My comment..802.16E utilizes Softswitching..which IDCC has worked to incorporate in the Standards for Converged Networks...
In the Spotlight: Ericsson's Carl-Henric Svanberg
By Ed Gubbins
Oct 26, 2005 4:05 PM
Yesterday Ericsson put an end to months or rumors surrounding possible acquisitions of Marconi by agreeing to acquire the wounded equipment vendor for 1.2 billion pounds (or about $2.1 billion). Ericsson chief executive officer Carl-Henric Svanberg spoke with Telephony’s Ed Gubbins today on the drivers behind the deal and its implications for the future.
On the impetus to buy Marconi: As a consequence of the rapid buildout of broadband capabilities, both on the fixed and mobile sides, traffic is accelerating quickly. We see a dramatic need going forward for increases in transmission. In that space, Ericsson has had a gap in the portfolio in both radio and in optical. These are gaps Marconi is filling. I remember at Ericsson a couple years ago, when we struggled, suddenly everybody felt that hardly anything was right at Ericsson, neither products nor R&D capabilities or business ways of working or management capabilities. If you asked customers or analysts following Marconi, everybody confirms that their portfolio on the optical side and on the radio side is really first-class. So when we can take that and leverage our global sales organization, I think we have a great opportunity. The second [rationale] is that although we have product portfolios and R&D plans that will help us cover all the needs operators will have in going to next-generation networks, it’s still difficult if you don’t have some installed base, customer relationships and ongoing business, because you don’t bid new networks; you take whatever the operators have and migrate it step by step to the future. That’s where [Marconi] adds additional strength to us.
On the Marconi name: The Marconi brand will make anyone operating in the mobile space very emotional. This is the man that invented the radio. I think it was 1901 that he sent the first transatlantic radio signal. It’s really fantastic, so of course we will use the brand, but exactly how and where, we’ll come back and tell you about. But the name in itself is an asset. Most people in society have heard the name Marconi without having a clue about all the rest of it.
On Marconi’s failure to win a piece of British Telecom’s 21st Century Network project this spring: We could see the fit there. [Marconi] had quite strong ambitions on their own. It’s a financial situation that hinders them a bit. It’s always getting increasingly difficult if you don’t have global presence, you don’t have economies of scale, you don’t have a broad enough program to really provide end-to-end solutions. This was, I think, stopping [Marconi] from developing their position. When they lost the BT 21C [contract], I think it was more of a trigger for them [to act] than for us [to acquire them]. They lost 50% of their share value overnight. They really were in a situation that [made it] obvious they had to do something. Even though we won--in competition with everyone in the world--the BT 21 softswitch [contract], it’s typically hard to beat an incumbent unless he really fails, because [customers] can always help him to develop [the product] as [they] like it. Maybe it was just one of those [situations] where it’s difficult to really be successful unless the customer sees that you are a strong long-term partner. That gave us an opportunity to come in to BT 21C.
On the price: Of the 1.2 billion pounds we’re paying, 1.1 billion pounds is intangibles that are tax-deductible. We’re getting some 300 million back in tax savings. So the price we’re paying is really 90%, or 1.0 billion pounds.
On Marconi’s R&D: [It’s] especially [useful] on the optical and radio sides, and in broadband DSLAM products. On the softswitch side, it’s more complementary [with Ericsson], but that’s a rapidly growing field, so even if we are complementing--or for that matter, can rationalize our R&D forces in--softswitching, we still need those areas of competence for our general R&D work. At the same time, it’s a compelling financial case because [Marconi] hasn’t yet really rationalized their supply chain. Almost 80% of their total value-add in their supply chain is done in high-cost countries. For Ericsson, it’s the opposite: 75% of the value-add is done in low-cost countries. To transfer from where they are to where we are is not necessarily easy for a company on its own. But to transfer their supply chain into ours is much easier. They’re working with suppliers, they’re doing basically nothing in-house. And these are contracts that end at year’s end, so this is a transfer that could take place rather rapidly.
On the impact of the deal on Ericsson’s reseller agreements with wireline vendors such as Tellabs and Ciena: Especially on the optical side, the U.S. is working on a different standard than other large parts of the world. We’ll need to continue with our partnerships as we’ve done before. But it adds to our portfolio.
On Marconi’s impact on Ericsson’s IMS strategy: IMS is nothing more, nothing less than what is needed in the IP space to keep track of all the transactions and all the businesses. In order to make it work telecom-grade, IMS is needed. But you also need all the other equipment to make it possible to, over time, see the convergence of fixed and mobile networks. [Marconi] has a lot of R&D going on. They have products in their portfolio, but they also have an installed base of fixed telephony [gear] and strong positions with BT, DT, Telecom Italia, France Telecom, Telefonica and Telstra in Australia. With our combined next-gen offering, we can build on their existing customer base and installed base of equipment.
On Ericsson’s future identity: In America we’re known as a wireless company because you had this monopoly. Therefore we never broke in before we got mostly occupied by the wireless space. But we are a wireline company since 120 years and have the second largest installed base of wireline equipment in the world. If you go to DT, or Telefonica or any of the Latin American operators or in the Middle East, we are the old incumbent. But we’ve been gone for 10 to 15 years. In our management [team]--the top 12 guys in the company--half of them come out of the wireline space. Certainly we have a very clear determination of securing a leading position in the migration to next-gen converged networks, where we as users won’t know whether we’re making a call on a mobile or fixed network. Therefore, we’ll be described as a more complete company.
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