RunningWithBulls.com - The curse of Sanfermin

The Economist has a very good article on the current state and future of big telecoms hardware manufacturers (the Alcatel-Lucents, the Ericssons, the Nokia Siemens Networks, the Huaweis, the ZTC, the Nortels etc), specifically Alcatel-Lucent’s results and their plan for the future.

The Economist has it spot on. AlcaCent’s news in September disappointed its saying they woud barely have any growth and that there would be almost zero operating profits in the third quarter.

Alot of their problems were due to two companies from totally different cultural areas joining to make one telecoms company. From listening to the “grapevine” there were stories about people not being able to “talk” to each other, that they were just too different.

Ericsson, however, also showed very poor results. 36% fall of third quarter earnings. And this is the current leader in telecoms carrier grade hardware, with a services company that owns alot of the industry’s services area.

With regards NSN financial results, they are rolled into the Nokia results.

Like the Economist article says, the honey-moon period (maybe thats not the right word for it) is over between the mobile operators, the industry and the manufacturers.

Gone are the days (almost!) that the operators can charge 1.00euro per minute for roaming charges. This therefore makes the operator a little less willing to pay millions for carrier grade hardware (alot of the time, proprietary hardware and software). The manufacturers therefore have to find new ways of getting their hardware and software bought-services, consultations, profit sharing, cost sharing all are being used.

The operators are also getting tough with the manufacturers, instead of buying the hardware straight away, they are delaying or renegotiating the purchases.

MVNO Networks like Blyk, Tesco, Meteor, Virgin Mobile (Blycroft Publishing announced that there were roughly 230 active MVNOs, as of June 2006) are all networks that have no network hardware, no upgrades, no outages to worry about.

These networks all use services like Nokia Siemens Networks carrier grade data, multimedia and application services hosting facilities. The outcome? NSN gets a percentage of the revenue as does the MVNO.

Blyk, which has launched has launched in the UK market for the 16-24 year olds, and is “fully” financed by advertisements, has their core network hosted with Nokia Siemens Networks, mostly in the Austrian hosting facilities.

For radio access, the local part of the network for the UK, they are then using Orange’s infrastructure.

They don’t own the majority of the network. This allows them to focus on their customers and making money

I don’t know if Alcatel-Lucent have a hosting business but that might be of help to them.

The other problem, again like The Economist article mentions is the new competition from China - ZTC and Huawei being the biggest. No longer are they the “cheaper competitor making weird boxes”.

Huawei won the contract for Vivo’s (the mobile telecommunications services provider in the Southern Hemisphere owned and controlled by Telefonica and Portugal Telecom) GSM roll-out in Latin America, in the same space as the current CDMA networks in Brasil. They currently provide service for 28.5million subs in all of Latin America.

Another issue for the carrier grade telcos is the commoditisation of their products from other manufacturers. This same argument can be used for Cisco. When they bought Linksys, the argument was made that they were buying a consumer company which would eat away at their market. People will spend less money to get better quality if they can.

This is true, and some operators do seem to run core networks from “consumer” grade hardware, but eventually this would come back to bite them in the ass. From this point of view, its NSNs job to seperate the commodity grade hardware (like the Siemens consumer grade broadband hardware) into another business.

As long as NSN can get their ATCA platform hardware released, which will take away some of the propritary-ness of their systems, this will reduce costs. Using open source software systems like Linux, Redhat linux will help also.

If the telecoms hardware companies can “show the operators” the best way to move in with the technology and the pricing they have a safe future.

Its just who will be there in 10 years is the big question.

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