Beyond just a local call

THOMAS K. THOMAS | Updated on February 13, 2011 Published on February 13, 2011

Rajeev Suri, CEO, Nokia Siemens   -  Business Line

With more than 20 years of international experience, Rajeev Suri, CEO, Nokia Siemens is passionate about the telecommunications industry. As Head of Nokia Siemens Networks' Services business from August 2007 until September 2009, Suri was responsible for growing the Services share of company revenue to around 45 per cent from under 33 per cent, while Professional Services grew at best-in-class levels in the industry.

He oversaw the creation of a new Services hub in India and established an industry-first Global Service Delivery model, underpinned by automation and serving customers worldwide from three Global Network Solutions Centres. Having joined Nokia Networks in 1995, he knows the company inside out and now leads the Finnish equipment-maker's global turnaround story.

Suri, 44, is an alumnus of Mangalore University and the first Indian to head a telecom equipment manufacturing company. In an exclusive interview with eWorld, he shares his views on the future roadmap for Nokia Siemens.

In the last 2-3 years we have seen a consolidation in the equipment vendor industry. Do you think there will be more M&As?

In the long term there's space for three strong vendors. You need to spend money on R&D and innovation, and if we look at 2010, we believe it was a flat market. You have seen the Nortel consolidation and you have seen the Motorola consolidation. In the medium term, there is opportunity of consolidation within various segments of the networks business; for example, you could see consolidation in the transport segment or business solutions.

Which are those three vendors?

Apart from NSN, I would definitely look out to China (Huawei or ZTE) for one, and I will look out to Sweden (Ericsson) than to Paris (Alcatel Lucent) for the other.

Given that some of the global markets such as Europe and the US are saturated in terms of network rollouts, do you think equipment vendors will find it tougher going forward? Is the growth in emerging markets strong enough to sustain the equipment vendor business?

I think the market has been flattish for a very long time. The market fundamental is not growing. We will have to wait and see what 2011 brings. We have not yet given guidance on 2011, but the market has been flat. But at the same time, R&D intensity is quite high and we have grown faster than the market. When you want to convert this company from a machine that produces R&D to one that also offers services, that's also people-intensive, there's a big change in DNA that's required.

Increasingly we have to sell software. It is a lot harder than it used to be. Markets like Japan still have a number of vendors that are solely relying on the Japanese market. In Korea also you will find such vendors who only rely on the Korean market. I think, in the long term, that trend may not necessarily work where you can put all your eggs in one basket. So, in Japan, for instance, we will become the number one vendor after the acquisition of Motorola is completed.

In Korea, for a long time the market is not accessible to foreign suppliers. We have now seen two breakthroughs in Korea. So, we have got an LTE (Long Term Evolution) deal with LG Uplus and we got another LTE deal with SK Telecom. So we are encroaching on this market where traditionally the local players have been strong. So when you say emerging markets, I agree with you but, at the same time, I necessarily don't agree because that's not where all the growth will come. Mobile broadband growth is happening elsewhere.

We had six priority markets in 2010. We grew double digit in revenue terms in 2010 in those priority marks, and that is the BRIC countries and also the US and Japan. And now we have added a seventh priority market — South Korea. So while our company grew at one per cent, we grew far faster in these markets. So our growth is both from mature markets and some of the emerging markets. I think, what we have been able to achieve in 2010 is change our geographic footprint to the markets that we wanted to be stronger in.

In India we are discussing a policy to encourage local equipment manufacturers, including a quota system where operators will be asked to buy certain per cent of their requirements from Indian makers. Do you think such a policy will help, or do you think that it's too late in the day for Indian companies to make a mark?

This is a standards-driven industry and you need scale. I am not a believer in putting reservation for some players. We manufacture here in India, so I would qualify for the reservation but I still wouldn't support such a system. I think it is a competitive game and if you have technology roadmaps and if you have the strength in services, like we have, then you will become successful. I think this reservation system is too late in the day and I don't think countries like India should adopt that.

For us, India means a lot more than just the local market. We are not in India just for the geography of it. We are not here just for driving growth. I mean, we have 15,000 employees in India and 5,000 of them work on R&D, manufacturing, local procurement, all sorts of things that we have in the global systems. So we do everything here that we do in NSN globally. We have our global services headquarters here. We do manufacturing for a variety of products including 3G. I think it is a bit late for local players. If you are just playing the local game without global scale it's going to be hard. It's a flat market so you need global leverage.

So how does India address the problem of ever-increasing trade deficit as a result of importing most of the network equipment? NSN may be manufacturing in India but the money is flowing out of the country.

When we manufacture in India we also drive local procurements. For instance, last year we procured €300 million of localised equipment. For instance, we procure the components required from the local market. Then, in the services we drive employment and we pay our taxes here as well. So I am not sure if it will result in any imbalance in the export versus import. If we were in the market only to benefit from the market, to benefit from revenue then, yes, you are right, but we do a lot more than that. We really embrace the notion of India.

There's huge talent that's available here. Our R&D used to be largely in the European markets, which are high-cost countries. Now we have moved to India, China, Poland. Sixty per cent of our R&D happens from these markets now. So we have embraced India for economic reasons, but also for the talent availability.

Globally, 65 per cent of our headcount is in these kinds of markets — which are low-cost and closer to the customers. So, we have fundamentally changed the profile of R&D, the footprint of our employees, and the notion of how a global company needs to act. So we have embraced India for certain reasons. We embrace Brazil and Russia for other reasons.

