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Summary

In its analyst briefing at India Mobile Congress (IMC), which took place in New Delhi over Oct. 25–27, Ericsson reported a gradual improvement in margin performance as it continued to increase spend on research and development activities. As a leading network equipment vendor, Ericsson has high hopes for 5G and has shown considerable commitment to developing the technology. At the event, it emphasized that operators must evaluate the cost savings and differentiation 5G can bring, particularly in highly competitive emerging Asian markets. According to Ericsson, vendors have a crucial role to play in ensuring widespread adoption of 5G by lowering the cost of technology implementations for service providers. It advises service providers to prepare for 5G by future-proofing current 4G investments.

Ericsson is inching ahead in its quest to achieve profitable service lines

Ericsson seemed happy to report at IMC that its program to gradually improve margin performance and simplify its product portfolio has started showing results. The vendor cited two key takeaways from its 3Q18 results: a 1% YoY increase in organic sales – its first such rise since 3Q14 – and its first quarter recording positive net income at the group level since 2Q16. While Ericsson's network business has been performing solidly, the network equipment vendor (NEV) says it expects digital services to account for a greater proportion of total revenues as the industry hits the next wave of opportunity with 5G.

The vendor has announced six 5G deals and has signed memorandums of understanding with 41 operators, in addition to collaborations with 45 universities and technology institutes across the globe. The NEV has also secured $370m in funding to support 5G and Internet of Things research activities.

Future-proof 4G investments while maintaining 5G outlook, says Ericsson

Ericsson sees India as an important market in Central and South Asia, citing the fact that consumers there are highly receptive to newer technologies, due to the country's young demographic – but the fact that they are extremely price-sensitive creates challenges for both vendors and service providers. Adding to the market challenges are new entrants with no legacy infrastructure or established revenue streams. In Ericsson's view, the service provider battle in many emerging Asian markets is fought on two fronts: reducing the cost base and increasing differentiation in the market. To this end, Ericsson's strategy is to drive value creation for customers by supporting service providers in three key areas: network efficiency, digital experience, and new revenue streams.

Ericsson's focus for markets like India, where operators pay high prices for spectrum, is primarily on helping service providers achieve spectrum efficiency through VoLTE, 4G, and 5G. Ericsson has already demonstrated that 5G can reduce the cost per gigabyte tenfold compared with 4G. A recent addition to its 5G portfolio, Spectrum Sharing software – which enables the use of 4G upgraded infrastructure to deliver 5G – addresses the industry's concerns about the need to equip new and old towers with 5G radio hardware. The new technology enables 4G radios to service 4G and 5G devices simultaneously, rather than being dedicated to one standard. This means that service providers can future-proof their 4G network investments and aim for a zero lead time in launching 5G once spectrum becomes available.

Appendix

Further reading

Ericsson's Quest for Profitable Service Lines, ENS002-000014 (February 2018)

"Ericsson acquires CENX to gain service assurance expertise," SPT002-000124 (September 2018)

Author

Inderpreet Kaur, Senior Analyst, Asia-Pacific

inderpreet.kaur@ovum.com

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