Telecom network vendor Ericsson views 5G as “evolved” LTE, and its 5G radio access vision spans its LTE-Evolution (LTE-E) and next-generation concepts.
Whereas 5G will require new spectrum in high-frequency bands (i.e., over 3.5 GHz) and new base stations, LTE-E is backward-compatible, leveraging existing LTE hardware and low-band and unlicensed spectrum to deliver improved network performance.
More important for capacity-constrained operators, LTE-E concepts are ready for implementation in LTE networks, including Ericsson’s Lean Carrier, which reduces intercell interference to enable improvement in downlink data speeds of up to 50 percent.
Preparation for 5G continues, with Ericsson expecting to conduct live indoor and outdoor field trials of its 5G Radio Prototype in 2016, placing it among the leaders in the technology. While 5G Radio Prototype shares specifications with standards-based 5G, this technology will not be commercialized until 2020 at the earliest.
Ericsson will stimulate sales long-term by focusing on targeted growth initiatives
Ericsson delivered revenue growth – albeit due to currency effects – of 8.2 percent year-to-year and improved operating margin to 15 percent in 4Q15 as Networks sales recovered and its restructuring program began to make a favorable impact on profitability. Demand for network infrastructure remains strong, hurting gross margin, while Ericsson increases its focus on targeted growth areas in software and professional services.
Ericsson is trying to induce change among operators and is betting on its ability to convince them that their desired business outcomes require full-scale transformation of their network and IT infrastructures. Unfortunately, bureaucratic processes and culture issues bog down change at most operators, stifling transformation. Despite these obstacles, Ericsson’s dedication to growth initiatives such as cloud, TV and media, and OSS/BSS will drive revenue growth over the next two years.
Ericsson’s partnership with Cisco yields opportunities in services and software
In November, Ericsson and Cisco announced a strategic partnership that could provide more than $1 billion in incremental revenue for each company by 2018, with meaningful revenue contributions beginning this year. The partnership would result in an end-to-end supplier made up of the market share leaders in IP and wireless with the potential to address service providers’ and enterprises’ needs in networking, cloud, mobility, management and services.
In the near term, Ericsson will limit its IP ambitions to its Smart Edge product line and resell Cisco networking products. This shift will marginalize existing Ericsson partner Juniper, which will likely have fewer products sold through Ericsson.
Through this deal, Ericsson gains traction for its systems integration and managed services portfolio, as it will eventually have the opportunity to act as prime integrator across its and Cisco’s solutions; however, Cisco’s other services partners, such as Accenture, will not yield territory easily.
Ericsson’s services influence on Cisco’s business will likely affect the service provider space, but far less in enterprise, where Ericsson is less experienced. Ericsson will also benefit from and provide the OSS/BSS services and software that Cisco lacks in end-to-end solutions. These scenarios have yet to play out, as the only partnership activity so far is Ericsson reselling Cisco networking gear.
Michael Soper, telecom analyst, Technology Business Research
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