In the market as a whole, we see the greater percentage of contracts currently emanating from the mobile sector. There is still plenty of opportunity, as few extend to RAN access, and so far backhaul agreements are most evident in Europe. However, the business cases for both are growing ever more attractive as margins are squeezed and service providers, including DT and Telefonica, report slowing mobile revenue growth.
Managed services are still in their infancy among the integrated and wireline operator community. This bodes well for Ericsson’s future service revenues, as many incumbents are Ericsson customers and it has developed a high degree of a trust in these entrenched relationships. For example, Ericsson is also responsible for Telstra’s lightning rollout of its 3G network in 2007. It is currently upgrading the network to 42Mbps and managing the network, which is seeing its data traffic double every eight months.
The service market is fragmented, comprising regional specialists, telco spin-offs and other independent telecoms service providers. However, Ericsson’s services business is in rude health. It has reported a 21% increase in its professional service revenues and an 18% increase in network rollout service revenues in the first nine months of 2009. It also has a surprisingly well-balanced geographical distribution of revenues, so while revenues from Western Europe are slowing, the gains in Asia-Pacific, the Middle East and Africa are more than compensating.
As we reported last month following the Nokia-Siemens event, services are the future for the network equipment providers (NEPs). An increasing number of service providers no longer view operating and maintaining the network as a core business. Consequently there are rich pickings for those NEPs that have transformed their own engagement model to be service-led and software driven.