“We want direct relationships…” Jan Frykhammar, CFO, Ericsson

Ericsson’s first quarter profits fell year on year to SEK1.2bn (€139m) from SEK8.8bn for the same period in 2012, largely due to the boost given to 1Q12 numbers by the firm’s exit from the Sony Ericsson device JV. While the vendor recorded a two per cent uptick in sales to SEK52bn it was hit by currency fluctuations and a disappointing performance from its network rollout business.

Sales in the Networks and Global Services units were up three and four per cent respectively, hitting SEK28.1bn and SEK 21.5bn. But Support Solutions, behind which Ericsson has been putting considerable weight in the last year, saw sales drop by 19 per cent to SEK2.4bn.

Managed and Professional Services held steady but the Global Services unit was pulled down by  the Network Rollout unit, which saw operating income drop by 73 per cent to a loss of SEK1.1bn. Ericsson CFO Jan Fryhammar described this as “nothing dramatic” and due to unforseen delays in LTE deployments, particularly in Latin America where Ericsson had “some idling resources,” he said.

Frykhammar said that, while there were positives in the top line, and in the profitability of the Networks division, he was concerned by Ericsson’s cashflow. “I will never be happy when the cashflow is negative,” he told Telecoms.com. “We have a tendency towards a strong finish on our operating cashflow but this time it was negative SEK3bn. That’s something we will work hard to improve going forward.”

North America and North East Asia remain the most important regions for Ericsson, given the advanced state of LTE deployments. Frykhammar said that one of its key North American LTE projects (presumably Verizon) had now “peaked” but that he expected high activity levels in the market to continue, shifting to capacity rather than coverage as the year goes on.

In North East Asia Ericsson’s most important upcoming project is the deployment of TD-LTE by China Mobile, although that operator’s retreat from GSM investment impacted on Ericsson’s first quarter, Frykhammar said.

While Ericsson’s core business will remain the provision of equipment and services to the world’s telecoms operators long into the future, the firm is looking to other sectors as operators endure turbulent times. Frykahmmar pointed towards contracts with shipping giant Maersk and energy supplier Eon as examples of important diversification, as well as its growing business in the media segment.

But the firm wants direct relationships with customers and, in pursuing them, could find itself at times in competition with its core customer base. “We will expand into other customer bases,” said Fryhammar. “We want to do direct business, though; we don’t do indirect sales.”

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Hans Vestberg, CEO, Ericsson

The key to staying at the top of the market, says Ericsson CEO Hans Vestberg, is to correctly manage your rate of change. Sitting still for too long without adjusting a business model can be disastrous—but so can moving too quickly into new areas, where existing customers and core expertise cannot be leveraged. “When you’re a leader in whatever you’re doing, everyone wants to beat you,” he says. “The important thing is to transform at the right pace.”

He offers an example: Ten years ago services accounted for 15 per cent of Ericsson’s revenue, Vestberg tells Telecoms.com. Today services makes up 42 per cent of the company’s turnover, growth which has helped offset a decline on the infrastructure supply side. “We came out of 2011 with a very strong newtorks business. That went down [during 2012] but services went up,” he says.

Ten years is a long time in what Vestberg describes as the world’s fastest moving industry and the landscape has changed a great deal. A decade ago Ericsson had the same competitors across all areas of its business, he says. Now it has different competitors for each segment of its operation, and for different geographies.

The extent of change over the last decade makes it difficult to predict how the supply side will evolve over the next, he says. “Of the people we thought of as our competitors ten years ago, none are still in the market in the same shape as they were then,” he says. “But what we see now is more of the vendor community narrowing down their portfolios and going for greater differentiation than they used to, rather than looking to major mergers again.”

Ericsson has not been narrowing its focus. Indeed it has been interesting to see how much of its recent messaging has centred on acquired and integrated businesses like BelAir Networks and Telcordia. The networks side of the business is well dimensioned, Vestberg says, but there are still areas of interest for acquisition in the BSS/OSS space which remains “fragmented”. He also says that Ericsson always has an eye out for SIs and smaller acquisitions that can help speed growth in its services business. For the most part, though, he would prefer to channel his available funds into R&D and service development.

The pace of change is also a challenge for Ericsson’s operator customer base, something that has helped drive the growth of its services business. “15 years ago [operators] had a new technology to deploy every five years and they had time to train their employees. Some operators have the scale to still do that but there are many that don’t .”

