Ericsson has been forced to take some calculated risks to atone for decline in revenues from its core mobile infrastructure business. The launch this week of its global unified delivery network can be seen in this context because it appears to break one of the group’s long held principles of not competing with its customers. By partnering with leading global service providers including Hutchison, Vodafone, Telstra and AIS of Thailand to construct this content delivery ecosystem aggregating regional service provider network capacity, Ericsson is in danger of antagonizing some of its other Telco customers. Some of them may compete with one or more of these partners. That however is now a lesser concern than the need to press ahead with a five-point diversification strategy identified by CEO Hans Vestberg in 2014 as essential for the group’s longer term survival as a major force in converged ICT and entertainment.
The situation is hardly new for Ericsson, which could be said to have been riding the cusp of diversification for almost two decades. It was one of the big names in mobile handsets during the early days of the cellular industry extending through the 1990s but then ran into losses in the face of intensifying competition primarily from Nokia and Motorola at that time, leading to 10,000 redundancies. But without anywhere else to jump then it took the chance of getting into bed with Sony in 2001 with the joint handset venture that was to last for a decade and be reasonably successful for a time.
But the prevailing business model then involved handsets being aligned with cellular services, which meant there were synergies between Ericsson’s phone and telecoms services operations. After all it was impossible to sell a cellular service unless you could offer a handset with it during the hay days of Sony Ericsson. This model started to erode with the arrival of smartphones into which Sony Ericsson, rather like Nokia, was late to enter. By focusing on Android, Sony Ericsson made up some ground but at the same time was facing intensifying competition by then from the South Koreans, especially Samsung. In the end Ericsson itself decided it was time to exit handsets altogether and in October 2011 sold its 50% stake in the joint venture to its partner Sony for $1.46 billion.
By that time Ericsson was already well advanced with its diversification into media and TV. This had begun in February 2007 with the acquisition for $1.4 billion of Tandberg TV, which had built up a strong position in pay TV encoding, especially the then burgeoning field of IPTV, as well as encoding in general. Ericsson continued to major in encoding and IPTV, acquiring Microsoft’s Mediaroom IPTV middleware business in 2013, admittedly at a time when this platform was rather long in the tooth after a year or two of relative neglect. Nevertheless, Ericsson acquired a substantial base of Tier 1 clients with that acquisition and has piled resources in to turn the platform round and refocus it on cloud based IP services with MediaFirst.
This incorporates Ericsson’s more recent developments such as virtualized encoding introduced in an attempt to provide a single coherent cloud based package for multiscreen delivery, enabling operators to combine hardware and software based video processing. Ericsson strengthened its position here firstly by integrating Elemental’s software encoding technology into its platform during 2014 and then acquiring Envivio for $125 million in September 2015. By then it was clear Elemental was slipping into the hands of Amazon Web Services, which took Ericsson towards Envivio as the other leading software encoding specialist.
These moves fitted with Vestberg’s five-point strategy for survival into the medium to long term. The starting point was Ericsson’s two established strongholds in telecom services and transmission, including the radio core. As Vestberg notes, Ericsson is number one in mobile infrastructure and services and this will continue to be strong, but its position is slowly falling. Ericsson currently holds just over 30% of the global mobile infrastructure market, but this is down 6% on 2011 and declining year on year for two main reasons, a technology-shift from CDMA to 4G/LTE and growing competition from Chinese counterparts such as Huawei and ZTE.
While the technology trend may shift in its favor with the emergence of 5G where it is strongly placed, the competitive factors will only get worse. This is why Ericsson is focusing on the five sectors it considers will yield both synergy and growth, IP Networks, Cloud, OSS &BSS, TV & Media and Industry & Society. These are all coalescing around mobile and analytics and in this context Ericsson’s announcement of its Unified Delivery Network (UDN) represents a major step.
UDN takes Ericsson further into service delivery, building on work over the last few years on its Media Delivery Network, which has been developed to integrate multiple CDNs into a single end to end platform. This appeals most to fixed or mobile operators lacking global infrastructure or suitable partnerships and yet wanting to extend their services or reach geographically. As well as incorporating caching and optimization technologies this can also be seen as a partnership strategy since Ericsson’s Media Delivery Network requires cooperation from CDN providers. Ericsson had announced the first three CDN integration partners in February 2014, Limelight Networks, CDNetworks and Beijing based ChinaCache.
The immediate seeds of UDN were then sowed in May 2015 when Telstra, which has now become one of the four UDN Telco partners, picked the Ericsson Media Delivery Network solution as its fully managed CDN service to provide capacity for growth in IP video. The firms committed then to invest together in development of media delivery over operator networks around the world. This then culminated in the UDN launch, bringing in Vodafone, AIS and Hutchison as well to plug the coverage gaps. The objective is to combine long range CDNs with local fixed and cellular infrastructure to provide a global network extending to the last mile, pitched in particular at broadcasters and content providers wanting to extend their reach without having to invest themselves in infrastructure or establish bilateral partnerships.
It is worth looking at how these pieces fit together. AIS is Thailand’s largest mobile operator with over 35 million customers, so hooks that country into the network. Hutchison is a lot bigger with operations in various European and Asia Pacific countries, including Hong Kong, Australia, Austria, Denmark, Indonesia, Ireland, Italy, Sweden and the UK.
Telstra is in Australia, while Vodafone brings in the US, UK, Spain, Germany, Italy, Turkey, India and Australia, where it has a direct network presence. So there is some overlap, but between them the current UDN Telco partners cover most of the world’s major markets, with a strong presence in Europe and Asia Pacific as well as the US. China and Russia are the major omissions, but that could change in the light of recent rumors linking China Telecom with a possible audacious bid for Vodafone or at least a stake.
Be that as it may Telstra, although not the biggest partner, looks like the beating heart of UDN at the moment. This has become clear through a parallel development to UDN, also just launched, which is an alliance between Ericsson and Amazon Web Services (AWS) to create a number of so called cloud innovation centers with mobile operators. The plan is to help MNOs virtualize their systems and services, and at the same time seize new opportunities from the provision of digital offerings. Ericsson said it will exploit AWS existing network capacity and expertise to help service providers build cloud-related offerings. The first such operator is Telstra, which is opening its cloud innovation center at its Gurrowa Innovation Lab in Melbourne, Australia.
This alliance is aimed more at secure custody and transmission of enterprise data but gels with the UDN and Ericsson’s overall five-pronged strategy, which includes the enterprise dimension. It will also serve operator customers, which comes back to the original point about competing with customers. Ericsson now distinguishes between different types of operator, some of which it regards as competitors and others as potential customers. Broadly there are three categories, firstly pure network operators focusing almost entirely on the infrastructure, almost as wholesale providers, seeking returns on capital investment rather than added value. At the other extreme are the growing breed of service creators, which on the cellular side are heavily into 4G while investing in 5G and seeking new revenues, not just from OTT services like messaging and premium video, but also the Internet of Things and applications like healthcare and home surveillance. In between these two extremes are service enablers, also a growing breed, not directly targeting these new opportunities, but developing the underlying platforms, including OSS/BSS and software defined networking (SDN), enabling them to do so. Ericsson is now focusing particularly on the latter two categories as customers, while the former are either partners, as within UDN, or competitors.