Rivals old and new
As far as some analysts are concerned, the current demand for an open RAN is the response to years of industry consolidation that has whittled the market down to just three or four global suppliers, making it far less competitive than it once was. But a new challenger has surfaced in the form of Samsung Electronics Co. Ltd. (Korea: SEC). Racing to fill a gap in the US market caused by the de facto ban on Huawei and ZTE, the South Korean electronics giant has already landed 5G equipment deals with AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ), the two largest US service providers. Its ambitions are not confined to the US, though. In India, it has seen off bigger rivals to become the main 4G RAN supplier to Reliance Jio, the country's newest and most aggressive operator. In Europe, it is carrying out 5G trials with France's Orange. (See Nokia, Samsung Are Beating Ericsson in 5G Sales to AT&T, Says Analyst, How RJio Built India's Most Automated Network and Orange Ups 5G Broadband Stakes in Romania.)
While Samsung has long had a marginal presence in the global 4G networks market, it seems deadly serious about making an impact on the 5G RAN sector. Proof of that intent came just a few days ago with its acquisition of Zhilabs, a Barcelona-based specialist in 5G network analytics and automation. Such technologies could be critical purely because there may be too many parameters in future 5G networks for operators to configure manually. Even before that move, Samsung had been highly regarded for its expertise in the field of millimeter wave (very high frequency) spectrum. With several 5G deals now in the bag, it threatens to negate an advantage Ericsson might see from a 5G crackdown on Huawei and ZTE.
In the meantime, Ericsson's RAN focus could be a weakness its rivals are keen to expose. Operators investing in 5G will need higher-speed transport and optical networks, and not just a new RAN. Both Huawei and Nokia have the portfolio breadth to meet these various needs. Whenever it trumpets its "end-to-end" capabilities, Nokia always seems to be having a sly dig at Ericsson.
Whether this turns out to be a serious disadvantage for Ericsson remains unclear. As the ORAN Alliance shows, operators do not necessarily want to buy everything from one company. And Ericsson has recently announced tie-ups with ECI Telecom Ltd. and Juniper Networks Inc. (NYSE: JNPR), vendors of optical and packet transport technologies, to address any shortcoming. That said, with specialization comes pressure to be outstanding in that one area. If something goes wrong, Ericsson cannot find refuge in other product lines as easily as Huawei and Nokia. (See Ericsson vs. Nokia: Who's Ahead in 5G Right Now? and Ericsson Links 5G Hands With Juniper & ECI, Snubs Cisco & Ciena.)
A more clear and present danger, though, is the investigation by the US Department of Justice and its Securities and Exchange Commission into corrupt business practices. The affair predates Ekholm by some years, and he would not comment on its specific nature during last week's third-quarter earnings call with analysts. But he did acknowledge it covered a "fairly wide scope" and that Ericsson's internal investigation had found evidence of corruption. The update follows reports last year alleging that Ericsson executives were involved in a bribery scandal across markets in Africa, Asia, Europe and the Middle East.
While investors have not panicked, the signs are ominous. Ericsson has already sacked 50 people involved in the scandal, a number that suggests it covered practices across numerous markets. Moreover, Ekholm has indicated the US investigation could ultimately have a "material" impact on Ericsson. A similar investigation into bribery at the Uzbek operation of Telia Company led to a fine of nearly $1 billion for the Swedish operator. That figure represents about 11% of Telia's revenues last year. (See Eurobites: Telia Coughs Up $965M to Exit Uzbek Nightmare.)
When Ekholm took charge of Ericsson in early 2017, its share price was languishing at SEK53.85 ($5.97) in Stockholm. This week, at the time of publication, it had reached SEK84.94 ($9.42), its highest level since November 2015, when it touched SEK86.75 ($9.62). In that year, Ericsson's sales hit SEK246.9 billion ($27.4 billion) and its operating margin was 9%. It was a more versatile company, and its investors could not imagine the turmoil that would engulf it the following year, when Hans Vestberg, Ekholm's predecessor, was forced to quit after a slump in its performance. Ekholm is doing a remarkable job to get Ericsson back on its feet for the start of the 5G spending cycle. But it may not have much higher to go.
— Iain Morris, International Editor, Light Reading