L M Ericsson - One company, Many faces
May 6 2003		Email this page

The following article consists of a series of three interviews conducted with senior Ericsson personnel from different business units, engaged in different areas of interest and displaying different perspectives on the company's activities. The first interview provides an overview of key company activities from a corporate viewpoint; the second covers Ericsson's broadband access solutions; the third the company's approach in addressing the optical transport systems market..

1. Corporate Overview

2. Ethernet in the First Mile

3. Optical Transport

Corporate Overview

Interview with Gunnar Liljegren, Director, Corporate Business Development

Gunnar Liljegren has substantial experience within the telecommunications industry, and has been engaged in a number of roles with Ericsson over the past twenty years. Mr. Liljegren has devoted much of his time with Ericsson to the wireless business, primarily cellular systems, although also spending a five-year stint in the 'wired' world, within the transmission network business. In his present corporate role, Mr. Liljegren focuses on the wireless aspects of the business, purely because this constitutes the major focus for Ericsson as a company.

Introduction

Ericsson is one of the largest and most widely recognised brands in the telecommunications industry. It is a publicly quoted company, employing over 60,000 staff located in sites in more than 140 countries worldwide, with headquarters in Stockholm, Sweden. The company is a 'complete solutions provider' for telecommunications systems, focusing primarily on the mobile network systems market, but extending from mobile handsets to wired and wireless access solutions to transmission network systems.

Ericsson has a number of major industry partnerships, including those with Sony Corp for handsets and Marconi for transmission systems. The company targets markets worldwide, with a particular focus on Europe, Asia-Pacific and Latin America.

Positioning

A cornerstone of Ericsson's strategy is an ability to supply complete, end-to-end, solutions, combined with a focus on value-added activities - moving beyond the role of selling 'boxes'. The strategy demands a high level of expertise across a wide range of market sectors - whether to maintain a viable presence in niche markets or to facilitate selection of partners for addressing specific market sectors. The foundation upon which this strategy is based is the core activity for the company - wireless solutions.

Commenting on the company's aim of providing value-added solutions, Mr Liljegren stated that this extends to the management of carrier networks, in addition to supplying their network infrastructure, adding that this role could pertain to any carrier, "not solely the small carriers."

Ericsson has been aggressively promoting the 'value-added' strategy since approximately 1996, primarily within the European and Latin American markets. Current subscribers include Telstra in Australia and KPN in The Netherlands. In the case of Telstra, it was noted that the contract involves the management of a CDMA (Code Division Multiple Access) cellular network supplied by a third-party vendor. In support of Ericsson's stated ambitions outside the wireless sector, it was noted that both the wireless and wired portions of a 'small Latin American' operator are managed by the company.

While this overall strategy is shared by many of the major equipment vendors, Ericsson believes that it has been more successful than most in following it to fruition. Mr Liljegren emphasised that Ericsson has no plans to take this strategy to the next level, and become a network operator in its own right.

From the perspective of the customers, the carriers, the advantage of engaging the services of - in addition to simply buying 'boxes' from - an equipment vendor are seen to stem from increasing competition in the de-regulated telecommunications market and the necessity to widen activities beyond core areas of expertise.

Mr Liljegren commented that carriers, whether operating wired or wireless networks, are now seeking to concentrate on 'front-end' activities - principally customer oriented functions including business development and marketing, but also management of financial processes.

Regarding the importance of the services business to Ericsson, Mr Liljegren stated that these activities now account for approximately thirty percent of company revenue - revenue deriving specifically from network management services is not defined. Mr Liljegren said that activities under the services umbrella could range from one person showing a customer "which button to press", to a team of one hundred staff supporting a customer for months or years. Revenue generated from the services business is expected to increase as a proportion of total company revenue.

Network convergence

The 'convergent network' is a key area of interest for Ericsson. Mr. Liljegren said that for subscribers the term means, broadly, the provision of services by the most appropriate means - the mode of transmission, and the type of device to which the service is delivered is irrelevant.

From the service provider's perspective, the concept equates to delivery of services over a single integrated backbone network. This latter aspect of the model is viewed to be of most relevance to Ericsson; Mr Liljegren noted that this aspect is also closer to realisation. The end-user market is complex and fragmented, with different services best suited to particular types of device due to the varying capabilities and features, for example screen size. Mr Liljegren said that looking further into the future raises a multitude of questions, relating to such areas as the convergence of broadcasting and telecommunications, perhaps eventually via wireless devices. Such developments would encounter political as well as technical issues.

For Ericsson the 'converged backbone network' translates as a common IP network over which all services can be transported. For the carrier this converged network will deliver enhanced efficiency through reduced capital and operational expenditure. Mr. Liljegren said that there are not known to be any true converged networks currently in operation, however, Ericsson does now offer an integrated network solution, and is presently in discussions with customers regarding this. Ericsson believes that a shift to the converged network model is inevitable.

