There were times not so long ago, when the CEO of the world's largest telecommunications corporation would have received the red carpet treatment and extensive media coverage when visiting Israel. Several weeks ago, Carl-Henric Svanberg, the CEO of Swedish telecommunications giant Ericsson was in Israel, and it seems that his visit was almost a secret. True, he did meet President Shimon Peres and customers, but aside from that, it appears that either his nonchalant Swedish personality, or Ericsson's undisputed status as the global leader, are what determine the conservative approach of Ericsson and its CEO.
Svanberg was in Israel for a brief visit following Ericsson's win of one of the largest tenders in the Israeli cellular market. Earlier this year, Ericsson won the exclusive contract to build Pelephone Communications Ltd.'s new UMTS network the third generation of GSM (Ericsson will build the core structure - switches and radio network). Three years ago, Ericsson won a contract as the exclusive supplier to Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) of a radio network, and last year, it won a contract that made it the exclusive supplier of radio and switches on Partner Communications' (Nasdaq: PTNR; TASE: PTNR 3G network.
In contrast to his counterpart at Nokia-Siemens, for example, who visited Israel twice while the Pelephone tender was underway, Svanberg didn't have to make a trip to Israel to persuade Pelephone CEO Gil Sharon to choose his company. The choice of the engineering team at Pelephone was clear and unequivocal from day one. All that remained was to agree on the price. Sharon, it should be noted, was not prepared to let his company's engineering team dictate the outcome of the tender, if the price didn't meet the standards he set. "You won't convince me that the Nokia-Siemens network is inferior to that of Ericsson," he told them. Ultimately, he managed to get the manufacturer the engineering team wanted, at the price his shareholders wanted, without Svanberg visiting Israel.
Globes: You're visiting Israel after having won the largest tenders ever in the cellular market. What are your objectives for Israel and how do you see yourselves expanding?
Svanberg:"Operators are now building third generation networks. In second generation networks we brought the world extended cellular telephony. That was what actually happened in the transition from fixed line telecommunications to mobile. What we're doing now is bringing the Internet to mobile and cellular handsets. Everything that's on the Internet, multimedia and television, will move to cellular and within ten years we will look around and realize that it's a new arena. It's a starting point for something new, and from that perspective there's much work to be done."
A senior Ericsson manager said in the US that there is no chance of wireless networks replacing fixed line networks. Do you agree with this?
"He apparently said it a long time ago. A few years ago, we thought that data communications would remain in fixed line telephony networks, but technology has developed, and we're already offering speeds of 4-5MB and that will grow to 50MB on the HSPA (3.5G) networks available today. So mobile surfing today competes with fixed line surfing."
What's happening to the global telecommunications market, nearly everyone is taking heavy losses?
"I think that if you look at the market, you'll see that there have been quite a few mergers, usually for the purpose of creating economies of scale. We also see that there are just a few lone operators in the US and Japan while in Europe there are 50. That is why the European market is slower, and I therefore expect there to be more mergers in Europe. As for manufacturers, the mergers have meant that are now just three or four manufacturers left. The market is being constantly disrupted and on top of that you have the Chinese manufacturers that have been coming in and getting in the way. I believe we are heading towards a more stable market and higher profitability."
People already talking about 4G, while we haven't yet exhausted 3G in full?
"I think that HSPA networks will be the dominant networks for the next ten years at least. That does not mean that there won't be launches of other technologies such as 4G; it's obvious that this will happen. It adds up to a further change in our culture. We continue to live in a world where 2G is still around, and now we're seeing 4G."
Calling the shots
Even before being asked the question hovering in the background on the comparison between LTE and WiMAX technologies, Svanberg has the answer. He is essentially the person who determined that LTE will become the standard almost everywhere. The power he exercises is phenomenal - he is the person who sets the trend in the global telecommunications industry. It was Svanberg, who, two years ago, despite all the skepticism and deliberations in the telecommunications world, set the process in motion when he said that Ericsson would opt for LTE and focus on it. This does not mean that it had ruled out WiMAX as a technology, but someone had to take the decision on behalf of the entire industry, and it was left to him. Although Ericsson's competitors throughout the world have staked their futures on WiMAX and LTE equally, in the final analysis, Ericsson's decisiveness set the benchmark that the industry in its entirety is now adopting.
"Verizon opted for LTE, and so did Vodafone, Deutsche Telekom, China Mobile, and NTT DoCoMo in Japan - these are the largest of the operators worldwide that have opted for LTE," he says, playing down Ericsson's contribution to their decision. "That all the operators are united on one technology is in itself encouraging."
And what about WiMAX? How you do see the competition between the two technologies?
"We've seen how the CDMA technology was unsuccessful because it didn't have an advantage in size, even though it is a good technology. Japan had a standard of its own, China had its own, you've got technologies trying to make inroads all the time. WiMAX entered the market from the Internet side to a certain degree, and we entered from the cellular side. In my view, WiMAX technology will compete with HSPA and less with LTE. We didn't determine whether this is right or not, but it will clearly play a smaller role, and as far as our investment in R&D goes, it doesn't make sense to invest in this technology because we want to invest in the most advanced technology of all."
The abrupt share slide
Svanberg's success at Ericsson was phenomenal, especially in the wake of the bursting of the bubble, and during his term at the helm the company consolidated its position as the largest and strongest manufacturer in the global telecommunications industry. While other manufacturers were bleeding, Ericsson was raking in the profit, until the third quarter of 2007, when the share plunged as the result of a dramatic, unexpected fall in orders from European operators. Ericsson's profit margins in European countries and the West in general are higher than those in developing countries such as China and India, so the fall was a heavy blow for the company, since the share price has been wobbling since the third quarter, and has yet to return to its level before the sudden drop.
"I have never commented on our share price, because that's the analysts' job. We were abruptly hit by a large increase in expenditure and a slowdown in orders. We went from where we were, to where everyone is now. We've seen a slowdown principally in Europe, and we were also hit in the US, which has now recovered, but Europe still hasn't. What is important for us is that we continue to strengthen our position and we continue to lead."
Why has Ericsson avoided investing in technology companies in Israel, in contrast to its main competitors?
"I have to say that if we go back to the era prior to the collapse of the bubble, Ericsson was in a lot of places, and the lesson we learned is that we have to scale back again. The inspiration here is tremendous, and I am most impressed with what has been done here. I think we should be doing a lot more."
Published by Globes [online], Israel business news - www.globes-online.com - on October 19, 2008
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