Ericsson to operate 3's network in U.K.
Order is biggest ever for Swedish firm, may top $2.5 billion
By CASSELL BRYAN-LOW
Staff Reporter of THE WALL STREET JOURNAL
December 7, 2005; Page B2
STOCKHOLM -- Swedish wireless-equipment maker Telefon AB L.M. Ericsson said it signed its largest-ever order, agreeing to operate the U.K. network for the Hutchison Whampoa Ltd. unit known as 3.
The managed-services contract, under which Ericsson will run the network on behalf of 3 in the U.K., could be worth more than $2.5 billion over seven years, said Ericsson's chief executive, Carl-Henric Svanberg. In addition, Ericsson will sell equipment to the U.K. operator.
Ericsson increasingly has focused on services as a key area of growth as increased competition -- particularly from Asia -- drives down the price of telecom gear. In January, Ericsson clinched a similar five-year deal valued at 15 billion Swedish kronor, or about $1.87 billion, with Hong Kong-based Hutchison's 3 unit in Italy.
As operators in more mature markets like the U.S. and Europe face falling prices, they are trying to find ways to run their businesses more efficiently.
In managing their networks, operators often have resources that overlap with those of their suppliers, Mr. Svanberg said. By both supplying and managing the equipment, Ericsson is able to "leverage some synergies." More than 1,000 U.K. employees of 3 will be transferred to Ericsson.
In Stockholm trading yesterday, Ericsson shares rose 3.7%, or one krona, to 27.90 kronor.
During the third quarter, sales in Ericsson's professional-services division grew 25% from the year-earlier period to six billion kronor. However, the closely watched gross margin -- a measure of how much a company earns compared with costs -- slipped for the quarter. Mr. Svanberg said services have lower gross margins than other business lines. |
