​Ericsson and Cisco - Playing for keeps?

​Ericsson and Cisco - Playing for keeps?

"Is this a very special partnership, or a stop gap precursor to a merger?”

Chuck Robbins - CEO, Cisco and Hans Vestberg, CEO, Ericsson

Chuck Robbins - CEO, Cisco and Hans Vestberg, CEO, Ericsson

“Fast breaks are common in handball,” observes Camille Mendler, Research Analyst, Ovum.

A random observation maybe, but according to Mendler, this was a sport that Ericsson CEO Hans Vestberg once considered for an alternative career.

“Making a swift attack from a defensive position exploits the gaps a competitor has made in a rapid advance,” adds Mendler, building up to a key point regarding the recent Ericsson and Cisco strategic alliance.

As reported by Reseller News, Cisco has joined forces with Ericsson, as the tech giants bid to create the networks of the future in a projected billion-dollar sales opportunity.

For both organisations, when examining the current state of the market, the main competitors are aggressive vendor Huawei, and resurgent Nokia, whose recent merger with Alcatel-Lucent has created a dangerous entity.

“The competitor gaps are arguably IP and managed services expertise, delivered as a comprehensive end-to-end service proposition,” Mendler adds.

“Yet after an avowed 13-month gestation period, Ericsson and Cisco can’t be said to have acted swiftly.

“Unpicked, the alliance reveals modest (although achievable) ambitions: Ericsson and Cisco’s new partnership is expected to produce $1 billion for each in net new revenues by 2018 - and achieve about $115 million (SEK 1 billion) in savings.”

For Mendler, when delving deeper into the deal, this will be done by Ericsson reselling Cisco networking equipment, Cisco promoting and taking advantage of Ericsson’s managed services expertise and the implementation of cross-patent licensing.

Throw in the mining of each others’ customer bases in service provider and enterprise and the leveraging of respective channel partners and the finer details of the deal start to become clearer.

“The biggest message both firms want to push is the alliance’s end-to-end benefits for service providers,” Mendler states.

“In the longer term, the two companies aim to create a unified network management system able to control equipment from both companies.

“Further aims are to explore joint capabilities and development in 5G, IoT, cloud, enterprise mobility and managed services.”

But as Mendler puts it, can a primary message of a one-stop-shop offering quality and convenience be enough to woo a customer base itself under heavy attack?

“Ericsson’s core customer base is shrinking,” she adds.

According to Ovum’s World Telecoms Financial Benchmarks, the world’s top 45 operator groups have delivered average revenue growth of less than two percent for the past eight quarters.

Telco capex has peaked - capital intensity reached a six-year high of 19.1 percent mid year, but Ovum predicts it won’t last as LTE rollouts complete. Although hyped, 5G is still some way off.

“So what else will service providers spend on?” Mendler questions.

“One target for the Ericsson-Cisco alliance is the march of virtualisation - the ongoing investment in software-defined networking and network functions virtualisation that is transforming IT and telecom infrastructure.”

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