Mr. Liljegren cited the growing softswitch market as indicative of a transition to the converged network - by separating network management and transmission functions these switches enable traffic streams to be directed over a single core network. He added that Ericsson has supplied softswitch systems to a number of carriers in Europe, including one in the UK. It is felt that the business case driving the roll-out of softswitches is becoming ever more compelling, not only in developed western markets; over the next five to ten years their deployment is expected to become the norm.

The 3G mirage

Commenting on the stalled 3G mobile market, Mr. Liljegren said that he does not view its development as having 'gone wrong':

"The major problem with 3G is the 'hype' relating to the technology and the progress of the market, rather than the actual technology or its take up. Ericsson, along with many others, may have been complicit in this. The simple fact is that development of technologies and markets takes time. During the late 1990s there was a view of the telecom market as a 'spinning wheel' that would somehow keep spinning ever faster, bringing significant developments on a quarterly basis. The market downturn, and ensuing conservative sentiment of today, have brought this cycle to an abrupt halt."

Mr. Liljegren noted that the situation facing 3G mobile has been mirrored in other marker sectors, notably IT and communications as a whole, including the established second-generation mobile market. Investment in a number of market sectors has been much reduced - investors are behaving with great caution at present. Ericsson is confident that 3G has not been dropped, simply delayed. It is felt that 3G has been misrepresented as a 'new thing', bearing little relation to present mobile services - a view that is felt to be technocratic and of little interest to the subscriber.

Mr. Liljegren commented that 3G is nothing more than a technical term, referring to a stage in the evolution of the cellular market. Ericsson is reluctant to discriminate between second and third generation mobile technology, due to the implication that 2G is past its sell-by date - 3G is regarded as an enhancement to 2G, rather than a replacement for it. This view is supported by the present rollout of so-called 2.5G services, notably GPRS (Global Packet Radio Service), as a staging post on the path to full-blown 3G service.

For subscribers to mobile services, 3G will mean a broadening of the services on offer - with the handset developing from a device allowing speech on the move to a device capable of offering a range of multimedia services. To date, SMS messaging has become widely adopted, GPRS based data services are now emerging. It was emphasised that such developments take time, despite the best hopes of the telecommunications industry. Mr Liljegren stated that Ericsson does not make short-term forecasts for the 3G mobile market, and, moreover, has never done so. He added that taking a long-term view of the market, it has not been deemed necessary to alter the company's forecast data.

The CDMA alternative

Ericsson holds a small market share in the CDMA mobile technology market - a competing technology to GSM (Global System for Mobile) - predominant in the American market, and a limited number of markets primarily in Asia. Mr. Liljegren commented that Ericsson entered this market (originally referred to as CDMA-1, or IS-95) much later than most of the major suppliers, with the result that the market was effectively closed to the company, accounting for its low market share of around five percent.

For this reason efforts were reserved for addressing the next generation CDMA technology - CDMA-2000. Ericsson has succeeded in building a presence in the CDMA-2000 technology market over the past nine months, although not yet in the key U.S. market where network operators up until now have tended to remain with existing equipment suppliers. The main markets so far are Asia-Pacific - notably China - and Latin America. The company intends to continue to increase its position in the developing CDMA-2000 market, and is confident that this is a realistic objective.

Discussing the mobile market in China, Mr. Liljegren said that it is anticipated that the country will proceed with a policy of unilateral development of mobile standards, continuing with its current work on the SC-TDMA (Single Carrier-Time Division Multiple Access) standard. This technology is not expected to be widely adopted on the global stage, although it will be available as an additional mobile communications standard.

Ericsson is concerned about the development of numerous competing mobile technologies, as, apart from any competitive issues, such a scenario is not seen as benefiting the consumer; a fragmented, multiple technology, second generation mobile market is one of the core issues that 3G mobile technology was intended to address. Mr. Liljegren however, acknowledged that there are a number of factors underlying China's desire to pursue this policy, not least the development of expertise and competence in the mobile sector, which, he added, is a perfectly laudable ambition. In fact, Ericsson is assisting in these efforts.

Mr. Liljegren said that UTStarcom's business success with its Gigabit Ethernet solution in China and Japan is bringing recognition to this cost-efficient solution, which Ericsson is also promoting. Thus, Ericsson sees positives with UTStarcom's successes as it establishes Ethernet as a state-of-the art technology, particularly when the customer is as qualified as for example Yahoo is in Japan and China.

Wi-Fi

The developing Wi-Fi market is of interest to Ericsson, largely because it is an area of growing importance for the carrier customers. Ericsson focuses on supplying complete solutions to carriers but is staying out of the consumer end of the market. The company currently sources the pure 'radio' elements of the technology from an external supplier, then adds functionality such as roaming, handover, authentication and billing - including 'convergence billing' between Wi-Fi and cellular networks. The value-added solution is supplied to carrier customers.

