TELECOM REPORTER
It's a paradox: The world is rushing to embrace mobile communications, but some of the biggest suppliers of telecommunications equipment are struggling to stay ahead.
For Nortel Networks Corp., survival is no longer even an issue. The company has agreed to sell its lucrative wireless business for $650-million (U.S.) to Nokia Siemens Networks, and is in late-stage negotiations to sell its corporate networks unit to another firm, most likely Avaya Inc. In the months ahead, a group of several dozen executives, lawyers and accountants will preside over a transition services group to dispose of Nortel's last asset. Creditors will be left to fight over the financial remains.
The giants still standing in the West include Telefon AB LM Ericsson, Alcatel-Lucent SA, Nokia Siemens and Cisco Systems, Inc. They're presented with huge opportunities from new wireless technologies. But they also face serious challenges, including declining sales from telecom carriers and businesses that are struggling in the recession, and aggressive competition from Chinese vendors, principally Huawei Technologies Co. and ZTE Corp., each of which have a reputation for undercutting competitors by as much as 50 per cent.
What are the key criteria for success in this environment? Two senior executives from two major players have different agendas, but they agree that future profitability requires a strong global presence and the ability to create unique products.
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Nearly three years in Bangalore overseeing development of Cisco Systems' 6,000-person office campus has given Wim Elfrink a vision of the future of his industry.
Most growth will now come from emerging markets and the dynamics of those markets require new business models from Western suppliers, says the chief globalization officer and executive vice-president of services at Cisco.
"Most international companies don't work globally, they just sell what they make around the world," he says.
He is determined that Cisco will break that pattern, and from his post in India he gathers local market intelligence from which the California-based network equipment maker can construct new ways to do business.
A large bank in India, for example, is talking about adding 60 million new customers in the next two years. That's the equivalent of the entire clientele in France, Mr. Elfrink says during a stopover in Cisco's Toronto office.
"If you sit here, you don't come up with innovation, because you don't see it, you don't feel it."
Another statistic at the top of his mind is the 500 million people that are expected to move from rural areas into developing cities over the next five years. That is the equivalent of 30,000 individuals a day.
"How do you register them, how do you get them in your tax system? By embracing technology, there will be much more sustainability in cities management - from a social, economic and governance point of view," he said.
As India, China and Indonesia and other emerging economies build cities from the ground up to accommodate the massive influx, planners are seeing that information technology systems are as essential as traditional infrastructure such as roads and sewers, Mr. Elfrink says.
Cisco is keen to push that vision, connecting billions of people, devices and buildings to new networks built on Internet technology.
This week it announced its first emerging technology venture out of its Bangalore campus, called Smart Connected Buildings. The product connects building systems such as heating, air conditioning, lighting, and security over an IP network and lets operators manage how the energy is used. For an average building holding 1,000 people, the cost of the system runs about $2-million and will produce payback through energy savings in just eight months, Mr. Elfrink says.
Utilities management is just one of the huge opportunities in the region today. In wireless, phone companies in India are adding eight million new mobile customers a month. That's the equivalent of the entire subscriber base of Canada's largest wireless player, Rogers Communications Inc.
But the challenges are also enormous. The average revenue generated per user is less than one-tenth what Canadian operators collect. "Are we ready for that kind of model?" Mr. Elfrink says.
Cisco approaches the problem looking for three different things in the emerging markets: growth, innovation and talent. The company has set a goal of recruiting 20 per cent of its talent from the region.
In Malaysia it is part of a contract to build, operate and transfer a new network for a local carrier - something it has never done for customers in Europe or North America. New steps include managing services and entering revenue-sharing agreements with partners.
Cisco is trying to build its emerging-markets operations for speed and scale to meet local demands, Mr. Elfrink says.
"These countries' economies move fast, and they use technology as my children do. They think much more aspirational."
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Cisco Systems Inc.
The manufacturer of networking equipment took its place among the world's most elite companies last month, replacing General Motors Corp. on the Dow Jones industrial average. Cisco has made a fortune for many investors on the Nasdaq exchange over the years, and has now joined Hewlett-Packard Co., Intel Corp., International Business Machines Corp. and Microsoft Corp. as one of the five tech stocks on the benchmark Dow Jones index of 30 stocks. Analysts are split on the company these days, with the stock down 20 per cent over the past year.
Nokia Corp.
The world's largest maker of cellphones has faced tumbling sales and profit as its rivals Apple Inc. and RIM surge ahead in the expanding smart phone market. Nokia saw profit plummet 90 per cent last quarter as sales fell 27 per cent. For the year, the Finnish company expects to sell 10 per cent fewer phones than in 2008. But CEO Olli-Pekka Kallasvuo has said the market for handsets is no longer in freefall and his company is gaining market share in smart phones. With shares off nearly 40 per cent over the past year, half the analysts following Nokia see a buying opportunity.
Siemens AG
The German conglomerate manufactures a broad variety of products, from trains and power plants to consumer electronics.
Although the recession has hammered the stock - it has dropped 37 per cent in the past 12 months - the company is hoping for a windfall from global stimulus spending. Siemens expects governments around the world to spend $623-billion (U.S.) on infrastructure projects in the next three years, of which it thinks it can secure $21-billion in new orders, largely a result of government projects geared to cutting energy consumption.