Ericsson Beefs Up With Telefónica Argentina as Huawei Goes Hungry

Ericsson lands networks deal with Spanish operator's Argentinean subsidiary at Huawei's expense.

Iain Morris, International Editor

June 14, 2018

5 Min Read
Ericsson Beefs Up With Telefónica Argentina as Huawei Goes Hungry

Ericsson has tucked into a bigger helping of networks business with Telefónica Argentina, leaving Huawei's plate much emptier, Light Reading has learned.

Telefónica's Argentinean subsidiary had previously split work on its radio access network (RAN) equally between Huawei Technologies Co. Ltd. and Ericsson AB (Nasdaq: ERIC). Under an agreement signed in the last few days, Ericsson will increase its share of total RAN business to about 80%, squeezing Huawei out of some work.

Starting in the second half of 2018, Ericsson will start upgrading the Telefónica network with its Ericsson Radio System (ERS), a baseband platform that can be "software-upgraded" to handle 5G services when the next-generation mobile technology becomes available, according to the Swedish vendor.

Under that contract, which runs until 2021, Ericsson will also work on increasing network capacity and expanding coverage. The deal includes a migration of Telefónica Argentina's operational support systems (OSS) to Ericsson Network Manager, the Swedish company's latest OSS platform.

Ericsson is naturally lauding the deal as another "proof point" of its 5G technology leadership. It claims to have seen a recent increase in its RAN market share in the US and European markets, and has now landed several important deals in the last few months.

Those include a RAN deal in Germany, where Ericsson was revealed by Light Reading to have displaced Nokia as one of Deutsche Telekom AG (NYSE: DT)'s two RAN vendors, and a similar contract with Vodafone UK. (See DT Ditches Nokia From Its German Radio Access Network and Ericsson Seals 4G, 5G Deal With Vodafone UK.)

Arun Bansal, who heads up Ericsson's business in Europe and Latin America, says his company has also taken a bigger share of networks business with Verizon in the US market, where government authorities have warned major service providers off using Chinese vendors. (See Verizon Taps Samsung for Sacramento, Ericsson for LA 5G.)

Last week, Verizon Communications Inc. (NYSE: VZ) said that Hans Vestberg, its chief technology officer and Ericsson's former CEO, would succeed Lowell McAdam as Verizon's CEO in August. (See Verizon Names Vestberg as New CEO.)

The latest win in Argentina comes as vendors scramble to land major network contracts before operators start to roll out 5G services.

Bansal told Light Reading he does not expect any operator to build an "overlay" 5G network, using a different vendor from its 4G supplier, as some did in the transition from 3G to 4G technology. "You need to have efficiencies in the network and the same vendor on 4G and 5G," he said. "From that point of view for us to win market share now will put us in a good position."

Operators will also have to buy radio gear from their baseband suppliers because the interfaces between those technologies are proprietary, said Bansal. He acknowledged that industry efforts are underway to open up those interfaces. (See Nokia Seizes Open RAN Initiative as Ericsson Holds Back and Is vRAN Still Too Hot to Handle?.)

Huawei played down the significance of the contract win for Ericsson in comments emailed to Light Reading.

"We have a close and enduring strategic relationship with Telefónica across the whole range of our joint business," said a spokesperson. "Telefónica is one of our key global partners, and we will continue to offer solutions and products which combine the latest technological advances with the highest levels of network efficiency and innovation."

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Asked why it favored Ericsson over Huawei in Argentina, Telefónica declined to comment. But Ericsson says the energy efficiency of its ERS platform was an important factor in the Spanish operator's decision.

"Energy savings were paramount in Argentina," said Bansal. "We committed to energy efficiency of almost 50% compared with legacy, and in these markets, where power or electricity costs are very high due to unstable power grids, that was a big differentiator."

Commenting on those claims, Huawei's spokesperson said: "A key objective of all suppliers is to make their new technology more network and energy efficient and the legacy technology of all suppliers in the Telefónica network in Argentina is less energy efficient than what is available in the latest products and solutions."

Ericsson appears to have priced its products aggressively in landing the new deal with Telefónica, Light Reading understands. That may be a concern for investors given the Swedish vendor's ongoing struggle to boost profitability.

In April, Ericsson reported its sixth straight operating loss for the first quarter of 2018. But there was a marked improvement in financial performance, with that loss narrowing to just 300 million Swedish kronor ($34.9 million) from SEK11.3 billion ($1.31 billion) a year earlier. (See Ericsson Takes Giant Leap Toward Profitability.)

Moreover, at the company's all-important networks business, the operating margin improved to 11.8%, from 8.6% a year earlier, despite a 10% drop in reported sales, to SEK28.6 billion ($3.3 billion).

As reported by Capacity Media earlier this year, research by IHS Markit showed that Huawei increased its share of the mobile infrastructure market to about 28% last year, from roughly 25% in 2016, while Ericsson's share fell from 28% to 27% over the same period.

IHS reportedly thinks Ericsson will see gains this year or in 2019 following efforts to improve its product portfolio.

— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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