Mr. Liljegren noted that Ericsson has recently concluded a major contract with Inspired Broadcast Networks in the UK for the supply of infrastructure enabling service to five thousand Wi-Fi 'hotspots', adding that this contract included managed services. This is the largest Wi-Fi contract that Ericsson has received to date.

It was noted that Intel and Cisco Systems are promoting IEEE 802.11 (Wi-Fi) based technology as a budget solution for wireless service. Ericsson is sceptical as to the practicality of this solution as a competitor to cellular. The prime basis for this scepticism is the continued dominance of voice traffic on cellular networks, despite the growing availability of data services - WLAN (Wireless LAN), or Wi-Fi, technology is inherently unsuited to transmission of voice traffic.

Other factors counting against Wi-Fi as a competitor to traditional cellular technologies relate to coverage. Mr. Liljegren commented that roughly ten thousand 'hotspots' are required to provide service coverage equivalent to one 3G cell; also interference is an issue as Wi-Fi technology utilises unlicensed radio spectrum. However, Wi-Fi technology is viewed as a valuable complement to the provision of wireless services.

Mobile handsets

Regarding the challenges Ericsson has been through with its handset business, Mr. Liljegren said that this could be attributed to several factors, including very simply the stiff competition, not least from Nokia, in addressing the consumer market. In addition, a lack of confidence in approaching this market, plus Ericsson's preoccupation with engineering excellence, and straightforward 'bad luck', are also felt to have played a part in Ericsson's fortunes. Mr. Liljegren was keen to emphasise that lessons have been learned from this experience. Ericsson has now entered a joint venture with Sony for the development of mobile handsets and there is confidence that this partnership will provide the foundations upon which Ericsson's handset business can be rebuilt.

It is expected that the handset business will follow the model displayed by the PC industry, with increased specialisation, collaboration, and licensing out of technologies to contract manufacturers. Mr. Liljegren cited the Bluetooth wireless technology, developed by Ericsson, as an example of this process - the technology is now gaining ground to become important in the market at large.

Liljegren said that the partnership with Sony Corp. would be leveraged with respect to that company's substantial 'content' business. Vertical integration within Ericsson, extending to its partner companies, is now taking shape - anticipated success in the handset business will complete the path stretching from the consumer, through the delivery system, to the actual content being delivered. Ericsson believes that the advantages deriving from this strategy will become increasingly important.

Transmission business

Mr. Liljegren commented briefly on Ericsson's transmission equipment business, noting that a severe curtailing of activities within this sector was due to changing priorities: "This was the correct decision at the time, being based primarily upon financial factors. The bottom line is that no company has sufficient resources to maintain viable activities in every sector of the market."

See Optical Transport interview.

Ethernet in the First Mile

Interview with Peter Linder, Technical Director, Ethernet Broadband Access Business Unit, and Torbjörn Sundqvist, Director of Marketing and Sales, Network Technologies Business Unit

See also Peter Linder's slide presentation.

Broadband Access unit

Ericsson's broadband access activities fall under the System business unit, within the Broadband Access Systems business, one of five business areas focusing on key market sectors, and within the unit Network Technologies, focusing on fibre optic access. Commenting on the resources of the Broadband Access unit, Mr. Linder said that part of the product development and manufacturing work is outsourced to third-party companies.

The broadband access business is based on extending Ethernet technology out into the public network, eventually to the subscriber location. This solution is claimed to facilitate deployment of broadband service through improving the economics for the service provider. Mr. Sundqvist added that Network Technologies focuses its broadband access activities on fibre optic metropolitan and access networks.

Public Ethernet strategy

Ericsson has developed a strategy for enabling large-scale deployment of broadband access, through the extension of Ethernet-based service to the public network, ultimately over optical fibre connections, to the home or business. The pushing of Ethernet technology into the 'first mile' access network is seen as a key driver for the rollout of fibre-to-the-home.

Mr Linder said that Ericsson had concluded in 1998 that this was the appropriate strategy, at which time the company was offering an ATM access solution for HFC (Hybrid Fibre Coaxial) cable, DSL (Digital Subscriber Line), LMDS (Local Multipoint Distribution System) and fibre-based services. He noted that Ethernet is viewed as possessing a number of merits, including application to point-to-point and PON (Passive Optical Network) applications, which will assist in building the case for fibre in the access network.

The company envisages a three-stage migration from the present situation of ATM over ADSL, carried over copper wire from a local DSLAM (Digital Subscriber Line Access Multiplexer). Initially Gigabit Ethernet will be extended from the BRAS (Broadband Remote Access Server) to the DSLAM, which serves to open up bandwidth capacity in the access network - from a typical 155 Mbit/s today to 100 Mbit/s)- reducing the degree of bandwidth concentration necessary between the 'first mile' and transport network legs. Ethernet will then extend to the home, over either a copper or fibre link. The last stage of this migration sees the DSLAM being evolved into a pure Ethernet access node. This step will allow adoption of the new EFM (Ethernet in the First Mile) standard to implement copper access with higher speeds and fibre access to the user.

