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Ericsson India: Exploring new opportunities provided by government initiatives

December 15, 2014
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In its financial results for the quarter ended September 2014, Ericsson reported a 56 per cent year-on-year growth in revenues from its Indian operations. With this, the company’s business in the country registered the maximum growth among all other operational markets, thereby making it Ericsson’s fourth largest market. In contrast, the company is witnessing either negative growth or a decline in growth in mature markets such as the US and Europe. This is reflective of an industry-wide trend – that emerging markets have become the primary growth drivers for network equipment vendors as mature markets are witnessing limited network installations.

Ericsson’s revenues from the Indian market increased from SEK 1.28 billion for the quarter ended September 2013 to SEK 2 billion in the corresponding quarter of 2014. Of the total revenue for the quarter ended September 2014, the networks business accounted for 55.3 per cent, followed by global services at 37.15 per cent and support solutions at 7.55 per cent. The growth in the networks business was driven by an increase in data network deployments by operators as data services continued to gain traction across India. The networks business division witnessed a year-on-year growth of about 95 per cent for the quarter ended September 2014.

Data networks to drive business growth

During 2012 and most of 2013, operators invested limited capital in data networks on account of low adoption of data services and regulatory uncertainty. However, since end-2013, data services have been gaining traction, with over-the-top applications leading to significant growth in data traffic. In order to avoid network congestion and improve users’ data experience, operators are now focusing on expanding network coverage and capacity. This increased demand from Indian operations augurs well for Ericsson, as the company has been witnessing subdued growth in its networks business division in mature markets.

The company has started securing contracts from Indian operators in the 4G domain. In October 2014, Ericsson won a contract from Bharti Airtel to supply equipment and set up its 4G network with frequency division duplex-long term evolution technology (FDD-LTE) in two circles. Other operators that have won spectrum in the 1800 MHz band are also considering launching 4G services, which will fuel demand for network equipment. In anticipation of increased demand for 4G network equipment, Ericsson split its networks business division into two separate entities – Radio, and Cloud and IP, in April 2014.

Telecom operators are also making huge investments in expanding their 3G networks as data traffic continues to rise and customers demand higher broadband speeds. Meanwhile, there is a growing preference for network equipment supporting multiple technologies so that the overall cost of ownership can be optimised. This is one potential focus area for the company. To cater to this market, Ericsson has developed and launched pico cells, which support multiple wireless technologies and work in coordination with the macro network.

Another focus area for Ericsson in India is in-building solutions (IBS), which facilitate better indoor network coverage. With a large part of wireless data traffic being generated from within buildings, operators are considering deploying IBS, such as small cells and Wi-Fi hotspots, for enhancing indoor network capacity and coverage. Also, Indian wireless broadband service providers hold spectrum in the 2300 MHz for offering 4G services; however, the frequency band has low propagation characteristics and thereby has patchy indoor coverage. Therefore, it becomes imperative for these companies to deploy IBS to ensure a rich 4G experience, especially for video services.

Ericsson recently won a contract from Ozone Networks for the deployment and management of 30,000 Wi-Fi hotspots across India. It will provide Wi-Fi solutions based on small cells as a service model for a period of five years. Through small cell deployment, Ozone Networks will offer additional capacity and coverage to telecom operators in order to support the growing data traffic within buildings.

Another area of opportunity for Ericsson India is the support solutions business, which grew by around 300 per cent year on year for the company for the quarter ended September 2014. This business is driven by the growing adoption of operations support systems and business support systems. In the past two years, the company has secured several managed services contracts from companies such as Vodafone India, Reliance Communications (RCOM) and Reliance Jio Infocomm Limited (RJIL).

Government initiatives offer new opportunities

Ericsson is looking at the potential opportunities arising from the government’s Smart Cities initiative. The company intends to leverage its expertise and experience on similar global projects wherein it has provided solutions for grid operations management and transport networks, among others. It also intends to offer smart metering, public safety and remote health monitoring solutions in India.

Ericsson is bullish about the future of machine-to-machine solutions in India, which the company believes will help in achieving the objectives of its networked society vision that envisages connecting everything through the internet. It involves real-time connectivity among machines, electronics and devices through wireless technologies, including mobile broadband and cloud solutions. In this regard, the company is also exploring the concept of a “connected home” with its partners in India.

Further, Ericsson is looking forward to the government’s “Make in India” campaign. The company already has manufacturing operations in India, and produces access and core network equipment as well as transmission modules. In 2011, it ramped up the facility’s capacity significantly in order to meet the growing market demand. Ericsson is now aiming to export network equipment from this facility.

Competition in equipment manufacturing

While Ericsson has been a leading player in the Indian telecom equipment manufacturing industry, its market position is being challenged, primarily by Chinese players such as Huawei and ZTE. With Nokia Networks focusing entirely on the equipment manufacturing and supply business following the sale of its mobile division, the company is likely to pose increased competition. Most equipment vendors have already ramped up their product portfolio as telecom operators are focusing more on data networks. However, Chinese vendors, who have recently gained considerable market share in India due to their aggressive pricing strategy, are emerging as the biggest competitors.

Future outlook

With significant experience in the Indian market and the launch of its new products and solutions, Ericsson is well-positioned to seize the potential growth opportunities provided by various initiatives of the government. The company will also gain from the improvement in the investment climate in the Indian telecom industry, with many operators planning to set up 4G networks and ramp up their 3G networks to cater to the rising demand for high speed broadband services. Going forward, Ericsson’s position in the highly competitive equipment manufacturing market will depend on how it capitalises on these opportunities.

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