European networks giants have adjusted to life with Huawei at last

Ericsson expanding rapidly, Alcatel-Lucent and Nokia both upbeat

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Analysis The wireless infrastructure vendors were uncharacteristically upbeat in their second quarter results announcements.

The impact of Huawei and ZTE has overshadowed them for so long that it seemed like a permanent fixture, but to a great extent, the western suppliers, and their shareholders, have now adjusted to the reality of China. This comes after almost a decade spent revising their expectations of margins and market share; restructuring their operations around an entirely new cost base; merging with one another; and finding ways to compete in the Chinese market themselves.

The recession threatened to wreck their efforts all over again, but there are signs that the sector is stabilising – just as the smartphone companies enter their own cycle of adapting to Chinese competition.

The next big upheavals for Ericsson, Nokia and Alcatel-Lucent will be equally challenging for Huawei and ZTE, centring on architectural changes, especially software defined networking (SDN) and the cloud, and on the need to diversify into new businesses. But in the meantime, even with Huawei poised to steal Ericsson infrastructure crown, the Chinese companies have had their own big changes to make – particularly to cast off their old reputation for low cost, low quality, and invest in advanced technology and high levels of service.

So competition has normalised a little, and against that backdrop, the European giants are talking a bit less about cost-cutting, and a bit more about new revenue streams.

Ericsson expands business in all directions

This was particularly true at Ericsson. Its quarterly figures were solid, mainly lifted by an important improvement in margins as carriers start to invest in LTE capacity, rather than modernisation projects. Net income was up 76 per cent year-on-year to SEK2.7bn, but revenues fell 1 per cent to SEK54.8bn ($8bn), a contrast with Huawei’s preliminary revenue figure for its first six months, which stated a 19 per cent leap to CNY135.8bn ($22bn).

Some of its growth factors were similar to Ericsson’s - growing investment in LTE worldwide and rising carrier spend on software and services, for example – though the Swedish firm will be well aware that its rival has a broader portfolio, including enterprise and devices, and that to rival Huawei’s growth, it needs to keep diversifying. In particular, it needs to reduce its exposure to the mobile industry’s unpredictable operator investment cycles and growing price pressures.

Important areas of expansion for Ericsson have included more managed service and equipment offerings for wireline and TV carriers and for the internet of things, as well as expansion of its portfolio for its traditional mobile base, with moves towards virtualization, cloud services and enhanced back-end systems.

The past week saw three examples of how Ericsson is seeking to reinvent itself, so that if it finally loses its mobile crown to Huawei, it will have other tricks up its sleeve.

MetraTech buy takes OSS/BSS into IoT

First, Ericsson announced the acquisition of MetraTech, a US-based provider of billing, commerce and settlement systems based around metadata. Nothing new there, it seemed, since the larger company has been filling out its billing and OSS/BSS portfolio for years. But this was different, because the deal is not focused on carriers, mobile or even wireline, but on areas where there is greater growth in network platforms – vertical markets, especially utilities – and a broader set of providers targeting smart cities, cloud services and the internet of things (IoT).

MetraTech’s software manages various models of billing, including subscription and usage-based services, and will be important in enabling Ericsson to adjust its billing platforms and services for the very different charging patterns of the IoT. Its main products are MetraNet, which is available as on-premises software or a managed service, and the Metanga "as a service" platform.

No price was disclosed for the acquisition but it includes all MetraTech’s 140 staff and contractors. As well as expanding Ericsson’s US business, which has been its keystone since it ac-quired the remnants of Nortel, the purchase signals the firm’s intention to move aggressively towards providers of IoT and XaaS (everything as a service) offerings.

The company said it would have an enhanced ability to support “customers, partners and suppliers in multiple industries and accelerate the creation and delivery of new value added services. Customers can create fluid, personalised, multi-party agreements to meet unique business needs,” said the statement.

"For a range of industries, thriving in the Networked Society means having the ability to quickly support new revenue models and shift strategies as fast as customer and partner needs evolve," said Per Borgklint, SVP and head of business unit support solutions. “MetraTech's metadata-based billing solutions strengthen our extensive OSS and BSS portfolio and billing capabilities across a range of sectors, helping us extend our leadership as we support a world with increasingly more connections."

Huawei campus Shenzhen

Huawei's gleaming HQ in Shenzhen

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