Top mobile-network gear makers are betting on growth in the $71 billion services market as cutthroat competition in hardware has hit profits and stalled the sector.Analysts expect services--which includes installing or maintaining networks, consulting, or operating whole networks--to grow more than 5 percent a year in the midterm, versus an equipment market set to fall further.
"The overall value of network business is destined to shrink in 2G and 3G," said Margaret Rice-Jones, chief executive of network consultancy Aircom.
Telecommunications operators have started to look at outsourcing more of their network-related businesses.
Advertising-funded operator Blyk has focused on selling services and outsourced operating its network equipment in Britain to Nokia Siemens Networks.
"One of the clear things is that operators want their partners to do more, increasing the services business," Simon Beresford-Wylie, the head of Nokia Siemens, told Reuters at the Mobile World Congress.
TeliaSonera Chief Executive Lars Nyberg said he favors outsourcing some functions, but keeping crucial business tightly controlled.
"Anything that is mission critical, that makes a difference if we do well or bad in the eyes of our customers, we should do ourselves. That's the reason why we exist," he said.
Sweden's Ericsson said it expects to see good growth in the global professional services market and aims to remain the top player with a market share of more than 10 percent.
The services market has been the stronghold of western vendors Ericsson, Nokia Siemens Networks and Alcatel-Lucent, but China's Huawei Technologies said at this week's Mobile World Congress trade show in Barcelona that it too was making a big effort to enter the market.
"We are starting to do a lot more in professional services," said Ronald Raffensperger, a senior official at Huawei said, adding that the company is also looking at entering more specialized fields such as hosting or outsourcing of complete networks.
However, analysts said Chinese vendors' competitive advantage of lower costs would not be as significant in services business as it is in the hardware due to the fact that they would need to increase their personnel in developed markets.
"There is no way you come to fix a cell site, which is down, from China," said Aircom's Rice-Jones.
Network equipment makers have suffered over the last few years as Asian players like Huawei Technologies and ZTE have hit the prices of hardware sales.
Restructuring programs at newly merged rivals Nokia Siemens Networks and Alcatel-Lucent have allowed Ericsson to steal market share by aggressively undercutting prices.
This has hit results of all top vendors hard, and they have started to walk away from deals where prices have been pushed too low.
Nokia Siemens last year withdrew from a major deal in India, saying the price and conditions where too weak, and Huawei's Raffensperger said his company has also rebuffed deals over price.
©2007 CNET Networks, Inc. All rights reserved. CNET , CNET.com , and the CNET logo are registered trademarks of CNET Networks, Inc. Used by permission.
