Sweden's Ericsson (ERIC) is the world's largest seller of wireless telecom equipment, but it took a huge hit in the third quarter last year (BusinessWeek.com, 10/16/07) due to an unexpected decline in sales for its high-margin software and network-upgrade businesses. The company relies on these more profitable sales to offset lower margins in new network construction, especially in the developing world, where it has been discounting heavily to grab business away from rivals Alcatel-Lucent (ALU), Nokia Siemens Networks (NOK, SI), and Nortel Networks (NT).
During a week in which the industry buzzed with rumors of mergers and debated next-generation networks, BusinessWeek's Jennifer L. Schenker spoke with Ericsson Chief Executive Carl-Henric Svanberg at the Mobile World Congress in Barcelona. Among the topics: when he expects an uptick in business from carriers in developed markets; how the global economic slowdown will affect the infrastructure business; and whether the industry can agree on a single fourth-generation standard.
You predicted operators would buy more gear during the third quarter. That demand did not materialize. The operators say their data networks aren't full. How long will it be before they have to upgrade?
There is a pretty strong trend in services and applications, with music and the Web and YouTube videos in addition to voice, and there are a lot of exciting services coming to market. But I will not make a specific prediction. In Europe, operators are seeing increases in data traffic of 50% up to 1,500%, but it varies a lot depending on the forcefulness of the operators.
How do you think the infrastructure business will be affected by the global economic slowdown?
Every industry is potentially impacted, but in telecommunications infrastructure, a large portion of business is in emerging markets where they are still building out mobile telephony. We are playing an important role there and we don't see any impact there, at least yet.
Verizon (VZ), Vodafone (VOD), and China Mobile (CHL) have all backed the Long Term Evolution, or LTE, standard for fourth-generation mobile networks. And, during the Mobile World Congress, Vodafone Chief Arun Sarin suggested WiMAX, a competing standard, be rolled up into LTE. Is that realistic? Can the world move to a single standard? What about Ultra Mobile Broadband (UMB), which is the extension of Qualcomm's (QCOM) CDMA family of products, or China's homegrown standard?
The logical migration is to LTE. No country—not even China—can develop its own standards going forward. You have to design for the majority of the world's population. The faster the world unites on standards, the better. This does not mean a limit to competition. Various technical solutions will still compete—one must not mix up what is a standard and what is a solution.
During the Mobile World Congress, Ericsson introduced a multistandard radio base station that supports a wide range of different standards. Is this the wave of the future?
In the future everything that can be made that way will be made that way. In the old days, existing infrastructure was ripped out when a new technology came along and that was very costly. The fact is, the three technologies will co-exist and this will allow infrastructure migration.
What does the future look like?
It is an exciting time, in a way, as we move from voice to multimedia, from GSM to HSPA. There are a lot of mergers and acquisitions, and there is the rise of China. The opportunities are there for those who are ready for it.