Exploding handsets aside, Ericsson’s crisis shows the need for all players to accelerate their shift towards software and services
It’s been another week of exploding smartphones, and the growing fall-out from the problems with Samsung’s Galaxy Note 7. Once a flagship product and a genuinely innovative design, the latest Note has turned into a nightmare. Samsung has halted production and the recall and refund process – and more importantly, the loss of future sales – may hit its profits to the tune of $5.3bn.
Of course, Samsung is a big enough company to weather this storm, despite the awful timing, just as its handset business seemed to be in recovery mode. This will likely see it redouble its efforts to shift revenue and profit to non-smartphone businesses like memory, processors and displays, and to try to boost its efforts in software.
The trouble is, while the company is having some success with services like mobile payments, the classic software/content model for a device maker is to use those services to drive additional usage, and upgrades, to the smartphones, by creating an optimized and highly usable experience. Apple is the star at this, and the failure of the new Note – whose pen interface can support some interesting applications – will be a blow to Samsung’s hardware/software hopes.
Google is also chasing that integrated device/services dream with its new Pixel smartphones, just when the model is set to decline. The ascendant players will not be the hardware/software providers, which lock users into a particular device or brand. They will be the web content and applications firms, which can create a differentiated and attractive user experience across a whole range of current and future gadgets.
Amazon is leading the way, because this is its natural territory – despite the Kindles and Fires and Echoes, it is not a device maker and those products exist purely to drive more usage of its content and stores. That also gives Amazon a whole different approach to margins compared to actual hardware manufacturers. As it hurls its rocks at Apple and Samsung – it new low cost music streaming service, tied into its Echo and Prime platforms, is the latest example – it is even more strange that Google, which could go head-to-head in this game, is being distracted by the old-fashioned world of devices.
It isn’t just the device end of the mobile market where the old guard are being squeezed out. Network vendors and operators are faced with painful adjustments too – Ericsson’s huge job cuts of last week were followed this week by news of 3,200 layoffs at Verizon.
Ericsson followed its cuts with a profit warning, turning its investors’ harsh scrutiny on its plan to restructure its business around new realities. Of course, it only has an interim CEO, and a strong new leader is badly needed, but it does have a well articulated roadmap laid out by ousted CEO Hans Vestberg, with a set of targeted growth businesses and a potentially game-changing alliance with Cisco.
However, those growth businesses – which include virtualization, cloud and media – delivered only about $60m of additional revenue in the second quarter, and account for only $1.2bn of sales in a total of $6.1bn. That total is falling (down by $460m in the quarter) and the new businesses are not expanding rapidly enough to fill the gap, hence the cost slashing and general pessimism.
The Cisco deal is not cutting in sufficiently quickly, in terms of sales, to reassure shareholders or many customers, while the new targeted businesses are not greenfield markets where Ericsson can make the rules as it used to do in mobile networks – most of them are already occupied by powerful and defensive companies from IBM and HPE to Amazon. Ericsson has neutralized the potential competition from Cisco and will make other partnerships – or perhaps the big merger it has always resisted really will be on the cards once a new CEO arrives.
Acting CEO and CFO Jan Frykhammar told Bloomberg, after the Q3 profit warning: “This is absolutely not the beginning of the end for Ericsson.” That is likely to be true, even if Ericsson ends up in a merger. After all, its death has been predicted before, most recently in 2003 when its spiralling fortunes were rescued by CEO Carl Henric Svanberg. There is still reason to hope that Ericsson’s next CEO could be as effective as Svanberg in turning the ship, but it will be a big job. As in 2003, the company is not just facing stepped-up competition or seasonal fluctuations – it is in the midst of a complete redefinition of its industry. A decade ago that was centered on the shift to the Internet; now it is about the convergence of telecoms and IT and the rise of the software-driven network and the cloud.
Like Google and Apple, the big RAN vendors are still over-preoccupied with hardware. Of course 5G is important, but the strings of tests and pre-5G announcements – Huawei and Vodafone are the latest to boast of a field trial of the ‘New Radio’, based on preliminary work in 3GPP – do not convince anyone that these companies are ready for the next phase of their industry. Tactile Internet, artificial intelligence, massive IoT, hosted and virtualized RANs, everything delivered from the cloud, network slicing – these will be the foundations of the next wave of mobile and web experiences and business models.
The hardware will need to evolve to support them but it will be an enabler not a business driver in its own right. If Samsung’s exploding phones push the company to step up its software and user experience efforts, it may prove a bonus in the end, and a shift which companies throughout the mobile value chain will need to make too.
In the first instalment of Wireless Watch’s Mobile World Congress special edition, we looked at a selection of operator trials of pre-5G networks and services. Now we turn our attention to the vendors’ roadmaps, and the most interesting insights they provided in Barcelona, into developments which may well find their way into future standard or de facto technologies.
Nokia was the most aggressive of the big names in claiming to be 5G-ready – although it was a heavily overused term throughout the show. The Finnish vendor went a step further and said operators would be able to offer ‘5G’ services as early as 2017 using its new AirScale RAN platform (clearly angling for those operators which are promising ever-earlier ‘5G’ services, mainly around major sporting events in Russia and Korea, but which will, of necessity, have to use pre-standard or heavily customized kit).
AirScale will accelerate the transition to 5G when it comes by providing a smooth migration path from current LTE, Nokia promised, rehashing one of the most popular messages which vendors relay when a new generation of technology is looming. Somehow, when that upgrade becomes necessary, it’s never as automatic, low cost and software-based as the roadmaps suggest – virtualized flexible cores and software-defined radios will help, but there is still the question of the antennas, for instance. But Nokia, like its rivals, needs to persuade operators to keep investing in 4G now, rather than wait for 5G over the horizon.
