March 12, 2009 | By Eugene BukoveczkyRecently, Europe's largest telecom operators decided to delay the roll-out of next generation 4G mobile capability. This move worsened an already bleak outlook for the continent's network gear makers. One European provider, however, seems to have a unique solution for dealing with the downturn; it simply looked across "the pond" for new business.
Ericsson Scores with Major U.S. Contract Last month, Ericsson (Nasdaq:ERIC), a mobile networks industry leader, scored a major coup when top U.S. wireless operator Verizon (NYSE:VZ) selected Ericsson and Alcatel-Lucent (NYSE:ALU) as its main suppliers for its planned nationwide 4G network. The network is based on the fourth-generation protocol known as long-term evolution (LTE), which is planned to go live in 2010.
Ericsson, which is basically the senior partner in the deal, has bet heavily on LTE. Ericsson's trust in LTE is partially because the technology can be easily, and therefore more cost effectively, bolted onto existing 3G technology. While it's not expected to be accretive for the company this year, Ericsson's LTE bet could be worth billions over the next few years, and could set the stage for more contract wins in the U.S. market. Recently, AT&T (NYSE:T) also announced a 4G deployment timetable.
Nokia and Verizon Ready to Move Into the Smartphone Market The Verizon deal signals what could be the start of a major battle for market share in the lucrative smartphone market. Nokia (NYSE:NOK), which holds a 45% interest in Verizon, is planning to roll out a 4G smartphone specifically designed to work in tandem with LTE. Nokia's interest in LTE also manifests itself through its joint venture company, Nokia Siemens Networks, a partnership with Siemens (NYSE:SI). The partnership recently won a contract to deploy an LTE network for Japanese mobile telecom operator NTT DoCoMo (NYSE:DCM).
Nortel and Motorola Continue to Lose Network equipment stalwarts Nortel (NYSE:NT) and Motorola (NYSE:MOT) have been noticeably absent from all of the LTE activity. Both companies have championed CDMA technology, but lately NT and MOT have seen global market share in the mobile network equipment market shrink to 6% and 4% respectively. Financial difficulties at both of these companies, including Nortel's recent move to seek bankruptcy protection, are the likely cause of this market share erosion. Where these companies fail, Ericsson profits, and in 2008 it recorded its sixth consecutive year of revenue growth.
The Final Word For cash-strapped telecoms, LTE appears to be the most cost-effective way of coping with the surge in network traffic resulting from smartphones and laptops with mobile data cards. That puts Ericsson in the sweet spot to meet this growing demand. (For further reading on investing in companies such as these, be sure to check out our Telecommunications Industry Handbook.)
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