Ericsson Targets Cable Revenues
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