Ericsson mulls owning networks, selling capacity
STOCKHOLM Nov 12 (Reuters) - Mobile network equipment maker Ericsson (ERICb.ST) could one day own the networks it has traditionally built for telecom operators as a way to generate new sources of revenue, a top executive said on Friday.
Valter D'Avino, the group's head of managed services, said pressure on operators to cut costs while coping with surging data traffic could encourage them to sell their networks and buy capacity back -- a business Ericsson may want to enter.
D'Avino was cagey on how soon this could happen, saying any moves would be driven by operators.
"If there is a willingness to do it ... in that case we are saying we are ready to take this kind of challenge. But today there are no examples. It will take time," D'Avino told Reuters in a telephone interview.
Ericsson, which is the biggest supplier of its kind, builds, upgrades and expands telecom networks. It also earns a growing portion of its revenue by maintaining and managing the infrastructure.
"What we can do in the future, we could eventually build up a network, own the network and sell (capacity on) the network," D'Avino said. "Instead of selling boxes, we can sell services."
In some emerging markets, for example, it might not make sense for operators to build overlapping networks. They could share a network, or simply share access to a network owned by Ericsson.
"It could happen, for sure, in rural areas. It could happen where the technology coming is new -- as is the case for 3G in India or LTE in Europe," he said, referring to fourth-generation technology known as Long Term Evolution, or LTE.
Ericsson's Global Services division, which includes network maintenance and management, has been growing rapidly. Services such as consulting, systems integration and network maintenance now make up roughly 40 percent of group revenue.
This has mitigated the pain from a sliding market in network construction and expansion. Underlying sales at Ericsson's network business have declined for more than a year as operators have clamped down on spending.
Managed services sales in the third quarter rose 46 percent year-on-year, although that figure was inflated by a 7-year contract to manage a network for U.S. operator Sprint Nextel Corp (S.N).
D'Avino said data growth will lead to capacity constraints for operators and drive spending on network expansion. More data traffic will also be positive for managed services.
"When the network is growing at this pace ... it demands a lot of opex (operating expenditure) as well as capex (capital expenditure) that you have to spend to manage all this growing network," D'Avino said.
"It becomes even more evident that you can make some savings and some efficiencies if you have someone else doing this ... on your behalf."
(Editing by Gerald E. McCormick)
((simon.c.johnson@reuters.com; Reuters Messaging: simon.c.johnson.reuters.com@reuters.net; tel: +46 8 700 1045)) Keywords: ERICSSON/
(C) Reuters 2010. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.
- Tweet this
- Link this
- Share this
- Digg this
- Reprints
Follow Reuters