Newsletter: Q2 2009

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Ericsson reports second quarter results
Ericsson reported net sales of SEK 52.1 billion for the second quarter of 2009, up seven percent on the same quarter last year. Net income for the quarter was SEK0.8 billion, compared with SEK 2.0 billion a year earlier, reflecting the losses in Sony Ericsson and ST-Ericsson (Press release). See a video of Ericsson President and CEO commenting here.
 
Ericsson names Hans Vestberg CEO
Ericsson has appointed Hans Vestberg President and Chief Executive Officer of Ericsson as of January 1, 2010. Vestberg, currently Chief Financial Officer and Executive Vice President, will succeed Carl-Henric Svanberg who has accepted the position of Chairman of BP, the world’s fourth-largest company (Press release).
 
Sprint signs USD 5 billion services deal
US operator Sprint has signed a major services agreement with Ericsson for its wireless and wireline networks in North America. The agreement, with an option for renewal, is expected to be valued between USD4.5 billion and USD5 billion over the seven-year term of the contract, and will see the transfer of about 6,000 Sprint employees to Ericsson during the third quarter of 2009 (Press release).
 
ST-Ericsson reports on second quarter 
ST-Ericsson, the 50/50 joint venture between Ericsson and STMicroelectronics, reported sales of USD666 million for the second quarter of 2009, resulting in a net loss for the quarter of USD 213 million, which includes the effects of restructuring charges and the amortization of acquisition-related intangibles (Press release).
 
Sony Ericsson reports second quarter results 
Sony Ericsson reported sales of Euro 1.684 million for the second quarter of 2009, a year-on-year decrease of 40 percent, resulting in a net loss of Euro 213 million. Units shipped in the quarter were 13.8 million, a decrease of 43 percent year-on-year and a sequential decrease of 5 percent (Press release).

By Greger Blennerud, Director of Business Development, Networks
 
Operators are experiencing explosive growth in demand for mobile broadband services. Still, an important question lingers: Will these services generate revenues? Now, following a two-year study of 18 operators, Ericsson has definitive evidence that mobile broadband can provide high profit margins – even when operators are acting as ‘bit-pipe’ providers.
 
There is tremendous subscriber growth in mobile broadband: typically the service is adopted by around three percent – and as much as five percent – of the population within two years of commercial launch.
 
Many industry commentators, however, have expressed doubts about the likely contributions mobile broadband services will make to operator profitability. Several have urged caution when calculating expected returns.
  
To determine the real-world profitability of mobile broadband services, Ericsson, in close cooperation with 18 operators, has carried out a detailed cost–benefit analysis of deployments.  The study showed that, even after only a few years of good, not aggressive, growth, mobile broadband margins are 1) at least equal to those operators typically generate today and 2) on a par with those from DSL-based fixed broadband services. Ericsson’s calculations show that both cost per subscriber and cost per gigabyte are comparable for HSPA-based mobile broadband and DSL. (An explanation of the calculations substantiating this can be found here.)
 
Real-world cases
Of course, theoretical calculations are different from actual business, which is why Ericsson instigated this study with operators around the world. Difficulties in identifying or allocating costs unique to mobile broadband have made it challenging for many operators to calculate profitability. Ericsson has developed a tool for end-to-end analysis of mobile broadband business cases in response.
  
All operators in our research have a 3G network with 40 to 70 percent population coverage. Mobile broadband must share network capacity with other services – especially the radio bearer, and voice in particular. Although they are not part of mobile broadband, voice and SMS traffic were included in our studies, as they affect overall network dimensioning.
 
In producing the business cases, we looked at existing traffic and subscriber patterns and forecasts to produce a five-year scenario. This determined the capacity required across the network – along with the necessary investment and ongoing costs – including radio and backhaul, over that period. Each case looks at all non-network costs, including handset subsidies, marketing and customer care. While mobile broadband marketing costs, for example, may be much higher initially, we believe that within three to five years they will stabilize to similar levels approaching those of today. Overall, non-network costs are around 40 percent of revenue for a typical Western operator and somewhat lower in low-ARPU regions.
 
Analyzing a ‘static’ network situation isn’t enough for an operator looking for real-world solutions, of course. So we looked at three key areas of uncertainty. First, we considered what would happen if traffic per subscriber increased dramatically? Instead of looking at the statistical average, which can increase when a few users generate huge amounts of data (for example, peer-to-peer), we focused on a traffic increase an operator must consider when dimensioning the network. We also investigated what would happen if an operator moved away from E1/T1 backhaul on leased lines and deployed microwave links instead. Finally, we considered what effects variations in subscriber uptake could have on the business case.
 