So Ericsson’s approach to managed services is shifting. Earlier this year the firm announced that it would be integrating end user experience into its managed services contracts, supplementing traditional KPIs like individiual base station uptime with data on churn or customer loyalty. “We want to mirror the challenges that our customers have so that we get the same feeling as them,” Vestberg says.

Ericsson could hardly avoid empathy with operators, even if it wanted to. The firm has in-sourced 20,000 operator employees as part of its managed services contracts over the last five years, Vestberg says, almost one fifth of the entire headcount. The experience of these employees is getting “more and more relevant every year,” he says. “The people who have been at operators are a very important part of our transformation.”

But you might reasonably question just how much Ericsson would want to feel like a lot of its operator customers, squeezed as they are by OTT innovators at the front end and by their own moves to relinquish much of their core network activity to their suppliers at the back. In part the operator predicament stems from the time when they were desperately keen to be content and media brands—and ill-thought out moves in this direction were widespread.

This goes back to Vestberg’s point about trying to force evolution at too quick a pace. So are operators paying the price for such a mistake, and have they closed off more evolutionary paths than they have cleared? Part of every vendor’s skill set must be the ability to paint a rosy picture of its customers’ future and Vestberg says there are huge opportunities for operators.

“The operator market used to be a lot of voice customers and now it’s a lot of data. There is M2M, healthcare verticals, enterprise, connected cars and so on. All of it has opened up. It’s not a demand problem on the network, it’s more about how to monetise it. Operators have to think about how to monetise it and about how they need the network to function behind them,” Vestberg says.

The largest number of job cuts were in the Swedish capital Stockholm.

Swedish vendor Ericsson has completed a series of redundancies in its home market which were first announced in November last year. 1,399 positions were cut at nine of Ericsson’s Swedish sites, with the majority in the Networks part of the business. The cuts resulted in 919 employees losing their jobs.

Ericsson said that the cuts would hit its Q1 results for 2013 to the tune of SEK1.5bn ($231m).

Not that Ericsson is getting smaller. CEO Hans Vestberg told Telecoms.com at MWC this year that the firm has in-sourced 20,000 employees over the last five years through managed services deals with operators that almost always involve the transfer of staff. Almost one fifth of Ericsson’s 110,000 staff have joined the company through such deals, he said, describing this absorption as “a very important part of our transformation.”

The specific number of redundancies per site were as follows: Borås (24 employees), Gothenburg – Lindholmen and Mölndal (100), Karlskrona (30), Kumla (89), Linköping (78), Luleå (7), Lund (14), Malmö (8), Stockholm (569).

Their star, suburban housewife Beattie (geddit?), encouraged a nation to talk.

In one famous ad, Beattie comforts her hapless grandson about his dismal exam results. Discovering he’s at least passed sociology, she exclaims: “You get an Ology, you’re a scientist!”

Many telecom operators think the same about getting an API.

APIs were the currency of conversation at 2013’s Mobile World Congress, where a mood of optimism was palpable. Discussion included:

• The GSMA’s OneAPI Exchange launch with Apigee
• Aepona’s tie up with Mashery
• AT&T, Ericsson and Mozilla’s joint showcase of a WebRTC demo
• Bharti Airtel’s win at the Global Mobile Awards for its use of a network API
• CalAmp’s launch of an M2M API

Do telecom operators really know how to profit from APIs – and which ones? Two-thirds of telcos have an API initiative underway, according to Informa’s Exposing Telecom APIs survey, which quizzed 369 API stakeholders across 60 countries.

Some good news: 75% of non-telco API stakeholders surveyed believe demand for telecom APIs will grow. Less good: Operators’ API initiatives are said to be ‘fragmented,’ ‘inconsistent,’ with ‘universal coalitions/standards [that] never work.’

Reality check: Merely having an API (or many) doesn’t create a business. As Apigee’s Sam Ramji rightly says, APIs are how people get to your business. APIs simplify complexity. They make it easier to consume digital services and resources.

There’s a big difference between making money from creating an API, from using an API to improve business processes, from the consumption that an API triggers, from managing and distributing APIs.

It’s good to talk to API enablers such as Aepona, Apigee, Layer 7 Technologies, 3Scale, Twilio, Verious or Voxeo – many of whom are eager to work with more operators.

But let’s not sugar coat getting an ‘Ology – or an API – for what it ain’t.

Informa analysts can help you navigate and profit from the API ecosystem. For Consumer advisory services, contact Guillermo Escofet. For Enterprise cloud and vertical market advisory services, contact Camille Mendler. For Network infrastructure advisory services including SDN and NFV, contact Dimitris Mavrakis.

