Accused of aiding human rights abuses, Sandvine is off the US naughty list, renamed AppLogic Networks and promising to be a good DPI citizen.
About a year before Donald Trump began pelting Canada with tariffs, the name of a little-known Canadian business showed up on the notorious US Entity List. In February last year, Sandvine, the provider of a technology known as deep packet inspection (DPI), suddenly found itself hit by the same trade restrictions imposed on the likes of Huawei, a Chinese equipment vendor suspected of espionage or worse. How?
Sandvine's crime, as far as the US Department of Commerce saw it, was to have sold its technology to some unsavory regimes, which had used it in downs against fans of democracy. DPI technology allows operators to scrutinize the traffic that flows over their networks and determine its origins and destinations, but in the wrong hands it can obviously have a sinister purpose. The accusations leveled at Sandvine were that repressive governments in Egypt and previously Belarus had used its DPI tools to flush out opponents.
For Sandvine, then reckoned to make about $200 million in annual sales, an Entity Listing would prove to be the "kiss of death," said a well-informed source at the time. Customers were expected to abandon it just as Sandvine struggled to obtain essential products from US suppliers. But financial backers descended on Waterloo, Ontario, where Sandvine has its headquarters, to attempt a last-ditch rescue plan, and they have pulled it back from the brink.
It reemerged into the commercial light this month, sporting a different name, a new boss and a revamped product portfolio. Francisco Partners, the private equity company that had owned Sandvine since 2017, is out. AppLogic Networks, as Sandvine has been rechristened (taking the name of a core product), is for now under the control of various lenders that were still owed about $430 million in December last year, according to an in-depth report from The Logic, a Canadian publication focused on the business and tech sector.
Proving US authorities are convinced by its transformation, the company was also removed from the Entity List in October. "We'll be transitioning out of all of the non-democratic business by the end of this year, we've hired an HR board advisor, chief ethics and compliance officer and there have been a variety of other commitments," said Mark Driedger, who succeeds Lyndon Cantor as CEO, on a recent call with Light Reading.
But can AppLogic Networks survive after all that has happened? The big concern from a purely operational perspective was that it would struggle to retain contracts following its inclusion on the Entity List and lose most of its customers. By October last year, its corporate and ethical makeover had already forced it to quit 32 non-democratic countries, even if there was no evidence its products had been used in human rights abuses.
For anyone inclined to feel unsympathetic, big kit vendors like Ericsson continue selling products to regimes that fall into the same category, including Egypt. A hasty withdrawal of DPI technology that led to Internet blackouts could also have provoked concerns at State Department level, said Driedger. "We wanted to make sure customers had adequate notice and continuity support during the period when they're replacing us," said Driedger. "Human rights infringement of the type that was alleged is an issue, but access to the Internet is also a human rights concern."
There were still another 24 undemocratic countries to go when the company issued its last progress report in October. All that will inevitably shrink revenues for AppLogic Networks. Even more troubling was the possibility that customers in democratic countries would walk away from the beleaguered supplier.
"That was obviously a big focus of ours," said Driedger. "We made it a point, particularly with our top 45 large customers, to really make sure they understood what was going on step-by-step and what we had done from a business-continuity perspective." Check-ins were done at the end of last year and not one of those 45 customers had then decided to go elsewhere, reports Driedger.
It probably helped that Sandvine – even if it did not have a monopoly on DPI – turned out to be rather good at the technology. "We've been using AI machine learning in that for quite a while, and we have a very sophisticated network to train that, which is a large part of our core IP," said Driedger. He boasts a 95% success rate in classifying application traffic and says trials done with large US operators showed competing products were usually in the 60% to 70% range – a huge difference.
But the company's financial status is not wholly clear. The lenders now in control have injected additional capital into the business to reduce debt to a level commensurate with the size of the company and provide it with sufficient liquidity for the current fiscal year, according to Driedger. It is "cash-flow positive from operations," he says. While he won't disclose numbers, Light Reading understands that annual revenues are tracking at about half their previous level.
AppLogic Networks also now has zero involvement in hardware. Its retreat from that space has been underway since 2019 following the earlier merger of Sandvine with Procera, another network analytics vendor Francisco Partners had acquired. "The first transition we made was in the 2019 timeframe, moving from proprietary platforms onto commercial, off-the-shelf hardware, but we still had dependencies on specific attributes of the hardware," said Driedger. Today, AppLogic Networks can apparently run on a much wider variety of hardware platforms, using a systems integrator called Arrow. Having no hardware role is also "rather fortuitous given the current tariff situation," noted Driedger.
Many telcos will be happy the company has survived. Besides developing valued technology, Sandvine had regularly published a Global Internet Phenomena report, which pointed out that a handful of giant content companies were responsible for two-thirds of all data traffic carried over fixed and mobile networks. Operators in Europe insist those "large traffic generators," as they are disparagingly called, should contribute more to network costs. Whatever one thinks of the arguments, the reports AppLogic Networks says it will continue to provide give telcos some reliable data to brandish.
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