Telefonaktiebolaget LM Ericsson (publ) (ERICB) Earnings Call Transcript & Summary

Hello, everyone, and welcome to this fireside chat. This is live from the Ericsson studio here in Kista. And we are happy to present today a fireside chat with 2 of our market area heads. We will meet Arun Bansal, who is heading up Europe and Latin America; and Niklas Heuveldop, who heads up the North American market area. And North America, as you know, is the largest market area within Ericsson. It represents 32% of group sales in the third quarter with SEK 18.4 billion. And if we look at the growth in North America in the third quarter, we had an FX-adjusted growth of 6% year-over-year. And then we have Europe and Latin America, which is, of course, geographically a very large territory. And Arun is heading up at least 11 time zones, which probably keeps him awake quite a lot. And there we have seen, of course, effects, not least in Latin America from the pandemic, influencing some of the CapEx spending. At the same time, we have seen encouraging growth in our business in Europe, but we will hear more about that, and Lat Am represents 23% of group sales with a turnover of SEK 13.3 billion in the third quarter. But before we start here, I would also like to introduce Peter Nyquist, who is the Head of Investor Relations here. And Peter, can you walk us through what the setup would be for this hour together?

Yes, I will. It's pretty simple, actually. We will start with a discussion between you, Carl, and then Arun and Niklas. After that, we will have the Q&A session. And this will be done a little bit differently than we have done before. We will actually -- you need to post the question. You will find that part on the website. So you post that. As we go, I think that's important as well. So we don't miss out and we can prepare ourselves. And when we've done that, we -- you can also actually -- we're going to post this on our website, the whole session later today. So you will be able to get this discussion between you, Carl, and Arun and Niklas later on as well.

Perfect. Perfect. But then let's get going. And just to introduce a little bit, of course, 2020 turned out to be that nobody could imagine with the pandemic that hit severely in the world and created challenges, difficulties and a terrible outcome in many respects. At the same time, we have seen resilience in our sector. And also, the pandemic has shown how important our sector is to -- for society as a whole, actually, in a situation like this. And so far, we have seen limited impact from the pandemic on our business, as we have reported during the past quarters. And honestly, it's easy actually to feel proud about our own people, our employees, who have managed to develop products and serve the customers like never before, with 85,000 people working from home as well during this period. But I would like to start now the chat here with you, Arun. And Arun, you're connecting from London, of course, here.And starting on the topic of COVID-19, Arun, if you look at both short and mid term, what are the changes that you have seen for the operators in the networks and traffic patterns, perhaps prioritization, reallocation of CapEx, OpEx and so on? What have you seen?

No. Thanks, Carl. It's a good question. But before I start, let me distribute Europe and Latin America into 2 categories just for simplification: one, the countries with higher fixed penetration or fiber penetration; and other part with very little fixed investment. So Western Europe will fall in the category where we have good fiber, good fixed deployment. There, predominantly, we see a traffic increase of some 15% to 20% mobile data increase. Voice traffic increased 20% to 25%, but overall, network quality did not suffer. What we saw was shift of traffic from urban area or the office area into the residential area. And the networks are built based on the peak capacity. And only 10% of the sites carry 40%, 50% of the traffic. So the traffic got more distributed. So the utilization of investment became better for operators in Western Europe. And now post COVID, we are back to the same traffic level as it was pre-COVID level. Now if I look at the second part of the countries with less fixed investment. There, we have seen a mobile broadband increase or the traffic increase of all the way up to 50% to 70% traffic. And there, we have seen the network quality has deteriorated because there is no fixed alternative. The utilization of the network has gone up significantly. One thing which is common between both sides is the voice traffic went up in the both sides. And what we see now in operators' behavior is, of course, in the developed countries, where there is more fixed already that they are talking about deploying even more fixed. And shifting some sort of CapEx from pure mobile to either fixed or fixed wireless access, the evolution of the technology. While in the countries with less fixed and very difficult-to-deploy fiber, we will see acceleration of more capacity and coverage with the 4G to start with. So those are the difference between those 2 sides of the market.

Thank you, Arun. That's interesting. And if we go to you, Niklas, Niklas Heuveldop, you connect from our New York City office. What have you observed when it comes to COVID-19 and the network, traffic, et cetera?

I would say very similar to what Arun described in his first bucket. So all in all, a massive shift in traffic patterns. So from dense urban office environments to residential areas. A lot of traffic moved to the fixed fiber networks. At the same time, voice traffic peaked. I heard several customers talk about voice traffic similar to Mother's Day for an extended period, text messaging at sort of New Year's Eve levels for an extended period. But the situation has started to rebalance and normalize a bit. We see more mobility again in the networks, which we haven't seen for quite a while, some more traffic taking off again. We are not yet back to pre-COVID levels in terms of mobile broadband traffic nationwide, but we're close to it. We -- I guess the good news for the mobile operators in the U.S. is that the traffic's really managed this tremendous shift in patterns exceptionally well. So we haven't seen any deterioration in service levels. Government did a couple of audits. So the situation was managed well. And customers, just like Arun described, are ramping up investments in fiber, but also mobile broadband build-out, most notably Verizon already in the first quarter, stepped out and announced that they were going to increase their capital spend for the year by $0.5 billion. So it's clear -- we have clearly not seen any negative effects, quite the opposite. The investments continue at a steady pace.