CTO Hossein Moiin said the AirScale demo was “the industry’s first demonstration of how 5G will work in practice, going beyond previous experimental systems”, making 5G “no longer a distant vision” – ambitious stuff, considering the work on standards has only just begun. But some crucial elements of 5G are already accepted, Nokia argues, and these are the focus of AirScale – in particular, ultra-low latency, and a system designed with machines as well as humans in mind.
AirScale’s claim to be a vision of the future rests on its cloud-based architecture and open interfaces, which allow it to support all the radio technologies simultaneously in one base station; and to use any architecture topology with huge levels of scalability, all defined in software from the cloud. It also claims to use 60% less energy than Nokia’s current platforms. The server end of its Cloud-RAN solution uses Nokia’s AirFrame IT hardware, launched at MWC 2015, and Mobile Edge Computing is implemented on those same servers in order to harness information from the radio effectively and support low latency services.
Baseband units can be chained to support massive capacity and IoT connectivity, and a step-by-step road to virtualization is supported by Nokia’s NetAct and CloudBand offerings, which can work with legacy RANs and C-RAN at once. As well as the multiband AirScale base station, the vendor added AirScale WiFi (access points plus a WiFi controller, also running on AirFrame), and a common software layer which runs across small cells, macrocells and WiFi.
CEO Rajeev Suri said: “I believe that 5G not only must happen faster than expected – it will happen faster than expected”, which was why vendors could not wait for standards to be finalized before launching 5G products – a line also taken by ZTE with its Pre5G portfolio, though not by Huawei, which prefers the term 4.5G for its most advanced network offerings, and argues that these will meet operators’ needs for years to come, certainly until fully standardized 5G can be launched.
“5G is different. 5G must happen fast because important use cases demand it. If we know that 5G can help save lives, improve our environment and make our lives better, we need to move faster,” Suri said.
ZTE has unveiled the latest developments in its Pre5G range, the Ultra Dense Network (UDN), claiming this can provide a highly functional bridge to emerging 5G platforms. The UDN works with existing networking models but aims to enhance the user experience with a combination of techniques including interference management, suppression and mobility enhancement.
The system adopts system frequency multiplexing to address interference caused by
overlapping cells in dense networks. According to ZTE, this technique can boost downlink rates by 10 times in areas of cell overlap and will be an important component of 5G.
The equipment also uses other expected 5G technologies, but on current network infrastrucfture and sites – like Nokia, holding out the hope of a smooth migration down the road. These include massive MIMO and Multi-User Shared Access (MUSA), which ZTE has been testing for over a year. Early in 2015, it announced the first commercial base station to implement its pre5G architecture, particularly massive MIMO and MUSA, and this has completed field tests with a number of global operators, including China Mobile and Softbank.
Zhang Jianguo, wireless general manager at ZTE, said Massive MIMO “will be in commercial use in China and in other countries later this year”.
Qualcomm and Ericsson:
Qualcomm and Ericsson have announced their latest collaboration, and will work together on early trials and verification of key 5G technology components, to support the technical work required for 3GPP standardization in Release 15. The companies also said they would drive interoperability in alignment with 3GPP to enable rapid adoption of new 5G standards.
“As we did in both 3G and 4G, we are excited about collaborating with leading operators and industry stakeholders such as Ericsson in the development of a unified, more capable 5G platform” said Matt Grob, Qualcomm’s CTO. “Now that the vision and interest for 5G are well established, it is time to focus on the technical and engineering work required to support operator trials and commercial network launches.”
Intel was determined to put paid to any perception that it might be an outsider in the 5G race. Not only was it focusing heavily on virtualization and Cloud-RAN – changes to the mobile network where it has the most obvious opportunity to enter the inner circle – but it was talking up partnerships with Ericsson, Nokia, LG, Cisco and Verizon to develop technologies for the IoT, smart cities, driverless vehicles and augmented reality – all important drivers of 5G development.
“5G represents a significant shift for these networks and we think it’s essential to get ready ahead of the curve,” said Aicha Evans, general manager of the Intel communication and services group. “Rather than just being about a personal computing platform, it’s about everything that computing can connect and how it connects.”
Among the specific announcements were IoT-oriented connectivity solutions like the
Atom x3-M7272 wireless communication platform for “automotive applications capable of powering advanced security features”; and the XMM 7120M LTE modem, optimized for machine-to-machine applications.
Intel also announced a new collaboration with Cisco and its strategic partner Ericsson, to develop a 5G router. This will be submitted to the Verizon 5G Technology Forum, of which all there vendors are members, and will aim to improve speed, latency and IoT scalability for business and residential customers.
NEC has developed a prototype of a compact, A4-sized massive-element Active Antenna System (AAS) for 5G small cells operating in the lower SHF (super high frequency) bands, from 3 GHz to 6 GHz.
As well as its small form factor, the combined antenna/RF solution boasts fully digitized antenna beam control and MIMO pre-coding to improve the precision of beamforming and increase. The vendor said that, used in conjunction with NEC’s spatial multiplexing technologies, the AAS can achieve more than 10 times greater per-cell throughput than conventional LTE base stations. It is now working on trials of the AAS with NTT Docomo.
“5G communications achieve higher speeds and increased capacity through the utilization of high frequency bands which are capable of securing wider bandwidth. On the other hand, high frequency bands face the issue of heavy propagation loss in communications. As a solution to this issue, NEC has focused on beamforming technologies which improve communication distances and reduce interference,” said Nozomu Watanabe, general manager of the firm’s mobile RAN division.
NEC also issued three white papers related to 5G – ‘Optimum Network Architecture for Full-scale IoT’; ‘NFV C-RAN for efficient RAN resource allocation’; and ‘Massive MIMO for High-capacity Mobile Access’. These are the three areas which the company believes will be most central to 5G’s architecture and business case.