Mr. Linder commented that there is substantial installed Ethernet access in place worldwide, primarily serving multi-tenant buildings; he cited Scandinavia and China as examples of countries demonstrating this.

Ericsson believes that Ethernet in the public network delivers price/performance gains when compared to competing technology options - claiming a ten to one improvement in the economics of the business case for operators. The company expects that this scenario will take the network operators in a new direction, with the aggressive adoption of public Ethernet. Mr Linder stated that Ericsson is the first company to develop and promote this strategy for the public network.

Ericsson has concluded that the broadband access market is at a crossroads. From this point forward product development may either continue on the present path, through the ATM-centric approach, or take a new path, through the deployment of a public Ethernet based approach. By adopting the latter strategy, Ericsson aims to both drive down capital expenditure necessary for the rollout of broadband access services and boost capacity in the existing network infrastructure.

According to Mr. Linder, up until now provision of broadband service has centred on working with the existing bandwidth capacity of the network, rather than evolving the network to better serve the demands imposed by broadband services. This approach represents an innovation for the operators now deploying broadband service, promising to improve the economics of connecting subscribers. Ericsson believes that its public Ethernet solution will enable network infrastructure to cope with capacity demands arising from developing Internet usage - usage that is anticipated to grow rapidly with the advent of lower priced broadband access service.

A substantial proportion of the network infrastructure in place today will require upgrading or replacing in the near future to support broadband, Mr Linder said, particularly with the advent of emerging services and technologies:

"Legacy network infrastructure is reaching the point where it can no longer support certain innovative services, and in some cases is effectively at the end of its useful life - it is simply not physically possible to maintain and repair the equipment due to its age."

Broadband market development

Discussing factors influencing Ericsson's assessment of the broadband access market as of key interest, Mr. Linder noted that, within Europe, at both national and EU level, general availability of broadband access is considered to be important to future economic development. The EU has a declared target that high broadband availability is a cornerstone to economic growth. Mr. Linder stated that achieving this goal would require a doubling in the rate of penetration growth - from the present annual rate of 3.5% to 7%.

Current pricing policy is seen as a major factor arresting penetration growth. According to Mr. Linder, this issue is being addressed in many markets with the introduction of differentiated Internet access services. Mr. Sundqvist said that Ericsson has worked closely with the Swedish ICT Commission on network infrastructure guidelines and bandwidth demands. The ICT Commission was set up by the Swedish Government as the Advisory Board in the field of Information Technology and analyses the role of information and communications technology as a useful tool for the development of society.

Barriers to broadband

With regard to barriers in the wide-scale take-up of broadband services, Mr Linder cited two factors - consumer awareness of services beyond Internet access and market regulation.

On the first of these, Mr. Linder said that consumer education remains an issue. Despite the fact that broadband access has been available since 1996, when the Internet was in its infancy in the residential market, a practical reason for subscribing to it has yet to emerge for the majority of users. This issue is accentuated by the lack of a coherent strategy from the service providers, who have yet to promote a compelling broadband story. For residential subscribers dial-up access is, so far, suited to the purpose for which it is most often used - where a single household PC is connected to the Internet for access to e-mail and web browsing activities.

Mr. Linder said that the situation is beginning to arise where a number of PCs and devices such as games consoles and digital radios require network connections, and, moreover, connections are required to devices within the home. The realisation of this scenario will raise demand for a 'broadband pipe' to the home. Illustrating this vision are such current products as Microsoft's X-Box games console, which is equipped with network connectivity capability, and the emergence of Internet radios.

Expanding on this topic, Mr. Linder said that a networked games console allows gaming with other users over the Internet - person to person rather than person to machine contests. Mr. Linder believes that such services will add value for the online user and encourage increased spending, so enhancing revenue streams for the service provider through hosting activities. The issue for the service providers today remains one of attaining critical mass for the customer base.

Regarding the second factor of regulation, Mr. Linder stated that it is important to address how to assure availability of broadband in areas that are not yet addressed by market forces. Attention needs to be paid to the risk of a digitally divided society, where only part of the population has access to broadband. Discussing Sweden specifically, he noted examples where broadband access has enabled remote communities to replace lost industrial jobs with roles relying on effective communications, such as work in call centres.

Ericsson believes that its access solution will be key to facilitating the provision of the necessary broadband service in such locations.

As noted previously, the European Commission views general broadband service availability as key to economic development in Europe and not as merely an enhanced method of accessing entertainment services. The EU and its members are major developers and providers of 'content' for public purposes. It could be possible to trigger the emergence of digital content services to further stimulate growth in broadband penetration.

