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T EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

TBR EVENT PERSPECTIVE

Ericsson is moving in the right direction toward becoming a credible

ICT provider

Ericsson North American Industry Analyst Forum

Silicon Valley, Calif., Sept. 23-24, 2014

Authors:

Chris Antlitz (chris.antlitz@tbri.com), Telecom Senior Analyst

Michael Soper (michael.soper@tbri.com), Telecom Analyst

Stuart Williams, VP, Research

Christian Perry, Content Manager, Data Center

Ramunas Svarcas, Principal Analyst, Professional Services

TBR Perspective

Ericsson’s message to the ICT industry was clear at its North American Industry Analyst Forum: Cloud, SDN and NFV

will facilitate the convergence of telecom and IT and will fundamentally change how networks are architected and

operated. Ericsson did a good job identifying the trend and exposing the challenges with moving from a siloed,

proprietary-based network model to an open-standards-based, distributed architecture that is held together by

the cloud. However, how the shift will impact revenue and profitability remains unknown. Ericsson is trying hard to

position itself as an ICT vendor, rather than solely a telecom supplier, but this metamorphosis will be difficult to

digest for operators and enterprises that are comfortable relying on their tried-and-true IT suppliers. The tough

road ahead for Ericsson will require the company to move outside its comfort zone to combat well-entrenched

competitors — far different from the comfortable leadership position the company has spent years building and

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extending in communication technology. Ericsson is betting that its expertise in networking will enable it to carve

out large market share in ICT as the Networked Society movement gains momentum. Ericsson management openly

admitted the company is behind in IT, but the company has been taking steps to address that weakness by

enhancing its systems integration organization and by expanding its portfolio into the data center and IT

applications.

The biggest challenge Ericsson faces is not so much the technical issues, but more the slow adoption rate of its

customer base. Most operators will be hesitant to implement virtualization across vast swaths of their networks,

which is already field-proven. It will be an uphill climb to educate operators on how new architectural approaches

to the network will help them save money and boost their top and bottom lines. Operators also face the challenge

of getting their employees on board with monumental organization changes, which will undoubtedly spark union

flare ups and dissention. The most likely outcome will be that operators will virtualize and “cloudify” distinct parts

of their networks rather than entire network environments. This approach is less risky, more digestible and allows

operators to get their feet wet with new technologies.

Event Overview

An assortment of Ericsson executives and technology experts, including some members of senior management

from corporate headquarters in Sweden, took the stage at the company’s annual North American Industry Analyst

Forum, which was held at the Marriott in Santa Clara, Calif., and at Ericsson’s Silicon Valley campus. The event

aimed to educate the analyst community on Ericsson’s strategy regarding major trends taking place in the ICT

space, including cloud, SDN and NFV, and why the company believes it is positioned to capitalize on these

opportunities. Ericsson also highlighted new products, including its Network Software 15A suite, RBS 6402 Picocell

for indoor environments and additions to its cloud portfolio.

Heavy emphasis was placed on SDN, NFV and cloud, but Ericsson also covered emerging areas of interest, including

Wi-Fi calling, next-gen TV and 5G. Ericsson focused its messaging around ICT and put its content in the framework

of the “Networked Society,” which is Ericsson’s vision for where the world is headed.

Impact and Opportunities

Heterogeneous networks are essential to enabling the Networked Society

Ericsson remains bullish on the radio market as much of the world has yet to deploy 3G and 4G technologies and

believes that demand for small cells will drive up unit volumes and contribute to revenue growth. Heterogeneous

networks, which coordinate macro and small cells in an environment to provide an optimized user experience, will

be required to connect the billions of connected devices the industry anticipates. Ericsson believes broadband,

mobility and cloud are driving an inflection point in how networks will be architected and that the vendor is well

positioned in all three of these areas. The introduction of Network Software 15A and the indoor Picocell

demonstrate Ericsson’s commitment to providing end-to-end solutions that address the network’s access layer.

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Ericsson leans on cloud integrity to drive market share

Ericsson’s “one-cloud” strategy aims to overcome gaps the company identifies in the current global cloud market,

particularly around integrity. The company’s PaaS leans heavily on a neutral delivery model that targets the typical

service provider environment, which often includes a variety of infrastructure and delivery elements. For example,

a service provider might be using cloud resources on Amazon and Azure, along with virtualization through

VMware, and bare-metal resources, all spread across dozens of countries. Ericsson’s cloud technology enables

customers to continue using all of these elements on a streamlined PaaS solution.

TBR believes Ericsson’s success in targeting telco cloud, IT cloud and commercial cloud environments hinges on its

ability to follow through on its integrity message. Ericsson executives noted the critical nature of guaranteeing

integrity of confidentiality in cloud interactions, and its early efforts to ensure trustworthy data-led engagements

exhibit valuable differentiation for the company. Service providers delivering cloud to enterprises will hear similar

messages from Ericsson’s competitors, but Ericsson’s early experience in helping clients deliver secure, reliable

data transactions will help it further penetrate the service provider market.

Ericsson is working toward assisting operators in building end-to-end cloud infrastructures. The key focus is on

hardware infrastructure. Coupled with Ericsson’s TV/media initiatives around storing digital media content on the

network for easy distribution to end users, this suggests a focus not just on data centers, but also on storage. In

this realm, we believe Ericsson will have to utilize traditional IT infrastructure providers for assistance, through

partnerships.

