(Bloomberg) -- Europe is one of the weakest telecom markets in the world. And unless policymakers encourage more consolidation and cut regulation there, Ericsson AB Chief Executive Officer Börje Ekholm said his company will continue to shift investments to markets abroad.
During an interview with Bloomberg in New York, Ekholm compared the state of connectivity in the UK with that of India, saying wireless customers can’t make video calls going from London’s Heathrow Airport into the city while they can in Mumbai or Delhi.
“Europe is falling behind,” the head of the Swedish telecom-equipment maker said. “The natural conclusion of that is we’ll be shrinking in Europe and growing in North America.”
Ericsson and Nordic rival Nokia Oyj have struggled for years with a dismal market for their wireless equipment in Europe, where telecom operators say they don’t have the scale to make strong enough returns on capital. Ericsson has instead turned to markets such as the US, where last year it won a $14 billion contract with AT&T Inc. As part of the shift, it has invested in a Texas factory to satisfy US requirements meant to encourage domestic production.
Ericsson’s strategic importance drew the attention of President-elect Donald Trump’s administration during his first term, when the White House floated the possibility of the US buying a controlling stake in Ericsson or Nokia to weaken China’s dominance over telecom supplies. “We have a stock that trades every day,” Ekholm said in the interview. “So who knows?”
Relocating Ericsson’s headquarters from Sweden to the US is “always a question that comes up,” Ekholm said, while noting that the company has deep ties to the European country. “But, you know, we always need to also look at: How will the world look in the future? So we don’t know,” he said. “Would we relocate at some point in time? That could well happen.”
Biggest Competitor
Ekholm said China’s Huawei Technologies Co. remains his biggest competitor, adding that US sanctions against the Asian rival have proven ineffective.
Ericsson’s strategy for competing with Huawei involves bigger investments in research and development. It’s also pushing ahead with OpenRAN, which is the technology at the core of its AT&T contract. OpenRAN is a new way of building networks that allows different parts of the system to be supplied by different vendors, in the same way a computer made by one company is compatible with the chips and hard drives of others.
Ekholm acknowledged that the OpenRAN approach comes with the risk of exposing Ericsson to more competition, but he said a “horizontal platform” is “the way for us to actually beat the Chinese.”
Ekholm highlighted India as another strong market for Ericsson. “India’s moment is for sure getting closer,” he said, citing that most companies today have located “a large part” of their R&D in the nation. “India is our biggest market from an employment point of view — 25,000 people,” he said.
“That competence that’s been built up over the last two decades” in India is starting to drive entrepreneurship, according to Ekholm. He described the nation’s digital infrastructure as “second to none.”
Telecom Mergers
Meanwhile, the Ericsson chief is downbeat about the European market, where 5G adoption rates lag many other developed nations. He’s thrown his weight behind efforts by the region’s telecom operators to combine after seeing a number of mergers either rejected or heavily modified by regulators. “Europe is in need of consolidation,” Ekholm said. “It’s too many operators.”
The European Commission has long thwarted consolidation, in part to maintain affordable service. Operators are now offering phone plans at such low prices that they can’t afford to invest, Ekholm said.
There are some signs his concerns are being heard. In September, former European Central Bank President Mario Draghi said in a long-awaited report on strengthening the region’s economy that the European Union should encourage more telecom mergers. Draghi more broadly called on the EU to invest as much as €800 billion ($845 billion) extra a year to make the bloc more competitive with China and the US.
Ekholm said he isn’t a fan of subsidies. “It’s much better to create an investment environment that attracts private capital,” he said. “There is a lot of private capital on this planet, and it will flow where returns are the best expected.”
Lost Focus
Nokia has been trying to diversify its portfolio to remain competitive, investing in the data center and defense industries. Ekholm said that, while Ericsson has been building a presence in the defense space, it doesn’t have a competitive edge in the data center business.
“Our advantage is knowing the mobile networks,” Ekholm said. “Our fundamental view is everything that can go wireless will go wireless out there. So for us, we build around that.”
Ericsson has come under intense criticism by some investors for its $6.2 billion acquisition of Vonage Holdings Corp. in 2022 as a bet on network APIs, which help software application developers communicate directly with mobile platforms.
To explain the business case for the technology, Ekholm gave the example of a TV broadcaster that has to park a van at a sporting event and set up a camera, satellite and antenna. In an API-powered future, he said, that same broadcaster could communicate directly with 5G networks to automatically adjust bandwidth and switch service between 20 different on-site cameras instantaneously.
Ekholm acknowledged that, in building a business adjacent to Vonage’s existing one, his company “lost focus” on Vonage’s core. “That’s where we dropped the ball, honestly,” he said. Ekholm said he isn’t worried about the network API business, which he expects will generate revenue in the next one to two years. But he said Ericsson is now “more focused” on how to execute on Vonage’s existing business.
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