don't know -- [ core ] of CSPs are investing in stand-alone 5G or core and when the majority catches up. That is, of course, the definition of leadership in this and the layering of it. But would you say that there is an increasing acceleration in catch-up when -- because as you yourself have issued a study and we see a lot of other places where we are now actually seeing the difference in ARPU progression from the Tier 1 and the Tier 2 and the Tier 3 and churn CSP in certain markets? And the difference is often how much they can deploy actionable 5G apps and stuff like that. So do you see this lag as possibly shortening? And is it high on the radar over the second and third tier guys, which are increasingly commoditized now?

I think it's a super, super good question. And it's probably worthwhile hours to discuss that because you would think...

Yes. But some of the core...

No, no. But I'll try to do as simply as I can. The -- you would think that this is going to be easier to deploy. This is going to be easier to capitalize on in order to launch new cases. But I think that's making a disservice here to the industry in -- by stating that. I think if you want to launch simple services, yes, fine, okay. It's probably not that more complex compared to before. But if you really want to capitalize on the new 5G-based enterprise opportunity, you need to put in place a foundation. And the previous question was alluding to that. We've launched CI/CD. CI/CD is just one aspect of this. But imagine slicing, do -- will I sell slicing to enterprises? Will I sell it to aggregators? How will I sell slicing? How would I package it? With what kind of parameters will I expose that slicing product to my customers? And then you realize, wow, okay, so I probably need to modernize my catalog. I probably need to modernize my order management. I probably need to modernize my -- definitely my orchestration, my service orchestration, my assurance. I probably need to put in place better exposure capabilities, both from a network point of view but also how I expose APIs here to let others consume APIs from my network. And you realize, okay, I need to put -- as a CSP, I have all these different use cases across different verticals that I want to monetize, to address. But I need to put in place -- beyond just investing in 5G Core, there is a foundation or a platform that needs to be put in place. And the better I am at doing that, the more agile I will be at launching different use cases. And to then answer your question, do I see a shortening of the lag between -- or the delta here between the leaders and the followers? I'm not sure. I'm not sure. I think if you did a survey here, let's say, in Europe, how many CSPs in Europe have put in place a multidomain service orchestration. How many CSPs today here in Europe have put in place these 3GPP-compliant functions, exposure functions like NEF and SCEF? And I think we would be maybe a little bit surprised here that actually quite a few have not come very far. So yes, they are launching nonstand-alone and some of them are launching stand-alone, but there's a level of investment here that needs to be put in place in order to really capitalize on that 5G opportunity. And there are no shortcuts, what I'm trying to say. You have to roll up your sleeves and put that platform in place in order to reap the benefit. So -- and I know the Digital Services portfolio is complex. But basically, what we're trying to do, I try to give a little bit of a glimpse here in the interim of enabling both simplified basic services and more complex services. This is exactly what we're trying to help CSPs to do. I'm not sure if I answered your question, but I tried.

Yes. No, you did. But my kind of question is more is this now increasingly noted at a high level in the CSPs? That is, is there acceptance? Even if they haven't started yet and there's a long way to go, but are they understanding this to a certain extent? And is it -- are they ready to take action in the coming years? Are they seeing it?

I think there's a higher realization. But then the devil is in the detail, what does it actually mean? And there, I think there's too many CSPs and many opportunity where that realization hasn't landed into concrete plans, okay, "This is what I need to do above and beyond what I'm doing today." So there's a great opportunity. And in particular, the CSP is willing to partner with hyperscalers, partner with aggregators, partner with different parties in the ecosystem. There's a great opportunity, but I'm -- yes, I think there -- I wish there was more progress in landing this into concrete plans of how to do it, okay? But that was a good question.

Okay. Thanks, [indiscernible], for that question. We will move to -- I think we have Frank Maaø back from DNB.

Just an additional question, if I may, then on a couple of competitive developments over the last week or actually announcement. So we've seen -- you mentioned, first, Japan, that you've increased the market share in Japan. And last year, you announced this 5G dual core contract with KDDI. But this week, also Nokia had a quite comprehensive announcement of various set of software -- add-on software in addition to a number of [ VMS ] there. So to what extent are you stealing with a significant share in KDDD (sic) [ KDDI? ] That's my first question. And the second question on the competitive front is really with regards to what was the reference to private networks that you mentioned as kind of the third layer of growth going forward. And we saw AWS now launching an offer in private 5G this week, potentially with -- using some small competitors of yours and so on and pre-integrate them, a lot of third-party stuff and distribute that. But how do you -- do you see that? Perhaps you're a bit overengineered with that kind of telco CSP type of full-stack product in the private 5G space. But rather, you can see some data on the simpler solutions being pre-integrated and distributed by webscalers like AWS or Microsoft in the future for at least a big part of the private 5G market.

