ERICSSON: The Building Blocks

Addressing mediapersons in Mumbai recently, Ericsson's CEO Carl Henric
Svanberg announced that Ericsson would further strengthen its market and
technology leadership in India through four building blocks-manufacturing,
R&D, global service, and human capital. The company will help create an all
communicating India, he added.

Ericsson India is planning to invest in equipment, people, and R&D.
According to Mats Granryd, managing director, Ericsson India "The company
is planning to invest hundreds of millions of dollars per annum." Ericsson
neither divulged the exact investment plan nor its break-up as they seem to be
not sure about the outstanding pace of business in the country for the next 3-4
years.

But the wireless equipment market in the country has been on an uphill and
will continue to remain so for couple of years. According to VOICE&DATA, the
wireless equipment market in FY 2004-05 was estimated at Rs 11,277 crore and was
growing at around 68%. In the wireless space, Ericsson was the numero uno with
more than 28% market share. Even future requirements for wireless equipment look
bright. Bharti is planning US $1 bn capex in FY 2005-06. BSNL has a large
requirement of 60 mn lines in the next two-three years. Even Hutch and Idea have
huge expansion plans. All this results in cumulative addition of around
25,000-30,000 BTS per year on the GSM side.

Being, a leader, Ericsson has to see whether it can increase its share not
only in terms of equipment but also on services. Steps have also been taken to
prepare Ericsson for the future so that they can continue to dominate.

Pushing up Local Manufacturing: From radio base stations, the company has
started manufacturing switching equipment such as mobile switching center and
base station controller. All this will help Ericsson in meeting local
requirements from its Kukas facility as it is installing one base station every
45 minutes and its demand will increase in future. Even localization with
respect to rural deployment can be done from Jaipur factory thereby lowering
overall infrastructure cost. Local manufacturing of complete GSM offerings will
also help Ericsson gear up for BSNL's mega tender.

Increased R&D Commitment: In India, the company is presently outsourcing
its R&D activities through TCS and Wipro and this will continue. Ericsson is
setting up a new R&D center in Chennai, which will focus on value added
services and service layer. Here, the focus is on prepaid charging solutions,
IN, and others. Also the focus would be on customizing services as per local
requirement. In terms of R&D, the company invests around $3.5 bn and deploys
around 16,000 employees. All this will give a big fillip to localization drive
leading to lower per line capex.

Stepping up Global Service Capability: Setting up of Global Services Delivery
Center (GSDC) in the country will give a big boost to services which contribute
around 15.6% of the overall revenue and is growing at around 25% year-over-year.
The GSDC includes regional network operations center (R-NOC), system integration
competence center (SICC), product customization center (PCC) and Ericsson
mobility world center. All this will help not only Indian service providers but
also Asia Pacific operators. India can also act as the regional Asia Pacific hub
for network operations center due to cost arbitrage.

Building Human Capital: India has a huge target both on the mobile as well as
broadband front. On mobile, the country is looking at 200 mn additions by 2007
and at broadband it is around 10 mn by 2007. To meet the above targets, Ericsson
India has to increase its manpower commitment. Currently, Ericsson India employs
around 1,500 employees, whereas 3,000 are through partners.

Presently, India contributes around 3% of Ericsson's global sales. But this
will increase in future as large opportunities are opening up for the company.
Carl's investment in the four pillars will help Ericsson India secure place
among the Top 5 markets from the present 9th that it occupies today.

Pravin Prashant