Nov 28, 2005 12:00 AM,

the New Shared Network

By Kevin Fitchard

When AT&T Wireless announced in December 2000 that it would scrap its old TDMA networks in favor of the global GSM standard, it sent the North American wireless industry into turmoil. One of the country's largest operators at the time, AT&T Wireless' technology switch had enormous consequences for the TDMA equipment vendors but also the sizable community of TDMA operators in the Americas.

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By abandoning TDMA, AT&T Wireless was not only threatening the future of the network technology on which they'd staked their futures, but also the affiliate relationships and roaming revenues most of the Tier 2 carriers had made a core part of their business models. The remaining TDMA vendors had to decide whether to bolster the technology or pony up the enormous capital investment to follow AT&T Wireless toward GSM. In October 2001, however, Cingular sealed TDMA's fate, announcing it to would make the GSM transition. The rest of the operators had no choice: TDMA was dead.

Though the decision was made for them, the Tier 2 operators still faced the problem of the sizable capital outlay to upgrade their radio access and core networks. While much of their cellular radio infrastructure was already in place, the transition to GSM would require an entirely new core network. Many of those smaller vendors weren't prepared to buy and manage a whole new switching network. Instead, they turned to Ericsson.

In 2003, Ericsson deployed a shared core network for GSM providers in the U.S., taking over the switching functions for any carrier that signed up. The basic principle behind it was one of scale. Mergers and unprecedented growth in the industry had created mega-carriers, servicing as many as 50 million subscribers at a time. And switches had to grow to reflect those carriers' needs. Rural and regional providers with a few hundred thousand subscribers didn't need that kind of capacity, nor did they want to pay for it. So many of them simply connected to Ericsson through a local point of presence and sent their signaling and routed their calls back to Ericsson's network operations center in Dallas.

“If you are a small operator, you only need a small portion of a switch, but vendors are building very big switches,” said Mikael BäckstrÖm, Ericsson vice president of global services in North America. “We have built up a shared network. This way the investment is shared.”

Ericsson isn't very forthcoming about how extensive the network is. Many of its customers aren't keen on sharing with the public the fact their network isn't their own, and a key component of Ericsson's outsourcing strategy is keeping its customers' secrets. BäckstrÖm said Ericsson started with a small base of customers, but it has grown since, encompassing many North American carriers.

Of the four that are announced Alltel is by the far the largest, but Ericsson is switching only the remaining GSM traffic of the predominantly CDMA carrier. Northern Pennsylvania's Indigo Wireless and Chariton Valley Wireless Services in Missouri both hook into Ericsson's core. But its most recent customer isn't exactly the traditional Tier 2 carrier. SeaMobile, which announced its managed switching agreement with Ericsson in September, isn't a terrestrially based carrier. Its network is comprised of the fleets of cruise ships and other passenger lines throughout the world, linking back to the Ericsson core through satellite connections.

SeaMobile chief technology officer Jim Ellis said SeaMobile's entire business model is based on roaming. Customers from all over the world connect back to their home GSM networks through SeaMobile's shipboard base stations. Not only do they want voice connectivity but also they want their short message service (SMS) and mobile messaging service (MMS) to work. They want to have access to their carrier's home deck portals, he said.

“We had a choice,” Ellis said. “We either put a lot of intelligence on board the boat or centralize it. Our desire was to put more intelligence in a centralized core so we could enhance the customer experience.”

Ericsson's shared core gives SeaMobile 24-hour support and monitoring as well as the vendor's expertise with global GSM networks. The fact that Ericsson is the world's largest network infrastructure provider with core equipment in a good deal of the 200-plus carriers with which SeaMobile has roaming agreements isn't a fact lost on the maritime service provider. In fact, SeaMobile is looking to take its relationship further and is currently negotiating with the vendor to host enhanced services for its own network, such as on-board messaging and a content deck tailored to each cruise line or ferry service.

