Hans Vestberg, CEO of Ericsson, discusses mobile broadband, vendor competition, and why differentiation is the name of the game.
The telecoms infrastructure market has been ruthless in recent years, and few of the big players that dominated the segment a decade ago still exist in their original form.
It is something that Hans Vestberg, CEO of Swedish telecoms vendor Ericsson, ponders as he contemplates the ongoing shifts in the industry. “If we count how many competitors we had 10 years ago and how many of them are left, we usually come up with zero,” he says. “Basically all the competitors in the shape they were are gone. There are some that have combined their assets and there are some new players that have come in. The only thing I am focused on is to see that Ericsson continues to be number-one.”
These changes perhaps best underscore the tough nature of the telecoms infrastructure business, with Western players including Ericsson, Nokia Siemens Networks and Alcatel-Lucent facing tough competition not only between themselves, but also from Chinese rivals Huawei and ZTE, and numerous smaller players.
However, Ericsson remains the world’s biggest telecoms vendor, and appears to be better placed than most of its rivals, judging by its last set of results for 2012. Indeed, its revenues grew by 5% year-on-year in the fourth quarter of 2012, to reach SEK 66.9 billion ($10.6bn).
And while profits came under pressure owing to a non-cash charge related to ST-Ericsson and a reduction of deferred tax assets – income was SEK -6.3 billion compared to a profit of SEK 1.5 billion in the fourth quarter of 2011 – it ended the year with strong cash flow and a full-year cash conversion well above target.
There were also some notable areas of growth that helped to offset a decline in network sales in some markets. For example, sales in sub-Saharan Africa were particularly strong in Q4, with growth of 11% compared to Q4 2011, while globally, the company’s support solutions and global services grew to represent almost 50% of group sales in 2012, compared to 42% in 2011.
For Vestberg, it is really a matter of managing the company’s broad portfolio to ensure overall growth. “Last year was great in services, which grew 50%, while networks on the other hand had a fantastic year in 2011, growing about 40%. In 2012 it was the opposite. For us, it is to play the whole portfolio we have at different times,” he says. “We had growth in the fourth quarter in networks. We haven’t had that for four quarters, so let’s see if that carries on.”
Continues on next page
And it is Ericsson’s broad portfolio that differentiates it from some of its competitors, such as Nokia Siemens Networks, which has narrowed its scope to focus exclusively on mobile broadband. “We see many of our competitors are focusing their portfolios on fewer segments. We still believe that we have a great opportunity to be the only vendor that can actually offer end-to-end solutions including technology and services, and that we will continue to do,” he says.
For Vestberg, the end-to-end aspect of Ericsson’s portfolio is key to allowing it to help operators deploy, manage and monetise their increasingly data-centric networks effectively.
“We are going to the new stages of the new world where data will be dominating the networks. I see our development being clear to meet that market, everything from the technology in the networks to the OSS/BSS and to our service offering that supports operators,” he says.
Moreover, as operators increasingly look to differentiate their services with offerings in diverse areas such as machine-to-machine communications, healthcare, mobile payments or IPTV, Ericsson wants to be able to work with them.
“These are for us very important investments,” Vestberg says. “First of all, for all operators the network will be key; they need the performance and the mobile broadband performance is going to be a key differentiator. The second thing is that if you really want to get into quality of service, with different types of charging, you need a different OSS and BSS that can cater for data, not voice. And finally if you want to go the whole way up and compete with the OTTs you need the machine-to-machine solutions, you need mobile payment solutions, IPTV solutions etcetera.”
Mobile World Congress
This was very much the focus at Mobile World Congress, the world’s biggest mobile exhibition, which took place in Barcelona on February 25-28. Indeed, after focusing on the concept of a “Connected Society” at last year’s event, Ericsson was busy at this year’s show demonstrating how it will actually help make the concept a reality.
Indeed the company was busy demonstrating its technology, including its voice over LTE (VoLTE) system, as well as two LTE Advanced carrier aggregation technologies, which allow operators to get the most out of fragmented spectrum.
Meanwhile, the vendor’s Antenna Integrated Radio (AIR) device, which offers compact integration of the antenna into the radio unit, reduces the cost of LTE and HSPA networks.
Other solutions on show included Ericsson’s Cloud System and Service Provider Software Defined Networking (SDN), which is designed to help operators’ networks be able to support cloud services. “If you think about the launches they are either to sort of improve the network performance, new OSS/BSS solutions, or applications on top of it. So we are trying to meet demand from the market that is just starting. We probably have up to 10 years left on the whole new era of the telecoms,” Vestberg says.
With operators around the world deploying LTE, but often facing spectrum constraints, Ericsson’s LTE Advanced aggregation technology attracted significant attention at Mobile World Congress. “We are already trialing it,” Vestberg says of the aggregation technology. “LTE evolved is very much about carrier aggregation, putting together different frequencies, however the phones need to be prepared for it, so it is always an ecosystem and the network is always ahead.”
He explains that the carrier aggregation technology is designed to help operators with different frequencies. It allows an operator to pool its different frequencies of spectrum and use them in an efficient way, by ensuring all of the frequencies available are used without leaving empty capacity.
“The intelligence in the network will actually see that you can move around and use the capacity all the time. It is like electricity, you cannot save data capacity in the network, if there is no usage it is gone. So it is much better to get maximum utilisation all the time,” Vestberg adds.
Continues on next page
Certainly, Vestberg is under no illusions about the demands that will be placed on networks by surging demand for mobile data. “If you think about it, data will grow 12 times by 2018, and that is massive.” He adds that the main ways of addressing this demand will be to move from 3G to 4G technology, improve network efficiency and for regulators to release more spectrum. “Ericsson is working on all three of them. We are introducing new technologies all the time, we are developing the latest in order to use the network better and we are talking to regulators around the world to release more spectrum,” he says.
Asked whether it is possible to predict where the telecoms sector might head beyond LTE - say in the next 40-50 years – Vestberg is thoughtful. “I think our imagination is putting a limit to it because we are so instructed by our experience, so we have a really hard time to think about what will happen in 40-50 years. The only thing that I am sure about is that ICT, mobility and broadband will have a huge impact on society in 40-50 years from now, and it will be in every dimension of our life and society. Anything that benefits from being connected will be connected.”
Demands of data
Hans Vestberg sees no limits to the potential demand for mobile broadband in the coming years. He points out that only 15% of the world’s population have a smartphone so far. “It is 85% to go, and the demand is not going.”
However, he concedes that this is also a challenge for operators and vendor, in terms of how to beef up networks sufficiently to cope. “It is an enormous transition from voice to data services, so we are under pressure and the operators are under pressure but the good news is that demand for users is not coming because we are screaming that 3G is great. It is because there are phones, applications and people want to use them.”