That's good to hear. Thanks, Niklas. And it really appears that the operators have handled these challenges and the situation very well given circumstances. But so if we leave aside for a moment the COVID-19 dimension here and look at the market situation more in general. And we stay with you Niklas, what would you say are now the largest opportunities and challenges that our customers, your customers are experiencing and how can we support them best?

I build on Arun's metaphor, so I'll give you 3 buckets. One, that we, of course, as an industry, understand very well, the consumer business. And it's widely debated in the U.S. right now, whether we're going to see a super cycle now of refresh. Consumers have waited to upgrade their phones. Now the 5G phones are coming into the market, most notably now the Apple launch. There is a huge expectation that there will be significant upgrades to 5G phones in the consumer market. Both Samsung and Apple have launched new smartphones that are actually gaming platforms. The gaming industry is already 50% based on mobile applications. So it's not unlikely to expect a big uptake in gaming and the gaming business for our customers. And then, of course, entertainment. And entertainment now also moving into sports. We have seen several pilots here during the year -- during the last years, actually, on how you create more fan-targeted experiences. So think of cameras in the gear of the players in the cars. And then you, as a spectator, choose your angle and your own personalized experience. So we see quite some interesting new business opportunities in the consumer space as is. Then you have, of course, the extensions into fixed wireless. So several of our customers have announced pretty aggressive plans to expand into fixed wireless. That's going to be a net new business to them. So that's an interesting opportunity. What we are maybe almost excited about, however, is the digital transformation of industries and the public sector. And COVID has accelerated some of that certainly in the public sector, so think education, health care. And here, we see 5G playing a significant role. So we've done some work with ADL. As you know, we have estimated the opportunity -- addressable opportunity for our customers to USD 170 billion by 2026. It doesn't matter if it's USD 170 billion or USD 150 billion or USD 120 billion, there's a huge opportunity in supporting the digital transformation of industries in the public sector. CTIA, our trade association, estimates that 5G will have a $500 billion positive impact on the GDP, 3 million new jobs to be created on the top of the 5G innovation platform. So that's the opportunity landscape. It doesn't come without challenges. So in the U.S., we are spectrum constrained in the mid-band, so a lot of efforts now on trying to accelerate more mid-band spectrum auctions. We have the next one coming out here now in the fourth quarter and then more next year. But here, the U.S. is behind. And of course, we need to work then very actively on our side with technologies like Dynamic Spectrum Sharing to repurpose Spectrum for then 5G use. So that's one challenge. The second one is zoning and permitting. With the current legislation, it would take us 23 years to densify the networks in the millimeter wave spectrum as intended. So we've done some simulations with our customers, say, we need 500,000, 600,000 sites to densify the network, so you get the full leverage of the millimeter wave spectrum. So here, we need to do a lot of work with our customers on working on standardization of form factors, smaller form factors, so that our customers can be more successful in expediting the permitting and zoning processes in local jurisdictions across the country. One of the reasons we decided to put the smart factory in Lewisville, Texas, was to come closer to our customers and be able to support them in that endeavor. Third, you have the sheer availability of tower technicians, crews that can install this equipment, and same thing here, we put the Center of Excellence, a new one into Texas to try to recruit, train and certify new tower crews, 800 last year alone. We probably have a gap of 10,000 to 15,000 tower crews. So a lot more work continues in that respect. And then last but not least, power consumption is a big challenge for our customers. All of them are committed to renewable energies and breaking the energy curve. On this -- in this aspect, what we have done with the Ericsson Radio System platform is that we have actually been able, for the first time in these technology shifts, to break the energy curve, meaning that we can produce a gigabyte 10x more effectively, so we can manage the increase in traffic and still reduce the power consumption at the same time. So those are some of the things we're doing to support our customers with the challenges that they have.

Massive opportunity, but also some constraints in resources, spectrum and so on, as you say. And interesting. And I wonder, Arun, how do you reflect on that in your vast territory. Many differences, of course, between the markets, but what are the challenges you see and opportunities in Europe and Latin America?

