Ericsson pins its hopes on long-term 5G momentum and an enterprise boom
- 5G still at an early stage, says Ericsson CEO Börje Ekholm
- Mid-band deployments still to really ramp up, notes CEO
- Capex declines shouldn’t hit investments in active network components, the vendor believes
- The company is gearing up for enterprise market growth
- There’s a lot riding on these trends…
The 5G market is still in its early stages and there is still a great deal of investment to come in active network elements, especially as network operators ramp up the deployment of radio access network (RAN) equipment that can support their mid-band spectrum assets, according to Börje Ekholm, CEO at Ericsson.
It appears that the expectation of 5G market longevity and the anticipated ramp in enterprise investments will underpin Ericsson’s strategy for many years to come, while billions of euros in research and development investments and M&A spending are linked to some positive outcomes. For Ekholm and Ericsson, these trends need to play out positively, but he is confident they will – see Ericsson restructures, creates Enterprise division and Ericsson has its eyes on the enterprise prize.
Speaking during last week’s earnings conference call, following the publication of the Swedish vendor’s second-quarter earnings, Ekholm noted that the 5G investments and deployments that will help operators to offer new revenue-generating services to businesses and individuals is still largely yet to come as mid-band spectrum (2-6 GHz) is auctioned and then put to use. Licences for mid-band spectrum have, of course, already been awarded in multiple markets, including the US (the C-band spectrum in the 3.7 GHz band was auctioned in early 2021, for example), but even in such markets the rollouts are happening at a steady rather than breakneck pace.
Ekholm also noted that while deals have been struck for the 5G standalone core platforms it, in theory, will help the operators exploit 5G to its full potential with more granular services that can be managed more dynamically compared with legacy core systems, as those systems are still mostly in the process of being deployed and tested in pre-launch processes rather than being used to support commercial services.
The CEO believes there is much still to be done in the development of 5G networks and that the market will remain robust for years to come, even if macro economic conditions deteriorate further.
“Largely, 4G has been focused on the consumer [services market]. What we see with 5G is that, structurally, we're adding new segments – so think about enterprises – but we're also going to add a lot of new [services] segments like cloud gaming, XR [extended reality] and so on. All of that will drive further traffic growth in the networks. That will mean over time… the growing traffic will need to be carried with an increasing portion of active components in the network. So we see from a longer-term perspective that 5G will have a higher peak than any of the preceding wireless generations, but it will also last longer because it addresses so much more,” noted the CEO.
What will happen in the short term – the rest of this year and into 2023 – is difficult to say because each market still has its own investment environment depending on licence awards and other factors, though Ekholm noted that even “if we get into a big recession, we know from history that telecom is much more insulated than other sectors”.
But the longer-term view is quite bright for the 5G radio and core sectors, he believes. “When we look at the penetration of midband, for example… if we look at Europe and the US it's less than 25% of sites, in Europe it's typically less than even 15%. So it's a low penetration of the 5G that actually gives the user experience that matters. So penetration remains very low. And we see that the operators are now starting to build out deeper coverage and [converting] their 4G sites to 5G. And a large part of the capex for a wireless operator is in establishing new sites. So it's a lot of concrete, steel and fibre etc. We believe over time, there is an opportunity for the wireless operators to actually lower capex while the active part of the network will increase in importance. So there is a mix shift going on here, where we see that the market we [Ericsson] address actually can continue to grow, even though capex in the industry probably will start to taper off in the next few years. So we remain, in that sense, very confident that we're going to see a long-term growing market for 5G,” he concluded.
And while a certain amount of well-he-would-say-that factoring should be taken into account – Ekholm doesn’t want anyone to think that Ericsson’s main market is about to fall off a cliff – independent market forecasts based on feedback from operators suggests there’s years of strong 5G investment still to come.
The Dell’Oro Group, for example, recently issued a forecast for the RAN active equipment market to remain at its historic highs of more than $40bn per year until 2026, though the same research company has also just downgraded its growth forecast for the mobile core sector, which is moving much more slowly than originally expected – see What’s up with… Proximus, the global RAN market, pureLiFi.
Seemingly with another four years to go of strong investments in 5G technology by the global mobile community and with Ericsson commanding a decent market share (the company claims to currently command 39% of the market by value outside of China, where it is vendor non grata), it has some wiggle room to adapt to whatever comes next. And, of course, the next big thing is, Ericsson hopes, a greater business opportunity in the enterprise technology sector in general, where, as we know, Ericsson has been betting billions in M&A spending on trying to ensure it is well placed to capture some of that market, with its $6.2bn acquisition of Vonage set to be completed at any moment.
Ekholm and his team will be hoping these predictions about the 5G market and the expectations linked to an anticipated boom in enterprise communications networking play out as hoped: If not, Ericsson might find itself in a bit of a tough spot by 2024-25.
Ericsson's share price on the Stockholm exchange currently stands at 74.74 krona, down 25.6% since the start of 2022.
- Ray Le Maistre, Editorial Director, TelecomTV
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