For the IoT, it considers coordination between Mobile Edge Computing and the cloud as well as full context awareness when allocating resources. The C-RAN paper outlines NEC’s approach to this architecture, including its proprietatry inter-cell interference mitigation techniques and its fronthaul design, and describes a migration to 5G based on “virtualization of cells”. And the third paper shows how Massive MIMO can be applied to small cells, using technologies like NEC’s new AAS.
NEC is also working with MediaTek to develop 5G air interface and chipsets.
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Ever since the mobile access network started its migration to IP, the narrative has centered on whether Ericsson, the mobile king, or IP giant Cisco, would be the winner in the new market. That made the news that the two companies are entering into a deep partnership seem shocking at first - but then completely logical.
The two companies announced on Monday that they will cooperate from development to delivery of systems for carriers and enterprise customers, and predicted a full $1bn each in additional revenue by the end of 2018, as a direct result of the alliance. They will focus their efforts heavily on cloud computing the the IoT (internet of things), and Ericsson will receive patent licence fees from its new friend. The Swedish firm also expects to save SEK1bn ($115m) a year from the deal.
There are huge challenges in achieving workable cooperation between two companies with such different approaches - Ericsson still R&D-heavy and increasingly services-driven; Cisco a sales machine focused on hardware and software, and tending to buy the new technologies it needs.
But the deal has fewer risks than a merger (even supposing that got past antitrust) and is a decisive move to preserve both partners' markets in the face of the rise of Huawei and the merger of Nokia and Alcatel-Lucent. Both companies are traditionally wary of major mergers and Ericsson resisted all pressure to follow Nokia's lead and acquire a router company like Juniper. "I don't believe in big mergers - this is by far the best solution you can get," Ericsson CEO Hans Vestberg told Bloomberg. "This is much faster and more efficient."
The wireless infrastructure business is consolidating as traditional hardware becomes a game of scale and the value shifts to virtualization and SDN, services and cloud platforms. In these areas of future growth, Cisco and Ericsson are far more complementary than they are in their traditional markets. While Cisco had little chance of penetrating Ericsson's mobile RAN fortress, nor Ericsson Cisco's enterprise IP heartland - despite strong attempts by both around the edges - they can target one another's customers with their software-oriented platforms.
Ericsson has a far more developed services offering - Cisco's structure and roadmap is still mainly product-focused, though the cloud, IoT and SDN markets will inevitably bring elements of managed services into the mix. Their strengths and weaknesses in virtualization, orchestration and SDN are different, and while Cisco has a more end-to-end approach to the IoT, Ericsson has been developing the links between a hosted cloud service and billions of endpoints.
And of course, they both have a core customer base of large service providers, though they usually sell different products to different departments. Even that is changing - as seen in AT&T's Domain 2.0 and many other operators' bids to shake up their supply chains, the providers of base stations, routers and other kit are being brought together around SDN.
Better then, to play nicely in those playgrounds than try to muscle each other to the sidelines, and in doing so, wrongfoot the other competitors, without the disruption of a huge merger or joint venture, Nokia/ALU-style. Indeed, as those two vendors spend much of 2016 working out the details of their marriage, with the aim of offering a full scale IP/mobile platform plus software, Ericsson and Cisco could leapfrog them and provide a similar combination in a simpler way.
Both partners will have the chance to squeeze rivals - Huawei for both of them, Nokia/ALU for Ericsson, Juniper, ALU and agile SDN specialists for Cisco. Even Huawei will have to look nervously at an axis which boasts $75.4bn in combined revenues in the last fiscal year and has 76,000 professional services staff.
They proclaimed their new alliance as one which would create the "networks of the future", and offer customers "the best of both companies: routing, data center, networking, cloud, mobility, management and control, and global services capabilities."
As well as offering an end-to-end portfolio, they outlined two other key goals - to create a new mobile enterprise platform based on a "highly secure technology architecture for seamless indoor/outdoor networks", which would presumably tap into Cisco's WiFi and Ericsson's LTE and 5G work; and the acceleration of platforms for the IoT.
Among the details of the deal are commitments to create reference architectures and products;
systems-based management and control; a broad reseller agreement; and collaboration in key emerging market segments. Also, a combined team will start work on a joint initiative focused on SDN and virtualization.
They will cross-licence each other's patent portfolios - they have a combined 56,000 patents, though clearly the weight is towards Ericsson, which will receive the revenues from the agreement. They will also discuss Frand (fair reasonable and non-discriminatory) policies.
Vestberg said in a statement: "Foremost, we share the same vision of the network's strategic role at the center of every company's and every industry's digital transformation. Initially the partnership will focus on service providers, then on opportunities for the enterprise segment and accelerating the scale and adoption of IoT services across industries. For Ericsson, this partnership also fortifies the IP strategy we have developed over the past several years, and it is a key move forward in our own transformation."
His counterpart at Cisco, Chuck Robbins, said: "With the pace the market is moving, the successful companies will be those who build the right strategic partnerships to accelerate innovation, growth, and customer value … We have worked with Ericsson during the last year on developing a strategy for future industry leadership, and can start executing together today."
The firms secured public support from the CEOs of key customers including Vodafone and AT&T, welcoming the potential to accelerate innovation in the integration of wireless and IP, and the move to the IoT.
And Roger Gurnani, chief information and technology architect at Verizon, summed it all up, saying: "This global partnership has the potential to reshape the industry."
Slowing of Chinese 4G orders, continuing US softness, and economic situation in Brazil and Russia, lead to fall in quarterly sales
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The Chinese market has a disproportionate effect on vendors' financial cycles, and it is an unpredictable beast. Ericsson, whose 11% second quarter revenue growth was largely due to Chinese 4G contracts, saw the opposite effect in the third quarter, which saw a decline in sales on a constant currency basis.
Revenues actually rose by 3% year-on-year to SEK59.2bn but without favourable currency movements, they would have been down by 9%.
