Ericsson and Cisco announced a major partnership last week. It’s a grand gesture, driven top down by CEOs. The precise implications will take time to shake down – estimates for additional revenues are stated only to the nearest single significant figure (a convenient billion dollars each) – which suggests detailed sales breakdowns aren’t yet in place (i.e. exactly which sales teams will have increased their targets and what for).
We’ve reviewed the deal, participated in the analyst briefing and read other analyst comments. Here’s our take from a Small Cell perspective.
What exactly is the deal?
Ericsson and Cisco will join forces to resell each other’s products and services for their mutual benefit. R&D activities will be pooled in certain areas.
Specifically, in the short term:
- Ericsson will resell Cisco networking products (e.g. Cisco routers rather than Juniper ones)
- Combined systems integration and managed services for service providers
- Joint cloud and 5G architecture sales activity
- Cross patent licencing agreement
Future areas of consolidation include backhaul, seamless indoor/outdoor access, integrated network management solutions, cloud and IoT.
Existing commitments will be met in full.
The partnership will start with a focus on Service Providers (Mobile and Fixed Network Operators), then move onto the Enterprise segment, and finally onto industrial use of the Internet of Things.
What’s the context?
As we move into the next phase of telecom and wireless evolution, major shifts include Cloud Computing, Internet of Things and Virtualisation. The number of major telecom equipment vendors is shrinking to three large players (Huawei, Ericsson, Nokia/ALU) and several strong challengers such as Samsung and ZTE. Traditional telecom service providers are being threatened with over-the-top services. As the Internet of Things becomes more prevalent, the risk is that fewer are connected and secured with mobile technology; future growth diverges elsewhere.
Ericsson would gain access to a strong IP networking product portfolio, able to compete with Nokia (who acquire that with Alcatel-Lucent) and Huawei (who have their own in-house portfolio and a 67% share of the Chinese router market).
Cisco gain access to a wider market, since Ericsson are present in over 180 countries and have a much larger services business (65,000 services employees vs 11,000). Much of Cisco’s sales today are through system integrator partners who deal directly with Enterprise sector, arguably a sector that Ericsson has less direct presence with.
Why partner, not merge?
Partnerships can be executed immediately, usually without regulator approval, whereas such a large merger would attract regulatory assessment including anti-trust issues incurring delay and possible sanctions. Even the partnership agreement will attract some scrutiny.
The two companies have been in discussions for about a year.
Cisco could afford to buy Ericsson outright – it has cash funds of $62 billion against Ericsson’s market cap of $32 billion. Ericsson had been touted to buy Juniper, whose IP routers they resell today. Cisco continues to acquire companies at a fast pace elsewhere – gobbling up ParStream, Lancope and 1 Mainstream in October.
Other partnerships already in place
This is Cisco’s third partnership announcement since their new CEO Chuck Robbins took over. A major deal with Apple aims to increase iOS smartphone and tablet use throughout Enterprises. Chuck is quoted in an interview describing how they plan to make using Apple devices in the Enterprise a more seamless experience.
Ericsson announced a partnership with HP in September, and I was surprised at how casually Ericsson responded to a question about it. Clearly Cisco takes priority.
Drilling down to detail for Small Cells
In the Small Cell space, it seems to me that this deal would most affect their joint approach to the Enterprise market segment. Ericsson don’t believe in residential femtocells and Cisco will continue to support their existing residential femtocell deployments at AT&T, SFR and elsewhere. We haven’t seen them win new business in this segment and I don’t see Ericsson having a change of heart (yet) although they could undoubtedly push some sales through if they chose to.
There is overlap (some would say clash) of product and strategy for Enterprise. Cisco had acquired Ubiquisys targetting small to medium sized businesses, and resells Spidercloud for larger properties. Both are available standalone or as a plug-in module for their Aironet Wi-Fi hotspots. They also have a comprehensive, open standard 3G/4G small cell gateway and SON software from Intucell. Publicly, their in-house products seems to be gaining little headway in the market.
Ericsson promotes its long awaited Radio DOT solution for larger premises, effectively a distributed basestation. It also offers a low power indoor picocell, the RBS6402, with integrated Wi-Fi (using an HP/Aruba module). They don’t have a small/mass market device and aren’t a major player in Wi-Fi, despite acquiring BelAir in 2012.
Ericsson can play on its strengths from very good relationships with many network operators, arguing that compatibility with outdoor macrocells is crucial. All their products run the same software, which avoids inter-vendor conflicts. Cisco doesn’t seem to have been able to develop those sales relationships with the network operators themselves – their sales force (including indirect system integrators) either sells into the Enterprise segment or into the transmission/core network divisions of the mobile operators.
Will Neutral Host businesses emerge as the new customer for Enterprise Small Cells?
But perhaps we are overlooking a potentially huge shift in the dynamics of the mobile market. A few years ago, who would have thought that network operators wouldn’t own all their own cell towers and masts? Today, very large businesses such as American Towers, Crown Castle, Arquiva etc. own and maintain those.
In order to serve Enterprise customers effectively, many believe that a new type of intermediary business will need to evolve. These neutral hosts will deal with thousands of independent business owners, installing and maintaining the small cells in their buildings and consolidating/aggregating traffic into each of the major mobile networks.
Ericsson USA presented on exactly this topic at this month's Small Cells Americas. They would join forces with local Enterprise Systems Integrators (typically Cisco resellers) to deliver that capability. In order to succeed, Cisco and Ericsson will need to resolve exactly what their product recommendations will be and reduce confusion and overlap. My view would be that Cisco has acquired/partnered with some great products – Ubiquisys and Spidercloud – and that those should feature on the menu. Their multi-tenant small cell gateway is unique (Ericsson don’t have one) and there is a growing industry view that a gateway is essential to scale up large numbers of Enterprise deployments. Third parties should be enabled to offer neutral host services based on Ericsson/Cisco platforms rather than compete for that business.
Whether Ericsson staff will accept that remains to be seen, but a competitive offer is essential if they are to win and grow business in this new market segment.
Seamlessness featured many times during the analyst briefing. The need for reliable, consistent, end-to-end experience will require greater co-operation (and partnerships) from many of the large players in the industry today.
Partnerships can be broken or wound down just as quickly as they are formed. Buy-in is essential throughout both organisations and there are doubtless likely to be some bumps along the way.
For small cells, a clearer position on what the joint Cisco/Ericsson market offer for the Enterprise sector is important to establish quickly. Once in place, execution could allow both to carve out a substantial niche of this growing segment. Uncertainty would allow others to step in and landgrab the early opportunities.
Both companies are working on NFV and SDN technologies but I think it too early to say how those would impact. I’d expect the shorter 3-5 year term will be more dominated by traditional small cell and remote radio head designs.
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