Thanks, Carl. I mean the first thing I would say is there's a significant shift in all governments. Both in Europe and Latin America now, governments see connectivity is a national critical infrastructure. I think that mindset was not there in Europe and Latin America pre COVID. So I think the common understanding between all policymakers in Europe and Latin America is post COVID, the single biggest thing besides health care, which will help the recovery faster, is the connectivity digitization. So I think that's a very significant move. And you have talked about the EU commissioner talking about now 40% of rural Europe not connected by LTE today. So that needs to be connected in the next 5 years. And every single government is now putting a plan in place how to expedite the rural connectivity. Recently in U.K., the government announced a GBP 1 billion fund for rural connectivity. So I think that's the single biggest opportunity, I would say, both in Latin America and in Europe. Latin America. Of course, capacity and coverage, as I talked about, there is no fixed infrastructure. So the only alternate for people to get access to new services is going to be over mobile network. So massive deployment still needs to happen and upgrade on capacity needs to happen. And the second part is what I think Niklas also talked about is the digitization of the industry. And as you saw in Europe, certain countries are even issuing the spectrum dedicated to enterprises. So I think the enterprise digitization is a huge opportunity, both for enterprise, but also for our operators to address that, and more and more enterprise realize that it's much better that they work with the operators to help them faster digitize. So I think those are some of the big opportunity, fixed wireless access, more capacity, more coverage, still digitization of the industry and also reduce the cost per gigabyte. In Europe, the revenue for operators or ARPU is pretty much flat right now. And the only way for them to reduce the cost with the new services is with 5G, where the cost of delivered gigabyte will be almost [ 1 10 ]. So those are some of the big opportunities. The challenge, as I see, is common between Europe and Latin America is still to slow spectrum allocation. Some of the countries, I mean, Belgium, Holland will not have 5G spectrum or mid-band spectrum allocated until 2021, 2022. So it's going too slow. And the second part is the too high spectrum costs. It's still the spectrum allocation in some other parts of the world like in Asia and U.S. is much more conducive for investment in infrastructure. While many parts of the Europe and Latin America, they drain out so much of capital from the industry in the spectrum that they have nothing left for investing in the capacity. So I think there are some -- is a huge challenge being recognized and needs to be addressed jointly. And I think the last bit is a bit geopolitical uncertainty in Europe. Of course, that makes operators nervous. Uncertainty is not good for any investment climate. So on top of the geopolitical uncertainty and unclarity makes operators to wait and watch, and that is a bit of a challenge.

Thank you, Arun. And interesting to see, many countries, I believe, governments also see -- could see the potential in 5G to actually help restore GDP growth in -- after the circumstances, the situation we have had now, actually because of the effects that 5G can have on the whole economy as well. And also, Niklas mentioned climate change or sustainability, energy bills, et cetera, leading into the climate agenda as well. And I think also there, we can play a massive role, and 5G can play a massive role as well. So that's good to hear. But if we continue then on the topic of 5G with you, Arun, obviously, the hot topic in our industry now. How do you see the commercialization in your area when it comes to 5G? How are the operators actually going to market with this? And does it differ from 4G?

I mean it's early days in Europe. The 5G deployment is very little, yes, but still, there are some very good success cases coming out in one of the country where operator is launching based -- the tier pricing based on speed. And we see ARPU lift of almost 10% with that. So operator is able to charge based on the speed, guaranteed speed it will offer to the end user. Then in some other markets, operators are increasing the size of the bundle, the mobile data by increasing the limit a little bit, the ARPU part. So there, they are able to get maybe 5% to 10% higher ARPU. So I'm convinced that when we will have a massive deployment of 5G, with the advantage the end user like you and me will have, people are willing to pay. I mean, we have done a lot of studies in many markets where it shows clearly that consumer are willing to pay for higher capacity, higher performance. And the second part as to what Niklas said before, where operators are now looking at this launching new add-on services, like sports package. Now operators are talking about launching live sports. So you can subscribe to a live sports game. If you are a football fan or a soccer fan, you can subscribe to a game, which you can't otherwise go and watch live at the Euro for a game as if you are sitting in a stadium with virtual reality and following a camera. So I think where operators are really looking at this much more add-on services, which consumer will be willing to pay instead of going to the stadium itself or concert itself and do add on. And the other part is the fixed wireless access, where operators are looking at addressing a market segment which they don't have today. So that's an add-on segment without having a significant CapEx uplift because they can use their existing infrastructure to just add on that capacity and utilize the unutilized part of the network to offer this fixed wireless access. So I think those are some of the area. And the last is the private networks. Operators are actively working in Europe, especially in Germany, in U.K. in France and in Spain to address these private networks, dedicated networks, and we have a good traction in Europe on that. Latin America is more agriculture and mining, and it will take some time for manufacturing.

Thanks for that, Arun. And if we turn to you, Niklas. Of course, North America was one of the absolutely first markets to launch 5G and maybe have advanced a little bit more on that path. How would you say -- what's your observation when it comes to how operators are -- or carriers, we could say, are commercializing 5G at this point?

