Ericsson Targets More Business in China and India

Sweden's telecoms equipment vendor and handset maker, Ericsson, is targeting more business in India and China, in part by developing biofuel power solutions for rural mobile services and offering longer payment terms to operators for expanding infrastructure, according to Dow Jones.

In China, Ericsson is hoping to maintain its dominance as new developments in the fast-growing telecoms industry begin to shape the market. Earlier this week, Ericsson Chief Executive Carl-Henric Svanberg, Chinese President Hu Jintao and Wang Jianzhou, chief executive of China Mobile, the country's largest mobile-phone operator by subscribers, reached a US$1 billion deal to supply mobile network equipment in 19 regions in China (see China: 11 June 2007: Ericsson Wins US$1-bil. GSM Network Expansion Contract from China Mobile).

In India, Ericsson looks set to pick up the majority of an estimated US$4.5 billion contract with India's incumbent telecoms operator, BSNL, despite Motorola's attempts to defeat the deal in Indian courts. Ericsson is also working with mobile operator Idea Cellular and the GSM Association, an industry body, to develop mobile base stations powered by locally produced biofuels, for expanding mobile networks into rural areas. Four biofuel-powered mobile base stations have been developed for Idea Cellular in the rural areas of the state of Maharashtra. By reducing the dependence on more expensive diesel power, Ericsson hopes to lower the cost of rolling out mobile-phone infrastructure to rural areas. Cleaner fuel will also reduce engineer site visits and prolong the life expectancy of generators, the company says.

The Swedish vendor is also offering longer payment terms for network projects in these emerging markets, giving operators more time than many European operators to pay for services and infrastructure. Ericsson's mobile-handset joint venture, Sony Ericsson—in which Japan's Sony Corp holds the remaining 50% stake—is targeting rural India and China. In the past two months, Sony Ericsson has inked contracts to supply phone distributors China Postel Mobile Communications Equipment and Shenzhen Telling Communications Corp with mobile handsets worth US$600 million and US$500 million, respectively. In February, Sony Ericsson also unveiled four low-cost handsets aimed at low-income mobile customers in emerging markets.

Outlook and Implications

• Growth Potential in China and India: Both China and India are now among the ten largest markets for Ericsson in terms of sales. Sales in China and India accounted for 7% and 3% of the vendor's total sales in 2006, respectively. Ericsson's attempt to grab more businesses in the two markets is no surprise, given the fact that over 60% of global mobile subscriber net additions between 2007 and 2011 will be driven by the growth in these two markets (see World: 13 April 2007: Substitution Shakes Up the Telecoms Sector). According to Global Insight estimates, the number of mobile subscribers in China will reach about 940 million by the end of 2011, while the figure for India will rise to about 370 million. In China, the number of mobile subscribers reached 461.08 million at the end of 2006, with a penetration rate standing at 35.3%. Global Insight anticipates at least two new entrants in China’s mobile market in 2008. Market liberalisation as well as growing personal incomes will remove the barrier to mobile adoption for hundreds of millions more people in China. In India, there were 149.50 million mobile subscribers at end-2006, equivalent to a penetration rate of 13.5%. The subscriber growth in India will be particularly fuelled by rural network deployments, as over 70% of the population live in the rural areas, where mobile infrastructure is widely unavailable.
• Vendor Competition: In China and India, Ericsson appears to be winning market share from its Western peers, including Alcatel and Motorola. Alcatel-Lucent, which has posted two profit warnings since its merger late last year, said in April that its sales volumes were weighed by second-generation wireless activity in emerging markets. Motorola has declined to give market share figures for India or China, but said it was experiencing strong growth in the Middle East and Africa region. However, the challenge from Chinese equipment vendors, namely Huawei and ZTE, is increasing. Offering aggressively priced products, the Chinese vendors have made significant inroads into the overseas markets. While ZTE’s exports have been mostly confined to emerging markets, Huawei has started to see progress in the more lucrative developed markets in Europe and North America. In addition, Ericsson's position in the Chinese mobile market will, to a certain degree, be affected by China's 3G licensing. Global Insight expects to see the Chinese vendors win a large portion of 3G equipment orders in their home market, particularly for the products related to the locally-developed TD-SCDMA equipment.