The company blamed a slowdown in Chinese 4G, as well as economic weakness in two other critical BRIC markets, Brazil and Russia - which puts a lot of pressure on the fourth one, India, to deliver some big deals as the major carriers move towards LTE.
"In markets where there has been pressure on currencies, purchasing power has come down and we've seen that in Brazil and Russia," CEO Hans Vestberg told the earnings press conference, though he insisted the Chinese slowdown was temporary. "There is still tremendous demand for 4G in China and we've never seen such a quick roll-out. It's just that customers slowed down the pace in the third quarter."
There is no such optimism about Ericsson's biggest market, north America, which accounts for about 25% of its sales but has slowed significantly since 4G roll-outs at AT&T and Verizon peaked. This factor has been hitting Ericsson all year and it has yet to see improvements. North American sales rose by just 2% on a reported basis to SEK14.4bn ($1.7bn), with the OSS/BSS and TV platforms being rare highlights in the region. However, in an interview, Vestberg tried to be upbeat, saying: "It's not falling. It's on the level that we've seen in other quarters."
Despite these pressures, Ericsson's Q3 net income was up 19% year-on-year to SEK3.1bn ($370m), though there are concerns that too many of the profit improvements are coming from the firm's major reorganization program, which looks to reduce annual operating costs by SEK9bn ($1.06bn), rather than organic business growth. Staff numbers fell by almost 1,000 in the quarter, to 116,240 people.
Gross margin was down by 1.3 percentage points to 33.9%. In revenue terms, the worst performer was the core Networks unit, with sales down 4% even with the positive currency changes, to SEK28.8bn. Global Services is almost as big as Networks now, and its sales were up 11% to SEK27.1bn, while the third division, Support Solutions, was up 8% to SEK3.3bn.
Ericsson, like its rivals, is relying on building up new revenues in areas of growth, and claimed to have seen 10% sales increase from these sectors, though it does not break them out. Its target growth businesses are OSS/BSS, media, IP, cloud, and what it calls 'industry and society', which includes smart cities and the internet of things.
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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.
BY CAROLINE GABRIEL, RESEARCH DIRECTOR
Ericsson has turned up the pressure on Apple, suing it in three European markets and claiming that the iDevice maker expects special treatment when it comes to licensing fees for standards-essential patents (SEP). Apple currently has no licence for its antagonist's technologies, since their former deal expired early this year.
The escalation of the dispute will bring back bad memories of Apple's last major battle over SEP, with Nokia, which ended in a settlement that was favorable to the Finnish company. That indicated that, while Apple has had some successes in patent infringement actions against Android players, notably Samsung, those have related to non-standardized elements such as displays, user interfaces and device design. When it comes to the technologies inherent in cellular communications, the traditional vendors still hold the upper hand, even in the newer LTE platform.
Apple aims to tip that balance of power in its own direction, a goal which lies behind its aggressive litigation over recent years - if achieved it would significantly reduce the company's costs and increase its overall influence. In complaints made against Ericsson in a California court in January, Apple argued that the price of modern electronic devices is driven by the technologies in which it has power - the operating system, touchscreen interface and so on - which are unique to each design, not by standards-based elements, notably the modem. It said Ericsson "seeks to exploit its patents to take the value of these cutting-edge Apple innovations".
The Swedish giant, one of the biggest holders of SEP assets in the mobile world, has filed suit in Germany, the Netherlands and the UK. It claims it wants Apple to license its technologies on the same Frand (fair, reasonable and non-discriminatory) terms as everyone else, but that the US firm has refused to do so, since their previous contract expired in January.
Apple, in various counterclaims, has been alleging that Ericsson uses its dominant IPR position to demand "excessive" royalties, accusing the company of "abusive licensing practices". It is also disputing that some of the patents in question are essential to LTE standards at all. It has also passed on Ericsson's proposal to refer the argument over Frand terms to independent arbitration in Texas, an offer which has now expired, helping to spark the new actions.
It seems that the new European actions, as well as opening new fronts (and possibly bringing the European Commission into play in future) are specifically addressing Apple's claims that key Ericsson patents are not SEP.
Gustav Brismark, VP of patent strategy at Ericsson, said in an interview: "Our Frand terms [with Apple] are in line with the other some 100 licensees using our technology. Our policy is to be fair and treat everybody the same in the market. We simply demand a fair royalty."
Ericsson has taken the high moral ground with its offer to take not just this spat, but its entire Frand licensing framework, to arbitration, and so hope to obtain objective endorsement of its approach, at a time when many international regulatory and standards bodies are rethinking how Frand terms are defined. The European Commission, for instance, has been investigating the way that companies such as Samsung license their SEP, and whether this could be construed as giving the patent holders an unfair competitive advantage.
When the licensing deal for 2G and LTE patents expired early this year, Ericsson accused Apple of infringing on seven of its essential patents, while its opponent filed suit against Ericsson in California, denying any infringement and challenging the claims of being fundamental to LTE standards at all. However, Ericsson points out that the seven assets at issue in that case are a "small subset" of the total and "would not in any way resolve the wider dispute covering hundreds of patents". The fights cover 2G and LTE standards as well as non-standardized technologies related to cellular communications and wireless modems.
Further legal actions have followed from Ericsson, including the demand for arbitration, several infringement lawsuits in Texas, and complaints at the US ITC (International Trade Commission). The ITC hearings are scheduled for late 2015 or early 2016. Now Ericsson has broadened its attack to its home front with the European suits.
Though Ericsson is not commenting on the sums involved, Reuters calculates that, if the firm wins, Apple would owe between $240m and $725m a year, based on forecast levels of handset sales and royalties per phone. However, any settlement could be affected by broader industry debates about per-device charging - Qualcomm, in particular, is under pressure to shift to charging licensing fees based on the price of the chip, not the whole smartphone. Apple has been in the vanguard of that campaign, which is already influencing patent renewal deals across the industry, and is harnessing the same arguments against Ericsson. The Swedish firm continues to maintain that royalties should be based on "the end prices of entire LTE devices".
