Can Ericsson make the required shift to become a digital infrastructure native?

Picture credit: Ericsson

Analysis The traditional network infrastructure market is undergoing a rapid shift. Traditional telco equipment providers, such as Ericsson, must reinvent themselves to remain relevant in tomorrow’s digital marketplace. Simply selling routers, towers and boxes will not be enough to survive.  Network infrastructure providers have to find new ways to leverage their core assets while simultaneously acquiring new technology skills to align to the new digital economy technology.

Capabilities that centre on software-driven and cloud-based telco operations will be critical. Eventually, communication service providers (CSPs) will expect their suppliers to provide viable end-to-end solutions to capitalise on the market potential that future technologies such as 5G, M2M, IoT, cloud and multimedia hold.

The world’s largest wireless equipment provider, Ericsson, has been through major turmoil recently, struggling with precisely this shift. Hans Vestberg stepped down as CEO in July 2016, after several consecutive quarters of declining growth. The merger of Nokia and Alcatel Lucent, and Huawei´s aggressive stance in the market has put enormous pressure on the company. Ericsson has taken some pre-emptive measures in terms of deep cost cutting initiatives, accompanied by deep organizational and structural changes. The result is a new globally focused, but centralised go-to-market strategy amid competitive global marketplace challenges.

Ericsson´s new organisational structure consists of five new business units. The IT & Cloud Products and IT & Cloud Services units focus on cloud-based and digital IT technology market opportunities. The new Digital Business Systems division will focus on capitalising on digital business market opportunities related to OSS and BSS.  The Network Products and Network Services units will focus on Ericsson´s incremental leadership transition from 4G to 5GThe Media unit has a central go-to market strategy and will, leverage market innovation potential for 5G, IoT and cloud in other industry verticals, coupled with Ericsson`s customer group industry and society group,

CSPs are inclined to use single strategic technology suppliers for combined software and services offering. Ericsson, much like Cisco, has redesigned its business to address larger digital transformations. Infrastructure technology suppliers are expected to cover the entire end-to-end stack across virtualised network infrastructures, IT software and cloud data centre capabilities.

However, technology providers need to provide more than new software-driven technology architectures- the big challenge is to operationalise and monetise new cloud-based technologies, like SDN and NFV. This will require an entire transformation of vertical OSS/BSS stacks, to fully automated, horizontal execution environments. Vendors like Ericsson also need to assist with design of new operating models, the introduction of DevOps and the associated organisational and operational network and IT alignment. Development tools and guidance on operational and organisational processes must be part of the solution — to facilitate any changes required to a company's culture and mind-set.

As the DNA of telecom operators changes in the way they create, manage and deliver digital services, this will also require big changes in the DNA of technology providers that must facilitate the shift towards digital infrastructure natives. The good news for Ericsson is its legacy network and OSS capabilities will be critical, as we will see primarily hybrid CSP architectures for some time, before CSPs will make the move to fully virtualised infrastructures in the next decade. Ericsson, however needs to gain creditability and beef up its capabilities in the cloud, data centre and enterprise domains.  

Ericsson has the chance to become one of the few complete end-to-end stack vendors in the industry. There is a huge market opportunity in enabling CSPs’ architectural integration and ensuring interoperability across an end-to-end digital infrastructure. However, it needs to become a facilitator that helps to overcome the challenges between business strategy, technology and operational planning. This means it must itself make the cultural shift to new digital development and operations paradigm. This requires getting the attention of prospects well beyond CSPs’ traditional constituents as CIOs and CMOs take a key role in the new digital service delivery model.

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