Ericsson Talks to U.S. Mobile Carriers Over Managed Services

Ericsson AB (ERICB), the world’s biggest maker of wireless networks, is in talks to manage infrastructure for the two largest mobile-phone operators in the U.S.

“We are in discussions,” Jean-Claude Geha, head of the Stockholm-based company’s managed services business, said today in an interview, when asked about network services contracts with AT&T Inc. (T) and Verizon Communications Inc.

Ericsson said it didn’t mean to imply it was in specific discussions with the carriers about managing their networks, according to Minako Nakatsuma Olofzon, an Ericsson spokeswoman. Mark Siegel, an AT&T spokesman, said the company had nothing to add, while Thomas Pica, a spokesman for Verizon, said the carrier doesn’t outsource network management.

Wireless providers in the U.S. are increasingly turning to companies such as Ericsson to manage information technology and cloud networks. There is also growing interest in outsourcing more traditional day-to-day operations and the running of network infrastructure, Geha said.

Carrier spending in the U.S. and Japan is cooling after a wave of investment in speedier networks, leaving Ericsson, Nokia Oyj, Alcatel-Lucent SA (ALU) and Huawei Technologies Co. to compete for fewer deals. As operators curb infrastructure spending, Ericsson is expanding services, aiming to be a partner in running and maintaining everything from phone networks to computer systems, while offering consulting and software.

Mindset Changing

“In some of the discussions we’re having with our customers, we see the mindset is changing and we see more of the traditional network outsourcing in the future,” Geha said.

Ericsson’s largest managed services deal in the U.S. is with Sprint Corp. (S), the third-biggest U.S. carrier, Geha said. He declined to give further details on the status of talks with AT&T and Verizon. (VZ)

The market for services used by telecommunications carriers will grow by as much as 7 percent annually over the next three years, Ericsson forecast in November. It was worth as much as $273 billion in 2012, almost half of which was made up of carriers doing the tasks themselves, according to Ericsson.

Geha said he expects Ericsson’s managed services revenue to improve this year as it wins contracts such as a seven-year managed services deal announced today with Hellenic Telecommunications Organization SA. The unit’s sales slipped about 1.7 percent to 5.8 billion kronor ($866 million) in the first quarter compared with a year earlier.

Outsourcing Operations

The Hellenic deal “opens up doors” for Ericsson to do more work in partnership with Deutsche Telekom AG, which owns 40 percent of the Greek company, Geha said.

“There is quite a bit of interest in basically outsourcing a lot of the operations in a lot of the telecom groups, not just in Europe,” Geha said. “We’re seeing it in Africa and Latin America as well.”

Ericsson shares have stagnated since April 23, when it reported sales that missed analysts’ estimates as it focuses on more lucrative contracts. First-quarter revenue fell about 9 percent to 47.5 billion kronor, while the gross margin, a measure of profitability, widened to 36.5 percent of sales from 32 percent a year earlier.

The stock rose 21 percent last year and is up about 2.9 percent this year, valuing the company at 266 billion kronor. Ericsson has been led by Chief Executive Officer Hans Vestberg, a longtime company executive, since 2010.

To contact the reporter on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net Sarah Rabil, Ben Livesey

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