"Apple continues to profit from Ericsson's technology without having a valid licence in place," Kasim Alfalahi, Ericsson's chief intellectual property officer, said in a statement. "Our technology is used in many features and functionality of today's communication devices. We are confident the courts in Germany, the UK and the Netherlands will be able to help us resolve this matter in a fair manner."
Ericsson has one of the wireless industry's largest IPR portfolios, with more than 37,000 granted patents, and about the same number of pending applications worldwide. It says it has about 100 licensing deals, covering most wireless vendors and including major cross-licensing deals with rivals such as Nokia.
Apple refused to comment on the latest developments and just referred back to its statement in January, which said the firm had "always been willing to pay a fair price to secure rights", and that almost two years of negotiations had failed to result in a settlement, hence the need to resort to lawyers.
by Caroline Gabriel, Research Director
So Mobile World Congress (MWC) is over for another year, amid the usual record-breaking statistics (from 93,000 visitors, up 45% on the first Barcelona event in 2006; to 7.55Gbps wireless transmission speeds demonstrated by SK Telecom and Samsung).
There were plenty of eye-catching devices, with the Galaxy S6 Edge undoubtedly the star of the show in terms of headline power, though otherwise the mobile gadget space is fragmenting rapidly. The days of a line-up of remarkably similar large-screened smartphones are over - those handsets are there, at ever cheaper price points, but they jostle for attention with virtual reality headsets, connected clothing, smart coffee makers and whisky bottles, and of course the connected cars (Fiat 500 seemed to be the most popular model on display). Indeed, wearables and associated IoT (internet of things) apps virtually colonized MWC's second venue (its previous home in the Fira complex at Plaza Espanya).
Other headlines were sparked by the companies which, back in 2006, when the 3GSM show relocated from Cannes and changed its name, scarcely figured. Google's MVNO plans, Facebook's extension of its internet.org initiative, PayPal's endorsement of NFC with its acquisition of Paydiant - these were the talking points, drowning out the traditional keynote addresses by the major mobile operators.
Traditionally, the CEOs of the established cellcos have used their conference platforms to lay down their demands to the industry (remember then-CEO of Vodafone, Arun Sarin, warning the LTE sector in 2007 to speed up its efforts or face the WiMAX threat; or trading insults with his Nokia counterpart over 3G delays in 2004). These days, it is the new breed of service providers which are setting the pace - Google's Sundar Pichai may have announced a fairly cautious MVNO plan, but his speech had far wider implications, including the call for full WiFi/cellular convergence, still a divisive theme at an event dominated by the entrenched interests of 3GPP platforms.
Those interests are particularly threatened in the IoT, which was a huge theme of the show this year. As the news that Freescale and NXP are to merge neatly demonstrated, this is a dangerous world for the traditional wireless operators and vendors. It throws up significant opportunities to extend their businesses into new, high growth markets, bringing companies like Freescale and NXP - which had been squeezed badly in the smartphone segment - back to Barcelona with new connected device platforms. But the margins on those chips are low and the IoT is already sparking consolidation, as this semiconductor mega-merger illustrates, with the old-school suppliers and operators needing to huddle together for warmth in a business of scale.
Of course, the carrier's network - wireless RAN, core and transport, and increasingly virtualized versions of those - remains the heart of the serious conversations and trading at MWC. With that in mind, we selected our key themes of 2015:
The shape of the new cell site:
After several years when the ever-shrinking base station was the central theme in RAN discussions, this year saw most of the major equipment vendors announcing major refreshes of their macro layers. Massive MIMO (or at least, 8x8 arrays), carrier aggregation across three bands and including TDD, Coordinated Multipoint and Cloud-RAN - these were the important features of the new macro. This was not 5G, but technologies that will be deployable this year or in 2016 - indeed, it seems more than likely that, however '5G' turns out, it will be focused on the dense capacity layer, while the macro coverage umbrella will remain 4G for decades to come.
Small cells were out in force too, and in a widening variety of form factors. Traditional homogeneous mini-base stations are part of a very variegated approach to the capacity layer. They may form clusters with their own controller (local or virtualized) to support an enterprise or a rural deployment. For the former, the big news was that Cisco will resell the Spidercloud Enterprise-RAN solution, despite its own 2013 acquisition of small cell pioneer Ubiquisys. For the latter, the Small Cell Forum kicked off its latest Release Program, devoted to easing deployment issues in rural and remote scenarios, from villages to oil rigs to temporary situations such as disaster relief. Quortus, with its virtualized packet core, was one of the first to update its portfolio to target this important area, while Parallel Wireless was showing off its rural solution, implemented by EE in the UK.
The classic small cell is expanding its reach, seeking to provide greater value than basic coverage and capacity. Ip.access, another of the founders of this industry, has gone as far as to position its Presence Cell purely as the enabler of big data and e-commerce services - and not necessarily connected to the main network at all. Its approach has convinced Vodafone, which announced that it would deploy the retail-oriented platform.
Then there were small cells which did not follow the traditional architecture. Stripped-down antenna/radio units for Centralized-RAN; separate antennas optimized to work with urban small base stations, from companies like Kathrein and CommScope; a converged WiFi/cellular unit from Alcatel-Lucent; hosts of carrier WiFi access points and management platforms as well as lower-power DAS solutions. This is a segment where all options are open, and in which operators will pick and choose the solutions which suit their individual spectrum, business model and capacity requirements.
The virtualization of the RAN is a more distant prospect, for most operators, than the lower risk decision to run a packet core or even a CPE as software on off-the-shelf hardware. However, some pioneers were demonstrating their vRANs, notably Telefonica and China Mobile, and Intel was locked in combat with the ARM ecosystem over the market for high performance processors, optimized for C-RAN servers and accelerators, as the industry chases a general purpose chip with the horsepower to run high end network processes as well as customized silicon.
