The Zhitong Finance App learned that Europe is one of the least popular telecom markets in the world. Ericsson (ERIC.US) CEO Börje Ekholm said that unless policy makers encourage more consolidation and less regulation, Ericsson will continue to shift investments to overseas markets. The head of the Swedish telecom equipment manufacturer said, “Europe is falling behind, and the natural outcome will be that our business in Europe will shrink while our business in North America will grow.”

In an interview, Ekholm compared the UK's internet connection to India. He said that wireless users can't make video calls from London Heathrow Airport to downtown London, but they can.

For years, Ericsson and its Nordic competitor Nokia Oyj (Nokia Oyj) have been struggling to cope with the downturn in the European wireless device market. The European telecom operator said they were not large enough to achieve a strong enough return on capital to switch to markets such as the US. Last year, Ericsson won an AT&T (T.US) contract worth 14 billion dollars in the US. As part of this transformation, the company invested in a plant in Texas to meet US requirements to encourage production within its borders.

Ericsson's strategic importance drew the attention of the US government during Donald Trump's first term, when the White House raised the possibility of the US acquiring a controlling interest in Ericsson or Nokia. In an interview, Ekholm said, “Our stocks are traded every day, so who knows?”

Ekholm said that moving Ericsson's headquarters from Sweden to the US “has always been a problem”. At the same time, he pointed out that Ericsson still has deep ties with Sweden. He said, “But, you know, we always need to consider: What will the future of the world look like? So we don't know. Will we relocate at some point in time? This is likely to happen.”

The biggest competitor

Ericsson's strategy to compete with its competitor Huawei includes increasing investment in R&D. It is also advancing OpenRAN, which is the core technology of the AT&T contract. OpenRAN is a new way to build a network that allows different parts of a system to be supplied by different vendors, just as one company makes computers that are compatible with other companies' chips and hard drives.

Ekholm acknowledged that OpenRAN's approach might make Ericsson face more competition, but he said that a “horizontal platform” is “our way to really beat China.”

Ekholm emphasized that India is another strong market for Ericsson. He said, “India's moment is definitely getting closer to us,” and pointed out that most companies now place “a large part” of their R&D work in India. “From an employment perspective, India is our biggest market with 0.025 million people.”

Ekholm said that the kind of capacity India has built up over the past 20 years is beginning to drive entrepreneurship, and described the country's digital infrastructure as “second to none.”

Telecom merger

Meanwhile, the CEO of Ericsson is pessimistic about the European market, which lags behind many other developed countries in 5G adoption. He supported the region's telecom operators' merger efforts after seeing some mergers being vetoed or drastically revised by regulators. Ekholm said, “Europe needs to be integrated; there are too many operators.”

The European Commission has long blocked mergers, in part because of keeping services at an affordable level. Ekholm said that the mobile phone plans offered by carriers are now too cheap for them to afford the investment.

There are signs that his concerns have been heard and responded to. In September of this year, Mario Draghi (Mario Draghi), the former president of the European Central Bank, said in a long-awaited report on strengthening the Eurozone economy that the EU should encourage more telecom merger activities. Draghi is more broadly calling for the EU to invest an additional 800 billion euros (845 billion US dollars) each year to make the EU more competitive with China and the US.

Ekholm said he disapproves of subsidies. “It's much better to create an investment environment that attracts private capital. There is a lot of private capital on this planet, and it flows to places where returns are expected to be highest.”

loss of focus

Nokia has been working to diversify its business portfolio to remain competitive and is investing in data centers and defense. Ekholm said that although Ericsson has been establishing operations in the defense sector, it does not have a competitive advantage in the data center business.

Ekholm said, “Our strength is understanding mobile networks,” and “our basic idea is that everything that can be wireless will go wireless. So we're developing around that.”

Ericsson bought Vonage Holdings Corp. for $6.2 billion in 2022, betting on a web API (which helps software application developers communicate directly with mobile platforms), and was strongly criticized by some investors.

To explain the business case for this technology, Ekholm gave the example of a television broadcaster that had to park a van and install cameras, satellites and antennas at a sporting event. He said that in an API-driven future, the same broadcaster can directly communicate with 5G networks, automatically adjust bandwidth, and instantly switch services between 20 different live cameras.

Ekholm acknowledged that his company “lost focus on Vonage's core business” when building a business next to Vonage's existing business, and he said, “Honestly, this is where we went wrong.” Ekholm said he's not worried about the web API business, which he expects to generate revenue within the next one to two years. But he said Ericsson is now “more focused” on how to execute Vonage's existing business.