Telstra has extended its partnership with Ericsson

Australia’s leading telecoms operator Telstra has signed an extension of its partnership with Swedish vendor Ericsson that will see the two collaborate on the expansion of Telstra’s LTE network. In a briefing at Mobile World Congress on Monday the firms’ CEOs, David Thodey and Hans Vestberg signed a three-year expansion contract that Thodey described as “another multi-billion dollar deal”.

The deal includes three trials to begin during 2013, with the two firms testing LTE-Advanced carrier aggregation, LTE het-net and an LTE broadcast solution that Vestberg promised would be a “game changer” for operators looking to monetise mobile video.

Telstra has distribution rights for AFL but is currently limited to streaming games to just 2,000 users at any one time, who pay a AUS$50/season subscription fee, Thodey said. With LTE broadcast, based on Evolved Multimedia Broadcast Multicast Service (eMBMS) technology, this can be scaled up to millions of subscribers. The technology allows for a video stream to be broadcast to any number of users over a single carrier, said Ericsson’s CTO, Ulf Ewaldsson, making for more efficient use of spectrum.

If one user is watching a video it is streamed over the usual data network but as soon as a second person within the same cell starts watching the same stream it is automatically switched to the broadcast solution, Ewaldsson said.

He added that the same solution could be used to address issues other than video, including delivering the increasing volume of software updates that will be required by user devices as networks and services evolve.

Ericsson has won a $1bn managed services contract in India

Indian operator Reliance Communications has signed an eight-year managed services deal with Swedish vendor Ericsson worth $1bn that will see Ericsson assume responsibility for the operator’s fixed and wireless networks in North and West India. Reliance signed a similar deal with Alcatel Lucent—also believed to be worth $1bn—covering East and South India in January.

This latest deal, announced February 11^th, covers 11 of India’s telecom ‘circles’—the geographical regions into which the country’s telecoms market is divided. Reliance will transfer 5,000 employees to Ericsson, which will manage field maintenance, network operations and operational planning for Reliance Communications’ 2G, CDMA and 3G mobile networks.

“This partnership will enable our enterprise customers to deploy state-of-the-art data services on our integrated network… This is one of the first times that wireless and wireline enterprise network is being outsourced to deliver world-class service and performance assurance,” said Punit Garg, CEO, Global and Enterprise Business, Reliance Communications.

Reliance is currently the third largest operator in the Indian market by subscriber numbers, according to Informer’s WCIS Plus service. The operator had 115.9 million subscribers at the end of 2012, down from a peak of 150.1 million in March of the same year.

MTN has used Ericsson for its LTE network

MTN has chosen equipment vendor Ericsson to launch its LTE network in South Africa, which following a year-long trial is now live in the Johannesburg, Pretoria and Durban areas. LTE has not been deployed in the city of Cape Town at present.

Ericsson said that it has provided all aspects of the network including its RBS 6000 family of base stations, the Evolved Packet Core, the Home Subscriber Server (HSS) for user data management, and Operating Support Systems (OSS), as well as project management and support services.

Lars Lindén, head of Region Sub-Saharan Africa at Ericsson, said in a statement: “This will open countless opportunities and will change the way people work, live and play. The commercial deployment of LTE will help users experience and interact in a better, more efficient way.”

Lambo Kanagaratnam, MTN South Africa chief technology officer said in a statement: “MTN’s first LTE network will enable our South African customers an experience that is more efficient and seamless.”

MTN said that the network was capable of up to 70Mbps but actual speeds in loaded areas would be between 7-20Mbps.

To support the launch MTN is offering the LTE Samsung Galaxy Tab 8.9 with a 2GB TopUp contract for R799.00 per month, with more devices to come in early 2013.

At the recent AfricaCom conference MTN South Africa’s CTO Kanagaratnam Lambotharan said that as the 800MHz and 2.6GHz bands were not available it was forced to refarm 1800MHz 2G spectrum to launch its LTE network, but in order to ensure sufficient network performance it could only do this where it had 2x10MHz spectrum blocks.

