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Managed Services

Ericsson Gets a Brazilian

Ericsson AB (Nasdaq: ERIC) has further cemented its position as the world's leading network managed services provider by landing a three-year deal with Telefónica Brazil (also known as Telesp), part of Telefónica SA (NYSE: TEF)'s Latin American empire.

The value of the deal is undisclosed, although around 100 staff will be moving over from Telefónica Brazil, a fixed-line service provider with about 2.8 million DSL customers, to Ericsson.

Under the terms of the deal, Ericsson is to operate Telefónica Brazil's network operations center in São Paulo and manage the core, transmission, and ADSL networks. It follows a deal signed between Ericsson and the operator in 2008 to maintain the carrier’s new fiber network in São Paulo.

The deal is worth noting, not only because it's another victory for the Swedish giant ahead of its main managed services rivals, Alcatel-Lucent (NYSE: ALU) and Nokia Networks , but because it's a fixed-network engagement, which is far less common than outsourced mobile network deals.

"To date, outsourcing is still mostly about the mobile business," noted Elizabeth Bramson-Boudreau, analyst at large, in a recent Pyramid Research report, "Telecom Managed Services." "Of the [191] deals analyzed [in the report], 70 percent involved a mobile player, and mobile challengers outnumbered mobile market leaders by a factor of nearly 4 to 1."

Ericsson's Elin Ahldén says fixed-line managed services deal aren't so uncommon, however. "It's true that the wireless operators have been quicker to turn to managed services, but Ericsson has several references with mobile-plus-fixed networks -- for example, Sprint Corp. (NYSE: S) -- as well as standalone fixed networks such as Netia Holdings SA [Poland], Romtelecom S.A. [Romania], Telia Company [Sweden], Telia Carrier , and many more."

Adds Ahldén: "Ericsson's managed services offering is technology and vendor agnostic, and our skills and capabilities can be applied across the board... Wireline networks will certainly continue to be very important to us."

The Ericsson win also represents another managed services contract in Latin America, which hasn't adopted the managed services model as quickly as other regions. "In Latin America, outsourcing has made relatively few inroads, aside from in Brazil," observed Bramson-Boudreau in the Pyramid report.

According to the Pyramid report, of the 23 publicly announced deals in Latin America by the end of 2009, Ericsson accounted for eight, NSN for 10, and AlcaLu for five.

Bramson-Boudreau pointed out, however, that although NSN has the largest number of publicly announced deals globally (81), some of them are fairly limited in scope. Ericsson, meanwhile, manages networks with a combined subscriber base of more than 400 million, while NSN manages 300 million, and Alcatel-Lucent 180 million.

"On a competitive basis, trends generally favor Ericsson to maintain its market lead as third-phase outsourcing draws on the Swedish company’s credibility in network sharing deals," said Bramson-Boudreau. "Moreover, the fact that Ericsson was able to sign the Sprint deal -- which calls for it to manage multiple networks, including the operator’s wireline network -- suggests that Ericsson may be successful at branching into wireline outsourcing, a key area going forward."

Ericsson has signed 16 new managed services deals in the first quarter of 2010, and has made it clear that network managed services is a core focus area for the company. Indeed, the Swedish equipment manufacturer was able to increase sales in the managed services division during the first quarter of 2010 by 17 percent to SEK4.9 billion (US$629 million) year-on-year, while sales in the overall global services division increased by 3 percent to SEK18.1 billion ($2.3 billion). This contrasted with a 14 percent decline in network sales to SEK24.7 billion ($3.1 billion) in the same period.

But the company is facing increasingly strong competition from Nokia Siemens Networks and Alcatel-Lucent, while other vendors are starting to land managed services deals.

NSN, for example, recently signed a large outsourcing contract with NII Holdings Inc. (Nasdaq: NIHD) in Latin America, which is outsourcing all of its network operations in the region (Argentina, Brazil, Mexico, Peru, and Chile). "Although contract values were not made public, NSN will take on 1,000 NII employees and open a regional network operations center (NOC), suggesting that the deal is a large one," noted Bramson-Boudreau. (See NSN Shrinks Again, But Q2 Looks Rosier.)

Of the other players, Motorola Inc. (NYSE: MOT) has signed outsourcing contracts with Zain Group in Iraq and Kuwait, and with Warid Telecom Pvt. Ltd. in Bangladesh. Huawei Technologies Co. Ltd. , meanwhile, recently signed a five-year network operations and maintenance contract with Jazztel plc in Spain, the Chinese supplier’s first major managed services deal with a European operator. (See Huawei Wins Jazztel Deal.)

— Anne Morris, freelance editor, special to Light Reading

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