Ericsson Is Getting Ready to Face New U.S.-Backed Challengers

Ericsson says the virtual duopoly it’s enjoying in some Western markets since the exclusion of Huawei Technologies Co. won’t last forever.

The Swedish phone network equipment maker and Finland’s Nokia Oyj are thriving in markets including the U.S. and the U.K since their powerful Chinese competitor was barred from 5G wireless supply deals worth tens of billions of dollars.

The U.S., whose global campaign against Huawei opened that opportunity for the two Nordic vendors, will probably create new competitors, according to Ericsson Chief Executive Officer Borje Ekholm.

Ericsson Is Getting Ready to Face New U.S.-Backed Challengers

“We understand the need for more vendor choices, and it is likely that there will be something with an American component,” Ekholm said in an interview.

The executive said he needs to be prepared for new rivals to emerge, given the known ambitions of phone carriers and governments seeking to boost home-grown alternatives.

The sidelining of Huawei over fears that China’s government may infiltrate its equipment to spy on Western governments and businesses, underscored the risks of relying on only a handful of suppliers of critical communications infrastructure.

Smaller players such as Korea’s Samsung Electronics Co. still lack the scale to compete globally, so operators and governments are now eager to find alternatives.

Former Attorney General William Barr has even suggested that the U.S. consider investing in Nokia and Ericsson. Ekholm said speculation about U.S. interest in the Swedish company is likely to continue.

Riding High

The prospect of a new rival could be a blow to a company that’s made a successful turnaround under Ekholm and is riding high, with Huawei under pressure and Nokia suffering from missteps in the early stages of 5G development.

Since he took over as CEO in early 2017, Ericsson has gained a bigger share of all its major markets and the company’s shares have more than doubled. At the end of 2020, it commanded 35% to 40% of the market for radio access network equipment outside of China, according to research firm Dell’Oro.

Ericsson Is Getting Ready to Face New U.S.-Backed Challengers

One way the U.S. might try to gain a stronger presence in the telecom infrastructure business is by promoting so-called “Open RAN” technologies that would allow operators greater choice by combining hardware and software from various vendors.

Open RAN is gaining support from phone carriers as well as governments, with Germany reportedly planning to plow as much as 2 billion euros into its development.

Ekholm said Open RAN is still years away from being a real option for network upgrades and, anyway, Europe may end up scoring an own-goal if it bets on the technology.

“A commitment to more open networks is a fine aspiration,” he said. “But as it looks right now, given that Open RAN is mostly dominated by non-European companies, it may be a way to develop a U.S. vendor.”

The executive would rather see Europe focus on helping his customers -- phone carriers such as Deutsche Telekom AG, Vodafone Group Plc and Orange SA -- by allowing more consolidation and supporting their 5G ambitions using money from the European Union’s 750-billion euro recovery fund.

“That would obviously support our sales, but as a European, I also see that it would boost GDP,” Ekholm said. “We need to invest in digital infrastructure and the guys that are supposed to invest aren’t making an attractive return on capital.”

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