Pricing

Discussing the typical pricing policy for broadband service, Mr Linder said that currently this is effectively fixed at between $40 and $50 in most markets, worldwide. He noted that Ericsson has analysed the average spending patterns for dial-up service subscribers, which reveals average expenditure of only $8 to $12 per month, indicating the need for lower priced broadband access. This highlights the dilemma for service providers, who are reluctant to invest in provisioning potential residential subscribers, while at the same time reducing the cost of the services in the hope of attracting new customers. It was noted that demand for broadband ADSL service today tends to derive from the small business, rather than the residential sector, and that potential subscribers often fall outside areas of broadband service availability - further exacerbating the issue of low penetration.

An additional drag on general uptake of broadband access currently is seen to be the presence of an established customer base for dial-up service, which is accustomed to receiving a generally 'adequate' service at a comparatively low price. The most popular applications for domestic users are e-mail and web browsing, which a 56 Kbit/s dial-up connection is able to support. Mr. Linder commented that the sole country exhibiting broadband penetration significantly in excess of 20% - as a proportion of total Internet users - is South Korea, at approximately 50%; in the U.S. broadband penetration is still under 10%.

Killer application

Ericsson believes that no single service or application will prove to be the 'killer application' encouraging wide-scale adoption of broadband access under the present pricing policy. Mr. Linder noted that subscriber services such as games-on-demand, which will serve to stimulate broadband penetration, will deliver very limited revenue to the service provider. An important factor in driving down costs to the user is seen to be service differentiation, with 'basic' lower speed, low price service at 256 Kbit/s. The expectation being that subscribers will over time upgrade to premium, higher priced, 1 Mbit/s and 2 Mbit/s services.

FTTH

Mr. Sundqvist noted that utility companies, power companies and property management companies may well be competing with the traditional operators to deploy, own and manage the first mile. These 'new' operators are already deploying fibre-to-the-home and may help push bandwidth demand upwards in doing so. Property management companies for instance, are seeing that installing and providing high bandwidth broadband access is a way of making their properties more attractive and at the same time future proofing their investment.

Network capacity

Ericsson believes that it is addressing a key challenge facing the operators - that of network capacity. Moreover, the company believes that it can enable operators to boost network capacity economically - crucial in the current market climate.

The company defines four stages in the evolution of the Internet access market: initially there was dial-up connection at 56 Kbit/s, where the primary use is e-mail applications; with this set-up the service provider is typically able to concentrate twenty subscribers on one line.

Next comes basic ADSL service, driven by services such as Napster, where a potential downstream bandwidth of 8 Mbit/s is capped, due to capacity issues on the transport network, at 512 Kbit/s, giving similar concentration levels to those achieved with dial-up service. At this stage the use of ATM technology throughout the network makes service provision an expensive proposition for the service provider.

Ericsson next sees the incremental opening up of capacity in the access and transport networks, with the introduction of Ethernet into first the transport network - to the DSLAM, and then into the access network - to the subscriber.

Ericsson claims that capital expenditure savings of around ten-fold are attainable with the rollout of its public Ethernet solution as compared to use of ATM technology. Mr Linder said that the task at hand is to convince the service providers of the efficiency and viability of this solution.

DSLAM product

In developing a DSLAM product, Ericsson believes it has addressed a number of issues key to improving the economics of broadband access rollout, both directly, through reducing capital investment, and indirectly, by increasing the capacity and efficiency of the existing network infrastructure.

Mr. Linder commented that Ericsson views its 'blue box' DSLAM solution as a reinvention of the product. The company has compressed the DSLAM product to a compact board-based solution, offering a significant size advantage over conventional chassis-based solutions. The device delivers standard Ethernet connection upstream to an Ethernet switch and standard ADSL down to the subscriber. The 'DSLAM on a board' solution may be sited with any network equipment capable of supporting traditional DSLAM devices.

Referring to the economic challenge facing operators when considering deployment of broadband access, Mr Linder stated that Ericsson's DSLAM device significantly reduces the minimum number of subscribers needed to make this viable - thus removing a major hindrance to ubiquitous broadband penetration. Employing a 'traditional' approach, a minimum of two hundred subscribers are necessary to make roll-out economic; utilising Ericsson's solution this figure is cut to ten subscriber connections.

Mr. Linder noted that scaling, in small increments, to 'several thousand' broadband connections is possible. This facility decreases the cost to the operators of serving each subscriber, expands their addressable market, and allows provision of lower priced service to potential customers.

Ericsson has also addressed limitations associated with application-specific DSL service, for example ADSL for POTS (Plain Old Telephone Service), ADSL over ISDN, and SHDSL. By adopting the latest ADSL standard Ericsson is able to offer enhanced device flexibility and functionality, including an ability to configure the solution for a range of network types, line by line, together with increased upstream bandwidth capacity of 3 Mbit/s. Mr Linder said that Ericsson's DSL system provides a converged, simplified, solution for the operators, where the type of service ordered is not an issue; the only factor of interest to the operator is the number of 'blue boxes' needed to deliver the services.

"There is now no need to install a half rack of equipment into a central office switch in order to serve one customer taking one service type, and a second half rack for another customer requiring a different service type."

