L.M. Ericsson wants the industry to know it plans to become a formidable contender in the cdmaOne infrastructure business.
It’s been more than a month since the company completed its purchase of Qualcomm Inc.’s fledgling infrastructure division and licensed intellectual property rights to cdmaOne technology from Qualcomm.
The Swedish infrastructure giant, once the largest naysayer of cdmaOne technology, conceded earlier this year it could no longer ignore the growth of cdmaOne technology around the world and committed to building cdmaOne handsets and systems. Without a commitment to cdmaOne technology, Ericsson could not bid on 40 percent of the infrastructure market, said the company.
Ericsson, a strong worldwide provider of Global System for Mobile communications and Time Division Multiple Access systems, now has its management and organizational structure in place in San Diego, having moved seasoned executives to head the business and run the division’s human resources, finance and product line management organizations.
Ake Persson, former vice president for marketing and sales at Ericsson Radio Systems AB in Sweden and a key figure in brokering the deal with Qualcomm, was called to head the division. Jan-Anders Dalenstam, who most recently headed Ericsson’s newly formed Network Solutions Division, was appointed senior vice president of business development and strategic marketing. The task will be to turn Qualcomm’s unprofitable infrastructure business-which generated less than $400 million in sales during fiscal 1998-into a booming enterprise.
“Qualcomm was in the infrastructure business only to boost its IPR and royalty business. It wasn’t exactly a marketing effort,” said Persson, president of the cdmaOne business. “If it would be that easy to become successful as an infrastructure systems supplier, Qualcomm would have been competitive in a couple of years. We would see more than three or four big guys in the market. That tells you there are high barriers to entry.”
That said, Persson believes he can lead Ericsson’s division to become a market leader in the cdmaOne and cdma2000 infrastructure business. Within 18 to 24 months, the company plans to introduce a competitive cdmaOne system based on its own radio frequency experience in third-generation W-CDMA technology, in DSC switching capability and Qualcomm’s compact cdmaOne base station. Ericsson is developing cdmaOne switching capability in Montreal, Canada, and should have a product available within a year, said Persson.
“It sounds a bit pretentious, but I don’t think we have less than the ambitious goal of becoming a market leader in this segment like we are in other standards,” said Persson. “Qualcomm brings a solid understanding of CDMA technology and experience, and they bring 600 R&D engineers that are very capable and very talented that we need in order to make this work. We bring a market presence in 137 countries. We are basically running a formidable marketing machine.”
Still, analysts don’t see Ericsson making huge inroads in the cdmaOne infrastructure market until the third-generation market comes along. The cdmaOne infrastructure market is competitive and other vendors have stronger expertise in the technology.
“The CDMA infrastructure business is highly competitive, with a lot of the decision-making driven by how generous vendor financing terms are,” said Mark Roberts, head of the telecom research group with Everen Securities in Chicago. “By far, the two companies that have dominated have been Motorola and Lucent. I believe, given the learning curve both have had to go through, it is going to be relatively tough for Ericsson to come in and take a significant amount of market share.”
Many analysts believe Ericsson will have a niche play in the market. Roberts thinks the company could be successful in offering a cost-efficient way to allow operators to upgrade their existing TDMA or GSM infrastructure to handle cdmaOne technology. Also, these carriers in North America are finding that the technology could be an efficient way to increase capacity and roam with other carriers.
“In sort of hushed tones, we have carriers that tell us they would be very interested in putting a [cdmaOne] overlay to capture business if they had an easy way to upgrade switches,” said Roberts. “That would be a very lucrative market because Ericsson has been one of the dominant providers of GSM and TDMA infrastructure.”
In the cdma2000 arena, Ericsson is poised to become a strong contender, say analysts. Carriers have not made commitments to vendors for these systems and Ericsson can leverage its extensive experience in W-CDMA systems in gaining cdma2000 expertise.
“When we build products going forward, we’ll be building on the same architecture we are building for W-CDMA,” said Persson. “From an operator’s standpoint, it’s going to be extremely advantageous regardless of whether you’re implementing W-CDMA and cdma2000. If you look at global operators like AirTouch, they have all the technologies, depending on which market they are operating in.”
Ericsson has taken over a number of Qualcomm’s contracts including those with U S West Wireless Inc. and Leap Wireless. In other areas, like India, the company has opted out of contracts.
“Our deal with Qualcomm was an asset deal,” said Persson. “We’re not buying their whole business … We have been trying not to take on more liabilities and risks than necessary.”
And Ericsson will not heavily pursue the wireless local loop market, where Qualcomm generated much of its business. The WLL market has been a major disappointment to the vendor community, including Ericsson, said Persson. Systems have had trouble competing with wireline pricing, while mobile service is becoming more competitive, he said. Operators also have had too many technologies to choose from. Ericsson will focus on mobile systems, while the fixed cellular system market will be one of the company’s targets.
“Fixed cellular applications have a better chance to survive and compete in the market because of the potential of allowing it to become a mobile system. Fixed cellular technology can be delivered in very high volumes that drive the price down.”
