Interview: Hans Vestberg of Ericsson

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Hans Vestberg has reorganised Ericsson in the few weeks since he took over. He wants the new team to listen to customers

Vestberg: We need to have the right people in Ericsson. That’s
part of the transformation of what we need to do

In the few months since he was appointed CEO of Ericsson — and the few weeks since he took over — Hans Vestberg has appeared like a whirlwind, taking the structure of the company apart and putting it all back together with a new management team.

He has the appearance of a whirlwind, too: talking fast, bouncing around, gesturing excitedly at products he wants to show off.

“I’ve changed the leadership team based on diversity,” says Vestberg, who will be 45 in June 2010. “I need to tackle the opportunities that are out there. I’ve brought in people from the operator side, people with a very strong background in R&D, and I’ve elevated the Chinese and the US regions to the leadership team because they are so important.”

Vestberg was speaking to Global Telecoms Business in his first interview since taking over from Carl-Henric Svanberg on January 1. Svanberg left the telecoms vendor to become chairman of the oil company BP.

There were no nasty surprises awaiting Vestberg, he says. “I have been 18 years in the company and in the senior leadership for the last seven so I was always aware what I was going into.”

For three years before moving into the top job he was CFO, so he knows more about the company’s performance than most. “But it’s always different,” he says.

His time as CFO — and the two years before that as head of global services — means he was ready with his ideas for changes as soon as he took over.

“The industry is changing a lot and I’ve been thinking quite a lot of making some changes and getting in some new team players,” he says.

“I’ve recruited a new head of strategy, Douglas Gilstrap; a branding officer, Cesare Avenia. I have a new head of global services, Magnus Mandersson, and a new head of CDMA, Rima Qureshi.”

And he’s shrunk Ericsson’s 23 market units into 10 geographical regions — with two of them, America and China, elevated to such importance that their heads, Angel Ruiz and Mats Olsson respectively, are part of the senior leadership team.

“We need to have the right people in Ericsson. That’s part of the transformation of what we need to do,” says Vestberg.

One of the priorities for the new team is to listen to customers, he says again and again. Does that mean the Svanberg management was not listening? Vestberg is quick to step away from that implication.

Customer first

“The market is changing,” he says. “We need to be proactive. It’s staggering how the market is moving and we have to support our customer, put the customer first and work backwards to what we need to do in the company.”

That means “I put my key account manager in front and then work out what kind of support that key account manager needs to support the customer. I don’t start from the products, I start from the customer.”

But technology is still important, and heavy R&D spending is also one of Vestberg’s priorities.

“We have R&D people that are second to none,” he says. “The role that Ericsson needs to take will be technology leadership — we need to be number one, staying with our customers, long term. We are known for reliability. We will not compromise on that either.”

It’s a highly competitive market, he notes, “and you need to invest in R&D. You cannot provide technology as we’re doing, with one gigabit on LTE, the fastest mobile broadband. That’s the entry ticket. There’s a high barrier for investment.”

That, he seems to imply, is part of the reason for Nortel’s collapse — and he admits to being surprised by the speed of that in 2009. The number of vendors has shrunk over the past decade to “three or four right now” but he’s reluctant to predict how many will survive. “It’s a very competitive market,” he repeats.

There were two big trends in the industry in the last year before Vestberg took over the leadership in Ericsson, he says. The economy, of course, which “had an impact across the whole industry” and made operators cautious to invest, especially in emerging markets.

Data growth and HSPA

Second, the huge growth in data. “That’s now seen around the world,” he says. “Now we have some 2,400 devices that are enabled for HSPA. That was a clear trend in 2009 and we will see more in 2010.”

Last year for the first time Ericsson’s sales in 3G exceeded its sales in 2G, and now 4G is coming in the form — for the mobile industry — of LTE. “We have LTE contracts with operators that have more than 240 million subscribers.”

Speed is key. “We’re testing LTE on one gigabit. Technology is an important part of it. We will not compromise on the technology. That we have decided,” he says.

“Why are we in such a hurry? A couple of things are happening here. There are 4.6 billion mobile subscribers in the world and roughly half a billion broadband subscriptions. There are 1.7 billion people on the internet and 400 million using Facebook.”

During the Chinese new year in mid-February customers sent around 18-19 billion text messages.

“These are staggering numbers,” says Vestberg. But the numbers in the near future will be even bigger.

“In five years time we want seven billion subscriptions in the world. We are going to see three billion broadband connections in the world. That is just amazing. What can we do with it? By 2020 there will be 50 billion connections to the network. That will be seen: that’s what we see in front of us.”

