INTERVIEW: KURT HELLSTROM
Talking About a Revolution
The advent of the next generation of technology--3G--promises to revolutionize communications. The stakes are high, but Ericsson's president says his company aims to stay ahead of the game
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THE WORLD of mobile telephony is on the cusp of a radical upheaval. After nearly a decade of research, mobile-network builders and phone companies are preparing over the next two to three years to take the leap from the current "second generation" of service--the first was analog, 2G is digital--to a "third generation" of technology that turns mobile handsets into versatile gadgets for transmitting all kinds of data. Handsets that are 3G-compatible will be used for video conferencing, viewing short movie clips, making financial transactions and receiving digital messages from other smart devices like your car, home appliances or workplace surveillance system.
For all its promise, 3G holds considerable financial risk for the companies involved. Mobile operators will have to spend billions of dollars on the new equipment--and if the British example is followed, on bidding for government licences to offer the service. And as Ericsson President Kurt Hellstrom told Review Contributing Editor Kathy Wilhelm in Singapore, companies like his that design and make mobile networks and handsets will be faced with an unprecedented surge of demand. Since becoming president last year, Hellstrom has moved to prepare Ericsson for this by speeding up a company restructuring. Next January 1, he will take over as CEO.
WHAT WILL BE THE BIGGEST CHALLENGE FOR ERICSSON IN MOVING TO THE 3G NETWORKS?
This is going to be 10 times as fast and tough as rolling out the digital networks. When we started with GSM [the most common digital standard] about 10 [operating] licences were awarded within one year. Now we think maybe there will be 80-90 licences within a year from now. There are already five in the UK, four in Finland and four in Spain. This is going to accelerate. All these operators want to get to the market very early. And that means there will be a lot of demand on the vendors.
We have prepared for this for many years. We do less and less manufacturing ourselves, we outsource. We don't want to add [more manufacturing] staff to our list. So we have agreements with companies that have the manpower, technicians and so on . . . while we run the management and post-management ourselves.
HOW MUCH HAS ERICSSON INVESTED SO FAR IN 3G?
3G has been our largest development and design initiative for the last five years. Of course, we have been very much involved since the late '80s in all the initial testing and trials to come up with the standard. We've spent at least a billion dollars, in R&D, over the years.
IN BRITAIN, MOBILE OPERATORS JUST BID AN AVERAGE OF $7 BILLION EACH FOR LICENCES TO PROVIDE 3G SERVICES. THEY ALSO MAY NEED TO SPEND SEVERAL BILLION DOLLARS ROLLING OUT THE NEW NETWORKS. ARE OPERATORS ASKING ERICSSON AND OTHER EQUIPMENT VENDORS TO SHARE THE FINANCIAL RISK?
That is a big question because in the end vendors cannot invest our money in developing, designing the [networks], manufacturing, installing them and then keeping them up. We have to have somebody taking [the networks] over. But our role is to facilitate the financing. If the operators cannot do it, we can assist them. But no vendor can take this on the balance sheet. There is a lot of speculation right now about the UK situation, where the licence fees were very high. But we have the [equipment supply] contract with [licence winner] Vodafone, and it's not financing.
There will be others who are asking for financing, for sure. We will certainly take our fair share of that, but . . . in the end those who are supposed to do that--the banks--will have to take risk. The way to finance and share risk is going to be much more multi-faceted than before.
HOW WILL REVENUES BE GENERATED TO PAY FOR THESE EXPENSIVE 3G NETWORKS?
They will come from many sources. Users can be paying through subscriptions. Those who want to bring their content to the users can provide a little income to the operators. You also can have a share of the transactions--the e-commerce.
WILL 3G IMMEDIATELY SUPPLANT 2G NETWORKS, INCLUDING THE GSM SYSTEMS COMMON THROUGHOUT ASIA?
No. I think GSM is going to live for a very, very long time . . . at least 10 years. The GSM network is an excellent network for voice communications. And we still even have analog networks in operation, very good networks. Of course you could disconnect the old [networks] and focus on the new ones. But that's not a reality because so much is invested in the current networks that you have to protect them.
THEN WHEN WILL 3G BECOME THE DOMINANT SYSTEM?
It's a little bit difficult to say because 3G will mostly be data communications. Do you count the number of subscribers or the number of devices communicating? For example, car guidance systems, surveillance equipment, geo-positioning systems--you have a lot of different kinds of sensors that are both mobile and fixed. In fixed communication, data has already overtaken voice communication and the same thing is going to happen in mobile phones.
MANY ASIAN OPERATORS PLAN TO INTRODUCE A SERIES OF LESSER TECHNOLOGY UPGRADES OVER THE NEXT 12-18 MONTHS, FOLLOWED BY THE BIG UPGRADE TO 3G IN 2002. HOW MANY TIMES OVER THE NEXT TWO-TO-THREE YEARS WILL I HAVE TO BUY A NEW HANDSET?
I hope you do it very often. You can of course stick to your old one--it's not that the one you have today is becoming obsolete. But if you want to take advantage of the capabilities of 3G, you need a large screen and other things. I don't think this is really a very big problem if you look at how often people are changing phones today without having to do it. If somebody has a big phone and they see a smaller phone or a yellow phone or a silvery phone--a lot of people like to have the new one.
NOKIA, MOTOROLA AND ERICSSON, IN THAT ORDER, HAVE TOGETHER OWNED MORE THAN HALF OF THE GLOBAL MARKET IN MOBILE PHONES FOR SOME TIME NOW. COULD YOUR DOMINANCE BE SHAKEN BY NEWCOMERS IN 3G?
If you start entering GSM today or if you start entering 3G today and you have competitors who have invested 10 years in it, you will be behind for a long time. You will have to fight hard to catch up. But you can't just copy, you have to do a lot of your own . . . . I have no forecasts. I think it will take a long time and if [the newcomers] succeed we will always be ahead--that is our intention.
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