A senior vice president of Ericsson earlier this month revealed that at some point his company would consider buying networks from operators.
This is not much of a surprise coming from an equipment provider who now runs over 300 mobile networks and manages a potential 700 million subscribers across multiple continents.
Clearly the global recession blew a hole in the telecom infrastructure sector. Some of the billion dollar giants disappeared from the face of the planet.
Nortel was broken away into pieces to be acquired by Ericsson, Genband and others, Motorola Networks Division is being melded into NSN, and a merged Alcatel-Lucent could possibly raise private equity and go into private holding.
It could be right to say that Alcatel-Lucent may have escaped the blitzkrieg thanks to their merger and thus the combined clout, but Ericsson somehow managed to hang in there – alone, without a partner.
It is probably the only large equipment vendor to stay unscathed by this wave of consolidation.
One major transition that all of these companies went through was a transformation from pure infrastructure vendors to managed services players. The significant revenue contributions from their services businesses have changed the sector's revenue mix for good.
The managed services transition was originally driven by carriers merging due to competitive forces that prevailed in respective markets. The large infrastructure vendors either enabled the M&A drive by taking over similar networks under their umbrella, or were forced to participate by operators who were merging and had to shave off redundancies.
Over a short period of time this became a mainstream activity and managed services became an acceptable part of the vendors' revenue models. In emerging markets with low ARPUs, the operators found it safe and low-risk to adopt the managed services model and to pay the vendors for RAN capacity.
This lead Ericsson, Alca-Lu and NSN to accumulate a massive fleet of large networks under their managed services umbrellas, forcing them to become service providers using B2B models – with no retail face, but measured by QoS delivered to operators' retail consumers.
The managed services model appears to have reached fresh peaks of complexity as new network technologies such as TD LTE evolve. Heterogeneous operators are forced to look at new methods to save costs, such as sharing network components or maintaining transparency in billing.
Operators also aim to manage exclusivity of service area while still being able to control the user experience, brand and differentiated services.
This is simply too much of a headache for operators who now feel that owning the customer and managing the brand are their top priorities. They do not want to manage RAN migrations from Rev A to Rev B, preferring to leave this to the experts.
In this scenario, Ericsson and others probably feel it best to buy select networks in certain geographies where they already manage a critical mass of consumers, managing the entire lifecycle of these networks.
Vendors would benefit by being able to reduce the cost of network sharing and operations, while their operator partners will be able to buy bandwidth, airtime, Erlangs and switching capacity and pay per use or per quarter.
This is akin to the carrier model where large wholesale capacities would be built and smaller operators would use and pay for bandwidth used.
Ericsson and others will thus become ‘telecom utilities’ not operators – but would own networks and so would not be MVNOs. They will build and manage networks thus not be pure vendors, but design and develop new technologies and so will not be pure carriers. Increasingly their revenues will come from services, but they will never bill consumers or enterprises, and they will be answerable to operators whose networks they will run.
This would be a complex, game-changing transition. Vendors could not be blamed for looking in envy at Apple, Google or Facebook – where life appears to follow the simple old rule: build the device, search engine or social site and they will come!
Sridhar Pai is founder CEO of telecom research firm Tonse Telecom