Hans Vestberg, Ericsson’s president & CEO, explained the thinking behind a wide-ranging alliance with Cisco, while the latter’s CEO, Chuck Robbins, said the move was preferable to a full-blown merger between the two giants.
“We have evaluated the impact of acquisitions, our own development, and other strategic opportunities – and this partnership is by far the best way forward. We believe that this partnership will create the most value both for our customers and for Ericsson and Cisco,” wrote Vestberg in a blog.
Meanwhile, Cisco’s Robbins said on a call for analysts and media he had been asked why he didn’t pursue a full-blown merger for the two firms. “This partnership brings innovation from both sides and enables us to move now,” he answered, presumably referring to the regulatory clearances necessary before a merger or takeover is completed.
His comments also indicate this is a serious coming together for the telecoms industry of two giants.
$2 billion deal
The duo’s wide-ranging deal is expected to generate an additional revenue opportunity of $1 billion or more for each company by 2018. In addition, the Swedish vendor said it would enjoy synergies of SEK1 billion ($115 million) by 2018.
Vestberg and Robbins both emphasised talks had been going on for 13 months with, according to the latter, “a significant acceleration over the last six months”.
The relationship is intended to offer operators and enterprises “the best of both companies,” across routing, data centers, networking, cloud, mobility, management & control, and global services capabilities.
In his blog, Hans Vestberg, Ericsson’s president & CEO, hailed “a multi-faceted partnership to create the networks of the future”.
Cisco brings its background in IP and enterprise to the table, while Ericsson contributes mobile networks, global services and its relationship with leading service providers.
Incremental revenue is expected to accrue from as soon as 2016 and will ramp to $1 billion or more for each firm by 2018.
Vestberg said the partnership will initially focus on service providers followed by enterprises and then the Internet of Things (IoT) space.
The announcement featured supporting quotes from leading operators, including Vodafone, AT&T and Verizon.
Network architectures included in the partnership include 5G, cloud, IP and IoT, embracing devices, sensors, access networks, core infrastructure and the enterprise IT cloud.
The initial agreement will be followed by multiple follow-ups including commitments for Ericsson to resell Cisco networking gear, how the pair will collaborate on system integration and managed services for service providers, a cross-patent licensing agreement and joint architecture for 5G and cloud.
The parties have also agreed to discuss FRAND policies and enter a licensing agreement for their respective patent portfolio. As part of this agreement, Ericsson will receive licence fees from Cisco.
Together the two firms have amassed more than 56,000 patents, $11 billion in R&D investment and employ more than 76,000 services professionals across 180-plus countries.
Teams from both firms will also begin working on a joint initiative looking at SDN/NFV as well as network management and control.