Ericsson Wins China Mobile Service Contract

Ericsson, the world’s largest network equipment provider, has won a big service contract with China Mobile that highlights the Swedish company’s push to expand its services business in China as infrastructure spending slows.

China Mobile Hebei, a provincial unit of China’s number-one mobile operator, has handed Ericsson a three-year deal to maintain all of the company’s 22,000 base stations across Hebei province, an area similar in size to the UK.

No financial details were given, but Ericsson said it was the biggest contract of its kind awarded by a Chinese operator.

Mats Olsson, president of Ericsson China and north-east Asia, said the deal marked a breakthrough for the company’s services business in China, where operators have been relatively cautious about outsourcing maintenance and network management.

Ericsson hopes that growth in services will offset the slowdown in infrastructure spending by Chinese operators after a surge in investment on third-generation networks over recent years. China Mobile and China Unicom, the number-two operator, have both cut capital expenditure this year, putting Ericsson under pressure in its biggest market after the US.

Managed services have been Ericsson’s fastest source of growth in recent quarters as operators have looked to cut costs through outsourcing, but the trend is less advanced in China than other parts of the world.

Mr Olsson said high job security at Chinese state-owned mobile companies helped explain why it had proved such a tough services market, but forecast that more operators would follow China Mobile Hebei’s lead in search of greater efficiency.

“This will be closely monitored not only by China Mobile Hebei but also by China Mobile head offices,” he said.

Services accounted for more than a quarter of Ericsson’s sales last year and grew by 15 per cent, softening the impact of a 3 per cent drop in equipment sales as the global downturn hit operators and competition intensified from Huawei of China.

Yet Asia-Pacific accounted for less than a quarter of the services business, compared with more than a third of network equipment sales – highlighting the potential for services growth in the region.

The China Mobile agreement gives Ericsson sole responsibility for the operator’s second-generation GSM and third-generation TD-SCDMA base stations in Hebei province, including those provided by competitors of Ericsson.

The province, which surrounds Beijing in north-east China, is China Mobile’s sixth-biggest market, with 35m subscribers in a population of 70m.

Ericsson reported a 15 per cent drop in Chinese sales in the first quarter compared with the year before, highlighting the slowdown from its record 2009, when revenues grew 22 per cent in China. The company reports second-quarter results on Friday.

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