Vendors must diversify despite Chinese goldrush July 07 2015
Rethink Wireless is a sample of our full paid service Wireless Watch, click the link below for 4 week FREE trial. Wireless Watch Trial
In the past week, both India and China have set out their latest multibillion dollar plans to invest in mobile and broadband infrastructure, and Alcatel-Lucent has announced wide-ranging contracts totalling €1.1bn with China Mobile and China Unicom. All this may promise a pot of gold for the wireless infrastructure vendors in 2015 and beyond, but this will only partly relieve the pressures on them - the price wars, the slowdown in US and Japanese spending, the difficult transition to more software-driven networks. Ericsson was making that clear in an interview this week, outlining its plans to diversify its business well beyond telecoms providers, riding on the rise of the internet of things to move into a variety of vertical sectors.
Putting its eggs into a larger number of baskets will help protect Ericsson - which has a less diverse portfolio than arch-rival Huawei - from the ups and downs of network spending in its core mobile operator market. In the first stages of 4G, despite the boost from Verizon's and AT&T's huge LTE roll-outs, Ericsson saw its margins squeezed by the tendency, elsewhere, for operators to modernize their networks rather than go for all-out upgrades. No sooner had that pressure eased, in the later part of 2014, than the US deployments peaked and then tailed off, leading to what a research note this week,, by analysts at Jefferies, called the "awful spending trends experienced during the back half of 2014".
Late last year, Ericsson CEO Hans Vestberg said that Ericsson would diversify in five main areas - IP networks, cloud, OSS/BSS, TV and media, and 'industry and society'. This week Nadine Allen, who heads up the last of these categories in western and central Europe, told Telecoms.com that Ericsson sees a significant opportunity in helping non-telecoms industries to harness new trends in telecoms and IT, especially the IoT.
"The evolved use of ICT is becoming increasingly important to all industries as they address the opportunities and challenges that the networked society will bring," she said in the interview. "There is a growing need for ICT connectivity and services in market segments outside the traditional customer base of Ericsson, such as utilities, transport and public safety." Ericsson is focusing on smart cities and also on five primary vertical sectors in its IT and IoT activities. The five are automotive, energy/utilities, road and rail, safety and security, and shipping.
This strategy has seen Ericsson become increasingly aggressive in chasing deals to deploy or manage networks of 'things' and smart cities, whether these are via an MNO, or involve working directly with an industrial player or specialized operator.
In some cases, as already seen in the connected car market, where it has several direct deals with carmakers to manage mobile and IoT services, Ericsson may face conflicts of interest, competing for IoT management contracts with its own MNO clients. That will be one of the challenges for all participants in the IoT, as traditional boundaries and roles break down and companies find themselves competing one day and partnering the next.
Ericsson is gaining experience in this regard. It has been extending its borders far and wide, through acquisition and inhouse development, building white label services platforms for carriers; offering cloud-based management solutions for enterprises and the internet of things; pushing its networks and managed services into non-mobile markets such as TV.
But it is still heavily reliant on its core infrastructure and services businesses, and its traditional customers - and it will be helped by the huge projects starting up in countries like Mexico, China and India (which celebrated its massive Digital India program last week with news of over $60bn worth of carrier deployments).
China's Ministry of Industry and Information Technology (MIIT) said this week that it would invest RMB435bn ($71bn) this year on improving the nation's fixed and wireless internet infrastructure as it chases lower tariffs and higher data rates. Faster, cheaper broadband will foster innovation and start-ups, said ministry spokesperson Zhang Feng.
And all three national mobile operators are engaged in large-scale LTE roll-outs as well as 3G expansion. This week, Alcatel-Lucent announced deals with China Mobile and China Unicom totalling more than €1.1bn, and spanning mobile and fixed 'ultra-broadband' access (FD-LTE, TD-LTE, GPON and EPON), IP routing and switching, optical transport networking, VoLTE, NFV cloud technologies, plus software-defined networking from ALU's Nuage subsidiary.
The deals come under the remit of the Broadband China initiative launched by the MIIT to get 100Mbps+ download speeds to all municipalities, cities and non-urban households by 2017, plus full urban and rural LTE coverage in the same timeframe.
It will critical for Ericsson to win a hefty slice of these kind of deals too, as the Chinese program gathers pace - diversification is under way, but it will be some years before wireless infrastructure, and related offerings, cease to be the Swedish giant's bread and butter.