It's a super good question again as well. If I start with the first one, typically when -- especially a large Tier 1 CSP like KDDI, they typically, and you saw that in the example that I shared on the slide, you didn't see 30 functions. We saw -- I think there was 14 from us, which has been really good. But typically, a Tier 1 says, "Okay, I'm going to use somebody for policy. I'm going to use somebody for charging. I'm going to use somebody for user plane and maybe the same vendor for control plane in 5G Core. And that's in fact what happened in KDDI. So KDDI picked us for 5G Core with many function. And what you could see in that press release was that Nokia had been picked for policy and for charging and for UDM, I think. Those were the main areas where KDDI selected Nokia. So this is -- I would say the norm is that you find that the CSP actually divides that, let's say, whole cake, not just [ packet core by sphere ] but the different surrounding functions across the different vendors. This is just how it is. 3GPP, it's the beauty here of being able to mix and match. I would say in the KDDI case, now that we are super comfortable with the market share that we won and are in our best here to fulfill on our commitment. On the second question, with AWS launch a few days ago in the private network area, I think, first of all, competition is good. It's great to see the innovation here that they can bring to the market. We have a very competitive private network solution. The latest product or version is called [ EP 5G. ] And what we've done there, [indiscernible] big, big massive core that works with very high capacities. We've scaled it down. We've industrialized across radio and core and management, something that we think is very competitive from a commercial point of view, very competitive from a life cycle managed deployment and life cycle management point of view. So we're really holding our own. And I think that's one of the benefits of our offering, is that it's tightly integrated. You don't have to go in, "Okay, I'm the system integrator and I have to take on all kinds of integration pains." Now what we have is something that is really pre-integrated. And also, maybe why are we able to do that? Because we're capitalizing on the cloud nativeness of our software. So it can scale up to very, very large volumes, and it can scale down to very low volume. So let's see now how successful we are with our offering going forward. But to me, in general, I think it's just great to see the innovation that the hyperscalers can bring to the table. Great question. Thank you.

Thanks, Frank. So we will move to the last question of the session, and that will be from Daniel Djurberg of Handelsbanken.

Yes. A comment on -- or a question on the 9 live networks with the 5G Core. And if you could perhaps comment a little bit on the remaining 36 to go live, if you have any comment on what to expect during 2022 and versus '23 and later? And also how this could impact the momentum and revenue recognition for the OSS, BSS, et cetera, that you had quite good momentum with according to the Q3 report?

Yes. No, I think -- so the other 4 solution areas are progressing well, both top line and bottom line. With regards to packet core, again, this is where, like I -- the picture I tried to paint is that we have signed many contracts, and now it's about reaping the benefits of revenue from those. But to answer your question, we expect a regular cadence here of launches. First, soft. Typically, the operators will go soft first but then full commercial. So the cadence, I don't know if it's going to be 1 or 2 per month or 3 some months or 4 some months, but it's going to be -- and I think the biggest measure of our success apart from -- or our progress, let's call it, during the next quarters will be these go-lives of the contracts. All the contracts we've signed, when they go live, this is when we will, of course, see then the -- a big revenue -- the revenue milestone in those contracts or at least initial revenue milestone of those contracts. So to answer your question, again, regular cadence of the contracts we signed during '22 will go live, have to go live. I think you've started to see it now since that went live in October. SoftBank went live. Optus went live here with their go-live. TPG went live. An operator in Canada also had a soft go-live just now. So it's going to be, [indiscernible] -- Dan, I'm sorry, a regular cadence here over the next weeks and months. Thank you so much.

Thank you, Daniel, and thank you all for the questions and for participating at this event. And as I said in the beginning, we will have the second presentation in this sort of line of different events with Fredrik Jejdling here on Tuesday at 4:30 p.m. Central European Time, so Thursday, December 7. So by that, thank you very much, Jan, also for making that presentation.

Thank you.

And we will hear from you on Tuesday then. Thank you. Bye-bye.