Coming off a strong second quarter, the telecom vendor Ericsson is raising its game -- and its investments -- in a host of next-generation networking technologies. (See Ericsson Leaps on Q2 Margin Boost .)
The Swedish company said on its second-quarter earnings call that its research and development (R&D) costs rose in the past year as a result of its acquisition of Mediaroom and taking its modem joint venture, ST-Ericsson, in house. That said, R&D at Ericsson AB (Nasdaq: ERIC) doesn't appear to be slowing down anytime soon. (See Ericsson Closes Mediaroom Acquisition and Ericsson, STMicro Split Up ST-Ericsson.)
Shortly after the company's call, Light Reading caught up with Ericsson networks head Johan Wibergh, who shared his thoughts on its priorities for R&D, network trends, and industry hype. Here's an edited transcript of what he had to say.
R&D: We are reinvesting in things that are next generation, related to the changes in the market, which is the introduction of SDN and virtualization and cloud, but also investing in next-generation billing systems… In general, we're trying to optimize OSS/BSS. Most operators have hundreds of OSS/BSS systems. Some have more than 1,000. It is a little bit of a headache.
OSS/BSS: If you virtualize your telecom nodes without talking to your OSS/BSS, it's a lost opportunity. Many talk about wanting to virtualize applications because they want to save money on telecom apps. That is true, you will save, but the biggest savings and flexibility you will get with OSS/BSS is if you take the opportunity to really transform and change them and you virtualize your applications. (See Ericsson Unveils Carrier-Grade Server Strategy , Leading Lights Finalists 2014: Outstanding OSS/BSS Vendor, and Ericsson Buys More OSS Smarts.)
Radio Dot: At the end of the second quarter, we will give it to a couple of customers to start trialing. They are in the process with labs and testing, but it's going fine for us. We think we'll have commercial deployments in the second half of the year. (See Ericsson Dials Up Operator Support for Radio Dot, SoftBank Trials Ericsson's Dot Indoors, and Ericsson Expects Smooth Sailing for Radio Dot .)
Managed services: It was a good quarter for managed services. We signed 21 contracts. There is a strong interest. It's a tough environment for many operators, so they are doing what they can to improve efficiency, and managed services are one option. (See AT&T, Verizon Mulling Managed Services With Ericsson and Ericsson Wins Managed Services Deal in Romania.)
There are different strategies and viewpoints, depending on operators. We'll see more activity around outsourcing OSS/BSS systems. Ericsson has done good development in the last year when it comes to strengthening our position with OSS/BSS, not only in product space, but with our service organization. We are powerful and competent. The contract with T-Mobile US Inc. is really a showcase. (See T-Mobile Swaps Out Amdocs BSS for Ericsson .)
Performance: We see that bigger and bigger performance on differentiating radios and providing a better experience is a focus for operators. The performance and value that you get has improved a lot in the US. We see that coming into more countries…
We compete on providing the best of performance. If you get an Ericsson, it will perform better. Our LTE base stations do perform better than competition. That correlates back to what we spend in R&D. It's to make sure we can have that competitive edge in performance. It's more functionality that drives and supports that.
Cost efficiency: We also have to work on cost efficiency. If one of your competitors is a Chinese company, you have to make sure you are very cost efficient, because that's usually how they compete. Radio continues to be important, but also cloud and IP is important and relevant. We continue to increase investment in IP. (See Huawei Boosts H1 Revenues by 18%.)
5G: As an industry, we need to understand what 5G is. It needs to be an industry decision, not a single vendor or operator. That's been successful in the past. There is a hype cycle, but it should hit the market in 2020. It seems to be that the ones that lost the race in 4G are the ones talking about it in 5G, which is natural. There's industry support for basing LTE on 5G. People are happy with LTE, and there are huge investments made with LTE. It has the possibility to extend to grow into 5G. In the coming year, we will evolve LTE with more functionality and more frequency bands and carrier aggregation features -- 8T8R type of things and good cooperation between small and macro cells. There are lots of features coming out for these to work together. 5G is an evolution, then, adding more radios on higher capacity and frequency bands. (See SK Telecom, Ericsson Collaborate on 5G Research.)
The bigger change will be the core and transport network, so we'll have to have a massive introduction of SDN. The core networks are not predictable when it comes to latency. It's important to have an industry approach. With the evolution of LTE, this is not completely new, so what problem are we solving? The journey is starting sooner in preparing this, but it has to be network-wide SDN, not just in limited places. You need end-to-end control of performance, not just individual transmission paths and radio links. It requires standardization to work together on this. 5G has to solve a real problem.
SDN: The technology is not so much ready and evolved yet. It comes from data centers, where it's a great benefit, but to evolve and work across the whole network, it's not there yet.
NFV: NFV will have a tremendous impact. It means we'll rebuild all telecom networks from how they are built today. When it's done, it will give a major benefit. It's a fairly complex system. Every one service has to be virtualized and ready now, but there's not the proper security in OpenStack… They will be solved in time, and it will be a tremendous change. We hype things short term and underestimate the effect long term.
— Sarah Reedy, Senior Editor, Light Reading