‘Ericsson will make India its manufacturing hub’

Varun Aggarwal Mumbai | Updated on July 03, 2018


India to lead the way on how Ericsson develops solutions for other markets: CEO

Telecom equipment-maker Ericsson is all set to expand its manufacturing base in Pune and use it as a global hub to export to regions within Asia and beyond. In a conversation with BusinessLine, Borje Ekholm, CEO at Ericsson, talked about how the company is taking innovation from India to built low-cost high tech solutions for the global market to bring the cost down for telecom operators worldwide. Edited excerpts:

How important is India R&D for Ericsson?

India R&D is important for us, it’s mostly on the services side and on the automation side for managed services.

India has about 1700 R&D engineers. But we increased in India last year in primarily in automation. We invest quite a lot now, in automation and artificial intelligence for our managed services. We think that it’s critical for providing value to the customer that we actually had to automate the management or the networks, a lot of that investment is in India.

We are going to invest more in data science, automation and we’re going to do that in Sweden, the US and India. So, we expect to see increased employment in India.

Are you looking at scaling up your manufacturing in India?

We have a plant in Pune. So far it’s been supplying only to the Indian market. Our ambition is to start exporting from here, which probably will happen within the next one quarter. So, our ambition is to use this as a manufacturing hub for the region.

For that we’re going to need to do increase our investments here. As of today, we can satisfy the demand we have, but we see some pretty good growth. So then we will consider increasing the investments.

I think that this whole notion what happens in Indian market it’s in a way quite dramatic, probably the biggest data consumption and one of the lowest ARPUs, which is a difficult challenge and it has disrupted the market.

India is going to lead the way for how you can develop solutions in other markets and I think that’s very important for us so we are working together with leading customers.

We will make substantial increase in R&D. We took the first step last year and we continue to grow. For India, I think the whole Artificial Intelligence and automation is going to be the key driver here. We’re already seeing some some pretty interesting results.

This development in automation is only starting and there’s a lot more that we have to do here. Here we are working with global customers from India.

How important is the Indian market for Ericsson in terms of revenues?

It is one of the most important market for Ericsson. It is among our top three markets.

And I think the interesting thing with the Indian market is, it used to be a market driven by cost. But given the growth in data that’s happening here in India, which is probably if you would, look globally, it’s one of the highest in the world. It’s also about the right technology to manage that amount of data because we think the rest of the world will follow what’s happening in India.

There will be a lot more data consumption in the world. So today, it’s the market where you have to be like in every market cost competitive, but it’s also market where you need technology in order to succeed, which is why we think it’s a very interesting market.

Given the kind of consolidation that’s taking place in the Indian market and kind of pressures that all the telcos are under in terms of overall profitability, how do you see the overall investment environment? Do you expect them to actually invest anytime soon?

Ultimately, you need to offer the user experience. But the problem is, when you get data, traffic growth in India is maybe doubling every other year, between 18 months, 24 months. So the data traffic is growing so fast, that once you start to get congested sites, you will start to see deterioration of the user experience and the user I don’t think he’s going to accept that.

So what has to happen is you will need technology to decongest sites to make the user experience where it needs to be, then whether that’s 4G or 5G. 5G has a chance, actually to be one of the first countries where it’s really useful is India. Because it lowers the cost per gigabyte.

It lowers the cost for data and make the transmission of data more efficient. We believe that 5G is the tool that will be used in India as well but really will come here as well. And it will come relative early. That doesn’t depend on all those other use cases, like remote surgery, autonomous vehicles, etc. It’s going to come to satisfy the demand for data.

Shouldn’t the operators rather focus on improving 4G networks rather than investing in 5G?

Massive MiMo is going to be one of the last steps for 4G. You are going to see that rolled out and deployed. But in order to get more, you have a little more spectrum efficiency with 5G, you can use a wider range of frequencies for data transmission. It also allows you to use new frequencies in a better way.

So we think 4G will take you quite far. But to get the really super low cost, you will need to go 5G. That’s not going to happen as a first step but it’s going to happen over the journey.

Are telcos willing to spend so much today to lower cost of data?

They will have to do that. Otherwise, the economics will be very getting the cost per gigabyte. We think, in general, one of the big trends in the industry is to focus on cost competitiveness, which is bringing the cost per gigabyte down.

And the penetration of data here is still not high. The consumption is high, but there’s still a lot more penetration to do here. So I think it’s a big opportunity as well to offer strong to offer strong 4G networks.

The message is, the operator, and we as well need to focus on technologies that allow more efficient transfer of data and distribution of data, that’s really the key, and the operators will have to invest in technologies that allow you to bring costs down.

We think operators should invest in hardware that doesn’t need to be ripped out to be 5G-ready, when you can actually upgrade it with software to carry 5G traffic. Because ultimately, we will need to use 5G to be the most efficient. So we want to avoid our customers having basically duplicate investments rather, you know, we have one investment that we can actually leverage that for next generation,

How will the focus on software upgrade for 5G impact your future hardware revenues?

We will see our business convert more and more towards the software model. So it’s part of that trend. But we think it’s important that our solutions are cost efficient for our customers.

We think our customers really have three big challenges. One is to be continuously cost efficient. Another one is to get help to digitalise their business, whether it’s a customer interface or virtualise your network. And last is to grow revenues. But for us, the cost is a table stake. It just has to happen. For that if we can avoid having to rip out or set somebody to aside to change the hardware, it’s a lot of value that we get to the customer. And ultimately we have to work with a customer in mind.

What are your views on OTT players turning into telcos of the future? How will that impact the operators?

As a matter of fact is I think in the 5G world, the relevance of the network will be even higher. Because you have so many applications, which will depend on having a reliable and secure network. So we think the network operators are in a very strong position down the road. They suffered near term because of very high spectrum cost for example and uncertain spectrum availability.

Globally Ericsson did a management rehaul. How has that worked for you so far?

We put the new strategy in place, we call it the focus strategy. So I call it focus strategy because we recognized that we were spreading ourselves too thin, we were getting into too many areas, and basically being sub critical with our investments in future.

So we created the focus strategy where we said a couple things. One is we focus on the operator, that’s our top customer. The second is we focus on networks, which is providing cost efficient 4G, as well as leading into 5G. We have digital services, which is our OSS BSS core.

Then we focus on virtualisation and creating programmable networks, basically, managed services, which is running our customers networking, cost efficient, and high quality way. And the last one is to help our customers grow their revenues to create new businesses.

Then came maintaining our technology leadership. So we increased our R&D investment by almost 20 per cent last year, we hired about 2,500 engineers. At the same time, we recognize we needed to be more cost efficient. So we actually met after hiring 2,500 and reduced the number of our workforce by 20,000.

We removed one in five manager positions by the delayering, basically removing a layer in the organisation.

And the third part, we recognise we needed to improve our scale. So we actually invested and try to increase our market share. So if you look at that, we started to see the benefits coming through in the Q1 where we saw strong development on gross margin and decent development on the top line.

We have put the goal in place so that we would have 10 per cent operating margin in 2020, we see we see that on track.

Published on July 03, 2018

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