#4 – Managed Services is dead, long live Managed Services

On a macro level, we still see overall revenue growth in managed services at a rate of 17 per cent each year. On a micro level, we see two out of four major managed service vendors retreating. Alcatel-Lucent announced it would review, and possibly exit, 25 per cent of its current 68 managed services contracts. Similarly, current financial pressure seems to impact NSN’s willingness to bring in new Managed Services deals. Ericsson and Huawei provide little visibility of their managed service profitability; as their profit margin figures are embedded in their compound reports of professional services. Clearly, the industry is in a phase of intense competition in the managed service space. Northstream believes that a three player market, with sustainable margins, will emerge. These vendors will also try to position themselves higher up in the value chain of managed services.

At the early stage of telecom outsourcing; any unwanted operational cost structures that vendors were forced to inherit in order to secure a deal could be swallowed by an expanding professional services organisation. This is because they knew there were additional managed service deals around the corner where surplus resources would surely come in hand. However, for several of the deals made in recent years, it has been more challenging for vendors to achieve synergies than the scope suggested. This has meant that synergies have taken longer to come into effect and has negatively impacted vendors’ enthusiasm.

Northstream predicts that, in order to maintain profitability within managed services, vendors will become less willing to risk being squeezed in-between operators’ OPEX reduction requirements and the pursuit of increased flexibility. This, in turn, will lead to sterner terms and negotiations for operators nearing renewals of their managed service contracts.

Similarly, operators realise that to remain competitive in the mobile broadband and LTE deployment era; they must secure control of their most important asset – their networks. This means that OPEX reduction cannot sustain its position as the single most important criteria when defining the future of outsourcing. More likely is that aspects like network quality focus, capacity flexibility and CAPEX investment manageability will have more prominent roles when defining outsourcing business models 2.0.

This will involve less of a ‘blueprint’ on how to establish managed service models going forward; and instead an increasing amount of operator-specific responsibility sharing models. It is likely, a model will emerge where the core services with greatest synergy potential (e.g. global NOCs) will be combined with a more tailored, and local, solution for each operator. Especially for tier one and tier two operators, where a ‘blueprint’ simply does not fit. To succeed, operators and vendors must define business models and operational processes that promote the vendor to actively address the operator’s network OPEX as a whole, including legacy cost structure and maintaining (or improving) network quality and customer experience.

Ericsson now claims to have the industry's leading B/OSS portfolio

Swedish vendor Ericsson, which leads the infrastructure supply and service market, has announced the acquisition of Canadian B/OSS provider ConceptWave. The price paid in the all-cash deal for the firm, which has 170 staff, was not revealed.

The deal further expands Ericsson’s offering in B/OSS, which has been the subject of a number of acquisitions in recent years. In 2011 Ericsson acquired Telcordia for $1.15bn, having completed in 2010 the full acquisition of German billing specialist LHS that it began in 2007.

ConceptWave’s portfolio is geared towards order management and product catalogue solutions, which fills a gap in Ericsson’s offering. Ericsson said the solutions would allow it to “better support network operators with their handling of activities related to personalising end-user offerings and revenue management solutions.”

The deal is part of a trend that is nibbling away at the standalone B/OSS sector, with Ericsson claiming to have the most comprehensive B/OSS offering in the telecoms industry. Suppliers on the scale of large infrastructure vendors like Ericsson have the capacity to integrate B/OSS into their extensive service offerings, which specialist vendors lack the scale to provide. Large vendors can also subsidise the provision of B/OSS solutions as part of larger contracts, offering operators more purchasing power.

Ericsson has sold its fibre access business to Calix

US access solutions provider Calix has signed a definitive agreement to acquire the fibre access assets of Swedish telecoms equipment vendor Ericsson for an unspecified amount.

The transaction is expected to be concluded in the fourth quarter of 2012, and adds Ericsson’s high-capacity GPON solutions to Calix’s leading access portfolio. Expected to be included in the deal are the Ericsson EDA 1500 GPON solution and its complementary ONT portfolio.

The agreement calls for Calix to offer employment for up to 61 US-based employees of Ericsson, as well as the transition of ongoing support of the acquired products from Ericsson to Calix.

Calix will also become Ericsson’s preferred global partner for broadband access applications for three years, while Ericsson gains the right to sell Calix Unified Access systems and software as its preferred fiber and VDSL2 access solution in 180 countries worldwide.

Ericsson continues to perform solidly despite the tough economic climate: the company posted net profits of SEK 1.2bn (€140mn) for the second quarter of this year, down 63% from one year earlier but still placing it comfortably in the black.

Calix meanwhile struggles to turn a profit: the company posted a GAAP net loss of US$ 7mn for the first quarter of this year on revenues of US$ 79mn.