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 , 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?
A: Roughly 85 per cent of the Earth's population has mobile coverage today. As I said, [there are]six billion mobile subscriptions. I think our prediction for 2011 was 970 million mobile broadband subscribers, somewhere north of 500 million fixed broadband subscribers in the world. ... In 2016, it is going to be five billion mobile broadband subscribers in the world. That means it is going to be three times as many people having access to Internet than today. Three times more. At the same time, we will go north of 90 per cent of mobile coverage for the Earth's population – maybe up to 92 per cent. ... What we are now seeing, of course, is the data explosion coming from smartphones, other connected devices. ... We will see an impact on enterprises; companies that will change their strategies using mobility broadband and the cloud. ... At the same time, our society will have a big impact. We believe that health care will be rethought, reinvented by using technology, education, CO2 emissions can be addressed ... And the networked society, we believe by 2020, it is going to be 50 billion connected devices.
Q: What is Canada's role in advancing the networked society?
A: Canada is a market which has been earlier on with many technologies and innovating. ... This is a very important market for us both from research and development, from a customer point of view base but also for innovation.
Q: Ericsson still faces criticism for its 2007 decision to stop providing investors with detailed financial guidance. Does the company have any plans to reinstate the practice?
A: I guess, we have never given detailed guidance but we can probably receive criticism anyhow. And we take that. In 2007, when I came in as the CFO [chief financial officer]of Ericsson, we had earlier given some guidance, financial guidance but only on a yearly basis. But we decided by then that we would rather [be]measured on our performance rather than our forecasting precision.
Q: When do you expect that ST-Ericsson (joint venture cellphone component maker) will return to profitability?
A: As I've said to the market, it takes some time. Here it is about designing the chip set in the phone. And then the phone should be done, and then it should start to be produced. [There are]quite long lead times in this industry.
Q: Do you have an opinion on whether the Canadian government should loosen foreign investment restrictions in telecom companies?
A: I don't have any recommendation for the Canadian government. You need to remember we are in 180 countries, and the risk of going into every country and having an opinion is a big risk for me.
Q: Do you have any comment on the state of competition in Canada in telecom?
A: I usually don't have that. But thank you for asking.
Title: President and CEO of Telefon AB LM Ericsson.
Personal: Born June 23, 1965 in Hudiksvall, Sweden. He is married with two children and currently resides in Stockholm.
Education: Bachelor of Business Administration, Uppsala University, 1991
Career highlights: Joined Ericsson in 1991 and has held a variety of positions, including management stints in China, Brazil, Mexico and the United States.
From 2007 to 2009, he served as chief financial officer before taking the helm as president and CEO in 2010.
Hobbies: Golf, handball.