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Ericsson: From Stockholm to Beijing, telegraphs to telecoms and beyond

Just days ago, multinational communications giant Ericsson and China Telecom signed a Memorandum of Understanding (MoU) to accelerate the development of the latest in mobile networking, the much-hyped 5G, following a month of widespread adoption of the 5G standard in South Korea and the United States, with network investments expected to continue to ramp up throughout 2019.

Indeed, the agreement was signed at China Unicom’s 5G Innovation and Cooperation Conference in Shenzhen, China, as the Chinese state-owned telecom provider saw the coming tide of the fifth generation digital cellular networks, as local hardware manufacturers Huawei and ZTE were among the earliest adopters of the technology standard.

As such, the partnership between China Telecom and Ericsson represents a radically different route than expected of the Chinese state-owned telecommunications, and one geared toward international collaboration rather than domestic partnerships, a decision formed less out of state directives and long-standing history and more out of financial gains. The Chinese government, it seems, has picked out a winner in the battle for 5G dominance - and that is Ericsson.

But what we now see as one of the biggest telecom companies in the world, with a 35% marketshare in 2G/3G/4G mobile network infrastructure market, began humbly as a single telegraph repairman in Stockholm, Sweden in the late 19th century. Lars Magnus Ericsson (1846-1926) would advance much like the personal computer industry would in the wake of IBM over a century later – by reverse-engineering Bell Telephone Company and Siemens designs, circumventing patent laws, Ericsson managed to provide improved designs at a lower price, building a near monopoly of telecom services in Sweden, entering into a pact with Bell to supply exclusively Ericsson with equipment and services.

Within two decades, Ericsson would expand into the rest of Scandinavia, Russia and the UK, encouraged by the rapid growth of telephone services in Sweden. By the turn of the century, Australia and New Zealand would become the first non-European markets for Ericsson, soon also expanding into Mexico and South America, South Africa and yes, even China.

Meanwhile, success in the United States continued to elude Ericsson, with absolute market dominance enjoyed by what was then known as the Big Three of telecoms – the Bell Group, Kellogg and Automatic Electric. Ericsson also set his own company back by ignoring the growth of automatic telephony that was emerging out of the United States, instead concentrating on manual exchange designs. Mass production also meant that the products were losing the exquisite designs they were once so famous for, prioritizing quantity of production over quality of products.

By the time WWI came along, and the subsequent Great Depression, Ericsson suffered further losses across the board, with international sales cut in half. By then, L.M. Ericsson had long left the company that shared his name and he was to be replaced in 1925 by one Karl Fredric Wincrantz, who took control over the company by the aggressive acquisition of majority shares with the support of Swedish financier Ivar Kreuger. Kreuger, through a subsequent restructuring of Ericsson, eventually gained control over the company directly and used it as security for a multitude of loans and share deals of dubious nature before selling his shares, and thus majority control, of Ericsson to one of the then-leading American competitors in telecommunications, ITT Corporation. Upon realizing that Krueger had conned them into buying a company that was now in debt, they attempted to back out of the deal. Unable to repay the $11 million he earned from the deal, Krueger committed suicide and ITT was stuck owning a third of a company they were legally shut out of, as a paragraph in the company’s articles of association stated that no foreign investor were to be permitted more than 20% ownership of the company.

Abandoned and on the verge of bankruptcy, Ericsson fell upon hard times, falling from an international giant of the industry to facing permanent closure and liquidation of assets. They were saved at the last second by the Wallenberg family, one of the wealthiest in Europe, through their many banking organizations as well as their government influence. Marcus Wallenberg, Jr. in particular leading the rebuilding of Ericsson as both a company and brand, eventually assuming complete control of all shares from ITT in 1960, the Wallenberg family having controlled the company ever since.

In the decades that followed, Ericsson went on to lead the way in technological development of telecom services, including the development of the world’s first fully automatic mobile telephone system, the MTA, in 1956, and one of the first hands-free speakers in the world during the 1960s.

By the late 1990s, Ericsson had assumed a 40% share of the global mobile market through their early adoption of the GSM standard that was to become the de facto global standard of mobile phones and led early development of mobile internet applications and services, including partnerships with Microsoft.

Ericsson, however, proved not to be immune to the unrealistic market expectations and hyperinflation of the dot-com bubble of the late 1990s, leading to scores of employees being let go during the crash of 2000. As mobile internet continued to grow, however, Ericsson fared considerably better than many of the US-based tech companies caught in the bubble, and the company found itself on the rebound by 2003, pioneering the emerging standards of 3G long-promised since the 1990s and entering into a partnership with Sony Ericsson for the better part of the following decade, using Sony engineering and Ericsson networks to produce flagship hardware in the last days of button phones, moving into the era of smartphones. While the partnership ended in 2012, Ericsson continued its focus on wireless networking, moving into a new era for the company by largely putting their phone services in the backburner in favor of wireless solutions and development of 3G, 4G and 5G networks.

A direction which has now moved the company into the forefront of global wireless solutions, the rise and fall and Lazarus-like resurrection of Ericsson has now been cemented by the MoU signing with China, the fastest growing mobile market in the world today.

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