Not everything can be converted to software of course, though even the physical elements like antennas and radios will be increasingly software-defined and programmable. Pushing that trend to its extreme was Cambridge Consultants, which has developed the IP for the first all-digital radio transmitter, Pizzicato. Unlike conventional software defined radio, it has no analog components, which allows many radios to work together without interference. In the first trial, Cambridge Consultants created 14 simultaneous cellular base station signals at low power, and with the radios "squashed together in a way that analog doesn't tolerate". Such solutions can be programmed to generate manhy combinations of signals at any frequency in an adaptive way. The Pizzicato transmitter consists of an integrated circuit outputting a single stream of bits, and an antenna.
Of course 5G was a massive talking point, though outside the conference halls and the big vendors' glossy demonstrations, there was less hype than expected about the next generation of wireless, with most operators more focused on technology they could deploy in the next 1-2 years, and eager to wait for key decisions at the World Radio Conference in November, and at the 3GPP and other standards bodies, before getting too excited about 5G. Many alliances were formed and roadmaps laid down, but the most tangible aspect of the discussion was the use of millimeter wave spectrum, in which there were many demonstrations for access and backhaul. The high frequency bands are almost certain to play a key role in next generation wireless, and like many supposed elements of 5G, they will start to have a real impact far earlier, as seen in technologies like 60GHz WiGig and some small cell backhaul solutions, notably InterDigital's Peraso baseband system-on-chip for this market.
There was considerable excitement about LTE-LAA (Licensed Assisted Access), which uses 5GHz spectrum for supplemental downlink to a licensed-band 4G network. Although it will not be standardized until next year, supporters like T-Mobile and Qualcomm showed off their plans, along with a companion technology which aggregates a 5GHz WiFi carrier to LTE. Cellular players were trying to dampen down talk of colonizing licence-exempt spectrum, and stressing that LTE and WiFi could coexist peacefully, both in technical terms and in carriers' business models. However, while LAA is clearly a small cell play, given the high frequencies and low power limits involved, some were arguing that the industry would do better to focus on getting 3.5GHz standardized as a specific small cell band, avoiding WiFi showdowns and the quality challenges of unlicensed spectrum.
As noted above, the IoT was an important theme, but given the nature of the event, there was a particular focus on LTE solutions to support IoT applications, and the question of whether these will prove viable as alternatives to WiFi or specialized long range networks such as Sigfox or LoRa. Huawei was demonstrating its contributions to future LTE-M standards, while the LTE-only baseband specialists, such as Sequans and Altair, have a major opportunity to push 4G-only solutions into a mass market. While the 3GPP works on LTE Category 0 as the underpinning of LTE-M, for now the vendors have resurrected Cat-1, whose low data rates made it a Cinderella specification in the broadband world, but whose ultra-low power consumption now makes it a candidate for the cellular IoT. Sequans, Ericsson and Verizon announced that they had run tests on a commercial LTE network, delivering 10Mbps data rates at very low cost and power, and with peaceful coexistence with higher-powered LTE devices.
The new operators:
Facebook and Google both tried to paint pictures in which they had ongoing close alliances with cellular operators, but they managed to visualize a world in which the MNO's role was severely constrained. They are driving new approaches to the network - full WiFi/cellular convergence; harnessing of LTE-Broadcast for social media as well as content; dynamic spectrum allocation on-demand to hundreds of providers; low cost delivery to the 'next billion' world inhabitants. All of these examples see the web giants becoming less over-the-top and actually shaping the network of the future, with the cellcos just providing part of the plumbing, however important that part. The vision will be supported by virtualization and the ability for cloud platforms to support a new generation of network as a service concepts, spanning WiFi, LTE and other connections, and eventually assigning capacity dynamically to large numbers of MVNOs. That is the end game for platforms like XCellAir, which has been spun out of InterDigital. Such services could be run by traditional operators, as AT&T's Domain 2.0 roadmap clearly envisages, but they could equally be controlled by web or IT majors.
The new operating systems:
It isn't all going Google's way though. Android dominated a show in which Apple plays not part (except in everyone's conversations), but the search giant is struggling to control and unify the user experience as large device and service providers create their own user interfaces and developer platforms. Amazon AppStore broke the 400,000 apps mark, for instance, boasting of "huge progress" with its alternative to Google Play. And as smartphones morph into many new types of connected device, many of them driven from the cloud, there may be the chance for different operating systems to break the Android/iOS duopoly. There was considerable interest in the mobile implementations of Windows 10 from Microsoft, while start-up options like Jolla's Sailfish and Mozilla's Firefox Mobile were looking, for the first time, like credible platforms with operator support, not just bright open source ideas.
by Caroline Gabriel, Research Director Maravedis-Rethink
Big wireless suppliers try to influence operators' and regulators' agendas as they dream up visions of the next generation.
While the big network vendors have mainly confined their MWC announcements and previews to relatively short term developments, none of them could resist breathing the '5G' word, seeking to convince their audiences that they had somehow stumbled on the secret ingredients for the next generation of wireless, well ahead of the actual standards bodies.
Ericsson promised to demonstrate "fundamental 5G functionality" in Barcelona, to support both human and machine applications. The Swedish vendor even unveiled results from its 5G testbed, which it says has performed the remarkable feat of already achieving two 5G milestones (even before anyone knows what 5G will be). The testbed includes base stations and concept devices operating in the 15GHz band, indicating the importance most vendors are placing on high frequency spectrum for next generation standards.
Of course, like all the vendors, Ericsson hopes that by calling its R&D efforts '5G' it will improve their chances of being included in the standards, or at least the basic concepts, which do go on to underpin the next generation.
