Upwardly mobile Svanberg
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In his native Sweden, the name of Carl-Henric Svanberg, chief executive of Ericsson, has recently become virtually synonymous with good news.
After a painful struggle that saw Ericsson shed more than half of its workforce in an effort to survive the mobile industry’s third-generation hangover, the group has staged a remarkable comeback.
Although the harshest cutbacks had been made by the time Mr Svanberg joined Ericsson from Swedish locks group Assa Abloy in 2003, a series of landmark deals this year show he has made his mark on the 129-year-old company.
In the past few months, Ericsson has announced not only its biggest ever acquisition – a £1.2bn ($2.1bn) deal to buy out most of Marconi of the UK – but also a large network management deal, raising hopes the company can reduce its long-term dependence on the volatile hardware market.
In an interview with the Financial Times, Mr Svanberg says the acquisition of the struggling UK manufacturer will strengthen Ericsson’s fixed-line business, a priority now that the boundaries between fixed and mobile networks are being blurred by the adoption of new, efficient internet protocol technology.
Mr Svanberg points out that the volume of traffic carried on the world’s networks is doubling every three years and adds that Marconi’s business should pick up now that it has a new, credible owner. “People have held back from [placing orders with] Marconi because of its weak financial position,” he says.
The recent signing of a seven-year deal to take over the management of the mobile network of 3UK, a subsidiary of Hutchison Whampoa, was Mr Svanberg’s other coup in the past year.
Ericsson has not disclosed the value of the deal, but it is thought to be worth between $3bn and $3.5bn, including an infrastructure supply element.
Ericsson has similar contracts with 3 in Italy and Australia and is leading its rivals by some way in this area, although the company declines to reveal its market share. The complete outsourcing of mobile network management is a relatively recent phenomenon, but Ericsson is confident it has tapped into to a new growth market.
Mr Svanberg estimates that 3 to 4 per cent of the world’s mobile networks are managed by a third party. According to Ericsson, the current value of outsourced telecoms services market is $55bn, with telecom operators spending another $145bn a year on internal operating expenses.
“The 3 deals in Italy and the UK are triggering events,” Mr Svanberg says, adding that outsourcing the maintenance of a mobile network can help operators reduce their operating costs by a fifth.
He believes a dramatic decline in mobile phone tariffs, particularly in Europe, will force operators to look for ever-greater cost savings.
Meanwhile, operators are increasingly leaving their engineering roots behind as the telecoms, media and IT industries converge, fuelling the development of new types of mobile content and services.
“Life for an operator is changing dramatically,” Mr Svanberg says. “Suddenly, you need to segment the market and understand your customers in a totally new way.”
Mr Svanberg rejects suggestions that the service contracts will hit Ericsson’s margins, although the profile of the contracts means they will be unprofitable in the early stages.
Ericsson will not reveal the value of its managed service contracts but last year reported revenues of about SKr31bn ($3.9bn) from services out of a total group revenue of SKr142bn.
At a time when Asian telecoms manufacturers, particularly the Chinese, are catching up with the technical prowess of industry leaders such as Ericsson and Nokia, Mr Svanberg says the global reach of the incumbents will help give them a valuable competitive edge in services.
“Both us and Nokia are ahead of the rest in terms of global deployment. Some of our competitors have stronger home markets – look at the Chinese vendors.
“They may be catching up with technology, but they need to get a global presence and that may take some time.”