Ulf Ewaldsson does not seem like a man facing one of the most daunting tasks in telecom. With his ready smile and lilting Swedish accent, the head of Ericsson's newish digital services business appears unflappably calm. But the company he works for is in turmoil: Following a sequence of earnings setbacks, Ericsson is desperately trying to restore profitability to historical levels without sabotaging its future prospects. That challenge falls heavily on the shoulders of Ewaldsson.
That's partly because of his status within the company. Formerly Ericsson's chief technology officer, Ewaldsson seems to have been instrumental in developing the latest, margin-focused plan, taking charge of strategy back in September. Since March, however, and with Ericsson AB (Nasdaq: ERIC) in plan-implementation mode, Ewaldsson has been leading a new-look digital services business that forms a major part of the IT and cloud division -- one of three big units, the others being networks and media, that Ericsson now operates.
It is the digital services business -- comprising OSS, BSS and core network products -- that mostly interests many of Ericsson's investors. With Ericsson deciding to narrow its focus under the leadership of Börje Ekholm, who became CEO in January, the media business is likely to get sold. Ericsson's commitment to networks, which accounts for about three quarters of company sales, is obviously not in doubt. But analysts have questioned Ericsson's apparent devotion to its OSS and BSS business, which had a torrid 2016. (See Ekholm's Vision of Slimmer Ericsson Lacks Detail & Dazzle.)
Ekholm has effectively ruled out a sale, describing digital services as "strategically important" to the company. Yet a dramatic overhaul is needed, acknowledges Ewaldsson. "In this area we do need to improve the performance a lot," he tells Light Reading during an interview at this week's TM Forum Live event in Nice. "We expect to have a tangible turnaround in 2018 from streamlining the portfolio and investing enough in new systems to make them take off."
It is undoubtedly a big ask. While IT and cloud sales in the recent January-to-March quarter were down just 3% (year-on-year), to about 9.5 billion Swedish krona ($1.1 billion), the revenue decline was about 7% when figures were adjusted for currency effects. Even more troubling was the operating loss, which grew from SEK2 billion ($230 million) in the year-earlier quarter to a startling SEK9 billion ($1 billion). (See Ericsson's Q1 Even Worse Than Feared.)
The overriding problem, according to Ericsson's earnings report, was not an uncommon one in the sector -- the failure of new digital-product sales to offset the decline in so-called "legacy" business activities. Ewaldsson offers a much blunter assessment of what that means in practice. "The telco industry is one of the most profitable in the world and that profitability is safeguarding a certain level of conservatism," he says. "That maintenance of legacy is preventing us from being agile enough to monetize enough."
It is not unusual at trade shows to hear operators criticize the big suppliers for not doing enough to address their needs. If Ewaldsson is having a dig in return at some of Ericsson's own customers, it is not without justification. During a panel discussion at TM Forum Live, Eric Hoving, the chief technology officer of Dutch telco KPN Telecom NV (NYSE: KPN), lambasted operators' billion-dollar investments in billing systems he deems to be unnecessary. Telefónica CIO Phil Jordan echoed Hoving's concerns. "We've made the business complicated and now we need to re-engineer," he said. (See BSS Is BS, Says KPN Tech Boss.)
Making that re-engineering as pain-free as possible will be an important starting point for Ericsson. "We are working hard on making simple what is really complex," says Ewaldsson. Beyond this underlying need for simplicity, he is also looking at several opportunities that could be the seed of future growth. The first is around the sort of customer experience management technologies that would allow telcos to function much like over-the-top players. "Customers want an experience that is similar to iTunes. We can see more operators wanting to go there but with so much legacy stopping them."
Ericsson has also been investing in the digital front end-platforms that could eventually provide an alternative to more old-fashioned billing systems for operators such as KPN. With an estimated 2.1 billion subscribers using Ericsson's traditional systems, the Swedish vendor could be in a strong position to help telcos shift customers across. Automation is a further priority for Ericsson as operators continue to look for cost savings.
But if Ericsson really considers OSS and BSS to be "strategic," it needs to think about acquiring some of the innovative digital players entering the market, according to James Crawshaw, a senior analyst with the Heavy Reading market-research business. Takeovers are certainly an option, says Ewaldsson, if they can help Ericsson to be "the partner of choice for customers digitizing their businesses." He is obviously not disclosing details of possible targets, but cites interest in areas including customer experience and revenue management, as well as both analytics and automation. (See Ericsson Eyes Takeovers to Bolster Digital Services Unit and Ericsson Must Hit M&A Trail to Boss B/OSS – Analyst.)
A recently launched "dynamic orchestration" product addresses some of the customer requirements, says Ewaldsson, and provides a taste of what is to come from Ericsson in a 5G-based future. Broadly speaking, it's a service orchestration tool pitched at operators that need to keep managing the old technologies even as they introduce newer virtualized services. Ericsson already has customers, Ewaldsson tells Light Reading, without naming names. "We are using new ways of building systems and it is highly customizable," he says. "We'll see even more of this in future and that's going to change the business model from one-off payments for big upgrades to more of a recurring service model." (See Ericsson Unveils Dynamic Orchestration.)
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