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Reuters Summit-Telecoms gear makers emphasise service

Written by: Staff
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NEW YORK, Mar 4 (Reuters) Equipment providers facing tough competition supplying products to telecommunications companies are learning the meaning of an increasingly valuable word: service.

Companies such as Lucent Technologies Inc. and Ericsson are playing up their ability not just to supply gear to telecoms carriers, but to put it together and make it work.

''I expect the service business will be an increasing part of the company,'' said Lucent Chief Executive Patricia Russo, speaking on Wednesday at the Reuters Global Technology, Media and Telecoms Summit in New York. ''When you look at the spending and the opportunities that we have, we ought to grow that segment faster than the market.'' ''Services'' encompasses the consulting, installation and maintenance that network gear makers such as Cisco Systems Inc. or Juniper Networks do as part of setting up networks for telecommunications providers.

Networks often feature equipment from different and even competing makers, and typically require skilled operators to connect and maintain, said Arthur Gruen, a consultant with Wilkofsky Gruen Associates.

''Nowadays you can buy one piece from company A, another item from company B, and that is great in terms of allowing you to get exactly what you want, but it's a lot more complicated to do,'' he said.

Gruen said that lacking a services business could hurt the bottom line. ''If you don't offer this and someone else does, that's a big advantage to your competitor,'' he said.

The business is gaining visibility in the market as the carriers set up new networks based on Internet protocol technology, said Erik Suppiger, a network and security specialist at Pacific Growth Equities.

''It's critical for being able to sell product into the service provider space,'' he said.

The worldwide market for networking, consulting and integration services is expected to grow to .8 billion in 2009 from .2 billion last year, a compound annual growth rate of 8.2 per cent, according to research firm IDC.

Lucent counts services among new growth opportunities as it grapples with a drop-off in spending in equipment sales for older networks. It expects annual revenue for the service segment to grow at or slightly below 10 per cent year over year.

Other suppliers are discovering similar growth potential as carriers -- especially mobile phone companies -- look to cut costs by hiring others to service their networks, said Bengt Molleryd, an analyst at Swedish firm Nordea.

''Ericsson and all of those companies that are in negotiations or pitching to an operator, they want to come with at least a 20-per cent saving potential,'' Molleryd said.

Qwest Communications International Inc. also counts services among its future possibilities. The company's chief executive, Richard Notebaert, said at the summit that Qwest could consider buying a company involved in information technology services to help sell its network services to other businesses.

Services also are taking an increasing role as carriers such as Verizon Communications keep a close eye on their budgets.

''The reality is the service providers still have their capex budgets under close scrutiny,'' said Joe Chiasson, an analyst at Susquehanna Financial Group. ''Their investors will not allow those budgets to get out of line.'' Stephen Kamman, an analyst with CIBC World Markets, said services also can provide an equipment supplier with healthy profits, albeit with lower gross margins.

Still, he said, too much emphasis on service could raise uncomfortable questions.

''Maybe it's a little unfair, but some point out that people start emphasising services revenue sometimes when they have products no one wants to buy,'' he said.

REUTERS SD PM1926

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