So here, I think it's important to understand where we are in the rollout. I mean, it's a cycle. It's a journey, right? So in the U.S., we have 3 nationwide 5G networks, but they're essentially all built in the low band. And that does not really give you a highly differentiated experience over 4G. I mean, it doesn't have the ultra-high throughput. It does not have the instant responsiveness, the latency that you would get in the mid-band or in the millimeter wave high bands, right? So it's not reasonable to expect a significant premium at this point in time. So we do not see any significant premium packages built for 5G yet. Just like Arun described, you will see the operators come in with the bundles in the upper ranges of the 4G tiers. So no massive differentiation yet like we see, for instance, in South Korea. The difference, again, is that there, you have a nationwide mid-band network with an amazing consumer experience. And that's going to take us some more time to get there. One of our big 3 customers has the mid-band spectrum and is hard at work to build out that. That is going to be interesting to see if they are able to monetize that in a different way. And then, of course, we have a lot of activities in the millimeter wave, as I discussed, where you see net new revenues being targeted, just like Arun described is fixed wireless. That's a net new business. It's a very discrete business and priced separately as well. So that is one area. And then, of course, also like Arun described, in the industry or also the public sector transformation is where you see a lot of experimentation going on. So you see new operating models being tested, just like Arun described. So you build a private network. That's going to be priced very differently. So you also see experimentation on the business model side with network-as-a-service kind of offerings, but it's early days because here, the U.S. can move a bit faster because if you work in a stadium or a smart factory or a mine, you can work with a smaller-footprint network. So I expect those experiments to materialize in the next 12 months, and that should give us some more insights on to how they're being monetized. But that's, of course, the billion-dollar question: How are they now going to make money on it? I do expect quite an uptake in the consumer business. Gaming, again, I think it's going to be huge entertainment. And then we'll see how the industry transformation translates into net new revenues and growth for our customers.

Brilliant. Thanks a lot. And if we leave the current sort of 5G deployment and revenue opportunities aside for a second and look at another topic in our industry now, which many have questions about, and that's ORAN. And if we take it from the sort of market or customer point of view here, Niklas, what's the discussion with your customers around ORAN at the moment?

Right. So we, of course, stay very close to our leading customers in North America, which are also the very same customers that are most aggressively pushing the evolution to more open network architecture. So we have a good understanding of what the pain points are that they're trying to solve. And we are aligned on the potential in shifting to more open network architectures. The ability to leverage software-defined networking capabilities and cloud infrastructure to get better utilization on the underlying hardware platform. And just like we then announced our cloud portfolio here earlier this week that we are absolutely aligned. I think where the big debate, unfortunately, has focused, and it's a bit misguided is: Do you go 5G now? Or do you wait for ORAN? And again, we -- I think we're perceived as rather conservative or difficult to deal with in the early days. I think that has now self-corrected. We have over 100 5G networks deployed globally. If we're generous, maybe one based on entirely open RAN technology. So it's a matter of maturity. It's a evolution of the 5G network. So it's not really 5G or ORAN, it's both. So the 5G networks will evolve to more open radio network architectures and will start embracing some of the advantages that we see. And that's going to take us some time. The price performance is not really there for our large customers to deploy it at scale. But we will see a gradual evolution over the next coming years where more and more elements of the open RAN network and architectures will be deployed. And we certainly intend to be at the forefront of that as well.

Good. Thank you, Niklas. And for you, Arun, in Europe, Latin America, what's the discussion on ORAN that you experience now?

No. You know my background, Carl. I can talk about radio and ORAN for half an hour, but I will bore you with the technology. And I think Niklas described it very well. And let me just give it a version of 4G and 5G. 4G is from the standardization, and since we started to do a research on it, by the time it became commercial and good performing was roughly a 10-year lag. And we saw the same in 5G. And now in ORAN, unfortunately, the discussion is like any other technology cycle from a bit hype to a reality to as Niklas is saying ORAN discussion started with new interfaces in 2019, early 2020. And eventually, it will happen, it's a cycle, but the expectation in the market that, okay, now we are talking about the specifications, so why can't we have a product in 2021, I think there we need to understand that it takes 5 to 7 years before standards become mature, the performance becomes mature. So a little bit like Niklas, we have a very balanced dialogue with old operators now, where we have moved from initial hype to now reality. And what we are talking to operators in Europe is the phased implementation of ORAN. And first use case, we will see is most likely in private networks, which requires less resources and then possibly rural deployment and then possibly reaching the high-capacity or high-performing segments. It is going to be a journey. I'm not saying that ORAN will not happen. It will happen in stages. As Niklas rightly said, and it will take multiyear approach. And like -- Ericsson, we are taking it like any other technology shift cycle that when it matures, when performance is there and when cost competitiveness is there, we will be there as well.

Sure. Also leading in that area. And certainly, a seat at that table as well from Ericsson side. But that's good to hear. But -- and then, Arun, apart from the ORAN discussion then, how would you describe now the competitive landscape or the competitive situation as it is now in Europe and Latin America? Any changes, any trends that you see there?

