Ericsson counts on CDMA moving to LTE in North America

LTE devices likely to get voice over CDMA for years to come, Ericsson chief says

Sweden's LM Ericsson's expected purchase of CDMA and LTE wireless technology from Nortel Networks Inc. for $1.13 billion offers insights on how fast LTE high-speed wireless technology could be rolled out in North America.

In a conference call today, Ericsson's incoming CEO Hans Vestberg said he expects CDMA revenues to be strong from certain CDMA carriers such as Verizon Wireless and Sprint Nextel Inc. for two years. He also said CDMA carriers should be the first to move to LTE.

Based on initial contacts with operator-customers that buy from Nortel, Vestberg said those customers plan to continue to invest in CDMA for a "couple more years," and after that point, Ericsson would be able to offer them CDMA maintenance. CDMA "is a good profitable business, even though it has declining growth" for Nortel, he added.

LTE (Long-term evolution) is a data-only network, however. While Vestberg might seem to be implying that carriers would be quickly moving to LTE in late 2011 or 2012, they won't be abandoning CDMA, noted current CEO Carl-Henric Svanberg. Vestberg will become CEO on Jan. 1.

Because LTE would require creating a voice over IP capability to provide voice over a single network, Svanberg said that CDMA will be the "main network to carry voice for many years to come" for those carriers migrating from CDMA to LTE. LTE won't be a voice-capable network "until VoIP is working properly," Svanberg added.

The distinction Svanberg made might seem obvious to industry insiders, but perhaps is less obvious to smartphone makers and customers who expect new capabilities with LTE-capable devices. For example, it seems apparent that a fully functioning smartphone using LTE for Web browsing and e-mail could also be relying on CDMA for voice for many years to come.

Vestberg noted that with Ericsson's recently announced Sprint Nextel services agreement, Ericsson expands its position in a competitive North American market.

"CDMA networks will be the first networks to migrate to LTE, and [CDMA] is strategically important to us," Svanberg said. But Vestberg also said that even though Nortel has served many CDMA customers that Ericsson has acquired, those customers will not automatically migrate to LTE. "We need to fight for any of them," he said.

But it was pretty clear that Ericsson's strategy is to move aggressively into LTE, and that Sprint could be a prime customer to do so. Of the 2,500 Nortel employees that Ericsson gets in the deal, 400 are focused on LTE technology which Vestberg said "adds LTE muscle" to Ericsson's product offerings.

Verizon, which has said there will be LTE launches in a few markets this year, has predicted enormous improvements in bandwidth with the technology, up to 10 times over CDMA. Verizon CEO Ivan Seidenberg said at the CTIA International conference in April that LTE would enable TVs, PCs and mobile devices to interact.

Vestberg said the purchase of the Nortel assets should close by the end of the year, and that he foresees no major obstacles with government approvals. The deal should be profitable for Ericsson within a year, adding $5 billion in revenues to Ericsson's North American business, which is now about $2.7 billion for sales of GSM and WCDMA equipment and services. In all, the acquisition means Ericsson will employ 14,000 employees, including the Sprint services employees.

Services could be a sizable part of the Ericsson revenues from the Nortel purchase, making up between 10% to 50% of the CDMA and LTE revenues, Vestberg said. The deal with Nortel means CDMA and LTE sales and marketing will still be centered in Dallas, with research and development in Dallas and Ottawa, Ontario.

Vestberg said the Nortel carriers that will be served by Ericsson under the deal seem to be content. "In general, we get a sense that the customers are very happy," Vestberg said. "On the other hand, we get feedback that they were very happy with the Nortel equipment and see this [deal] as very positive."

The CDMA contracts that Ericsson will get in the deal are with Verizon, Sprint, U.S. Cellular, Bell Canada and Leap, among others that Ericsson did not name.

Copyright © 2009 IDG Communications, Inc.

  
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