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Swedish telecom giant Ericsson expects to be the top vendor in China's future 3G (third generation) mobile telecom equipment market, an executive said.

 

"We aim to continuously consolidate and grow our leadership in China by strengthening our local organization and elevating local competence," said Mats H Olsson, president of Ericsson Greater China.

 

"We will continue to reinforce Ericsson's capacity in local research and development (R&D), manufacturing and services in China over the coming years, which will lay a good foundation for our future growth in the country."

 

Currently Ericsson is the largest vendor of the 2G (second-generation) mobile telecom gear market in China. The firm is the largest supplier of GSM/GPRS network equipment to China Mobile, with over 35 percent market share. And it accounts for about 15 percent of China Unicom's GSM network.

 

Strengthening local efforts

 

In the past few years, Ericsson has aggressively revamped its localization efforts. China is now one of the three major global supply hubs and in May the firm established a center for sourcing, supply and telecom services in Southwest China's Chongqing Municipality as part of its efforts to strengthen its local supply capability.

 

Its R&D activities have grown at an annual rate of 30 percent for the past 5 years with 25 percent of its employees in China engaged in R&D and product development.

 

Last year, Ericsson announced it would invest an additional US$1 billion in China, which is giving a major boost to expansion of the firm's manufacturing, R&D and service capabilities in the country.

 

"We are well positioned to support Chinese operators in the 3G era," said Olsson.

 

So far the Chinese Government has yet to decide when and how to award operators with the licences to build 3G networks. But Olsson believed that the WCDMA standard would dominate the 3G market. WCDMA competes with CDMA 2000 and TD-SCDMA, a Chinese home-grown 3G standard.

 

As GSM and WCDMA share the core networks, operators running GSM networks usually choose WCDMA standard and upgrade their GSM networks to WCDMA networks.

 

"The worldwide prominence of WCDMA and its well-trodden upgrade path from GSM will give that standard the heaviest weight in China's 3G market," said Beijing-based Norson Telecom Consulting in a recent report.

 

"Therefore, even though its initial 3G revenue is likely to be slow because of the anticipated license release schedule, Ericsson will eventually be able to capitalize on its strengths to improve revenue and increase its share of the Chinese mobile telecommunications market."

 

Ericsson is the world's largest vendor of WCDMA equipment, with a 35 percent share. Ericsson was the prime supplier to 60 of the 109 commercially launched WCDMA networks worldwide by the end of September 2006.

 

Overcoming challenges

 

Norson's report indicated that Ericsson still faces some challenges in China's telecom market such as China's increasing regulatory support for TD-SCDMA, which could undermine WCDMA's dominance as well as Ericsson's competitiveness.

 

Yet, "the vendor also has many opportunities to develop new revenue streams," it said.

 

In September, Ericsson restructured its global operations into three units: networks, multimedia and global services.

 

Olsson indicated that the convergence of networks would bring huge opportunities for Ericsson's newly formed Multimedia unit.

 

"As we embrace the new era of the Digital World, we foresee the convergence of telecom, Internet and media as enabled by what we call the 'Full Service Broadband,' which will eventually support any multimedia services to any screen of your choice, anytime and anywhere," he said.

 

"We already see a big demand for advanced services and applications from the advanced markets within China, which will definitely drive the development of new revenue generating multimedia services, beyond the currently available basic voice and rudimentary data services."

 

Prime advantage

 

Ericsson already established two multimedia application R&D centers in China, employing hundreds of engineers. And the firm is working with 10,000 local wireless content providers and service providers in China to develop multimedia applications that "interest enterprises and consumers, and boost operators' business," Olsson said.

 

"We have built up strong competence in professional services and multimedia solutions in China. "Professional services include network design, planning, optimization, software development and managed services where telecom equipment manufacturers take over and run networks for operators.

 

Ericsson is now the world's largest provider of professional services in the telecoms industry.

 

"Although competitors such as Nokia will also improve their offerings in this area as the market increases in size and becomes more standardized, Ericsson holds an early advantage, especially in network management services, and will be able to leverage this to keep an advantage in the future," the Norson report said.

 

"The increasing proportion of revenue coming from services will help Ericsson to improve not only its revenue but also increase its profit margins."

 

Nokia in October formed a joint venture in China to provide professional services to local operators. Compared with the network equipment business that has been struggling with price cuts and intense competition, professional services have become more lucrative for telecom companies.

 

(China Daily December 4, 2006)