Yes. I mean, there is a slight change in how operators are procuring now. I mean -- and Niklas talked about. I think #1 on the agenda for operators is sustainability. They are looking at power consumption as one of the key decision criteria. Power consumption, size and weight of the equipment, do they need to use the crane to bring equipment to the site, the health and well-being of the people. So what is the size and weight of the equipment, the total TCO is becoming much more important, the spectrum efficiency is becoming much more important in evaluation. Technology leadership is even ahead of equipment price, the unit price per se. So I see a shift in both Europe and Latin America, more so in Europe, less so in Latin America. It will come with the 5G transition cycles when operators have to make a choice on 5G. And as Niklas was saying, in densification, we are talking about hundreds and thousands of sites, much more than the existing grid. And then TCO becomes much more important than does the unit price. And there, I think it's a totally different discussion with European operators. And that is leading us to be able to win more market share, to be honest, because we feel proud to be that we are ahead in technology, and we have a technology leadership in performance. Then together with this, I think the new discussion is on the back of our -- if I just bring in Ericsson Operations Engine offering, where we are able to then optimize the network much more based on artificial intelligence and much more on a software-defined basis, so operators are looking at not just buying a box, but the associated services and how much automation we are able to do. And same goes on the core side, I mean, there -- how much cloud native we have the software, how much CI/CD capability we have. So now operators are looking at beyond box the associated package of services capability and innovation in that, 0-touch software deployment, preventive maintenance. I think that is much more in discussion now.

Great. And there we seem to come out well because we are winning a lot of deals under your leadership Arun, of course, not least in Europe at the moment. So that's very encouraging to see. And in North America, of course, also cut-throat competition also there. And also there, we have increased the market shares. What do you say, Niklas? What's your reading -- read out of the -- or conclusion around the competitive situation in North America?

Well, a little bit different than in Europe. I mean, we have some of our most technology-savvy customers globally in North America. So our front-runner customers that very much drive our R&D agenda have been based in the U.S. for an extended period. So that's not really new for us. So I think what we've managed to do really well in our turnaround is that we've stayed really, really close to these customers in North America to understand their requirements. And as we were ramping up R&D, we were able to gear that towards their requirement. So I think what you see now because of the market share that we have taken is our ability to respond to our customers and help them differentiate in the market in a really, really impressive way. So that customer proximity and our ability to mobilize our R&D in response to our customers' requirements put us in a really interesting position. So for the first 6 months of the 5G rollout, Ericsson was the only vendor deploying 5G networks and turning up cities across the U.S. So we had a really important time-to-market advantage that we have managed really, really well here over the last 3 years. And that has resulted then in these market share gains. But just like you say, it's a very competitive market. There is a lot of evolution and investment all the time. So you can't ever rest on your laurels. And we have a new entrant coming into the market, aggressively pushing also a technology leadership agenda. So North America, I would say, keeps us on our toes, brings out the best in Ericsson, and I'm happy to say that our R&D teams are intimately plugged in with our customers. So of course, it's a continuous race to be able, just like Arun described, the reality in Europe now, to be at the forefront of technology, to be able to produce and deliver the best price performance at any point in time, to be able to make use of very complicated spectrum assets here in the U.S. that our customers wrestle with and be able to aggregate and combine 4G, 5G across a very complicated spectrum portfolio. So it really drives our technology agenda, and we've been really responsive and really good, and we see the results. We've increased our market share by 6 points in the last 3 years, 3 points in the last 12 months. And that's really a result of technology leadership. Now we learned from that. We need to stay ahead of the game. And this is a competitive market, and we'll continue pushing the envelope and the agenda with our R&D teams every day.

Good. Thanks both for those insights. And if we then look to the future a little bit more here, what are the bigger trends going forward that you see, Arun, if we start with you?

