All those demonstrators in the Middle East using mobile technologies to connect and shoot video and organize had to be getting their phones from somewhere, right? One of the sources is Nokia, which has also provided networking equipment to several countries on the U.S. State Deparment’s list of so-called “terrorist states,” according to filings with the U.S. Securities and Exchange Commission.
To be clear: None of this is necessarily illegal. But still, after facing a bit of backlash, Nokia seems to be beating a hasty retreat from one these countries (Iran) even while defending the sales of mobile-related phones and networking equipment as providing a social benefit. And that raises an interesting dilemma.
Nokia and others have faced criticism for providing technology that such countries use against their citizens. But if telecom companies abandon such countries, how will it impact citizens’ ability to get and use mobile technology? If these countries can’t get equipment, how will they maintain their networks? And if citizens can’t get new phones, what happens when their current ones go kaput?
There are no clear answers, of course. And it’s likely other overseas telecom providers would step in to fill the void. But Nokia’s recent filings got me thinking about how to set the right balance between arming activists with valuable tech tools while making sure hostile governments aren’t using them against their people.
First, some context. The U.S. Securities and Exchange Commission has been scrutinizing ties between big businesses and countries labeled “terrorist states” by the State Department. These primarily include Syria, Sudan, Iran and Cuba. As I mentioned, there’s been a lot of concern that technology in these countries is being used against citizens, activists and insurgents. Over recent months, the SEC has been sending a series of letters to a wide variety of companies asking for broader disclosure of activities in these countries.
An SEC spokesman declined to confirm whether the recent flurry of letters represents a new initiative, other than to note that the agency created the Office of Global Security Risk in 2005 at the direction of Congress. And it’s that office that has been sending the letters.
While trade is heavily restricted to these counties, it’s not necessarily illegal. Companies can get limited import-export exemptions. It’s even more complicated in the case Nokia, which noted that it has a Finnish subsidiary which gives it a bit more latitude to operate in such countries.
The author of Nokia’s letters to the SEC, Kristian Pullola, a senior vice president and corporate controller, did not respond to an email requesting comment. A Nokia spokesman said the company did not have any comment on the letters.
The SEC is exploring the idea that any connection with these countries could potentially materially impact either the financial bottom line or reputation of companies, and so deserves more detailed accounting in securities filings. Nokia acknowledged as much in its response, filed January 31:
“We recognize that dealings with certain countries including Iran, Sudan and Syria can be deemed sensitive. Also, some of our current or potential investors have policies or are under a legal or other regime preventing them from investing in our securities or that encourage or require current shareholders to not acquire more shares or to decrease or abolish their shareholdings.”
The size of Nokia’s business in three of countries (it has no business in Cuba), is not huge:
“Our aggregate net sales to customers in Iran, Sudan and Syria in 2011 accounted for approximately 1.4% of Nokia’s total net sales, or EUR 545 million ($726 million). Our aggregate net sales to customers in those countries in 2010 accounted for approximately 1.3% of Nokia’s total net sales, or EUR 542 million ($722 million). Our aggregate net sales to customers in those countries in 2009 accounted for approximately 1.2% of Nokia’s total net sales, or EUR 511 million ($681 million).
Iran accounts for the bulk of the most recent sales in 2011, at about $470 EUR, followed by Syria and then Sudan.
The products sold include “mobile devices and services” and network equipment through Nokia Siemens Networks (its networking joint venture with Siemens) to customers in Iran, Sudan and Syria in 2009, 2010, and 2011. While the companies believe the products are not for use by governments or government-backed organizations, it says making such distinctions can be hard:
“To the best of our knowledge, the parties we have agreements or commercial arrangements with in Iran and Sudan for the sales of our goods are not a part of the government nor directly controlled by the governments. However, especially in Iran and to a lesser extent in Sudan, the separation between the private and public sector is not always evident. Therefore, we cannot exclude the possibility that also seemingly private business may be under a degree of government-control through multi-layer ownership or factual influence. In Syria we believe that the contracting parties, while not directly a part of the government, may be under a large degree of influence and in fact government controlled entities where the ultimate decisive powers can lay within the government of Syria.”
Perhaps the most ethically dubious business issue Nokia might have had, and the one that brought it the most criticism, was its involvement in helping Iran build a communications “monitoring center” in 2008. Nokia Siemens, however, sold that business the next year:
“Nokia Siemens Networks is aware of certain reports that the Iranian authorities use communications technology to suppress political activity. The news reports, which may have inaccuracies, we believe refer to the fact that Nokia Siemens Networks provided a monitoring center to Iran in 2008. Nokia Siemens Networks divested its monitoring center business in 2009 and has not since then provided and will not provide in the future monitoring centers to any country. We believe that by exiting the monitoring center business, there is less potential for misuse of the technology provided by Nokia Siemens Networks.”
According to reports from a Washington, D.C. Iranian monitoring group, there was a backlash among some quarters in Iran for Nokia’s role in supplying such technology to the government. Nokia signs were defaced, and people created posters like the one above, which translates as saying: “New Nokia product, produced with the cooperation of the Islamic Republic of Iran” that is “capable of identifying, torturing and killing Iranian youth.”
Going even further last fall, Nokia made a strategic decision to get out of Iran, even though its device and commerce business almost doubled there over the past three years:
“Nokia Siemens Networks has taken the decision to exit from Iran in a controlled manner mainly due to the difficult business environment in this country and additionally its focus areas in line with its new strategy announced on November 23, 2011.”
As part of that exit, it’s trying to divest its networking business there as well, which currently employs about 203 people. Nokia Siemens stopped taking new customers in Iran three years ago, and that business has been declining. Nokia Siemens’ “new strategy” is to focus on mobile broadband, and as such, Iran apparently doesn’t fit into that market. Which means as phones get more powerful, it’s very possible the Iranian people will likely be stuck with simpler, slower phones, and possibly older networks.
Nokia’s businesses in Syria and Sudan are significantly smaller. And the company said it didn’t anticipate making any changes in terms of the size of its presence in these two countries.
In its defense, Nokia does try to raise the point (as others have also argued) that these technologies have a lot of benefits to the people in these countries and their ability to improve their lives:
“Nokia believes that mobile device usage has positive social and economic benefits. They also increasingly connect people to others via the Internet. This new level of connectivity provided by mobile networks and devices has generated many social benefits. More than half of all the mobile devices in use around the world are in the hands of people living in emerging market economies. In these countries a mobile device often provides people with connectivity for the first time. Mobile technology has given people a way to bridge a digital divide and connect through voice and to the Internet for the first time. We believe that mobile technology provides great social and economic benefits, boosting economic development and improving quality of life. We believe that the world is a better place with mobile technology, than without.”
Perhaps, but it seems that if tech companies exit such countries continues, regular people are going to have a tougher time getting access. Which, of course, could be just fine from the point of view of repressive regimes.
In the end, the SEC seemed satisifed with Nokia’s disclosures. In a letter dated Feb. 9, the SEC decided to take no further action.