Ericsson has reached an agreement to buy Cradlepoint, a U.S.-based wireless networking company in a $1.1 billion deal, the company announced on Friday. Cradlepoint which sells wireless routers and subscription-based wireless networking service will become a subsidiary of Ericsson, Reuter reported.
The Swedish telecom giant is seeking to expand its 5G potential by establishing its technology to access tools that can connect devices using Internet of Things (IoT) over 5G network.
Ericsson’s finance chief Carl Mellander told Reuters that the company hopes to provide income opportunities for its customers through the deal.
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“We think this will give our customers a chance to generate new income sources within the enterprise segment,” he said.
Ericsson’s intention is to use B2B model to sell Cradlepoints products to its mobile operator customers who will in turn sell to their business clients. As part of its expansion plan, Ericsson will push to take the products to other countries in North America, taking Cradlepoint’s focus off the United States. But it plans to keep Cradlepoint as a standalone business having its own sales team.
“Where we have struggled in the past is when we have started to integrate on the sales side. That’s when you lose track of all your go-to-market channels and customer interactions,” said Ericsson CEO Borje Ekholm.
The deal is expected to close before the end of this year, and will dent Ericsson’s operating margins by about 1% in 2021 and 2022. But the company expects operating cash flow in 2022 as the takeover starts yielding revenue.
“The acquisition is expensive, but the price tag is tolerable given high underlying growth rates and Ericsson’s potential for revenue expansion in the enterprise market,” said Societe General analyst Aleksander Peterc.
Filling Huawei’s role in 5G deployment comes with a huge financial responsibility. Sweden’s Ericsson and Finland’s Nokia are expected to fill the roles as more countries part ways with the Chinese telecom giant. The two European companies are looking for ways to mitigate the cost.
So far, Ericsson has 109 commercial 5G agreements, 59 publicly announced 5G contracts and 61 live 5G networks. The telecom giant has been using innovative technique, Ericsson’s Spectrum Sharing, which enables an easy and fast way to introduce 5G in low band. It removes the need for challenging spectrum reframing projects and cuts the cost of deployment.
“To manage both 5G and 4G, our 5G Core is designed to support both systems in one common software platform. Built using cloud native technology it reduces complexity while keeping operating expenses low,” the company said.
Ericsson’s partnership values involve standalone operations that are aimed at increasing revenue generation, a model it has applied in the Cradlepoint deal. The company’s 5G Core architecture combined with the Services Automation helps to facilitate increasing revenues in new market segments, enabling a wider partner ecosystem for services innovation.
The cost effective technique also means switching between 4G and 5G without increasing the network infrastructure energy consumption.
“And when your network is ready for the next step, you can fast-track to 5G standalone while securing zero-interruptions when switching between 4G and 5G, 6x faster access to higher data rates and significant savings in network infra-structure,” the company explained.
The model gives room for building a smart 5G deployment that enables operators to realize energy savings by preparing the network with technology solutions that use energy-saving software, building 5G with precision and operating site infrastructure intelligently, Ericsson said.
Huawei has the cheapest 5G network infrastructure that puts a challenge on Nokia and Ericsson to lower the cost of their 5G deployment, as many countries seek their services following the disengagement of the Chinese company.
The dismantling of Huawei’s 5G infrastructure in the UK is expected to up the cost of its 5G roll out to 7 billion pounds. With governments around the world already at the mercy of COVID-19 pandemic, Ericsson and Nokia are looking for strategies that will replicate the cost standard set by Huawei.