Yes. I mean, I think 5G, as you have heard us talk about, 5G is going to be the single biggest innovation platform for anything. And I think post COVID, as I said, every single national government is looking at how to recover out of the COVID in terms of GDP. And they realize that connectivity, 5G is the single biggest enabler to kind of focus on. And where we see now, at least in Europe, manufacturing segment, I mean, there are a lot of studies we have done with ADL, as Niklas talked about. Significant financial benefit for sectors to benefit from deploying 5G. In Latin America, we are talking -- we are already today engaged with companies in agriculture. As you know, 25% of Brazil's GDP is based on agriculture. And the amount of waste Brazil has in agriculture segment is unprecedented. So when we are talking to the agricultural companies in Brazil, big time, I mean just to give you an example, it takes one day to upload the software in a truck, which is working in the remote rural field, and they have to bring that truck to the city to do it. So the enormous waste, and I think that we are going to address with the 5G deployment. So once 5G is deployed widely in Europe and Latin America, I would see we will see 3 things: number one, significant productivity gain; number two, new access to the market which enterprises don't have; number three, the better customer satisfaction, so they should be able to do things much better, much faster, much more efficient. And the sectors which I believe will take off: manufacturing already talking about big time in Europe; Latin America, mining and agriculture talking big time; in Europe, we're talking about urban cities, big time, how to make sure that this divide between rural and urban can disappear on the back of connectivity; public safety; the medical education. I mean, every single sector, which was neglected before in Europe and Latin America are suddenly looking at how can they benefit from 5G deployment. And every single sector, I mean, I have discussions with almost all ministers in U.K. in the last 3 months. Every minister wants to be the first to benefit from this 5G platform and they're saying, how can we benefit in education sector with remote education, how can we benefit in health sector. So I'm of a firm believe that we talked about 5G platform being the single biggest innovation platform will happen. And then besides this, in the consumer side, as Niklas talked about, online gaming, the VR application. And I don't believe that we will go to at least the next 5 to 10 years old way of working with the amount of travel and everything, and people will do things more remotely. So people should be able to enjoy the sports events, the music events in a virtual reality in a totally different way than what we have done today. So I'm pretty confident and hopeful, pretty a little bit of caution. I still believe that Europe will lag behind North America and Asia in 5G deployment as we have lagged in 4G because of some of the limitations I talked about, high spectrum fees, low spectrum allocation, and that is still hot, the CapEx capability of operators in Europe. So with that caution, I'm still very hopeful that this will drive, over a period of time, significant uplift. And this is, by the way, the only way for GDP recovery for many countries in Europe and Latin America.

Right. So good news for sports fans and gamers, but also for every sector in society, probably, where 5G has a single biggest platform for innovation, that you say, when that really comes into reality. That's very exciting. And Niklas, in your part of the world, what do you see as the major trends going forward? Similar?

Very similar to what Arun described with the difference that in the U.S., the customers started earlier, building out the nationwide innovation platform. And it really comes because of their understanding that technology leadership results in better operating efficiencies, right? So the initial business case in the U.S. was all about producing a gigabyte cheaper. So they started building out the 5G networks a lot sooner. So I think the first trends that we will see materializing here are really all about consumers because there is, both Canada and U.S. are early adopter markets. Consumers will jump on to the new phones. They will venture into gaming and entertainment, typically in a faster pace than in many other markets. That's why we also in the mobility report -- our mobility report, see that the adoption is going to go very, very fast. We expect 75% of consumers in the U.S. to be on 5G by 2025, over 300 million, 325 million subscribers on 5G by 2025. That's a very, very rapid takeup, faster than any other region. We see consumption going from 8.5 gig by the end of last year to 45, 5x increase in traffic. So there is a lot of underlying demand in the consumer business, which gives us these trends. But then, I mean, I think where the big excitement is going to be, and it's difficult to talk about trends because we really don't know what is going to take up most rapidly. Is it going to be in agriculture? Is it going to be in mining? In smart manufacturing? In the energy sector? We know that there is a lot of industries that are in the middle of aggressive digital transformations. And we know that 5G and wireless will accelerate their opportunities to take out cost, improve the consumer experience or grow into adjacent markets. So that will happen for sure. And then there is the public sector. And I think the public sector has had a big wake-up call now with COVID. So both health but also education, I think, are sectors where we will see an accelerated transformation, which was held up by legislation in the U.S. But we see state cities driving some really aggressive digital transformation at this point. So again, difficult to talk about trends, but the potential is massive, and hopefully, within a year, we can start talking about trends. But there's a lot of experimentation going on. I think what's also unique about the U.S. is that we have not just the service providers building out the innovation platform that Arun also talks about. But we have the hyperscalers that have the developer ecosystems now working with service providers and industry partners. And I think this is a much more symbiotic approach to a network platform launch than what we saw with, for instance, 4G. So again, I'm very hopeful that we can start exposing this innovation platform to develop our ecosystems. And then we'll see some magic happening. There is no shortage of venture capital that will flow into the areas where the opportunities materialize. And then hopefully, we can start growing some nice trend charts for you as well.

That sounds reassuring. Thanks, Niklas. And thanks Arun. And in a moment, we'll go into the next section here, more Q&A from all of you listening in here. But I just -- before we go there, I just wanted to say that tomorrow, we will continue this conversation with 3 other market area heads at Ericsson. And that's Chris Houghton, who heads up Northeast Asia. It's Nunzio Mirtillo, who heads up Southeast Asia, Oceania and India. And then, of course, we have not least Fadi Pharaon, who heads up Middle East and Africa. So stay tuned tomorrow for that in a similar format. But now over to you, Peter, for the Q&A.

Thank you, Carl, and thank you, Arun, and Niklas for a good presentation or a good discussion here. I have a few questions. You can still post your questions. So I can read them out here to Niklas and Arun. But before starting the Q&A I received, it's a question I quite frequently meet when I meet investors. It's really in this pandemic and in relation with customer and customer meetings have completely changed. And the question is basically, how is that impacting deals nowadays when you need to do everything in digital way so maybe starting with you, Niklas, on that part.

