Ericsson Inc. said last week its displacement from AT&T Wireless Services Inc. as the majority vendor hurt the company and conceded part of the reason it lost AT&T Wireless contracts was because of problems supplying equipment throughout the year.
“It hurts,” said Gary Pinkham, vice president of investor relations with Ericsson, the world’s No. 1 infrastructure supplier. “If we don’t offset the business lost from AT&T, we’ve lost some market share and will not be able to grow revenues as fast.”
Ericsson won’t be affected in the short-term because AT&T Wireless continues to build out its network, said Pinkham. But as the country’s largest carrier redeploys existing Ericsson equipment into other markets by the middle of next year, AT&T Wireless won’t buy as much equipment from the vendor.
“That is where we need to find new business to offset this,” said Pinkham.
So far, new deployments in BellSouth Cellular Corp.’s Time Division Multiple Access markets and a Code Division Multiple Access infrastructure win in Brazil are making up for the lost business.
Jeffrey Schlesinger, wireless analyst with Warburg Dillon Read in New York, said AT&T Wireless contributed to 5 percent of Ericsson’s mobile systems business.
“Ericsson can’t afford major losses with key customers,” said Schlesinger. “It will have to protect key customers to maintain growth. The more you have to fight to win business out of weakness, not strength, the tougher it is on the margins.”
AT&T Wireless recently signed agreements with Lucent Technologies Inc. and Nortel Networks, reducing Ericsson’s supplier share from two-thirds to one-third. Lucent also will replace Ericsson equipment in New York and parts of Los Angeles, while Nortel will add equipment in Los Angeles as well.
AT&T Wireless’ introduction of the Digital One Rate pricing plan last May skyrocketed usage across the country and especially in New York, where AT&T Wireless has taken many media hits over quality issues.
AT&T Wireless’ Chief Executive Officer Dan Hesse blames Ericsson, which has struggled all year to meet infrastructure delivery time tables.
Pinkham said Ericsson’s ousting from the country’s top two markets-Los Angeles and New York-partially was due to delivery problems, but the significant market share AT&T Wireless gave to Lucent and Nortel required Ericsson to move out of some key markets.
“We are so large and growing so fast that we taxed Ericsson because they had over two-thirds of the network,” said AT&T’s Hesse. “In order to provide really high quality networks, it was in our best interest to balance existing suppliers … If you have one vendor providing two-thirds, you are going to have to replace markets.”
Ericsson, however, doesn’t see business slowing down in North America since it embraced CDMA technology earlier this year through its purchase of Qualcomm Inc.’s infrastructure division. Ericsson said it could see its market share increase from 18 percent to 20 percent.
Ericsson said it expects CDMA technology to account for 40 percent of all infrastructure investments next year. Ericsson said it may strike a CDMA contract in North America by the end of the year.
Nortel’s win with AT&T Wireless has reduced concerns analysts have had about sluggishness within the vendor’s wireless business, which impacted Nortel’s earnings last year. So far, Nortel has booked about $4 billion in new wireless business. Nortel, a new supplier to AT&T Wireless, is likely to win more business with the carrier going forward, analysts expect.
Lucent in April won a $1 billion contract with AT&T Wireless, and the expansion contract secures the infrastructure supplier as a major AT&T Wireless supplier, said analysts.
