Ericsson (NASDAQ: ERIC) and Cisco's announcement of a partnership to resell each other's products and services and collaborate on network design will accelerate U.S. carriers' shift to software-defined networking (SDN) and IP communications more broadly, according to top Ericsson and Cisco executives.
The blockbuster agreement, which was in the works for the past year and which the vendors expect will produce $1 billion or more for each in revenue by 2018, will bring together Ericsson's strength in wireless networking with Cisco's emphasis on packet-networking and IP networks. The firms said they will bring together the best of both companies, including expertise in routing, data center, networking, cloud, mobility, management and control, and global services capabilities.
"In a world driven by mobility, cloud, and digitization, the networks of the future will require new design principles to ensure they are agile, autonomous, and highly secure," the companies said in a joint statement. "Ericsson and Cisco will meet this challenge together by offering end-to-end leadership across network architectures including 5G, cloud, IP, and the Internet of Things -- from devices and sensors to access and core networks to the enterprise IT cloud."
In an interview with FierceWireless, Rima Qureshi, Ericsson's chief strategy officer, said one of the biggest challenges carrier customers of both Ericsson and Cisco face is getting the agility to manage the customer experience and provision new services quickly, especially to compete with over-the-top players. The partnership will leverage the companies' capability in OSS/BSS and SDN to help operators.
Qureshi said operators face challenges in "differentiating on networks and performance and services capabilities that you provide," and as a result have embraced SDN as a way to make their networks more responsive and programmable. The partnership, she said, is "also turbocharging that transformation."
Hilton Romanski, Cisco's chief strategy officer, said in the same interview with FierceWireless that the complementary nature of Ericsson and Cisco's services and products will help carriers accelerate the transition to SDN. The deal addresses "the desire from customers for us to come together and the need for us to continue to be partners with them."
Two of the vendors' biggest joint customers, AT&T (NYSE: T) and Verizon (NYSE: VZ), seem on board with the deal. "Cisco and Ericsson's announcement further reinforces the importance of seamlessly integrating IP and wireless solutions," AT&T CEO Randall Stephenson said in a statement. "This type of initiative is in line with the plans and investments we've laid out over the last four years for integrated solutions."
AT&T has been the leading U.S. carrier proponent, followed by Verizon, of SDN and network functions virtualization, and has vowed to virtualize 75 percent of its network by 2020.
Roger Gurnani, Verizon's EVP and chief information and technology architect, said in a statement that "this global partnership has the potential to reshape the industry. We are excited about working with Ericsson and Cisco, and look forward to a partnership that will accelerate the development of new wireless technologies."
Ericsson and Cisco said "customers will be able to accelerate their business transformation by drawing on the parties' complementary capabilities, including global services capabilities such as consulting, integration, and support to managed operations across IT and networks."
The vendors have struck multiple agreements that include commitments to network transformation through reference architectures and joint development, systems-based management and control, a broad reseller agreement, and collaboration in key emerging markets.
Qureshi said the partnership made sense because "we are ready to go the day of announcement. We are ready to go because we understand we have an aligned objective, a common goal. And we believe we can work a lot faster." She said the deal will let the companies work together without being bogged down in the delay that comes with an acquisition.
Implicit in that is a contrast to Nokia's (NYSE:NOK) deal to acquire Alcatel-Lucent (NYSE: ALU), which will close in early 2016 and create a company with many of the abilities Ericsson and Cisco hope to jointly draw on for carrier customers.
Cisco's Romanski said that the companies "fully recognize that Ericsson and Cisco have our unique capabilities and strengths" and that the agreement allows them to continue to invest in those areas and then "bring that back to the relationship as a value-added" contribution.
Qureshi said simply "yes" when asked if the deal would position Ericsson to better compete against a combined Nokia/Alcatel-Lucent. She added that "you are bringing together the No. 1 [vendors] in radio, IP, OSS/BSS, services. You combined the capabilities and assets of those two."
Romanski said "we really view the collection of markets and the collection of positions as just that. It is how we show up the customer -- the unrivaled No. 1 position across all of these areas."
"We see the disruption in the industry," he added. "The objective of this is we want to help the operators lead the transformation they need to go through to address the threats."
For more:
- see these two separate Ericsson releases
- see this FierceWireless:Europe article
Related articles:
Ericsson and Cisco partner on networks, target $1B in extra sales by 2018
Verizon gains 5G insights from operators in Japan, Korea
Verizon launches ThingSpace to jumpstart the Internet of Things
Ericsson misses sales expectations in Q3, but points to continued stabilization of North American business
AT&T's Lurie: 'We should not be nervous' about U.S. status in 5G leadership
Verizon, AT&T, Ericsson expect pre-standard 5G deployments to feed into official standards