Can a 136 year old company, with 100,000 employees in 180 countries, stay "hungry"? Despite an annual 5 Billion USD R&D budget, Swedish telecom equipment maker Ericsson saw its market share plummet in the transition from 2G to 3G. To avoid the same fate in the shift from 3G to LTE, Ericsson changed strategies- in addition to selling equipment, they bundled Support Solutions for operators. Together with a good old fashioned Price War, Ericsson is pummeling its competitors, capturing an additional 6% of the market last year for nearly 40% market share. The man behind this move is Doug Gilstrap, Ericsson's Head of Strategy. Last week, he discussed some of the opportunities ahead while in Jerusalem for the HTIA Conference.
The last seven years have been horrific for telecom equipment vendors. Spending plummeted in Europe and North America after the 2008 financial crisis. At the same time, the entrance of low-cost Chinese competitors, Huawei and ZTE, forced four companies (Alcatel and Lucent, Nokia and Siemens), to merge into two. Among the other three players, two exited the business altogether- Nortel filed for bankruptcy in 2009 while Motorola sold its networks business in 2011.
Gilstrap was hired in October, 2009 and positioned Ericsson to leverage its investment in R&D as a source of differentiation. "Innovation is the only way and Ericsson leads the industry in R&D investment. More than 5 billion USD goes to R&D every year. The company has the industry's strongest IP portfolio and anyone acting in the Networked Society needs to have a license from Ericsson. The company has more than 90 license agreements over all generations of wireless".
Faced with an explosion in data consumption, more wireless operators are now frantically searching for the best, rather than cheapest, solutions. Already, the number of mobile-connected devices exceeds the number of people on earth. And these devices devour data. For example, by 2016 mobile-connected tablets will generate more traffic than today's entire global mobile network. Ericsson envisions a world in which everything that benefits from an IP connection will have one. That means 10 billion mobile-connected devices, including machine-to-machine (M2M) modules, by 2016 and 50 billion by the end of the decade.
Gilstrap believes most data applications will be delivered from the cloud. "This will generate massive growth of data traffic. Ericsson forecasts that this will result in the total data traffic in mobile networks to grow 15 times between 2011 and 2017".
Desperate for higher capacity, wireless operators are finally increasing their network investments, particularly for LTE. Worldwide, LTE commercial networks cover 455 million people (305 from Ericsson) and should cover half the world's population by 2017. This year, Gartner projects telecom spending will rise 10.8% to $377 billion and another 8.3% next year.
All of this reinforces Gilstrap's focus on innovation. "There is a constant drive to grow and differentiate. Strategic areas need innovation from within the company as well as from customers and other partners in order to stay in the lead. The market tells us that end users value quality of experience, which in turn depends largely on the quality of the mobile data network and excellent services. Ericsson will continue to find the best ideas, foster them, then bring them to market. Israel is a hub of high-tech innovation and Ericsson is excited to be part of this community".
Future growth, in addition to mobile network equipment, includes "a big range of initiatives, related to development of Cloud based services, to the growth of Machine-to-Machine business etc. When it comes to the new areas, external innovation plays a much bigger role. That includes mergers and acquisitions, as in the cases of Telcordia and BelAir, as well as the acquisition of an M2M platform. Minority investments are also becoming more interesting for the company, as are partnerships like the alliance with Akamai that created Mobile Cloud Accelerator. We look forward to being part of the Networked Society".
Levi Shapiro is a Partner at TMT Strategic Advisors, a research and strategy firm focusing on the technology, media and telecom sectors. He can be reached at email@example.com or via twitter: @levshapiro
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