The full impact of encryption specialist Kudelski's recent problems with its 'Aladin' smart card system – which TVBEurope first reported back in October – is now being revealed, writes Chris Forrester.
On March 15, embedded within US broadcaster's Echostar detailed filing to the Securities & Exchange Commission, came frequent admissions that Echostar was having significant problems with its Nagra encryption. "Our signal encryption has been compromised by theft of service and could be further compromised in the future," said the blunt Echostar statement. Echostar told investors that it recently replaced the majority of its older generation smart cards with newer generation smart cards. This process was completed during Q4 of 2005.
Kudelski quickly put its own statement out, admitting its cards had been compromised ... "We continue to respond to compromises of our encryption system with security measures intended to make signal theft of our programming more difficult."
Kudelski added that while the attack on smart cards deployed at Echostar has resulted in a signal compromise, recent generations S01, S02 and 206 smart cards have not been compromised. Kudelski CFO Mauro Saladini told Dow Jones on March 16 that a compromise of its technology applies to older cards that were installed in 2003 or before, "not the new cards."
Saladini admitted that the wording of Echostar's filing was "not precise" but stressed that Echostar was referring to the older cards, and that "we are putting electronic counter measures in place". According to Saladini, more than half of the cards at Echostar are older versions from before the last technology swap-out of 2004/2005, and Saladini's comments implied a difference of opinion on the Echostar statement of which - at least - suggested it has already swapped out the majority of its cards.
Echostar's business represents about 22% of Kudelski's annual revenues, and is Kudelski's largest customer. Echostar's latest numbers show they have 12.04m subscribers (up 10.4% y-o-y), with churn running currently at about 1.64% per month, although in Q3 last year churn hit 1.86%.