We discovered that operators can maintain strong profitability even if traffic increases dramatically (within limits). In our scenarios, we assumed HSPA downlink capability of up to 21Mbps, as is being introduced in several networks this year. Technology is evolving very rapidly, however, and, when looking at a five-year scenario, we assume downlink speeds up to 56Mbps and the availability of new features and tools to enable operators to keep up with demand and stay profitable.
 
The most important aspect of profitability is having enough paying subscribers. Although many operators have yet to achieve the customer base to be profitable, some operators within just two years have reached the subscriber penetration levels used in our sensitivity analysis.
 
One Ericsson customer has said its cost per gigabyte for mobile broadband is below two euros, and this encouraging report comes after a mere two years of operation. 
 
Turning ‘threats’ into opportunities
If distribution cost per gigabyte is counted in euro cents, and traffic is not an issue at most of the sites, why do we keep hearing that traffic will kill the networks?
 
The most common argument is that heavy downloading through file sharing via peer-to-peer applications generates huge amounts of traffic. As a consequence, few operators dare adopt the de facto price model in wireline broadband: unlimited flat rate. Even though flat rates promote subscriber uptake and are the easiest for consumers to understand and accept, operators still worry about uncontrolled costs from huge increases in traffic.
 
All or most mobile networks today run voice, SMS, MMS and some mobile data traffic. To date, none of these services has generated very large volumes of data traffic per subscriber. Revenue growth has been well aligned with traffic growth (and therefore traffic cost) per subscriber. The introduction of mobile broadband services – which, compared with SMS for example, easily generates 10, 100 or even 1,000 times more traffic per subscriber – has triggered a knee-jerk reaction in some quarters that such services can never be profitable.
 
The three applications that generate the most traffic on the Internet today are peer-to-peer file sharing, web browsing and video streaming. Peer-to-peer file sharing alone accounts for more than 60 percent of all household-generated traffic. With traffic per subscriber increasing 30 percent annually – driven mainly by file sharing – we should view peer-to-peer as an opportunity.
 
Operators want as many profitable subscribers as possible. This means that investment in the network is driven by the bulk of subscribers and not by a few heavy users. Ericsson addresses this issue by introducing prioritized traffic handling throughout the network, which enables the network itself to manage resources.
 
For flat rate models to work, operators must have fair-use clauses in their subscriber contracts so they can manage heavy use intelligently. Today, mobile broadband operators typically use unconditional throttling: once the fair-use level is reached, throughput drops to a predetermined level. These speeds, however, typically don’t enable meaningful use of the broadband connection.
 
By contrast, prioritized traffic handling assigns users a lower priority in the network once they have reached their fair-use level. This means heavy users experience degradation in service only when competing for resources in a congested situation. For peer-to-peer users, the experienced reduction in throughput will, over time, be limited. Only in heavily loaded cells will a peer-to-peer user experience any serious issues. Regularly-congested sites could be targeted for a capacity upgrade, as it is actually normal usage that causes congestion.
 
Prioritized traffic handling enables operators to focus on dimensioning their networks for normal usage, while still permitting unlimited or ‘all you can eat’ traffic. The consumer gets better overall quality and the reassurance of unlimited service, free of nasty surprises on the bill.
  
In the long run, an unlimited flat rate model with a fair-use clause can be cheaper and more profitable for the operator than so-called bucket plans with a banded scale of charges for higher monthly data volumes. Subscriber uptake aside, bucket sizes must continue to increase to keep pace with subscriber demand and to ensure competitiveness and market differentiation. Operators already have to offer buckets of 10, 20 or even 50 GB to compete, and increasing traffic volumes continue to drive up bucket sizes. By contrast, the fair-use level for an unlimited flat rate offer may need to change very little – if at all – over time, as it provides an “all you can eat” model. Service is instead differentiated through speed and price.
 
To date, our studies have focused entirely on PC-based subscribers to prove that there is good profitability even in offering simple ‘bit-pipe’ mobile broadband services. Intelligent management functions in the network allows the operator to handle all sorts of situations, and it should be reassuring for operators to know that such capabilities already exist.
 
If you would like to discuss this issue in more detail, please contact: industry.analysts@ericsson.com.

Largest live upgrade for Vodafone Essar 
Ericsson has completed the world’s largest upgrade of a live mobile network for Vodafone Essar in India in record time. More than 10,500 GSM radio sites were upgraded during the upgrade which, at its peak, reached a replacement rate of one site every minute (Press release).
 