Ericsson launched its DSLAM solution in December 2002, although the device had been operating in 'stealth mode' since September 2002. Mr. Linder stated that the product is realising revenue for the company, and is deployed in live networks in China.

Ribbonet solution

See Slides

In tandem with the DSLAM device for operation in the conventional copper access network, Ericsson is developing solutions for fibre-based networks. Mr. Sundqvist said that Ericsson's Ribbonet fibre installation solution offers a simple and cost-effective method for large-scale deployment.

The Ribbonet solution consists of micro ducts and a special type of fibre. The ducts are installed first and fibre is then blown through them with compressed air. The solution is ideal for incremental installation, installing the ducts first and then the fibre. This also makes it easy to deploy new fibre at a later stage, further future proofing the infrastructure. The fibre can be blown up to 1 kilometre. Ribbonet has been deployed at a number of sites, mainly in Scandinavia.

Standards-based approach

Mr. Linder commented that work is ongoing in IEEE for a standards-based 100 Mbit/s solution operating over single-mode optical fibre, an advance from a current system operating over multi-mode fibre. The company envisages a network composed of single-mode fibre to an Ethernet switch in a multi-tenant residential or enterprise, building, from which runs standard category five cabling carrying Ethernet-based services.

This solution is improved with the adoption of the EFM standard that offers a number of advantages to the service provider, including high bandwidth capacity, increased reach (up to 7500 metres over category three cabling with VDSL), and the option of using existing in-building cabling. Utilising single-mode fibre (manufactured by Ericsson) the solution under development will offer 100 Mbit/s symmetrical bandwidth capacity over distances up to ten kilometres.

Commenting on Ericsson's past position in the DSL equipment sector, Mr. Linder said that the company held a significant market presence, not reflected in the market share of approximately 1.5%. Having revised its approach, Ericsson is now aiming to re-enter the market with its Ethernet-centric 'blue box' solution. Mr Linder said that the issues pinpointed as requiring attention in ATM-based products are platform density, reach, and flexibility with respect to the various DSL 'flavours'. The company believes that it has addressed these factors with its compact and versatile DSLAM solution.

Competition

In the DSLAM market as a whole, Mr. Linder commented that despite the large number of players in the sector, many of the 'big names' have recently exited, and, further, that no companies are known to have followed Ericsson's 'public Ethernet' route to date. The strongest competition is expected to derive from vendors in the Asia-Pacific region, which have stuck less rigidly to an ATM focused strategy.

Market focus

Commenting on the geographic market focus for Ericsson, Mr. Linder stated that the U.S. is not expected to lead adoption of public Ethernet solutions - in fact that market is viewed as likely to be a late convert to the technology. This assessment is based on the prevalence of ATM-based network equipment, combined with the expectation that the installed infrastructure will comfortably handle capacity demands for some time to come - "there is plenty of 'slack' in the system".

This factor is demonstrated by the substantial volume of idle DSL lines - of an estimated 21 million DSL lines deployed, approximately five million are connected. However, Mr. Linder does not believe there is any inherent barrier to Ericsson, as a European company, entering the U.S. market; several North American vendors, including Nortel Networks, ADC and Lucent Technologies have exited or scaled back their broadband access activities.

In terms of the economics of DSL roll-out in the U.S., Mr. Linder noted that there is an increasing need to be prepared for lower revenues per user when driving penetration into more price sensitive end-user segments. Internet access is the prime service that growth needs to be based upon These facts and the current economic climate call for network solutions with increasingly shorter pay-back times than the common 3-4 years. Commenting on this distant break-even point, Mr. Linder said that operators are not able to build a convincing business case based on such a time-line; as noted earlier, there has not, as yet, emerged a 'killer application' to coax the market to viability.

Mr. Linder cited Napster, which offered online music downloads, as the closest to a 'killer application' for broadband access to emerge to date. Similar, lower profile, services have subsequently been launched by other companies, although legal issues remain. From the perspective of the network operator, Mr. Linder noted that this type of service creates a highly 'bursty' traffic pattern - using dial-up connection, a three minute music clip will take around thirty minutes to download. Such usage patterns will, at some stage, necessitate upgrade of the operators network. At this point Ericsson believes its public Ethernet solution will come into its own. Ericsson estimates that general adoption of broadband services, and in particular a shift to fibre in the access network, will require a ten to twenty fold increase in capacity in the access transport portion of the network.

Geographic markets showing rapid broadband service take-up include Asia-Pacific, Central and Eastern Europe and Russia. Mr. Linder noted that, while a positive sign, these regions will often be the least able to support viable broadband service provision, due to both per capita income levels and the inability of backhaul networks to cope with capacity demands. He cited an Ericsson project in Poland, where IDSL (ISDN DSL) service was deployed - the necessity of providing a low cost backhaul network fitted very well with an IP based approach without the need for a build-out of an advanced ATM backbone.