Its two supposed milestones are 5G/LTE dual connectivity and 5G multipoint connectivity, the company said. The first supports a 5G device moving between LTE and the new network, establishing simultaneous connections with both before seamlessly handing over, in order to smooth the user experience. The second allows the 5G device to connect to two 5G base stations simultaneously, improving bit rate performance with multiple downlink streams, as well as signal strength and resilience.
Both of these are 4G concepts, adapted for the supposed characteristics of the new generation network (ultra-small cells, ultra-low power, support for millions of sensors, and so on). As in 4G, multipoint connectivity will be particularly important to enable multilayer HetNets with macrocells, small cells and WiFi interworking seamlessly.
Nokia, too, has been giving a glimpse of what 'future 5G' demonstrations it will make in Barcelona. It will show off radios running in high frequency millimeter and centimeter wave bands (3.5GHz to 70GHz), which will boost capacity, and will be combined with new frame structures to support latency down to single-digit milliseconds. These will be particularly focused on the IoT.
Its good customer Korea Telecom will be partnering with Nokia in the MWC 5G and IoT demonstrations and the operator's head of networks, Seong-Mok Oh, said: "I hope that the strategic partnership with Nokia, including the joint demonstration at MWC 2015, will lay a foundation for the two companies' leadership position along the journey towards an IoT world."
Nokia has also been working on massive MIMO trials with KT's rival, SK Telecom, though these are looking to a shorter timeframe than 5G, initially at least. The two companies said this week they had achieved peak downlink speeds of 600Mbps using 4x4 MIMO. They first got to 300Mbps by implementing the MIMO array in a 20MHz block of spectrum, and then doubled that speed by doing the same in a second 20MHz chunk and aggregating the two. Devices with four antennas and carrier aggregation support have not been developed, so Nokia used a simulated device supplied by test and measurement specialist Aeroflex.
And 4×4 MIMO will be challenging to deploy in a commercial network, because of the need to squeeze four antennas into a small device, and also because it is difficult to maintain the right RF conditions for the 4x4 airlink, so real world user experience may be patchy.
Japan's NEC promises to outline its 5G vision with demonstrations and three white papers outlining what it believes will be the key enabling technologies in 2020 and beyond. These focus on the access network, the backhaul, and massive MIMO, particularly its development of a 'massive-element antenna' for future small cells.
Like Huawei, its post-2020 vision is heavily geared to machine services, from intelligent transport to the use of big data to save energy consumption, as well as next generation consumer multimedia offerings and ultra-accurate logistics systems. The heart of this platform will be SDN, virtualization and Cloud-RAN, all areas where NEC has engaged in advanced R&D and trials.
And Samsung says it will show off three 5G "technology candidates" at MWC. Chang Yeong Kim, head of the DMC R&D Center at the Korean firm, said in a statement: "We consider 5G to be a transformation of how networks are constructed and how radio resources are used. To support 100 times greater throughputs at a fraction of the latency, we need to consider more than just a single network component; we need to look at how everything works together."
The three candidates highlighted by Samsung are a nearly-commercial implementation of wireless backhaul in 60GHz spectrum, combining active and passive radio steering techniques to increase the range of the radio without exceeding unlicensed-band power output limits. An active antenna array enables a beamformed radio signal to be directed at a passive lens antenna, which further concentrates the radio signal toward a fixed point with high precision and multi-gigabit data rates.
The second technology is 'full dimension MIMO' (FD-MIMO). Current MIMO solutions have antennas configured to form beams only horizontally. Users who are at the same horizontal angle from the antenna (even at different vertical angles) still receive the same signal and continue to share radio resources. With the introduction of FD-MIMO and 2D-array antenna technology, wireless signals can be adaptively beamformed to specific users in both horizontal and vertical domains. That delivers a more targeted signal to more than eight users per cell at a time and is good for high rise buildings, stadiums and other crowded locations.
Samsung said it is leading the standardization of FD-MIMO in the upcoming 3GPP Release 13.
It also says it will demonstrate peak stationary data rates of 7.5Gbps - or 1.2Gbps when moving at 100 kilometers per hour - using 28GHz millimeter wave spectrum and Samsung's Hybrid Adaptive Array antenna technology.
However, amid all this cleverness, Peter Merz, head of radio systems technology and innovation at Nokia Networks, injected a note of realism in a recent interview with Telecom.com. He said: "I want to stress that 5G is not around the corner. We're expecting the first commercial roll-outs and deployments starting in 2020. We still have five years to go in order to research technologies, go through standardization, free up spectrum, verify the technologies and then iron out specifications in order to have a ready-made, lean-cut, efficient technology that can be deployed by operators starting in 2020. 5G is like a marathon, it's not a race."
We can only hope that vendors are bearing such words in mind in Barcelona and focusing most of their efforts on real world requirements for 2016 to 2018, even while they seek to influence operators, standards bodies and regulators building their long term plans.
MetraTech purchase expands its BSS/OSS to verticals and IoT, while deals in Australia and Chile include satellite and transport
First, Ericsson announced the acquisition of MetraTech, a US-based provider of billing, commerce and settlement systems based around metadata. Nothing new there, it seemed, since the larger company has been filling out its billing and OSS/BSS portfolio for years. But this was different, because the deal is not focused on carriers, mobile or even wireline, but on areas where there is greater growth in network platforms - vertical markets, especially utilities; and a broader set of providers targeting smart cities, cloud services and the internet of things (IoT).
No price was disclosed for the acquisition but it includes all MetraTech's 140 staff and contractors. As well as expanding Ericsson's US business, which has been its keystone since it acquired the remnants of Nortel, the purchase signals the firm's intention to move aggressively towards providers of IoT and XaaS (everything as a service) offerings.
The company said it would have an enhanced ability to support "customers, partners and suppliers in multiple industries and accelerate the creation and delivery of new value added services. Customers can create fluid, personalized, multi-party agreements to meet unique business needs," said the statement.
