As Canadians feed their addiction to smartphones and tablet devices, the mobile broadband revolution is hitting road bumps in other global markets.
Telefon AB LM Ericsson ERIC-Q, the world’s leading provider of wireless network equipment, is feeling the pinch of slower sales as mobile carriers in the United States, India and Russia curb capital expenditures. European operators, meanwhile, are focused on modernizing existing networks. For Ericsson, those upgrades amount to lower-margin work.
Economic, regulatory and political uncertainties are all to blame for the recent cooling of those key markets, prompting Ericsson to warn in its fourth-quarter earnings report last month that customers were likely to remain cautious with spending over the near term. That air of restraint is of concern to investors since Ericsson’s equipment facilitates roughly 40 per cent of the world’s mobile traffic. As a result, many investors consider the company’s performance a litmus test for the health of the broader wireless industry.
At the same time, Ericsson is facing other headwinds. Its two joint ventures, Sony Ericsson Mobile Communications AB and ST-Ericsson, are underperforming. (Ericsson will complete a sale of its stake in Sony Ericsson to Sony this month). And it is facing sharper competition from low-cost competitors like Chinese firm Huawei Technologies Co. Ltd.
The Globe and Mail sat down with president and chief executive officer Hans Vestberg at the company’s Canadian headquarters on Thursday to discuss the challenges and opportunities facing Ericsson this year and beyond. Both questions and answers have been edited for length.
Q: You’ve noted that some carriers will remain cautious with capital spending over the short term. Is that wariness expected to translate into lower sales for Ericsson in 2012?
A: How it will impact our sales – it’s too early to say. But I think it is not strange when you have a macroeconomic situation as you have around you that enterprises and corporates [are] all looking around and being a little bit more cautious ... But long term, the underlying dynamics in the industry still remain. I mean, people are using the networks more. We’re seeing more and more smartphones coming into the networks, so that’s, of course, important.
Q: What is Ericsson doing to better position itself against lower-cost competitors like Huawei?
A: First of all, one needs to remember that Ericsson has several different types of businesses – mobile infrastructure, we have our core IP side, we have services and we have multimedia. ... We have different competitors in all of those segments. ... Of course, we have Asian competitors in certain segments, we have American competitors in other segments. And for us, it is just to continue to do what we’ve done – continue to be the leader in this industry. Of course, we need to understand what our competition is doing, but it is nothing new.
Q: North American carriers, including Rogers Communications Inc. and BCE Inc., have begun rolling out their long-term evolution (LTE) networks. How will the industry’s transition to LTE affect Ericsson over the coming years?
A: There are six billion mobile subscriptions in the world and maybe 4 to 4.5 billion mobile subscribers because there are dual subscriptions. If you think about that, the main part of all of those are still on GSM – on 2G [second generation networks]. A big portion is now coming into 3G – roughly 35 per cent of all subscribers are on 3G today. Maybe 2 per cent have coverage of 4G in the world. ... The transition is gradual. So what we are doing is, of course, we are managing 2G, 3G, 4G at the same time. We are managing LTE, CDMA [Code Division Multiple Access], GSM ... We can manage all of those technologies.
Q: What are your longer-term predictions for the global growth of mobile broadband services?