For the fibre access market specifically, Mr. Linder said that, excepting Japan, development is so far very limited, other than isolated local projects. He noted, however, that there is growing interest in the feasibility of deploying fibre into the access network, with notable small-scale initiatives in the U.S., Australia, and Italy, also from KPN in the Netherlands. It is felt that the utility companies will play an important role in development of this market in the future - as is already becoming apparent in Australia.

Mr. Sundqvist remarked that Ericsson has deployed several fibre-to-the-home networks in Sweden, one being in Stockholm and serving approximately five thousand subscribers. Here, the company installed all passive network components and cabling, including in-building sections, as well as performing network management functions. Mr. Sundqvist also stated that Ericsson at the moment is involved in similar projects in Scandinavia, one of which will connect up to 200,000 subscribers with fibre-to-the-home.

Future

Assessing the future development of the broadband access market, Mr. Linder said that wide-scale take-up will not occur overnight - as with the dial-up service, adoption will likely be a long and gradual process. The expectation is that a substantial customer base will take several years to build. It was noted that within relatively mature broadband access markets, customer churn is proving a significant, and expensive issue for the service providers. Market development may finally be dependent upon further equipment vendors adopting a similar Ethernet-centric approach to that of Ericsson, he added.

"There is some evidence that competitors are now reaching the same conclusion as Ericsson with regards to the merits of public Ethernet. I do not see this as a threat - Ericsson is ahead of the game, with a commercial product on the market supported by a coherent strategy. It is primarily a matter of leading the market to public Ethernet - this may be a challenge in the near term, due in part to the wider economic environment, but in the longer term we are confident that it will prove the most viable solution."

Optical Transport

Interview with Mårten Wahlström, Team Leader, Product Portfolio Management, Optical Networks

Background

Ericsson has a stated aim of maintaining its presence as a complete solution provider in the fixed telecommunications market. Within the transmission network equipment sector, the company accomplishes this through a close, longstanding, relationship with Marconi. Through this partnership, Ericsson supplies a portfolio of SDH systems to its customers. According to Mr. Wahlström, the business unit was profitable for the financial year 2002.

Ericsson ceased design and manufacture of SDH equipment in 1995 because at this time there were felt to be too many players in the sector, resulting in limited market opportunity. Combined with the high level of investment necessary for the development of new products and the rapid pace of technological innovation in the sector, the company opted to exit the market.

"Ericsson had not attained critical mass in the optical transmission equipment market by 1995, and was not building market share. The company was simply not in a strong enough position in terms of brand awareness and market presence to make continuation of the business in its own right a viable proposition. Increasing the pressure at this time were internal cost reduction programmes. Given that there was an aspiration to remain in this market sector, the only option was to source products from a third-party vendor."

Marconi partnership

The partnership with Marconi is founded on two factors: the development of a revenue generating business unit, and to complete Ericsson's business portfolio - spanning mobile telephony to optical backbone systems.

The relationship has evolved to the point where the two companies share product management processes and liase on new product development. Mr. Wahlström commented that achieving a relationship at this level has proved "a very tough and time consuming process."

SDH products supplied by Marconi are not exclusive to Ericsson, although they are tailored to Ericsson's specific requirements where necessary. By the same token, Marconi does not offer any systems to which Ericsson does not have access - although the agreement is presently restricted to selected Marconi products. Products currently falling outside the agreement chiefly derive from Marconi's acquisition of Fore Systems.

The potential of CWDM (Coarse Wave Division Multiplexing) technology is presently being investigated with Marconi.

Commenting on future prospects for the partnership, particularly with respect to the rapid pace of technological development in the optical equipment sector and Marconi's current troubles, Mr. Wahlström said that the market place is constantly monitored: "Any perceived limitations posed by this partnership must be balanced against the substantial effort and expenditure that would be needed to move to another vendor, not least in the areas of management integration and system interoperability."

"If Marconi falls behind the pace, new or additional relationships will be considered." He emphasised, however, that there are no plans to follow this course currently, and reiterated that developing and maintaining this type of partnership with a single external supplier is challenge enough for the moment.

Mr. Wahlström said that Ericsson receives an average of one proposal each month, mostly from small start-up companies developing transmission network products, "when such companies discover that Ericsson does not develop devices in this market sector." Although emphasising that these approaches are not often progressed beyond the initial stages, Mr Wahlström did state that they are not dismissed out of hand.

Strategy

Ericsson views the supply of optical networking equipment as a key activity offering value to its customers, where this network element will either comprise one part of a larger system, or will be integrated into an existing customer's network. Mr. Wahlström commented that although a customer could purchase the same SDH equipment direct from Marconi, doing so would complicate the sales process while offering no benefits. He emphasised that the optical networking equipment business serves to complete Ericsson's product portfolio and maintain the company's position as a 'one stop shop' for telecommunications equipment.

