Last April we wrote a piece on the history of consolidation and divestment in the global telecoms equipment market that resulted in the four major global players that dominate the market now: Cisco, Huawei, Ericsson and Nokia.
This Monday, Cisco and Ericsson announced that they will enter in a strategic partnership that they expect to deliver $1 billion in incremental revenues for each company by 2018.
In a nutshell the partnership entails:
- Ericsson to resell Cisco’s networking products
- Comprehensive systems integration and managed services for service providers
- Joint cloud and 5G architecture customer engagements
- Intended cross patent licensing agreement
More details of the strategic partnership can be found here.
In the short term, the alliance will give Cisco the opportunity to sell more gear into telecom service providers and Ericsson the opportunity to manage and integrate a broader set of telecom service provider infrastructure. While this is good news for Cisco and Ericsson, it is bad news for Juniper (Ericsson’s current router and switch networking partner) and Cisco’s current service provider integration and services partners. Ericsson’s attention will be on selling Cisco rather than Juniper gear. The integration of Cisco gear into telecom provider networks will increasingly be done by Ericsson.
Cisco has shunned acquiring large telecom equipment providers in the past because of the lengthy approval and integration process and the high percentage of managed services that telecom equipment providers have in their revenue stream. This strategic partnership provides Cisco with a firmer foothold in the telecoms service provider market without having to invest in or buy a large service and integration unit.
Unlike Cisco, Ericsson has steadily grown its services (and software) revenue share from 27% in 1999 to 66% in 2014. And with an increasing number of telcos outsourcing network operations, this service component will continue to grow in share. With incorporating Cisco into its managed services and integration capabilities, Ericsson becomes a more strategic partner for its telco customers.
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