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Ericsson: Riding on the 3G, BWA opportunity

November 30, 2011
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With the Indian market beginning to adopt next-generation technologies, Fredrik Jejdling’s appointment as head of Ericsson AB’s Indian operations could not have been timed better. The company’s Indian business wing has been particularly busy in the past one year. Ericsson has bagged several key network and equipment contracts within a year of 3G and broadband wireless access (BWA) spectrum being awarded to operators.

In the 3G mobile network space, the company has retained its pole position, having received contracts from major wireless operators including Bharti Airtel, Vodafone Essar, Idea Cellular and Aircel. The company has been awarded contracts covering 21 separate 3G licences, the maximum for any vendor.

Moreover, the equipment vendor bagged the country’s first long term evolution time division duplex (LTE TDD) contract in October 2011. Augere, a BWA licensee, selected Ericsson to provide an end-to-end LTE TDD solution for BWA services.

The company is bullish about both 3G and 4G services and believes that these segments will grow in parallel, thereby providing a major business opportunity for vendors. “4G will complement 3G with its data services. We are optimistic that India will become a major 4G market. In most cases, 3G and 4G would grow in parallel,” says Mikael Back, vice-president, product and portfolio management, business unit networks, Ericsson AB.

Ericsson currently manages around 120,000 of the estimated 500,000 cell sites in India. It expects that with future 3G and LTE TDD rollouts, at least another 300,000 cell sites will be added to its portfolio.

India expansion plans

Given the business prospects of both the 3G and 4G segments, Ericsson has strengthened its focus on the Indian market. This focus and the possibility of the government mandating a fixed local manufacturing quota for equipment procurement have made the company expand its local manufacturing base. The vendor has been increasing its presence in the country and investing in a new production line for mobile base station modules at its factory in Kukas, Jaipur.

Also, it aims to make India a global export hub for network equipment. “We have recently increased the capacity of our facility in Jaipur. In the future, we are looking at making this facility a global export hub,” Jejdling said in a media statement. Currently, the company operates equipment production lines for radio access networks, core networks, transmission solutions and modules at the Jaipur unit.

To ramp up its managed services business in India, Ericsson has developed four regional facilities for supporting 3G and LTE TDD operators. The company is setting up a regional technical centre (RTC) in Gurgaon, and plans to establish similar units in Mumbai, Kolkata and Chennai as well. These RTCs, Ericsson’s first such units globally, are being designed to provide managed services for India’s 3G and BWA licence holders.

The RTCs, which are in addition to the existing Global Network Operating Center that supports Ericsson’s managed service customers, are likely to be a key differentiating factor for the company as 3G and LTE require proactive measures on the network maintenance front to ensure quality services.

In line with its expansion plans, the vendor is ramping up its global service delivery centre in India. Located in Gurgaon, it is among the company’s largest global facilities. “India, which is a very important market for us, is growing significantly. Demand continues to be good and if all goes as per plan, we would add more than 1,500 employees by end-2011,” says Magnus Mandersson, senior vice-president and head of global services, Ericsson.

With the aim of entering the operation support system and business support system (OSS/BSS) space in India, Ericsson acquired service provider information technology company Telcordia Technologies for $1.15 billion in June 2011. The acquisition  marked an important milestone in the transformation of Ericsson from an infrastructure company to a key player in the OSS/BSS segment, and for other back office service creation.

Key contracts

Ericsson has bagged major 3G and 4G contracts in the past one year. These include Bharti Airtel’s Rs 1.3 billion order for managing 3G rollouts in seven circles; Vodafone Essar’s 3G hardware, software and related service contract for installing the latest HSPA mobile broadband network in the Mumbai, Delhi and Kolkata circles; and Aircel’s network rollout contract for six circles – Tamil Nadu, Bihar-Jharkhand, Orissa, Jammu & Kashmir, the Northeast and Assam. These circles serve more than 100 million Aircel subscribers, which made Ericsson the operator’s largest partner for 3G implementation. In addition, Idea Cellular has contracted the company to manage 3G rollouts in five of its 11 circles. Idea has also partnered with the company for its online application store. Ericsson has been responsible for end-to-end service management of the store, including technical operations, content ecosystem partner management and testing and usability, besides business operations.

Ericsson marked its foray into the BWA contract space by winning an order from Augere for rolling out BWA services based on the LTE TDD platform. The contract requires Ericsson to provide Augere an end-to-end LTE TDD solution including managed services for three years in 14 cities in the Madhya Pradesh and Chhattisgarh circles. Service rollout is expected in 2012, with a soft launch planned in early 2012.

Key issues

One of the main challenges for Ericsson in an emerging market like India is its positioning as a “premium” vendor. Ericsson claims to have premium quality offerings and accordingly prices its products high. This strategy has not been very successful in India, where telecom companies have been battling low ARPUs and thin margins, and are, therefore, price sensitive. This has led to Ericsson losing many contracts to Chinese vendors like ZTE and Huawei, which offer cheaper products.

Another issue that is likely to pose a challenge to all vendors in the future is the stringent equipment norms proposed by the Ministry of Communications and IT. However, Ericsson is better placed as compared to its Chinese rivals as its equipment is approved on the basis of global standards.

Financials

Ericsson’s India business has been on a strong financial wicket in 2011. The company reported a significant increase in revenues in the first quarter of 2011 (quarter ended March 2011). Its revenues from the Indian market for the quarter stood at SKR 3.2 billion, registering a 38 per growth over the corresponding quarter in 2010 and an 11 per cent increase over the quarter ended December 2010. This growth can be attributed to the award of 3G contracts by Indian operators.

In the second quarter of 2011 (ended June 2011), the company reported a 107 per cent year-on-year increase in revenues from its India operations. Its revenue of SKR 2.8 billion for the quarter under consideration was double that for the same period in 2010. This growth can also be attributed to its 3G network contracts. For the quarter ended September 2011, Ericsson’s India sales stood at SKR 2.3 billion, marking an increase of 7 per cent from SKR 2.1 billion for the quarter ended September 2010.

Conclusion

Ericsson estimates the Indian managed service market to grow at 20 per cent annually over the next two-three years. Upbeat about the potential of the Indian equipment market, the company seems well placed to capitalise on future opportunities.

 
 
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