Ericsson finalises 3 contract

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Ericsson on Tuesday signed its “largest ever” services management contract to run the mobile network of 3 in the UK in a seven-year deal thought to be worth between $3bn and $3.5bn.

The Swedish telecoms equipment maker’s success follows a similar five-year contract struck with 3’s Italian network this year, worth between $1.75bn and $2.5bn.

Ericsson, the world’s largest maker of mobile phone networks, also runs 3’s Australian network so it was always in pole position to take over the UK operation of the mobile business of Hutchison Whampoa.

The complete outsourcing of mobile network management by some operators is a relatively recent phenomenon, which Carl-Henric Svanberg, Ericsson’s chief executive, predicts will continue growing.

Mr Svanberg said 3 to 4 per cent of the world’s mobile networks were managed by a third party. He predicted the cost advantage would mean others having to follow suit.

Most of the large operators, such as France Telecom, run their own mobile networks in part because they have done the same with their fixed-line businesses over the past century.

“They are obviously potential customers for us and [eventually] they will have to go this way or suffer a cost disadvantage,” Mr Svanberg said.

But analysts were not convinced. “The weak operators in a market tend to outsource their networks to bring down their cost bases,” said Inge Heydorn at Deutsche Bank.

He pointed to a similar deal between Vodafone’s Dutch subsidiary and Ericsson but predicted Vodafone was less likely to follow suit in markets where it was stronger, such as the UK.

One industry source, however, insisted the larger players were “seriously” considering this route.

Ericsson shares rose almost 4 per cent to close at SKr27.80.

Ericsson has been expanding its footprint in managed services in the past three years and is thought to have in excess of a 50 per cent market share in the network management area. Its rivals include Lucent, Nokia, Nortel and Siemens.

Ericsson does not break out how many network management contracts it has. It has 55 managed service contracts covering more than 50m subscribers.

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