Telecom Italia in solar-powered site trial
Telecom Italia and Ericsson are conducting a field trial of solar-powered mobile sites to prove that alternative energy sources represent a viable business case for both emerging and developed markets. The Eco-Smart solution, based on flexible solar panels, can generate up to 100 percent of the energy needed to power a site in the same space as a traditional site (Press release).
 
Chinese Mobile operators sign USD 1.7 billion framework deals
Ericsson has signed framework agreements with China Mobile and China Unicom, valued at USD 1 billion and USD 700 million respectively, for 2G/3G network upgrade and expansion projects (Press release).
 
SMART selects Ericsson for Philippines mobile broadband
The largest operator in the Philippines, SMART, has selected Ericsson to upgrade its nationwide GSM network to WCDMA/HSPA for high-speed mobile broadband services. This will be the first commercially deployed HSPA network in the 850MHz band in Southeast Asia (Press release).
 
Kyivstar expands and modernizes GSM/EDGE network
Ukrainian operator Kyivstar signed a three-year network modernization deal with Ericsson to expand and modernize its GSM/EDGE network, which will give its 23.9 million subscribers across Ukraine access to mobile broadband services ahead of the rollout of 3G networks (Press release).
 
IMS core and VoIP server for O2 Germany
Telefónica O2 Germany has selected Ericsson to provide an IMS core system with an IMS-based VoIP application server to drive the evolution and convergence of telephony services and provide the foundation for the delivery of other real-time multimedia applications (Press release).
 
Stylish site solution to help speed planning permission 
The Ericsson Capsule Site, designed by renowned Scandinavian architect Thomas Sandell, will help mobile operators cut the time needed to obtain planning permission in urban and suburban areas by being as eye-catching, or as unobtrusive, as needed (Press release).
 
T-Mobile Macedonia chooses Ericsson for HSPA 
T-Mobile Macedonia has signed a four-year contract with Ericsson for the supply of a nationwide HSPA network and the modernization of its packet-core network to provide high-speed mobile broadband services to its 1.3 million subscribers (Press release).
 
World’s first commercial 4G/LTE site unveiled in Sweden
Mobile operator TeliaSonera and Ericsson have unveiled the world’s first commercial LTE site in Stockholm. This is a milestone in the transformation of mobile broadband to provide the ultra-high data speeds for services such as Internet TV, mobile video blogging, online video games and the mobile office environment (Press release).
 
High-speed mobile broadband for the Faroes
Faroese Telecom has signed an eight-year contract with Ericsson to build and deploy a WCDMA/HSPA network for both the 2,100MHz and 900MHz frequency bands to deliver high-speed mobile broadband services to remote areas across the Faroe Islands, including offshore platforms in the North Atlantic (Press release). 

Ucom deploys IPTV/GPON solution for interactive TV
Armenian operator Ucom has selected Ericsson for an IPTV solution that includes Gigabit Passive Optical Network fiber access technology to deliver a range of high-quality, interactive TV services to its subscribers (Press release).
 
Dynamic discount could mean 99 percent savings for mobile users
Ericsson’s new Dynamic Discount solution is an innovative, easy-to-use way of enabling users to get discounts on mobile call rates of up to 99 percent, according to the network load at their location. (Press release).
 
TeliaSonera to offer personalized mobile ads
Mobile operator TeliaSonera and Ericsson introduced a new mobile advertising solution in Sweden that enables companies to offer ads tailored to fit consumers’ individual needs and interests (Press release).

New mobile broadband module frees netbooks from dongles and cables
Ericsson’s new F3307 embedded mobile broadband module is designed to give netbooks even greater freedom from cumbersome connectivity solutions such as dongles and cables, enabling users to directly access the Internet through HSPA (Press release).

China’s three fixed operators select Ericsson for broadband
China Mobile, China Unicom and China Telecom have chosen Ericsson to provide fiber-based broadband access for high-definition TV, high-speed Internet and high-quality voice services (Press release).
 
Ericsson carrier edge and metro platforms deliver lowest energy consumption
Ericsson’s network IP edge and metro platforms deliver the industry’s lowest energy consumption, according to new metrics that measure how efficiently equipment can provide subscriber services, such as residential Triple Play, rather than simple power usage (Press release).
 
Advanced fiber city network expansion in Sweden
Ericsson has won a contract to expand and operate an operator-neutral fiber city network in Hudiksvall, Sweden, where the existing fiber-optic system has helped make the city a center of global research and science studies (Press release).
 
