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Ericsson Targets Cable Revenues

Ray Le Maistre
LR Cable News Analysis
Ray Le Maistre, Editor-in-Chief
2/26/2007

A successful acquisition of Tandberg Television would give Ericsson AB (Nasdaq: ERIC) a coveted position in the cable operator equipment market, the Swedish vendor's CEO, Carl-Henric Svanberg, told a press conference Monday morning. (See Ericsson Offers $1.4B for Tandberg TV.)

Owning Tandberg TV would also give Ericsson in-house competence in TV delivery technology and a greater presence in the U.S. market, where the cable operators play a critical role in the delivery of all types of communication and entertainment services, noted the CEO.

Svanberg said acquiring Tandberg TV "would take us into the cable market, which is very important. We see cross-sales opportunities here." Ericsson could sell Tandberg TV's video encoding equipment and software into its telecom operator customer base. Ericsson could also sell its optical and IP infrastructure products into Tandberg TV's cable operator customer base, which includes the likes of Comcast Corp. (Nasdaq: CMCSA, CMCSK), Liberty Global Inc. (Nasdaq: LBTY), Spain's ONO , and PCCW Ltd. (NYSE: PCW; Hong Kong: 0008) in Hong Kong.

And Svanberg believes Ericsson can eat into some of the business already enjoyed by some major competitors. He said the cable operators' networks "are largely built using equipment from our competitors, such as Nortel Networks Ltd. , Alcatel-Lucent (NYSE: ALU), and Motorola Inc. (NYSE: MOT), so there is an opportunity for us to expand there."

And the opportunities are set to grow as cable operators deal with increasing demand for their video content services. According to analyst projections, the cable sector will continue to dominate the global consumer paid TV services market, capturing about 60 percent of a $270 billion market in 2010, while satellite service providers will command about 20 percent.

Fixed and mobile telecom operators, meanwhile, are on course to receive less than 15 percent of that total TV services spend by 2010, though that's up from 1 to 2 percent in 2005.

That mix, and the emerging role of telecom carriers, is reflected in the source of Tandberg TV's $350 million revenues in 2006. The majority came from cable and satellite service providers, while about 25 percent (roughly $87 million) came from telecom operators, which are currently investing in IPTV networks and are only at the early stages of service rollout.

Tandberg TV's current telco customers include AT&T Inc. (NYSE: T), Belgacom SA (Euronext: BELG), Swisscom AG (NYSE: SCM), and Telia Company .

Svanberg also noted that Tandberg TV's strong position in the market -– it commands a 25 percent share of the global video processing systems market -– means it would likely continue to operate as a standalone business if the acquisition was successful. "Tandberg TV is an obvious case of 'If it isn't broken, don't fix it.' It would be a good powerhouse, a center of excellence in IPTV" within Ericsson, noted the CEO.

But what if Ericsson is trumped by an alternative bidder? "Tandberg TV is where we are focusing now. There are other alternatives out there that could provide an IPTV solution, but Tandberg is the most attractive."

Ericsson declined to comment on whether it has plans to make an acquisition in the video server market. Executives in the IPTV sector expect the Swedish vendor to make a bid for its current partner, Kasenna Inc. (See Ericsson Brings the IPTV.)

Svanberg did note, though, that he won't be looking to make any bids for set-top box vendors, as Ericsson doesn't regard the market as strategic.

— Ray Le Maistre, International News Editor, Light Reading

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digits
digits
12/5/2012 | 3:13:53 PM
re: Ericsson Targets Cable Revenues
How long would it take for a company such as Ericsson to gain credibility among cable operators?
SUrely it has a lot of work to do to get anywhere near equal status with the likes of Nortel and Motorola when it comes to doing business with the MSOs, even if it does bag Tandberg TV.
googol_byte
googol_byte
12/5/2012 | 3:13:52 PM
re: Ericsson Targets Cable Revenues
Why didn't Ericsson wait until the Arris deal was done and buy both companies? That would position them better to compete in the cable market if that's what they wanted.
Michael Harris
Michael Harris
12/5/2012 | 3:13:45 PM
re: Ericsson Targets Cable Revenues

Why didn't Ericsson wait until the Arris deal was done and buy both companies? That would position them better to compete in the cable market if that's what they wanted.


Another effort by a telecom vendor to play in cable without doing the heavy lifting on access infrastructure. Everyone wants the icing, but few make the effort to bake a whole cake.
DPD
DPD
12/5/2012 | 3:13:45 PM
re: Ericsson Targets Cable Revenues
Why didn't Ericsson wait until the Arris deal was done and buy both companies?

Arris sells CMTS's and MTA's, which are low margin commodities. Nothing compelling there. However Arris' cable cred is second to none. It's just not clear if it's worth the ~$2B (w/o Tandberg) it would cost to acquire them.

alchemy
alchemy
12/5/2012 | 3:13:43 PM
re: Ericsson Targets Cable Revenues
How long would it take for a company such as Ericsson to gain credibility among cable operators?
SUrely it has a lot of work to do to get anywhere near equal status with the likes of Nortel and Motorola when it comes to doing business with the MSOs, even if it does bag Tandberg TV.


Nortel? Since when is Nortel credible with the MSOs? As far as I know, they're invisible in the #1 and #2 MSOs. They're seeing declining market share in the #3 MSO. Where is Nortel credible in the US besides Cox which operates as a CLEC with a bunch of legacy DMS-500 switches?

Ericsson already has credibility with the MSOs based on their GSM market share. The problem is that MSOs are notoriously *cough* frugal *cough* and are unlikely to be willing to pay telco prices for IMS infrastructure and services. It's hard to imagine the MSOs jumping on a plan to forklift their existing paid-for telephony deployments when IMS means they have to do a $200 truck roll to replace a memory-limited NCS-based MTA with an IMS/PacketCable 2.0-conformant MTA. When you push all of call processing and text-based provisioning environment down to the MTA, it's unlikely to fit in the memory of a Broadcom or TI PacketCable 1.x reference design. IMS only makes sense when the MSOs need a mobility solution. All their cash is being dumped into coping with the bandwidth needs of HDTV in the HFC plant and replacing their proprietary digital set-top box infrastructure. Surely, Wall Street wouldn't react well to a simultaneous huge investment in IMS.

In the short term, buying a video company makes huge sense for Ericsson since it gives them a shot at establishing vendor relationships with the biggest MSOs. Later, when the MSOs actually need to pull the trigger on IMS, Ericsson will already have the relationship in place to grab for the business.
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