Visit of Ericsson president adds weight to 3G bid

By PETER GRIFFIN, telecoms writer

It was a fleeting visit but the timing meant everything.

Carl-Henric Svanberg, the chief executive and president of Swedish telecoms equipment maker Ericsson, spent about 24 hours in the country late last month.

The precious hours were packed with meetings. Telecom chief executive Theresa Gattung had a visit, as did TelstraClear boss Rosemary Howard.

Just a week out from Ericsson's fourth-quarter earnings announcement it wasn't an ideal time to be so far from head office, but the jetlag may pay off in the long run.

Svanberg was putting his personal seal on negotiations for hundreds of millions of dollars of potential business.

Vodafone and TelstraClear are set to award contracts for the building of third-generation mobile networks.

Ericsson, along with rivals Nokia, Nortel and Siemens, are jostling to be first in line to build them.

Svanberg points out that Ericsson has been a multinational for more than 100 years. Deal-making far from Stockholm goes with the job.

"We sold phones in Shanghai and Calcutta in 1892. Imagine doing the business trip back then! It's much easier these days," he said of his whirlwind trip downunder, which also took in Australia where some major 3G business also looms.

The timeframes are closely guarded but the successful mobile vendors for the Vodafone and TelstraClear networks should be announced in the next few months.

Having built the network of Hutchison Australia, the first 3G network in the region, Ericsson may have a slight edge. But the deals are shrouded in secrecy.

A veteran businessman, 52-year-old Svanberg is a relative newcomer to the political world of telecoms equipment making.

Until early last year he headed security company Assa Abloy, which he transformed into a world-leading lockmaker by acquiring about 100 smaller companies. By the time he joined Ericsson he was said to be worth US$60 million ($88.2 million).

Ten months on from his appointment, Ericsson is in the black again and claiming a large share of the new mobile network building.

"I don't think I'm a turn-around man. You do what is needed in the situation," he said.

Capital expenditure was halved and a programme was put in place to accelerate the cutting of Ericsson's workforce of 107,000.

The target is 47,000, which Ericsson is just a couple of thousand positions away from achieving.

On Friday, Ericsson exceeded analyst expectations by reporting an adjusted pretax profit of 5.5 billion Swedish crowns ($1.1 billion) for the quarter. Pre-tax profit of 2.66 billion had been expected.

For the last three months of 2002, the picture was very different - a pretax loss adjusted for restructuring costs of 2.1 billion crowns.

After a couple of years of bleeding red ink, Ericsson is even picking a return to growth this year and healthier margins.

As the equipment vendors get their houses in shape after the devastation of the telecoms collapse, the major operators such as Vodafone are doing likewise.

"The operators all over the world ... have worked very hard to get their balance sheets stronger and generate cashflow," said Svanberg.

"Now the emphasis is on network capacity, quality and business development."

Increasing capacity and quality involves using new communications technology, which is Ericsson's game.

"We're involved in rolling out 10 [3G] networks around the world but within 2004 we will have rolled out 40 networks. It's really happening now all over the place," said Svanberg.

The idea is that mobile phone owners - nearly 70 per cent of the population - will feel compelled to buy new phones and subscribe to the alluring new services 3G will bring.

Many analysts argue that there is not a strong market for the new services.

Not surprisingly, Svanberg argues that there is, pointing to sceptical observers who were questioning the need for basic mobile services 10 years ago. "If you go back to the early nineties you can find newspaper clippings asking why we need SMS and roaming. It's the same thing."

The benefits of 3G lie in capacity and speed. More subscribers can be serviced, they can talk on the phone for longer at a lower rate and can send data faster.

"[Currently] you still have to wait so long for every page to be downloaded. When it happens in seconds it adds a new dimension," said Svanberg, who is not the only telecoms heavyweight to step into the 3G negotiations.

Alain Biston, the general manager of the UMTS (3G) business at Ericsson competitor Nortel Networks, arrived last week.

Like Ericsson, Nortel's fortunes have improved after a grim period of heavy losses and share-price erosion. It posted a fourth-quarter profit of US$499 million ($734 million) compared with a loss of US$168 million a year earlier. Biston, who is based in Paris, was tight-lipped about the negotiations but also believes the appetite for 3G is growing and network speed is key.

"Initially the basic will be 128 [kilobits per second], maybe higher for all the key areas you have to cover such as airports, or corporate headquarters. The next step is one to two megabits [per second]," he said.

As Hutchison had shown, 3G could also introduce flat-rate calling packages.

"Put a price on it and then eat whatever you want within that price," Biston added.

Wary of competitors who have poured similarly vast sums into developing their technology, Svanberg is loath to publicly weigh up his chances of success in the current tendering process.

But clinching a deal is very important to him. "We'd be extremely disappointed if we didn't."

WHAT IS 3G?

* Stands for the third generation of wireless communication technology. It refers to improvements in wireless communications through a variety of standards.

* With 3G technology, mobile phones get more capabilities, such as:

- Global roaming

- High-speed internet

- Navigation/maps

- Videoconferencing

- TV streaming