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TELECOMS AND SOFTWARE NEWS
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Ericsson's services strategy
Ericsson's services strategy
Throughout 2009 we have commented on the growing importance of network services and managed network services in the telecoms vertical. Ericsson Global Services is the market leader and currently sees over 30% of its 2008 group revenues generated by professional services and network rollout services. At a recent service briefing, Ericsson's Business Unit Global Services clarified its ambitions and showcased its most comprehensive managed services contract to date.
Market leader in telecoms network services
Ericsson's Business Unit Global Services, known as BUGS internally, is at the sharp end of Ericsson's future business aspirations. The company claims to manage networks supporting a total of 350 million subscribers, and it is aiming to increase that to 1 billion. It currently has 300 managed services contracts covering field maintenance, operations (up to the BSS stack), operational readiness and shared solutions (hosted and managed backhaul). The most comprehensive contract is with MBNL in the UK. Mobile network sharing provides opportunities for growth
Established in December 2007, MBNL is a joint venture between 3 UK and T-Mobile UK, and is responsible for the combined 3G access networks of the parent companies. The 40-person company manages and maintains the contracts covering site sharing, backhaul and RAN sharing. NSN provides the equipment, while Ericsson is responsible for the network design, deployment, operation and maintenance. According to MBNL MD Graham Payne, the net result is that the company is on course to make £2 billion of cost savings over ten years through a mix of decommissioning sites, shared backhaul and leveraging the combined purchasing power of its parent companies. Payne was equally pleased with the venture's ability to handle the rapid growth in mobile broadband traffic - something that would have proved costly for its parent companies to address individually. The contract is dimensioned to incorporate further network upgrades, such as LTE, to protect against swings in traffic volumes between the two service providers and to cover any change of ownership at the parent companies. Payne stressed the need to invest time in the contract negotiations to cover every conceivable operational scenario, but also to identify the risk-reward KPIs to incentivise the supplier. In the market as a whole, we see the greater percentage of contracts currently emanating from the mobile sector. There is still plenty of opportunity, as few extend to RAN access, and so far backhaul agreements are most evident in Europe. However, the business cases for both are growing ever more attractive as margins are squeezed and service providers, including DT and Telefonica, report slowing mobile revenue growth. Even larger addressable market with wireline service providers
Managed services are still in their infancy among the integrated and wireline operator community. This bodes well for Ericsson's future service revenues as many incumbents are Ericsson customers and it has developed a high degree of a trust in these entrenched relationships. For example, Ericsson is also responsible for Telstra's lightning rollout of its 3G network in 2007. It is currently upgrading the network to 42Mbps and managing the network, which is seeing its data traffic double every eight months. Ericsson still leading the pack
The service market is fragmented, comprising regional specialists, telco spin-offs and other independent telecoms service providers. However, Ericsson's services business is in great shape. It has reported a 21% increase in its professional service revenues and an 18% increase in network rollout service revenues in the first nine months of 2009. It also has a surprisingly well-balanced geographical distribution of revenues, so while revenues from Western Europe are slowing, the gains in Asia-Pacific, the Middle East and Africa are more than compensating. As we reported last month following the Nokia-Siemens event, services are the future for the network equipment providers (NEPs). An increasing number of service providers no longer view operating and maintaining the network as a core business. Consequently there are rich pickings for those NEPs that have transformed their own engagement model to be service-led and software driven.
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