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Ericsson competes on advanced 5G and SDI, but also on good old pricing

Nokia has been ambitious in its diversification strategies, pushing into new enterprise sectors (and giving its enterprise business a high level of autonomy) and adapting to platforms driven by software, cloud technologies and open source. Ericsson has been far more conservative, especially since its CEO Börje Ekholm took the helm, reversing many of the moves his predecessor Hans Vestberg had driven to expand into growth markets like enterprise and media. Ericsson is now focusing heavily on its core strengths in end-to-end mobile networks, and especially 5G – but if that strategy is not to be dangerously constrained, it needs to leverages its 5G platforms for as many growth areas as possible.

Ericsson insists it has not given up on enterprise and IoT markets – it just will not pursue these directly, only by putting new weapons in the hands of its MNO customers. Much of its differentiation, at least as discussed publicly by itself or its operators, looks very traditional – cutting edge technology in the network itself; a smooth and cost-effective migration from 4G to 5G (its 5G-ready Ericsson Radio System is its best-seller); and of course, price competition.

In the latter respect, it is always assumed that Huawei and ZTE undercut the rest, and that is one reason why operators are furious at the prospect of governments restricting their freedom to choose those Chinese suppliers. However, insights shared by China Unicom reveal that Ericsson sometimes sells more cheaply than its Chinese rivals, even in their home country. According to a Unicom tender document for 4G base stations, Ericsson priced its products at RMB21bn ($3.1bn), 25% cheaper than Huawei’s tender and 22% below ZTE’s. Nokia was the highest-priced on RMB34.7bn.

Edison Lee, an analyst at Jefferies Hong Kong, said this shows how ZTE, in particular, no longer competes on price alone because the quality of its products has steadily improved. Indeed, in 5G, and particularly in key enablers like Massive MIMO, the Chinese vendors are often ahead of their rivals in advanced technology. Last year, Ericsson showed strong progress for its Ericsson Radio System in China, which was widely attributed by analysts to the low prices it was asking, as well as ERS’s 5G-readiness.

The vendor, like other western suppliers, will fear that the current tensions between China and the USA will lead to it being squeezed out of huge Chinese operator contracts for 4G expansion and 5G, in retaliation for sanctions against Huawei and ZTE. That would also anger the Chinese telcos, which have the same desire as any operators to have a wide choice of vendors, and which have always procured kit from non-Chinese companies as well as the homegrown partners.

In the face of such risks to the traditional aspects of Ericsson’s model – price competition and smooth 5G transition paths – it will be increasingly important to find other ways to expand the business. In the past week, Ericsson’s announcements have highlighted a couple of its directions – increasing its position in virtualized networks and the underlying digital infrastructure; and leveraging 5G technology for higher value customers and use cases.

In the former case, Ericsson announced an extended partnership with Intel to work on software-defined infrastructure (SDI) for 5G. Like other 5G-oriented SDI developments, such as SK Telecom’s in Korea, the result will be a co-developed platform that extends the agility of the cloud to the hardware infrastructure layer, in order to reduce time to deploy, and cut the total cost of ownership. The result will be an integrated hardware/software management platform for NFV, distributed cloud and 5G.

The companies will combine Ericsson’s SDI Manager software with Intel’s Rack Scale Design, and align future development paths for both. The combined offering will be sold in future Ericsson hardware platforms and will be backwards compatible for current Ericsson customers.

But one of the aims of the project is to allow operators to adopt multivendor hardware, so the system could potentially also be offered with servers from Intel or other OEMs. The platform will create a common managed pool of multivendor hardware that scales dynamically to support all kinds of NFV, cloud and 5G workloads.

That would see Ericsson, like Nokia, accepting the possibility of becoming primarily a software business, agnostic to underlying hardware, even though both vendors have their own telco cloud hardware (based on Intel x86). But the Swedish firm was clear that the main elements of the Intel alliance are its own end-to-end software and Intel’s architecture – not any particular server hardware.

Ericsson’s Lars Mårtensson, head of cloud and NFV infrastructure in the digital services business area, said in a statement: “This new collaboration will focus on software in addition to hardware and we see it be truly transformative for service providers’ ability to successfully deploy open cloud and NFV infrastructure, from centralized data centers to the edge.”

“Our infrastructure manageability collaboration with Ericsson will help communications service providers remove deployment barriers, reduce costs, and deliver new 5G and edge services with cloud-like speed, on a flexible, programmable and intelligent network,” said Sandra Rivera, SVP of Intel’s network platform group, in a statement.

Ericsson will also be looking for new business in a more traditional way, identifying markets for its networks which may have larger budgets than those of consumer-focused MNOs in saturated markets. Critical communications is clearly a good example, where cost must come second to reliability and security, and 5G – at least from Release 16 onwards – promises to be able to support critical services to a far greater extent than 4G. As such, vendors and operators could push into some sectors which have, in the past, mainly been served by specialized, dedicated – and very expensive – networks.

The Swedish vendor aims to steal a march on its rivals in this space – which is says is worth $18bn a year – even before critical 5G is commercial, and has announced a new portfolio of equipment, applications and services that can be deployed with existing LTE. Some of this will enable its operator customers to target classic critical comms sectors such as public safety, which still rely on their own technologies for some functions, but are increasingly moving onto generic cellular platforms.

This can be a slow and contentious process, as the delayed transition of the UK’s emergency services network from dedicated TETRA technology to an LTE-based service illustrates. So it is important to operators that they can extend their critical comms offerings to larger addressable markets, particularly industries which are wanting to use mobile data in mission-critical scenarios, but have been unable to do so until now.

Ericsson says its Critical Broadband portfolio is varied and flexible enough to support the needs of many sectors of this kind, including transport, logistics, utilities and others.

The offering has three categories:

  • Critical Network Capabilities, which implements high availability, reliability and security in the network to support critical comms.
  • Critical Broadband Applications, which covers voice, video and push-to-talk (PTT) services.
  • Flexible Deployments for Private Networks, which offers various deployment options, such as network slicing or fully dedicated networks, as well as a range of managed services.

Per Narvinger, Ericsson’s head of the networks product area, said in a statement: “We see growth opportunities for service providers and government operators by addressing new segments with LTE/5G networks. Our critical broadband portfolio will enable our customers to effectively secure the critical communication needs of sectors such as public safety, energy and utilities, transportation, and manufacturing.”

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