APCERA and Guardtime help Ericsson address key stumbling blocks to cloud adoption

Ericsson identified security, automation and governance as the three stumbling blocks preventing large enterprises

from fully embracing the cloud. To quell concerns and provide viable solutions that address these pain points,

Ericsson is leveraging acquisitions and partnerships. Ericsson plans to leverage APCERA’s Continuum platform to tie

together telecom and IT infrastructure under one unified system. APCERA’s platform is vendor-agnostic and will

enable Ericsson to drive innovation in the cloud market, particularly in the areas of automation and governance.

Meanwhile, the partnership with Guardtime will enable Ericsson to enhance security around its cloud systems.

Guardtime’s proactive threat detection serves a critical role in adding layers of security to a cloud environment.

5G still a ‘pie in the sky’ concept, but is starting to flesh out

Much attention was given to 5G, particularly around how radio will evolve to enable faster speeds and better KPIs.

Ericsson believes 5G encompasses the entire network at all layers, not just access, and includes devices. Cloud and

virtualization will play integral roles in enabling 5G. Ericsson believes 5G will gradually become a reality and will be

adopted initially by large enterprises with specific use cases. Ericsson believes that by 2020 the industry standards

around 5G will be aligned. Until then, 4G will be top of mind, particularly as most of the world still lacks 3G, let

alone 4G, access. Ericsson stated that only half of 2G cell sites have 3G coverage today, so there is still substantial

work that needs to be done to upgrade most of the world to modern mobile technology.

Wi-Fi calling is becoming a reality and will ultimately challenge cellular

Innovations in handover technology are making Wi-Fi calling a viable alternative to cellular, but more importantly,

interest among operators is the driving force behind commercial implementation. Wi-Fi calling is not a new

phenomenon. T-Mobile has been using the technology for years using Unlicensed Mobile Access (UMA)

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technology. The key difference is that modern Wi-Fi calling will be fully integrated into the voice feature on phones

and will automatically and seamlessly coordinate with other access points to provide an optimized user

experience. Operators are starting to embrace Wi-Fi as a complementary access point to cellular, and it is

convenient that Wi-Fi comes with a dedicated backhaul line installed. Enabling subscribers to talk and text via Wi-Fi

will gain momentum in coming years, and Wi-Fi First operators will become more prevalent. There are currently 50

smartphone models compatible with Wi-Fi calling, including the iPhone 6, which, when coupled with T-Mobile’s

Un-carrier 7.0 announcement that it will enable its users to conduct Wi-Fi calling on its compatible devices, is

adding momentum to the movement. TBR believes cable operators will jump into the fray as they own and

operate extensive Wi-Fi footprints in residential as well as in commercial and public settings.

Wi-Fi is becoming a viable alternative to cellular, and while Ericsson demonstrated confidence that cannibalization will be minimal, the net result is that carriers will be even more challenged to monetize their cellular assets as their customers increasingly migrate to a Wi-Fi environment. Ericsson is positioned to help operators seamlessly integrate Wi-Fi into their mobile ecosystems thanks to its new 3G/4G/Wi-Fi capable picocell and existing range of Wi-Fi access points, as well as new software functions enabling seamless handover of voice calls between the LTE (VoLTE) and Wi-Fi networks to run Wi-Fi calling into the core.

TV is transforming

Ericsson, which entered the TV market in 2007 with the purchase of Tandberg TV and has since made multiple

related acquisitions in the space, is focused on becoming an end-to-end video technology provider. Ericsson is

positioning itself not as a content provider, but as a content enabler. This will lead to additional consulting, system

integration and managed service opportunities as operators purchase the Ericsson software stack. Ericsson’s

justification for getting into TV is that video will comprise half of network traffic by 2019. To help operators with

this new reality, Ericsson is creating more efficient video delivery mechanisms, such as LTE Broadcast, to ensure

operators can provide innovative services such as multiscreen. Ericsson is taking a “video-centric” approach to

building networks as video will become an ever larger driver of traffic going forward. Ericsson is also leveraging its

services organization to optimize networks to enhance the video experience with, for example, lower latency and

buffering.

TBR believes that Ericsson is well positioned in video and has some strong assets following its string of acquisitions

in the space. Ericsson is taking a leading role in advising operators on how to optimize their infrastructures to

better deliver video and to deliver more value through video to compete against the over-the-top (OTT) threat.

However, the trend of traditional video being disintermediated by OTT is alive and well, and it will be increasingly

difficult for incumbent operators to monetize their video assets. Multiscreen helps deliver value, but OTT can also

provide these types of experiences to customers. For operators to keep their hold on the market, they will need to

exploit live programming, such as sports, and deliver that content in a high-value way to multiple screens. This

brings to bear Ericsson’s LTE Broadcast and TV Anywhere solutions.

Conclusion

Ericsson finds itself at the intersection of fundamental change in the communication and IT domains. Though the

company still has some work to do to be viewed as a credible end-to-end ICT solution provider, it is taking the

correct steps to get there, which is underscored by its expanded cloud portfolio, enhanced systems integration

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capabilities and improved go-to-market messaging. Though Ericsson will be available and prepared to help its

customers implement transformational change, the traditional network business is not going anywhere soon and

Ericsson will need to continue competing in that space as aggressively as ever. It may take over a decade before

some of the new technologies are widely deployed and used in a commercial setting. One thing is certain,

however: Ericsson is proving itself to be an adaptable and relatively nimble company given its size. This puts the

company at an advantage going forward.

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis.

TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com. ©2014 Technology Business Research Inc. This report is based on information made available to the public by the vendor and other public sources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable or responsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is not and should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value, purchase, sale or retention of securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact Technology Business Research, Inc. for permission to reproduce.