High-speed fiber first in India
Following a milestone agreement with property management services provider Radius Synergies, Ericsson fiber technology is connecting homes in India for the first time to a range of high-speed data, TV and communications services. Residents in a 3,000-unit complex near New Delhi are now able to enjoy personalized high-definition IPTV, video-on-demand and other advanced entertainment services (Press release).

Telefónica O2 UK signs multi-year managed services deal
Telefónica O2 UK has signed a multi-year managed services agreement with Ericsson for the provision of field maintenance and other services for its 2G and 3G networks (Press release).
 
Zain Nigeria in African managed services first
Mobile Telecommunications Company KSC (Zain) and Ericsson have entered a five-year strategic managed services agreement for the operation of the operator’s nationwide GSM/WCDMA networks in Nigeria – the first contract of its kind on the African continent (Press release).
 
3 Italia network transformation
Mobile operator 3 Italia signed an exclusive contract with Ericsson that includes a seven-year agreement to modernize and upgrade its existing WCDMA/HSPA network and extends the current managed services deal (Press release).

Ericsson acquires 95 percent of LHS shares
Ericsson has purchased shares in charging and billing specialist LHS AG that, together with currently held shares, represent more than 95 percent of the outstanding shares in the company (Press release).
 
Ericsson confirms first LTE license agreements
Ericsson confirmed that it has signed its first license agreements for LTE essential patents. The company holds the industry’s strongest LTE patent portfolio and is a strong advocate for reasonable aggregated royalties to promote healthy market growth (Press release).
 
Mobile networks to revolutionize African weather monitoring 
The Global Humanitarian Forum and its President, former UN Secretary General Kofi Annan, together with Ericsson, the World Meteorological Organization, mobile operator Zain and the Earth Institute at Columbia University, announced a major initiative, dubbed ‘Weather Info for All’, to radically improve Africa’s weather monitoring network (Press release).
 
Elcoteq acquisition secures Estonian manufacturing capacity
Ericsson has signed an agreement with Elcoteq, a supplier to Ericsson, to acquire part of its manufacturing operations in Estonia for EUR 30 million, including the transfer of 1,200 employees, to secure manufacturing capacity in Estonia (Press release).
 
Ericsson acquires Turkish BSS integrator
Ericsson acquired 100 percent of the shares of Bizitek, the leading Turkish systems integrator of business support systems, strengthening its local R&D force and systems integration capability (Press release).
 
Ericsson, Zain and Earth Institute join fight against poverty
Leading mobile operator Zain and Ericsson joined forces to help lift 5,000 people in rural Nigeria out of poverty through mobile telecoms. The services will be deployed as part of the Millennium Villages Project run by the Earth Institute at Columbia University, Millennium Promise and the United Nations Development Programme (Press release).
 
WWF Sweden and Ericsson partner to reduce CO2 emissions
The World Wide Fund for Nature (WWF) Sweden and Ericsson formed a partnership to encourage the smart use of telecom solutions across industries to reduce global CO2 emissions (Press release).
 
Korea in green ICT initiative
The Republic of Korea and Ericsson have initiated a collaboration aimed at using mobile broadband and other communication technologies, such as machine to machine (m2m), to create a green ecosystem. Korea’s president, Lee Myung-bak and Ericsson’s incoming chief executive officer, Hans Vestberg, met in Stockholm to discuss how the smart use of telecoms and IT can help Korea and the rest of the world reduce CO2 emissions (Press release).

Long-Term Evolution (LTE): an introduction
The Internet generation is used to having broadband access everywhere. Of the estimated 3.4 billion people who will have broadband by 2014, about 80 percent will be mobile broadband subscribers – and the majority will be served by HSPA and LTE networks. In capacity terms, LTE already meets key 4G requirements, providing downlink peak rates of at least 100Mbit/s. Its infrastructure is designed to be as simple as possible to deploy and operate, through flexible technology that can be used in a wide variety of frequency bands (White paper).
 
Next-generation Intelligent Networks: migrating to IMS
A vital factor influencing the uptake of IMS as the preferred core network for voice and multimedia communications is the extent to which the migration process can safeguard past investments in value-added services. This paper describes an approach and strategy for protecting these investments and how operators can, over time, migrate VAS in the circuit-switched network to IMS (White paper).
 
Technical overview and performance of HSPA and Mobile WiMAX
HSPA and Mobile WiMAX employ many of the same techniques, and their performance is comparable in many areas. However, HSPA is the clear and undisputed choice for mobile broadband services, giving operators a single network for multiple services, a sound business case and access to an ecosystem that currently serves more than 3 billion customers (White paper).
  
