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Mobile giants: 4G is so yesterday. Better IT can kickstart revenue growth

Hear that, IT crowd?

Telco OEMs become IT giants

While Nokia may be the cheerleader for bringing IT systems and content to the cell site, Ericsson wants to grow its capabilities in IT platforms at the back end, and especially in cloud services. It has increased its investments in Silicon Valley over the past few years and has a large lab, CTO and other teams based there.

Earlier this year, it created a dedicated cloud unit in the California hi-tech region, headed by Jason Hoffman, co-founder of cloud provider Joyent. One of Hoffman’s remits is to acquire startups and other companies to bolster Ericsson’s credentials in service provider IT and "as a service" offerings. Recent purchases in this area have included Apcera, Fabrix and Metratech.

The latter may be cloud-based versions of core carrier systems such as OSS/BSS or even packet core, or they may be platforms which operators can white label to deliver their own services such as device management and connectivity for internet of things applications. The IoT raises potential conflicts of interest though, as Ericsson is also increasingly providing cloud services directly to auto makers and other new players in the mobile world – it has a major deal running Volvo’s connected cars and other M2M services, a deal which a more traditional Ericsson carrier customer, with its own IoT cloud, might have wanted.

In all cases, the move to virtualisation will accelerate the trend and will often be the spur for MNOs to outsource major systems, rather than take on the full burden of such a huge architectural and cultural shift. Some are planning to run their virtualised systems in the public cloud, or split them between public and private clouds, while others aim to outsource their legacy systems, to be maintained and eventually run down while the carrier’s in-house teams focus on creating the new platforms.

To address any of these variations, Ericsson has to expand from traditional managed services – building, running and maintaining mobile networks – into offerings which will bring it up against IBM and Hewlett-Packard.

The conventional network outsourcing, once a very important source of growth and profitability, has seen its margins squeezed, to the extent that Nokia and others have sometimes backed away from contracts they believed would be loss-making, especially in price-competitive markets like India. Ericsson has the scale to take on such deals and stay in the black, but it could certainly see better margins from transformation and IT projects in future.

Hoffman believes that the carrier cloud market is so nascent that there are plenty of opportunities for Ericsson to catch up with IBM, Microsoft and other enterprise IT powerhouses. He said in an interview with Bloomberg: “The vast majority of the market isn’t using cloud, can’t use cloud, doesn’t want to use cloud. And you have all these use cases showing up.”

When up against the enterprise IT brands, especially in the non-MNO markets, it needs to target to restart its stagnant growth. Ericsson will talk up its huge understanding of how mobile networks and devices work, and like Nokia, it knows that the more IT activity is moved to the edge of the network, the more its expertise comes into play – as opposed to that of firms used to building centralised data centre services.

Hoffman sounded very Nokia-like when he said that smartphones, connected cars and other devices would increasingly get their resources and content from a nearby base station, not a remote data centre, in order to improve responsiveness, speed and personalisation.

“We’re in an enormous transition,” Ericsson CTO Ulf Ewaldsson said in an interview. “It would put networks in the center of a transformation in the world where industries get digitalized.”

Ericsson will offer a detailed update on its emerging business areas – IP networks across fixed and mobile; cloud; telco data centres; virtualisation and transformation – at its Capital Markets Day on 13 November. While it will certainly look to be in the vanguard of big trends like SDN, its priority will be to kickstart growth after three stagnant years, with new projects that will deliver new revenues in the short to medium term. That means IMS-related projects, as VoLTE starts to take off and as carriers look to build their own new revenue streams on 4G, to boost their own returns on the technology; and it means a strong focus on IT and transformation projects, particularly in OSS/BSS, which require systems integration and intensive professional services.

Copyright © 2014, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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