That 50 billion number is now being repeated by many in the industry. Rob Conway, the head of the GSM Association, said it in an interview with Global Telecoms Business that was published in 2009 and now it appears widely accepted.

What will drive the industry to such numbers is machine-to-machine communications, of course, and that will change the dynamics of the industry. “The main part of the business has been voice and it’s going to be data. There’s a big difference between an e-reader you use now and then and a phone that’s on all the time — or a PC with a dongle.”

That’s another reason for Ericsson to keep in touch with its customers in the world’s operators, as the business changes. “There will be different players to create an industry that is even more exciting,” he says.

The light bulb

Vestberg has a brilliant way of illustrating the important of mobile communications in the future. Compare electricity, he says. “When electricity came to the home, everyone thought it was for one thing — to light the home. Today in the home everything is connected to electricity.”

A similar story will be told about mobile communications. When the technology started, people thought it was just for mobile phones. “This is the light bulb,” says Vestberg, holding up his Sony-Ericsson phone. “Remember how many devices you will have in the future. That’s the whole idea. We’ve just seen the start here.” If there are 50 billion connections, “we’ll be part of that”.

So, can he predict? “We overestimate in this industry what’s going to happen this year but underestimate what’s going to happen in 10 years,” he smiles. “But the technology is here and the consumer wants it.”

Meanwhile Vestberg — remember, the former head of Ericsson’s global services unit — is keen on pushing the company’s activity in managed services further. “We have 370 million subscribers” in the networks that Ericsson manages, he says. “We know how networks work.” And there are two billion customers in the networks to which it gives technical support, “and roughly one billion in our charging systems”.

That gives Ericsson huge power in understanding the challenges that operators face “and we can feed this back to R&D”, he says. “We have the assets to take this and go into the next decade. We can work with our customers much more closely.”

One of the star managed services deals signed in recent months was with Sprint, announced in July 2009: Ericsson has taken over operations and maintenance of Sprint’s CDMA mobile network, along with 6,000 employees, in a deal valued at up to $5 billion over seven years.

LTE deals in the US

That was just one item in a great 2009 in the US for the company. “We had a growth of 170% in the last quarter and 40% in the full year.” In addition to the Sprint managed services deal Ericsson won LTE deals for Verizon Wireless — where it shares the project with Alcatel-Lucent — and Metro PCS, a smaller operator. “And we got to be the LTE vendor for AT&T — that is very, very important for us,” says Vestberg.

As a result of these deals Ericsson’s employee count in the US and Canada will go from 5,500 to 14,500. That will give Ericsson scale for other deals, the company believes.

China is also producing good business, though 2009 was particularly strong because the country’s operators were rolling out their 3G networks, and much of that is over. “India was very strong last year though the fourth quarter was a little bit less because they are waiting for their 3G auctions.” Those auctions will now start in April 2010 — so Ericsson and others have something to look forward to following the 3G boom in China in 2008-09.

The third generation of mobile will keep the industry busy for some years to come. It took “15-18 years” for 3G to supersede 2G in sales, he says, and the next transition, to 4G, “will be shorter”, but “HSPA is still developing and 3G will be the dominant technology for many years”.

LTE will mark a move “from a hardware-centric technology to a much more software-centric technology”, he says. “That will have an impact on the gross margins,” but he’s reluctant to forecast what those margins will be. “It’s too early to say anything about that. It’s going to take a couple of years before it’s volume for us.”

But he is confident that LTE will create “different business models”, because it will be such a heavily data-oriented technology. That’s why machine-to-machine services will be important, but that will need new models.

He’s one of the first users of LTE, with TeliaSonera’s trial network in Sweden, and is impressed with the short latency period. “The limitation is the devices and chipsets,” he notes. That will start to be remedied. “The chipsets are coming this year and the device manufacturers will come after that. No technology will succeed unless you get the ecosystem and the devices around that.”

In a competitive market, which other companies does Vestberg respect? “I respect all of them,” he says. “I am more focused on our company because the competition is moving all the time — we have different competitors in each segment. I need to be best in all the segments we’re in.”

He’s been in the job only a few weeks, “and I still think it’s very exciting”, he smiles. GTB

Hans Vestberg

President and CEO of Ericsson since January 2010

  • Born in 1965 in Hudiksvall, Sweden
  • Degree in business administration from the University of Uppsala
  • Joined Ericsson in 1991
  • CFO of Ericsson Brazil 1998-2000
  • CFO of Ericsson North America and controller for the Americas 2000-02
  • President of Ericsson Mexico 2002-03
  • Became senior VP and head of global services in 2003
  • Appointed executive vice president in 2005
  • Appointed CFO in 2007