Ericsson signs more of these types of deals every year. In fact, its global services business, which accounts for all of its installation, consulting, outsourcing, hosting and network management operations, is the fastest-growing business unit within the company. For the 2004 fiscal year, its professional services division accounted for 20% of its overall revenue, and every quarter its sales are steadily increasing. Ericsson's operations go far beyond core hosting and hosted applications.

In more 20 markets worldwide, Ericsson has taken over wholesale the operations of some aspect of a carrier's network, whether it's running the UMTS network for Hutchison Telecom's 3 in Italy and Australia or taking over the entire network for Bharti in India. Ericsson directly manages networks accounting for 47 million subscribers globally. Of the global services 18,000 employees, 12,000 are actually working at customer sites.

“The services business has been wonderful for us, but we are not doing it because our infrastructure market is not as exciting to us,” Ericsson CEO Carl-Henric Svanberg said. “The infrastructure business is a great business to be in, and with a better offering of services, you become a much more attractive vendor.”

Although major national carriers in Europe, Asia and Latin America have been willing to turn their networks over to Ericsson, the U.S. carriers have been more reserved. With the exception of Ericsson's shared core network and the new batch of mobile virtual network operators, North American networks are entirely carrier operated. Part of the reason may be the high level of competition in the U.S., but it is also likely to do with the lower network availability domestically. U.S. carriers still very much compete on network coverage and availability, hence Cingular's “more bars in more places” and Verizon Wireless' “can you hear me now?” campaigns, while in dense markets in western Europe and east Asia, a good signal is a given. If the access network is the big differentiator, carriers are much less likely to outsource it.

But although Ericsson may have not being running networks outright in the U.S., it's certainly making progress in getting the operators to trust it with applications. Ericsson hosts applications ranging from MMS to Web hosting for eight carriers that have publicly announced their relationship with the company. Those operators range from Alltel to Rural Cellular Corp., but Ericsson has also landed bigger Tier 1 fish, which it hasn't announced, BäckstrÖm said. The vendor is providing virtual private network solutions, prepaid platforms and ringback tones to different operators in the big four — it just keeps those deals quiet, BäckstrÖm said.

RCC is a good example of an operator that is willing to let Ericsson host its MMS, Java applications, wireless application protocol and e-mail services, but draws the line on an outsider managing its core network. Like the other Tier 2 providers, RCC decided to migrate its TDMA networks to GSM to maintain its roaming relationships with the national carrier, but it deployed its own switches instead of hooking into Ericsson's core, said Ann Newhall, RCC's chief operating officer. Since then, however, the company has struck several outsourcing deals with vendors and third-party providers for services ranging from SMS to content aggregation, Newhall said.

“There are some things there is no hosted solution for, like building a cell site. It's also really hard to look at your switch and think someone else could be controlling it,” Newhall said. “But going with hosted solution for some applications allow us to get our feet wet without a heavy capital outlay upfront. … One of the protections we get is we don't have to bear the costs of something that has shorter shelf life than we expected. The trade-off is if a service is successful, it has smaller margins because we're paying someone else to run it for us.”

Managed Service Contracts — Capacity

ALLTEL
ANNIVERSARY DATE
Jan. 26, 2004
SERVICE
Managed capacity
TECHNOLOGY
TDMA to GSM
NUMBER OF YEARS
Three years

INDIGO WIRELESS
ANNIVERSARY DATE
Jan. 26, 2004
SERVICE
Managed capacity
TECHNOLOGY
TDMA to GSM
NUMBER OF YEARS
Three years

CHARITON VALLEY WIRELESS SERVICES
ANNIVERSARY DATE
Jan. 26, 2004
SERVICE
Managed capacity
TECHNOLOGY
TDMA to GSM
NUMBER OF YEARS
Three years

SEAMOBILE
ANNIVERSARY DATE
Sept. 29, 2005
SERVICE
Managed capacity
TECHNOLOGY
GSM at sea
NUMBER OF YEARS
Three years

Source: Ericsson