Is Ericsson right to focus so strongly on serving mobile operators?

Ericsson’s CEO Hans Vestberg believes there is still a great deal of transformation to happen in the way businesses make use of mobile broadband – not just for themselves, but also by developing products, services and business models that build on the rapid rise in smartphone ownership and fast network coverage. At a briefing to analysts in London on 1 February Vestberg cited Ericsson figures suggesting that the number of smartphones in use worldwide will exceed 10 billion by 2018, with a further 2 billion mobile PCs.

On the back of this future transformation, Ericsson thinks that mobile operators will adopt one of three market positions, based on their own competitive situation, assets and ambitions. Some will choose to focus on developing their networks for third parties to build services on; others will develop platforms that help the service creation process as well as providing the network; and a third group will create new services themselves. Those new services will include vertical-market applications – in mHealth, content, mPayment and various M2M markets.

Does Ericsson’s analysis make sense? Yes – up to a point. There are mass-market-type growth areas for mobile operators (for instance in mPayment, location services and non-institutional mHealth) where mobile operators are well placed. However, one curious aspect of the trajectory towards the mobile operator as “service creator” is that significant new opportunities are bound up with publicly funded opportunities: in smart utility grids, education, health and smart-city-style infrastructure platforms. It’s not certain that existing mobile operators will directly build or operate or benefit from these emerging infrastructures (though they will benefit, even if only by providing connectivity).

New mobile opportunities: operator not the only game in town

Mobile operators might do more than simply provide the communications networks; but it may be other organisations – such as large IT players such as Accenture, IBM, HP and the like, who have at least as much expertise in delivering public sector projects as mobile operators do – that end up delivering most of the software, IT and services. And those companies are not only competitors of mobile operators, but also of Ericsson – especially as Ericsson becomes less of a vendor of network equipment and more of a provider of solutions that have a large services element bound up in them. They might be reluctant to let Ericsson take a slice of the pie. (I have made the point before about Ericsson’s change from a network equipment provider to a consultancy and IT services provider.)

Ericsson is clearly backing the mobile operators to continue to buy boxes, software and services from their long-standing and trusted partners. Ericsson has grown on the back of these companies, and it will stick with them. But they are far from being the only players in the market for mobility-enabled services in the future, and Ericsson needs to think carefully through how it might position its solutions for service creation with service creators other than mobile operators. So far, Ericsson has taken a cautious approach to working directly with enterprises and the public sector, getting involved only where its strengths match the requirement – for large-scale, global platform developments – and avoiding opportunities that are fragmented and parochial. And Hans Vestberg said strategic partnerships [with the likes of the big IT players] were “difficult”. New service creators will emerge though, including some with global scale and ambitions. There will be opportunities for Ericsson here – particularly if it can help them establish strong businesses alongside the mobile operators.

Mobile operators need Ericsson, though, and MOs will continue to occupy a huge part of the value chain into the future. Focusing most of its effort on supporting them makes sense: whichever route to the future mobile operators take, there will be opportunities for Ericsson to sell kit and services, and being the best provider they can turn to still looks like a solid game plan.

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