On a tactical level, the provision of optical systems is seen as augmenting the company's overall standing in the market place, enabling Ericsson to leverage its existing customer base - "the easy sell" - and to reach new customers.

Product portfolio

The Ericsson Optical Networks portfolio, sourced from Marconi, includes small multiplexers, such as STM-1 and STM-4 class products, offering bandwidth from 2 Mbit/s to 45 Mbit/s as well as support of fast Ethernet services; high-end STM-16 and STM-64 multiplexers; optical cross-connects; and a reconfigurable add-drop DWDM system for metro ring networks, offering 32 or 64 channels. In addition, Marconi's long-haul and ultra long-haul systems are offered. A reconfigurable functionality with the DWDM system facilitates optimum usage of available wavelengths. Mr. Wahlström pointed out that all products are supplied with standard Marconi badging and branding.

The SDH and DWDM network is managed by a Marconi management system sold by Ericsson under the name NEM (Service ON is the corresponding Marconi name). IMA is an Ericsson management system providing additional integration across for example SDH, PDH, and microwave transport systems.

In addition to the products sourced from Marconi, Ericsson supplies its own DWDM system, a product that Mårten Wahlström said was achieving growing success until the collapse of the telecommunications market in general, and the optical equipment sector in particular. He explained that investment necessary for the design and manufacture of a DWDM system is dramatically less than for an SDH system.

This product remains on the market, albeit with a small market share, although it will be gradually phased out, and will only be available in its current iteration as no resource will be devoted to further development.

Discussing the integration of the optical networking portfolio with Ericsson's high profile activities in the mobile communications sector, Mårten Wahlström said that, while certain SDH products may be bundled into a mobile network contract, these rarely include a DWDM transmission system. Hence using the customer base of the mobile business to leverage DWDM product sales is not a realistic option. He added that radio access networks normally employ STM technology (typically an STM-16 ring system), which may thus be bundled into a deal, but the transmission segment of the network will usually be leased from a third-party operator. However, recently - within the past two years - mobile network operators have begun to deploy their own dedicated backbone networks. Mr. Linder noted that this equipment generally comprises a separate purchase from the access portion.

Next Generation technology

Mr Wahlström noted that next-generation SDH technology is already in the portfolio, but there are number of challenges before solutions come completely into fruition. Ericsson is working to fully enable Data over SDH, for which wide acceptance from the operator community will require completion of related standardisation efforts.

He added that a substantial part of the development work is seeking to adapt the existing technology. The outcome will deliver enhanced network efficiency, achieved through 'bandwidth lean' operation, and improved flexibility - enabling, for example, dynamic bandwidth-on-demand and bandwidth scaling to suite individual end-user requirements.

Asked about Ericsson's relationship with Juniper Networks for optical transport systems, Mr Wahlström stated that this is contained within the Systems business unit - separate from the Transmission and Transport line of business.

The ENGINE concept

Overlaying Ericsson's optical networking equipment portfolio - from access to transport systems - is the ENGINE concept for converged multi-service networks. This solution was developed utilising a version of ETSI's 'Telephony Service' standard for management and control of networks operating on ATM technology.

The fundamental idea underpinning ENGINE is separation of network control and management functions from the traffic travelling over the network. The concept enables carrier customers to deliver broadband service without a need to replace all existing, legacy, network equipment - facilitating migration to a broadband services network through a narrow-band network infrastructure. To this end, processing power extant within installed, legacy, network equipment is leveraged to provide control and management functions for operation of the broadband services network. This revamping of existing network infrastructure enables carriers to offer new services without a necessity for major capital expenditure programmes. Mr. Liljegren noted that the ENGINE solution is proving very successful with carriers, despite - and perhaps as a result of - the present market climate.

Mårten Wahlström commented that the ENGINE concept has grown to be a very strong brand. Originally conceived as a marketing concept approximately two years ago, ENGINE has come to be seen as a technical solution in the market place.

Market focus

The market focus for Ericsson's optical product range is Europe and Latin America; the U.S. is not a target in the near term, due primarily to the SONET - as opposed to SDH - technology pervasive in the region, as well as the current market environment. Diveo was cited as a major customer, with operations in several South American countries.

Mr Wahlström commented that today it is a relatively straightforward proposition for a small start-up company to manufacture basic networking products and market these at a low price. This factor has the potential to prove highly disruptive, particularly in the present depressed market where operators are unable, or extremely reluctant, to expend capital. Combating this scenario is the powerful and trusted brand image of established companies such as Ericsson. Mr Wahlström added that Ericsson is able to further leverage this advantage through its extensive, global, market presence: "Where customers do have capital to invest we are there to serve and support them."

OpticalKeyhole.com and the Optical Networks Daily newsletter conduct interviews on the basis of readership interest only. They are not paid for by the participating companies, nor is there any swap for newsletter subscriptions or advertising.

This article is the copyright of Optical Keyhole. It may be freely distributed by any means in an unaltered form.