I have not met a customer face-to-face since March, early March. But I think we are welcome to appreciate the fact that I can travel across the country and see more customers today than I could using conventional airplanes to travel. So I would say the intensity in customer interaction has not changed. If anything, it has improved. Again, we're all able to meet on a more regular basis with video conferencing facilities. We know each other. So it's not a lot about developing new relationships. So it works remarkably well, and we still today have 80%, 85% of our employees in North America working from home or if it's installation crews, in the field. So we have been able to keep the business running in a good way. Our customers appreciate it. Most of them are also still very restrictive in face-to-face meetings. I mean we are still, and you will follow that, I mean the pandemic is having a serious second spike here also in the U.S. and Canada. So again, I'm amazed. Our team has been able to deal with this new reality, basically shifting to work from home overnight. And we haven't looked back. I mean, we have essentially been able to keep this running. Of course, you would like to meet people much more frequently and then see your customers as well. But I think we're all very realistic about where we are. We're having virtual tours with our customers to Stockholm, actually next week, I think, is the first one. So we're dealing with this new reality, I think, in a pretty good way. And our customers, of course, understand.

And Arun, your response, I think Carl said you had 5 time zones that you had to take care of -- 11 time zones.

No. I think a little bit similar to what Niklas said. I think the intensity of meeting with customers has, on the contrary, even increased. I'm able to see the customers virtually much more than I could do by traveling around in Europe and Latin America. But at least to Niklas' point, the customers who we know well, who have been in their position for some time, it works very well. There's no need to build the relationship. Where we have some uphill battle is when there is a change on the customer side and there is -- there are new individuals then to get to know them on a virtual environment is not as easy as if you just sit across the table, have a cup of coffee and talk about other things than just the business. But otherwise, the majority of the customer where the people are the same, I think it's working fine. They also understand the reality. We have the same situation, more than 85% of our employees are working from home. So does our customers. Almost all customers in Europe and Latin America are equally vigilant, and they are protecting their employees. So it is working reasonably well, and that's reflected in our financials as well.

Great. Thanks, Arun, for that. So I'll go forward here with the first questions from the audience. And coming back to the topic of ORAN, and we recently announced our unboxed cloud RAN product. So the question is basically the reaction from the customers on that one. Maybe we can start with Arun here and then go to Niklas.

No, I think it's a very good reaction from our customers because cloud RAN will help address the private network or enterprise use case much better. And most of the operators are cloudifying their IT infrastructure anyway and the core infrastructure anyway, and the ambition with our cloud RAN offering is that they should be able to put the RAN software on the cloud infrastructure they're building anyhow. And this is the part which customers like really that this will make them faster to deploy the private network use case. I'm not so sure how excited they are about high-capacity areas, but this will definitely accelerate the [ private use ].

Thanks, Arun. And Niklas, your response to that one, the new product we launched here, the cloud RAN?

No surprises. I mean, I think our customers would tell you that this is something we have developed together. So this is very much, again I think a result of working intimately with our lead customers. Now we launched the natural evolution of our Ericsson Radio Systems with this cloud RAN offering. So very much aligned with our conversations with our customers in the U.S. and Canada.

Great. Thanks. And that -- this question was asked by [ Urban Sandri ]. So moving to the next question. I actually have 2 questions from Chris Lewis. One maybe more for you, Niklas, and maybe Arun can address that as well. And the question is the -- is the anticipated super cycle of mobile phone occur based on the industry's perspective or on actually consumer research? Did you get that one, Niklas?

I did. That's a very good question. I'm led to believe it's based on consumer research, but I can actually not point you in the direction of whose consumer research. It's not ours. So I actually don't know, to be perfectly honest, but it's a good question.

Arun, any comments from your side?

No. I mean, similar to Niklas. I don't think I can speculate, but I would tend to believe there has to be some consumer research, which then decides or guide the different terminal vendor cycle and also some sort of linkage to the technology, I -- I would presume because they have to tie up to the consumer demand, consumer affordability, but equally to the technology cycles. I mean some of the discussions -- some of the discussions we have followed is the fact that people have not upgraded their phones for quite some time, so that there is a pent-up demand. I mean, that's the logic. But I haven't seen the numerical research on that.

Thanks, Niklas, and Arun. Second question from Chris Lewis. The GDP and productivity uplift you talk about cannot be based on 5G in the next 2 years for many markets. So should you be talking more about the combination of 4G and 5G as well as the important fixed element that you already referred to in the opening comments? Let me start with Arun here.