"For a range of industries, thriving in the Networked Society means having the ability to quickly support new revenue models and shift strategies as fast as customer and partner needs evolve," said Per Borgklint, SVP and head of business unit support solutions. "MetraTech's metadata-based billing solutions strengthen our extensive OSS and BSS portfolio and billing capabilities across a range of sectors, helping us extend our leadership as we support a world with increasingly more connections."
Meanwhile, on the other side of the world, Ericsson has signed the latest in a string of managed services deals. These are vital to its revenue strategy, but this contract, with Australia's NBN (National Broadband Network) organization, is focused mainly on fixed wireless and satellite rather than the mobile systems with which the Swedish vendor is so familiar.
The deal, worth as much as Aus$300m, is to deliver and support services across regional and rural Australia, extending some existing fixed wireless agreements until 2018 and operating third party ground systems for the Long Term Satellite Solution (LTSS), as well as customer service activation. The NBN non-cellular services are planned to cover one million households which are not well covered by wireline or LTE broadband.
Ericsson will help the government-owned NBN (created to implement the state national fixed broadband plan) to meet expected peak installation rates of up to 15,000 households per month in rural Australia in 2016, and it will also manage the migration of 42,000 users of the current, interim satellite system to the LTSS. NBN is charged with bringing fixed broadband to every household, and it says up to 7% of the population will not be accessible with its wireline roll-out. It hired Ericsson in 2011 to build and manage its fixed LTE network.
The contract indicates how next generation networks, especially those targeting rural or emerging markets, will increasingly pull together a variety of available technologies and spectrum bands, including cellular, wireline, WiFi, satellite and fixed wireless - and these will all need to be managed and, in many cases, integrated, an opportunity for managed service providers.
Greg Adcock, NBN's COO, said: "This agreement will enable greater efficiencies and consistency of network management across both our fixed and satellite ground networks."
Another important area of expansion for Ericsson is the smart city, and its latest contract is with Chilean telco Entel. The two companies have signed an agreement wtih the government transport agency, Subtrans, to develop tools to optimize the management of public transportation, initially in capital Santiago.
In a joint pilot, Ericsson will provide a tool allowing Subtrans to monitor the movement of Entel users in the Transantiago bus and metro system. This data will be used by Subtrans to manage the system's resources in a more efficient way, and to identify areas where improvements are needed to the system.
As one report says the Chinese firm has overtaken the leader in carrier networks, Ericsson benefits from shift to capacity
Huawei reported preliminary figures for the first half of 2014, which showed a 19% year-on-year revenue leap to CNY135.8bn (€16bn), with an operating margin of 18.3%. It has not yet published additional details, but credited a range of factors with its uptick - growing investment in LTE worldwide, also cited by Ericsson; rising carrier spend on software and services; "sustainable growth" in handsets; and a buoyant enterprise business.
"Driven by increasing investments in LTE networks worldwide, Huawei has further solidified its leadership position in mobile broadband," said CFO Cathy Meng, in a statement. "Rapid growth in software and services helped maintain steady growth in our carrier network business ... We are confident that in 2014 we will achieve sustainable growth, robust operations, and healthy financials."
Meanwhile, Ericsson turned in solid Q2 results, though its revenues were down 1% on the same period last year, to SEK54.8bn ($8bn). Its performance cannot be compared directly with that of its arch-rival until Huawei publishes full quarterly breakdowns later this month, but it will be very aware of the shift in major spending from north America, where Huawei is all but excluded, to China, as well as its competitor's broader reach, with its handset and enterprise businesses both on the rise.
But the improvement in margins is an important achievement for Ericsson, building on the start of that pattern in Q114. Last year, the Swedish firm's profits were depressed by the carriers' emphasis on lower margin modernization and coverage projects, but now, many are starting to invest in capacity, especially in LTE.
Gross margin was up by four percentage points to 36.4% while operating margin rose by 2.8 percentage points to 7.3%. That helped drive up net income by 76% year-on-year to SEK2.7bn.
In the quarter, 53% of revenues came from the Networks division, 42% from Global Services, and 5% from Support Solutions (which includes the growing TV Media activity).
As well as mobile broadband capacity roll-outs, including in north America, CEO Hans Vestberg also singled out the IP router business - which has 120 customers now - and managed services, as highlights. In the latter category, Ericsson won 21 new deals in Q2, including projects in Greater China, and "one of the largest transformation deals we have ever done", with T-Mobile USA, whose BSS Ericsson will upgrade and manage. OSS/BSS, including virtualization, will be important growth drivers, said Vestberg.
The CEO also said Ericsson's handset modem business "will start generating sales by the end of this year", as the company's M7450 modem begins to feature in "smartphones and data devices".
On the negative side, Ericsson said the Middle East and Africa businesses were hit by political unrest while there were "lower revenues from two large mobile broadband coverage projects in North America, that peaked in the first half of 2013, and reduced activity in Japan".
According to new calculations from analysts at Infonetics, Huawei overtook Ericsson as the leading telecoms equipment supplier to service providers in 2013. With Chinese roll-outs gaining volume as several major US deployments slow down, the benefits of the company's position in its homeland are more than offsetting the effective bar on Huawei kit in the US, where Ericsson has been part of the leading LTE roll-outs.
In the overall telecoms and datacomms equipment space, which rose by 3% year-on-year to $183bn, Cisco leads because of its enterprise power, followed by Huawei, Ericsson, Alcatel-Lucent and ZTE. In the enterprise, Cisco's challengers (though all well behind the leader) are Avaya, Brocade, HP and Juniper, sharing similar market shares. The analysts project that a cumulative $1.01 trillion will be spent by service providers and enterprises on telecoms and datacomms equipment, and software, between 2014 and 2018.