NWME: What level of investment are you seeing in telecom infrastructure from operators across the region so far this year?
Anders Lindblad: On the whole the market has been flat when it comes to investment, partly because of fluctuations between the countries; Pakistan has been running on zero fuel for about two years now, and there are uncertainties in Iran. Although it seems like telecoms will not be affected by the embargo decisions being taken by the European Union, there is still a fourth round of sanctions from the US, and that is not helping. But we saw Turkey booming when 3G came and investment went up quite a lot. Egypt is another market that is reacting positively where demand is increasing and quality is becoming more important, and I think we will see broadband taking off fantastically in Egypt. Saudi has had little fluctuations; it had a slow first half, mainly due to STC being a little cautious and trying to understand what direction things are heading.
There have been some real positives, but with a tough Q3 and Q4 combined with some slowdowns the effect over the year has been flat. My feeling is that it will turn around. I think things are in place for a little more stability with pressure from consumers to have more voice connections, and of course the avalanche-like demand for connections to the internet. You just have to look at Lebanon to see what happens when you lower tariffs – you can double the subscribers in five months, which just proves that demand is there. So even though Q1 and Q2 was a little slow, I feel that during Q3 and Q4 things will get a little quicker.
NWME: Ericsson CEO Hans Vestberg recently said that a shortage of raw materials is affecting the business. What impact is it having on Ericsson?
It is a global issue, and it is happening to many industries, from the manufacturers of iPads to refrigerators. What happened was [during the downturn] a lot of factories closed down, and they haven’t ramped up the capabilities which will take a couple of months. So far, everybody is hit by it. But as Ericsson is the biggest manufacturer, with 40% market share, we get hit by 40% of the effect. The other thing to our disadvantage is that the greatest uptake in demand is in the US, where we have even bigger market share.
NWME: In this region sales were down 20% year-on-year. What do you expect to happen to that figure over the next 12 months?
Anders Lindblad: We never comment on exact numbers, but I would say that we have built up some momentum. The summer months are always a little slower in this region, with Ramadan and people going on vacation during July and August, but we will see what Q3 shows. I think the underlying demand is there. If you take a longer perspective and look at 12-24 months, then I think that is very promising. We need to turn the corner on supply issues, and we are working hard to do that.
There is much more focus from operators to really make sure they have good quality networks, so that will push growth in voice. Many operators, if they have 3G, they might invest in that and use it for voice as well. That will continue. Broadband in selected markets is also really driving the growth. It is impossible to predict, but I feel we are on track in getting business going.
NWME: The most recent set of financial results showed a growth in service sales. Which areas in particular provided the growth?
Anders Lindblad: In selected markets we have been growing by almost 100% every year for the last three to four years. It is one of the fastest growing areas, for sure, and we are one of the biggest systems integrators in the Middle East. That is part of the growth. And it is really driven by the services, not so much by the platforms. We have that, of course – we have LHS for billing platforms and so on, and that is showing good progress, but it is not the real factor in the growth. The growth is in the local competencies.
The other part of the professional services growth is managed services. Even though we haven’t had any full-blown managed services contracts yet in the region, there is a lot of interest and we have done quite a few deals albeit ones that are slightly more limited in scope. Operators are not 100% outsourcing the box, they are kind of managing it within, but they are giving us the task to manage part of the operations.
At the moment it is happening in KSA, Egypt, in Qatar, in the UAE with Du and also in the north part of the Middle East, for example with Wataniya in Palestine. It’s happening a little all over the place, but a big outsourcing deal would be one of the big operators doing the complete outsourcing across multiple vendors. If we take KSA, for instance, we have an outsourcing deal with Mobily where it is our technology that they are letting us outsource but they are keeping a lot of the management themselves. So it is half way, if you like. You don’t get 100% of the effect, but it is helping our services grow a lot.
NWME: Do you expect operators in the Middle East to eventually outsource the entire network?