Yes. No, I think you are correct. So it's not only the 5G because the 5G penetration will take some time. So the short-term GDP recovery is going to be. And that's why I said connectivity. I didn't say 5G. Connectivity is the national critical infrastructure as per the government. So next couple of years, 4G, but eventually then 5G because 5G will enable operators to do fixed wireless connectivity, much better than they could do on 4G. So there were some technology limitations in 4G, which did not accelerate fixed wireless access of critical applications. But you are absolutely right. The next couple of years in Latin America and some parts or majority of Europe, the recovery has to be on the back of 4G investment. And of course, fiber in the country where there is a dominant fiber deployment already. The barrier to deploy fiber in Latin America and Central Europe is just too long. It takes just too long to dig the roads of São Paulo and Rio or Mexico City. So there, I would believe that connectivity over mobile will still be the driver for GDP recovery.

And Niklas, I guess, maybe in your market, it's more 5G than 4G? Or would you echo Arun's answer as well?

Absolutely. There is a lot of truth in what Arun says. And although we are ahead on 5G in North America, we see a lot of devices coming into the market, now we see a lot of excitement in the industries and also the public sector, it is naturally so as you point out in your question, that you will see an uplift in 4G and you will need the enabling fiber. So it's connectivity in general, as Arun described. So it's the network innovation platform that we talk about really. I think what's -- the small distinction is that the discussion around 5G, which has excited industries to bring us into the conversation around their digital transformation, did not happen before. So it's the extreme capabilities of 5G that have opened up the conversation about massive digital transformation. What you do see in some of these discussions is that you can actually get pretty far with 4G in a private networking environment, for instance. And there is more devices available and more affordable, so -- in 4G. So it's definitely going to be the combination of 4G and 5G that's going to create the uplift, absolutely.

Thank you, Niklas. And you can still post your questions, so that you know. Here's a question from Stefan Slowinski, and it's more directed to Arun and Europe. So -- and the question reads: What is the strategy to gain market share in Europe as 5G decisions are made? How can Ericsson leverage its earlier success in the U.S., China and Korea to win footprint in Europe?

No. It's a great question. And that has been our well-stated strategy that we want to gain market share. Our market position in Europe was frustratingly lower than rest of the world. I mean, we have lower market share in Europe than our global average, partly our own mistake, but as I talked about the new buying criteria during 5G transition, the TCO, the technology advantage, the sustainability aspect, the spectrum efficiency, the power consumption and there, we feel really proud, as Niklas talked about, by working with American operators who were first out of the block in 5G in putting requirement that meant that we are ahead of our competitors in 5G, both on the technology side and being competing in China on the cost side. So we have a very competitive portfolio and performance side on the technology side. And this is what is helping us win additional market share in 5G. Even though operators are not deploying 5G in the mass volume, but they are taking their decisions on choosing a vendor based on the 5G road map because the decision they take now will last for next 5 to 7 years. As you know, the technology cycle or technology refreshment stands for 5 to 7 years. And that we are benefiting. So we have stated, we are winning market share, and our strategy remains of course, on a selective basis to work with market-leading operators who are likely to deploy 5G first to win market share with them. So we are selective in winning market share in the countries where likelihood of 5G deployment is higher. And then for operator win -- the chance of operator winning in that market is higher. We are going for selectively winning market share with those operators.

Great. Thanks, Arun. Here's a question for you, Niklas. A lot of the questions here are focused on U.S., but you have another big country under your responsibility, Canada. Can you talk a little bit what is happening in Canada regarding 5G and Ericsson's development in that market?

Yes, I'd love to. Canada has been a great success story for us. We have taken market share fairly significantly over the last 18 months alone, more to come. But we feel very good about our position in Canada. We have a lot of research and development in Canada. So it's a critical site for us also in the global context. It's an early adopter market. They are live with 5G, a couple of networks running and more to come. Also here waiting for more mid-band spectrum to come into the market. So it's an exciting market, and it's close to our R&D machine. And we have equally demanding customers in Canada that we're very close to that are also keeping us on our toes and driving new development. And some really interesting developments, for instance, in the mining sector in Canada, where we have partnerships with some of the industry players as well, which our customers appreciate in Canada as well. So it's a really exciting market. It tends to be forgotten in the context of the much larger U.S. market, but it is a really interesting and exciting market on its own rights.

Thanks, Niklas. We're actually running out of questions here on the web. You can still post, if you want to otherwise. And again, as I said earlier, this whole session will be available in a couple of hours for everybody to listen in to. So by that, maybe I could leave the word to Carl with some closing remarks.

Sure. Thanks, Peter. I just wanted to close then and thank, of course, you, Niklas and Arun, for these insights, but also even more so thank everyone in the audience here for your interest and questions. Again, tomorrow, we will run another session about like -- a bit similar like as this one -- to this one. And then, of course, we're looking forward to the actual Capital Markets Day on the 10th of November as well for more expansion on the strategy and the future for Ericsson and our our RAN sector. So thanks a lot for today and looking forward to seeing you again tomorrow and on the 10th of November. Thank you.

Thank you.