We might still do R&D, by the way, in the US. It is not just about cost, because certain things need to happen there close to the market. For example, we are developing TD-LTE in Hangzhou in China because we think it makes sense to do it there no matter what the cost. So I think we are truly a global company and we want to be a network that uses local markets for beyond the immediate opportunity of revenue.

Some device makers say that while phones are going smarter, the networks aren't keeping up. Do you agree?

I think in 2010 the networks made a comeback. So in NSN we are doing this Smart Network Signal because devices like the iPhone drive a lot of signalling and that reduces the battery life of the device. In our network you can have 30-70 per cent better management of signalling, meaning we can almost double the capacity and double the battery life. We have opened a number of Smart Labs where we are working with device manufacturers as well as social networking sites and the likes of Google to absolutely understand the trend going forward. Because, if we don't manage signalling better, and if we don't manage traffic better, then you are right, networks will never catch up. But I think they will.

You have said earlier you will close the Motorola deal by Q1. Does the suit filed by Huawei recently have any impact on this?

We are still trying to position ourselves to enable the close in Q1. We are working with Chinese authorities. We were ready in January but then the delay happened. We don't want anybody's technology. We don't want trade secrets or anything like that. I continue to be focused on closing this in Q1. The Motorola acquisition will make us a strong Number 2. In mobile broadband and managed services we are already Number 1.

Have you finalised the details of the equity sale to private equity firms?

I don't want to speculate on the timing or on how much equity will be eventually sold. Frankly, it is a call for the shareholders to make, rather than me. But I continue to think that this is a favourable event when it happens. We would love to have more capital to drive more ideas, more expertise.

Are you looking at the possibility of an IPO as well, to raise funds?

We don't need to raise funds, let's be clear on that. Why are the PEs interested? If you look at our 2009 performance and if you look at 2010, by any metric there is a turnaround at play. And then, we have changed the geographical footprint, which is what PEs look at. Investors say, ‘Okay, what's the footprint going forward and it's more tailored to higher-margin markets.' Korea, Japan and the US are higher-margin markets. Then we did the Motorola deal, which further strengthens our position in the US.

So when you look at what we have done in these markets then we get unsolicited PE interest, which speaks volumes of our turnaround. So it's not about us raising the capital. We have the capital to run our business. We would always love more capital, but that's not the driver here. As far as IPO is concerned, we take one step at a time. Let us see what happens with the PE.

Post the Motorola acquisition you will also have a play in the WiMax space. What's your take on the technology battle between WiMax and LTE? Do you think India should adopt TD-LTE or WiMax?

In the long term, India should take TD-LTE, that's where you want to end up. The question is how you want to start. So some operators will be asking ‘what can I do with LTE today, because the ecosystem of devices is not established yet'. So they may want to start with WiMax and then move to TD-LTE. Some will move directly to TD-LTE. We are okay with both paths. But if you ask me where I want to see networks in three years' time, then I want to see all of them as TD-LTE.

Is it too soon for India to adopt 4G technologies, given that operators are yet to roll out 3G networks and recover investments?

India should take the lead and leapfrog to 4G. The broadband penetration in this country is low, so there's a huge potential.

There are also security-related concerns on telecom networks, which has put some tough conditions on equipment vendors. How do we deal with this problem?

We have to respect security issues. We have to play ball in the right way, so that the Government can address the issue properly. I think the situation in India is unique. But I also think there is a genuine concern. In most markets there's a healthy dialogue between vendors and the Government for a solution. But I have not seen this systemic trend break out in every market. There has to be a dialogue to work on this issue. Otherwise, you can impose conditions that, frankly, can't be met. And I think we have been in a situation where we have conditions that can't be met. My plea would be to have a healthy dialogue, which I think the Government is planning to do.

Are you concerned that in the recently concluded 3G network deals in India, the Chinese vendors got more share than NSN?

No, because we won what we wanted to win. Thirty per cent was our target and we met the target. So we wanted to hold on to 2G market share and have just a bit more. I am happy with that. And this is how the global market is also playing, with two vendors getting 30 per cent share each and everyone else shares the rest. I don't have a mindset that's focused on the Chinese. I am focused on the good things we can do.

Do you think that the pricing game — which the Chinese vendors are very good at — is over?

It's not over, but it's losing relevance increasingly because operators are focused on OPEX than CAPEX. That's an opportunity for us because that's where the managed services business is growing. We have also taken steps to reduce costs in R&D, which helps us in beating the Chinese at their own game.

Is addressing the OPEX needs of the operator the next stage of evolution for equipment vendors?

Absolutely, and if you don't then you can't be in the Top 3. Annually, operators worldwide spend $100 billion on CAPEX and $250 billion on OPEX. So, do you want to be focused on the traditional business worth $100 billion or do you want to focus on the bigger pie. We are focused on opening that up.

Now that two of the top three in NSN are Indians, do you see a larger role for India in your scheme of things?

Absolutely. Apart from me, there's Ashish Chowdhary (Head of Operations in East and India), and we both understand India inside out. Of course, we then don't look at India in that narrow context… we look at the wider context in terms of what we can do here. But I am more focused on driving a diverse management team. I have 14 people in my management team who are from ten different nationalities, living in several locations. So the power of that, we will find out in a few years. Just knowing that you can one day become CEO of the company, irrespective of the nationality, is amazing.

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Published on February 13, 2011
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