What consumers want from TV/video solutions
This white paper examines TV/video services from a consumer perspective, based on Ericsson Consumer Lab research. It looks at consumer behavior and trends, and proposes how regulators and industry players can address this behavior and satisfy demand (White paper).
 
Evolution to optical packet transport 
Transport networks are continuously evolving. The current trends toward fixed–mobile convergence, packet-based services and rapidly increasing traffic – but slowly rising revenues – are forcing operators to take advantage of the best options in each layer to minimize capital expenditure and especially operational expenditure. There are clear roles for each layer in the packet network (White paper).
 
For the latest Ericsson white papers, please click here.

Ericsson Business Review
The latest issue of Ericsson Business Review, Ericsson’s thought-leading magazine on business strategies in telecoms, looks at how operators can get more out of what they already have. To view the latest issue and to subscribe, please click here.
 
Ericsson Review
The latest Ericsson Review Technology Update examines how Ericsson’s ‘one network’ vision is being realized through the Evo RAN, in which mobile broadband and premium voice services will be delivered seamlessly over a simplified, efficient radio access network that flexibly combines GSM, WCDMA/HSPA and LTE coverage with IP-based transport. Read the article here.
 
Another article looks at the future of the traditional copper line. As IPTV becomes a reality and demand continues to grow for higher access rates, operators and their customers are asking themselves what are the true limits of existing copper infrastructure and what rates are achievable over an ordinary twisted pair? Read the article here.

September 7–9
Broadband World Forum Europe
Paris, France

September 7
Session: Leveraging broadband to create a more sustainable planet
Chair: Elaine Weidman, Vice President, Sustainability and Corporate Responsibility
 
September 8
Panel: Business Cases and Technology Choices for Mobile Backhaul
Speaker: Ericsson representative TBC

September 7–10
Wireless Personal Multimedia Communications
Sendai, Japan

September 7
Green communications session
Speaker: Linda Ekener Mägi, Driver for Communications Expander

September 15–18
4G World
Chicago, Illinois, USA

September 15
Keynote: ‘HSPA networks and their role in the path to LTE’
Speaker: Ulf Ewaldsson, Vice President and Head of Product Area Radio

September 21–25
Carrier Ethernet World Congress 
Berlin, Germany

September 22
Debate: ‘Explaining how a Carrier Ethernet infrastructure can be made application-aware to deliver a range of value-added and differentiated services’
Speaker: Mervyn Kelly, EMEA Marketing Leader, IP and Broadband Networks

 
September 22
Debate: ‘Highlighting key technologies in Carrier Ethernet and how they can be combined to deliver a universal service platform’
Speaker: Ericsson representative TBC
 
September 23
Debate: ‘Leveraging advances in Carrier Ethernet OAM and Ethernet demarcation to deliver performance monitoring and SLA support for business Ethernet customers’
Speaker: Livio Giberti, Strategic Product Manager, Optical Networks
  
September 23
Session: ‘Considering the role of IP/MPLS/MPLS-TP in mobile backhaul/success’
Speaker: Ericsson representative TBC
 
September 23
Panel: ‘Implementing Carrier Ethernet in mobile backhaul networks’ 
Chair: Joachim Buerkle, Solution Manager, Transport Networks and Mobile Backhaul

September 22
Backhaul Strategies for Mobile Operators
New York, USA

Panel 1: Optimized transport services for wireless operators 
Speaker: Ericsson representative TBC
 
Panel 3: The impact of LTE on backhaul network design
Speaker: Ericsson representative TBC

October 19–21
Optical Transmission Vision APAC
Singapore

October 19
Session: ‘40G/100G’ 
Speaker: Steven Alleston, Strategic Product Manager 
 
October 19
Debate: ‘Meeting the challenges of LTE’
Speaker: Ericsson representative TBC 

If you would like further information about any stories in this newsletter, or to arrange a briefing, please send an e-mail to industry.analysts@ericsson.com.
 
Ericsson’s global industry analyst relations team is: Peter Olofsson (Global, EMEA), Eva E Andersson (EMEA, APAC). Rob Elston (Americas), Colleen Rosander (Americas). Please contact the person responsible for activities in the region in which you are based.
 
The next newsletter will be issued following Ericsson’s Q3 report October 22, 2009. For further details regarding the quarterly reports, please check here.
 
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Don't forget to check out the industry analyst web site http://www.ericsson.com/ericsson/industryanalysts.