Ericsson CEO Börje Ekholm fell on his sword for the company having to write off nearly its entire $6.2 billion investment in Vonage Holdings, but pleaded with the investment community to withhold final judgement on the deal until the enterprise API market matures.

Ehholm took the plunge during Ericsson’s most recent earnings call when prompted by a direct question about who was ultimately responsible for both the Vonage purchase and the subsequent write down of two-thirds of that acquisition price.

“I’m accountable as CEO, no choice about that, so you can have that there,” Ekholm said.

However, Ekholm quickly added that the final chapter on that decision has yet to be written.

“But hold your horses a bit before you assess the overall transaction until we know if we can create a separate new market for network APIs,” Ekholm said. “I think that's where our focus was the whole time. Maybe we have not delivered on the current performance of the existing business. Take that. We need to improve that. So let's take a look at this in a few once we see how the market for network API pans out.”

Ericsson earlier this month took a $1.1 billion impairment charge in its Enterprise operations tied to the Vonage business. The carrier at that time stated the move was due to “lower anticipated market growth rates in Vonage’s current portfolio.”

“Given deterioration in the market environment and elective decisions we have made to refocus our investments in strategically prioritized areas, we have reassessed certain growth assumptions,” Niklas Heuveldop, head of Ericsson’s Business Area Global Communications Platform and CEO of Vonage, noted in a statement on the move.

Was Ericsson the only one to not see this coming? The $1.1 billion charge came less than a year after Ericsson slashed $3 billion from Vonage’s valuation, which was nearly 50% of the $6.2 billion Ericsson paid to acquire Vonage in late 2021. Ericsson at the time of that devaluation attributed the move to the “significant drop in the market capitalization of Vonage’s publicly traded peers, increased interest rates, and overall slowdown in Vonage’s core markets.”

Analysts immediately questioned Ericsson’s decision to acquire Vonage, pointing to a lack of fit for Vonage’s business into Ericsson’s operations.

“On paper it looks a little bit like square peg, round hole,” Zeus Kerravala, founder and principal analyst at ZK Research, told SDxCentral at the time.

Dell’Oro Group VP Stefan Pongratz also expressed some slight bewilderment about the deal due to a lack of clear synergies with 5G connectivity. “With carrier revenues now growing at the fastest pace in 10 years, and operators and suppliers slowly coming to terms with the fact that connectivity is a profitable business with upside potential if done right, it is somewhat surprising to see this pivot,” he wrote in response to questions on the deal.

Ekholm did have a few backers outside of Ericsson’s walls who saw a new revenue avenue for the vendor.

John Byrne, who was at analyst firm GlobalData but has since moved to IDC, thought the deal provided Ericsson with a “significant arsenal” to further expand into the enterprise segment, pointing to Vonage’s developer community as one the biggest benefits for Ericsson.

“As 5G continues to evolve, these developers could jumpstart development of more sophisticated network slice use cases,” Byrne wrote. “I think the acquisition is likely to have enterprise customers view Ericsson in a different light. To succeed they will need to make sure that the developer community remains educated and provide incentives to encourage Vonage developers to become loyal Ericsson developers.”

Network API hurdles remain However, Byrne more recently noted early telecom efforts to dip their toes into the API revenue stream have been lackluster.

“What’s been interesting is that a lot of the early activity has been somewhat rudimentary, if you will,” Byrne said during a recent IDC webinar. “It’s been almost a proof of concept on things like solving a simple problem, be it in anti-fraud or security or something simple.”

Byrne added that most of these early examples have involved a communications platform-as-a-service (PaaS) developer “can solve a simple problem like ‘I don’t want to have to do two-factor authentication, I just want to know my customer is secure.’ So that solves a basic problem.”

However, Byrne added that “it doesn’t really move the revenue needle very much.”

“What we haven’t seen so much is use cases and proofs of concept around the API sets that can provide more value like quality on demand, which is kind of the big driver here, but we haven’t seen a whole lot,” Byrne said.

Ericsson’s management has continued to support the deal despite the obvious hurdles.

“In an ideal world we would not have had to buy Vonage for $6.2 billion to unlock some of the hang up in the system,” Niklas Heuveldop, president and CEO of Ericsson North America, told SDxCentral in a previous interview. “The reality, however, is that when I talk to our partners, they get phone calls, and they talk to their developers and they’re just wondering and scratching their head about what’s all this excitement about 5G? I don’t get it. Then they come to us and say, ‘what’s all this excitement about 5G? What do I tell my developers?’ And then we look at each other and say, well, that’s strange because you have latency, you have network slicing, you have all these amazing capabilities. What part of that do developers not understand?”

That bewilderment also continues to be shown by market forecasts, which predict a substantial opportunity for operators in the enterprise API space. IDC, for instance, predicts the worldwide telecom and network API market will be generating north of $6 billion in revenues per year by 2028.

No interest in following Nokia in data center networking With perhaps the Vonage deal as an overhang, Ekholm also stated that Ericsson was not interested in pursuing a deeper expansion into the data center networking space, despite a recent push from rival Nokia.

That move has Nokia purchasing optical networking rival Infinera for $2.3 billion, which one analyst said is an ideal scenario for a space increasing reliant on scale. Nokia said the deal will increase the scale of its optical networks business by 75%, “enabling it to accelerate its product roadmap timeline and breadth.”

Jimmy Yu, VP at Dell’Oro Group, noted that the deal solidifies Nokia as one of the optical networking market’s big three alongside Huawei and Ciena. He explained that those two plus the enhanced Nokia will control around 70% of the worldwide optical networking space, excluding China where Huawei holds a dominant position.

“This is a pretty significant acquisition in that sense,” Yu said.

Despite the significance, Ekholm said Ericsson will not be enticed to move in that direction.

“I think they're in a very different position than we are,” Ekholm said. “They already have a business there. so, for them, it's kind of a rational acquisition. For us I think that's a market we serve through the access technology, … but seeing us to directly sell to data centers is rather unlikely.”