Anders Lindblad: If you look at the rest of the world, it is happening and it is proven. There are two reasons to do the outsourcing, the first being the new market coming through, which is all about focus. The operators need to understand what their place in the new ecosystem is. They were the direct interface between the operator and the consumer, because they were selling the voice and the consumer couldn’t go anywhere. Now, with the internet and in particular mobile broadband it is not that obvious when it comes to choosing an operator. The worst nightmare of anyone in the industry is to be pushed down the value chain, so if you want to make sure that you can compete with the new players, you have to make sure that you focus on customer care, innovation in the service, on the branding and the marketing. If 60% of your staff is occupied with operations of the network assets, which is not really differentiating you as it did before, then it might dilute your ability to compete. So that is the number one reason to go for managed services, and it is proven in the US, and with operators such as [Hutchison Whampoa’s] 3 in Italy, in Australia, New Zealand and the UK.
The second reason is cost. I think we are now managing more than 400 million subscribers around the world, so we can get the scale of economy, and we normally bring 15-20% savings on the running cost of the network.
Better focus and better cost base are the two drivers, but working against those factors is the loss of control. For some operators there is a reluctance to let go of controlling the network because it is still regarded as important to them.
NWME: RIM’s dispute with the UAE’s telecom regulatory authority highlighted the problems that can surround foreign companies controlling parts of a country’s telecom network. Are regional security concerns an inhibitor to a move to full managed services?
Anders Lindblad: When it comes to managing a critical asset of the country security is always an issue, and the network is part of the nervous system of a country. As an operator of the network – be it a vendor or telco – we are the ones guaranteeing operation of the network. You should go through some kind of qualifications so the regulator is happy that the company satisfies their needs for transparency, control, quality and so on. That is natural, and I would say that happens in all countries, because you take over a big responsibility and if you don’t get approval from the regulator you can’t go through with it. That happened in the UK and in Italy when we took over [Hutchison Whampoa’s] 3’s network, where it went through the regulatory bodies and they assessed it.
Each country is different when it comes to regulation, but when it comes to assessing us as a company I haven’t felt that we were more assessed than in other countries. Ericsson manages the Du network and we went through that assessments fine, and we manage other networks – I couldn’t generalise and say it’s more different.
NWME: “Multimedia” sales were down 27% in the second quarter of the year, with the Middle East, India and Sub Saharan Africa singled out with as regions where demand for revenue management solutions was weak. Why was that?
Anders Lindblad: The Middle East was by far the biggest region for multimedia. A year ago, the first six months were fantastic and we had a few huge sales such as a big charging system in Egypt and STC invested in a big service delivery platform. They bought a lot of equipment, and being a small business unit – it is the smallest unit we at Ericsson have – individual deals become extremely important and in the region we haven’t repeated these big deals yet. We have a couple of big deals coming up that we will announce soon, but they will be in the second half of the year, so we are confident we will be able to recover some of this.
Putting multimedia and systems integration together makes sense, because from a customer perspective it helps to look at the totality of the deal. What we are seeing more this year is instead of selling standalone platforms we are really selling platforms from Ericsson, together with platforms from our partners, together with a lot of systems integration capability. A much bigger portion of the deals we will see in the future are actually for people. Half of the deal might be specific development for the customer and integrating in the IS IT space in particular. There will be sales of convergent charging such as the pre and post paid together. That capability has to be integrated into the CRM system and into the legacy systems as well.
These transformation programmes are happening because the operators need flexibility to be able to fight with the likes of Google or Apple. If you look at what is happening right now, they are taking away a lot of the billing capabilities and a lot of the business on top from the operators. It’s not good enough to send one bill per month, or if the operators get a request to change a tariff plan and it takes a week or 24 hours even – it needs to be instant.
Operators need to be fast and agile. The issue is how to manage the money, the tariff plans, and how that can be integrated with the service offerings and capabilities. And, more importantly, the CRM platforms touch points with the customer need to be as flexible as possible. Multimedia coupled with systems integration capabilities will really bring a lot of transformation for operators for the next three to five years.
