How is Nokia doing with private networks for enterprises? Pretty well, and probably better than Ericsson, choruses the analyst community in response. Except its strategy is too narrow, its offer is too inflexible, and its competition – beyond its traditional vendor peers, and beyond its traditional operator partners – is too fierce. Perhaps.
At the end of last week, at least three press releases came across the Enterprise IoT Insights desk from Nokia, all about private cellular networks. The Finnish firm’s focus on the discipline is hardly notable; it has been plugging away in earnest at private LTE and 5G for a couple of years, at least, going directly to enterprises, apparently in disregard of its old operator pals. But three announcements in two days?
Does Nokia even have anything else doing? Of course it does; it is just public 5G rollouts, 5G world records, and 6G fact-finding missions, and whatever else the telecoms sector is up to, are way less interesting so far as the urgent pursuit of industrial change goes. It is just that Nokia, of every old-school telecoms brand, appears to have grasped the nettle, earliest and sharpest, and made industrial 5G its ultimate mid-term business focus – as a root-level money-spinner to spark Industry 4.0-proper.
It appears to have set the ground with its private networking packages, and its acquisitions and bundles, with its business reshuffles and vertical market know-how, with a flurry of early wins, and with its arduous work with unlicensed LTE. But is that true, and is that fair – that Nokia has grasped the Industry 4.0 nettle better than Ericsson, as the obvious comparison, and better than its compadres in the carrier community?
Time to poll the analyst community, for some in-game (pre-match?) market punditry. But a quick recap on those pronouncements, and the logic for this exercise: last week saw a deal for private standalone (SA) 5G with five research centres in the home of Industry 4.0, in Germany, plus something about (actually, non-cellular) IP/MPLS crane monitoring in Indonesia, and (actually, non-private, non-infrastructure) IoT roaming with AT&T.
Actually, the bigger blast came the week prior: a team-up with Austria-based A1 to serve Siemens’ Vienna microgrid campus; another with Citycom, also in Austria, to deliver private 5G for industry in the state of Styria, including the regional capital Graz; and, most notably, news of its closeness with German giant Bosch, and its key role in the firm’s Industry 4.0 ‘headquarters’ in Stuttgart, as a harbinger of 250-odd new 5G factory-installs
So, then, to the meat of it: does Nokia have this market cracked? How is Nokia doing with enterprise-geared cellular, compared to its old rivals and partners, and also to newer breeds of network vendors? The answer comes: good, generally, respond commentators. “Fairly well,” says Leo Gergs, research analyst at ABI Research. “Especially when it comes to attracting business from large enterprises.”
He adds: “Based on its wins in the space, its strategy is successful, at least in the short-term. By opening up to deploying directly, Nokia [is capitalising on] the momentum with spectrum liberalization, allowing enterprises to acquire spectrum licenses without going via mobile network operators. Which appeals to large enterprises, particularly, and explains how Nokia is winning contracts with the likes of Deutsche Bahn and Lufthansa.”
Dean Bubley, founder at Disruptive Analysis, makes direct comparison with long-time rival Ericsson: “Generally good,” he comments. “It’s been more focused than Ericsson, which has gone round the houses on telco versus-any-service-provider, versus-direct. It seems to be getting traction in various key verticals, and has pretty good geographic diversity as well.” The company’s “publicity engine” is going at full tilt, as well, he agrees.
There is no disagreement on this; Pablo Tomasi, covering private networks for analyst house Omdia, says the same. “Nokia is doing well in showing to the market and to its partners that this is a key area of focus and a key growth opportunity. As the market is still at an infant stage Nokia wants to position itself strongly as an ecosystem-leading player that is actively bridging the gap between the telco and the industrial worlds.”
But despite domino-like enterprise deployments in 2020, these commentators all note private cellular is only just lined-up as a vehicle for the kind of digital pyrotechnics – the animation of industrial machines and manipulation of industrial data, in other words – that will make Industry 4.0 real. “These ‘early-adopter’ projects are the first indicators that the messaging and structure of [its] offers holds appeal for enterprises,” reflects Gergs.
But it is a “marathon rather than a sprint”, he adds, and longer-term conclusions cannot be drawn. “The key is with medium-sized enterprises,” he says. “For long-term revenues, Nokia needs to offer scalable solutions for medium-size enterprises. As these often do not have the financial and personal resources to operate their own mobile network, they will require service-based business models that are easily scalable.”
Bubley makes the same point, although he presents it as a wrinkle in his review of Nokia’s new decisiveness within the enterprise space (alongside “over-selling the ‘5G-for-everything’ angle”, and short-sightedness on Wi-Fi 6 for industry, notably); its next trick, he says, must be to show it can flex for the wider market, which cannot be so easily pinned down. “The only question is whether it can ‘scale down’ to smaller installations and deployments,” he says.
What is clear from Nokia’s singular focus and early triumphs is the enterprise sector is where 5G, diced or sliced, will make a difference for both tech buyers and tech sellers. Gergs says: “Private cellular is one of the key enablers for Industry 4.0, and at the heart of all telco [strategies]. Since Nokia decided to target enterprises directly, and move away from selling to operators exclusively, it is relying on… private wireless more than Ericsson, for example.”
This has been one of the more entertaining sub-plots in the private cellular narrative: Nokia’s decision to go direct and Ericsson’s to stick with operator channels, where one has looked bold and the other has looked cautious – and both have looked reckless by comparison. In between, they have appeared to backtrack and vacillate, watchful of each other; promoting their partnerships (Nokia) and proclaiming their pragmatism (Ericsson).
But their original positions hold, just about, in the minds of the market. “Their go-to market strategies are different. While Ericsson focuses on going to market through [its] existing carrier customers, Nokia realises industrial enterprises [don’t generally want to] their network operations to [traditional] network operators. Nokia is not afraid of [going] to enterprises directly, without involving operators,” says Gergs.
At the same time, he suggests Ericsson has done better to tailor private LTE and 5G to smaller-sized enterprises, to spread transformation into the wider industrial market, as discussed above. “Infrastructure vendors need to… provide packaged solutions that can be adjusted to medium-sized enterprises’ needs. While Ericsson offers these packages already, Nokia runs the danger of missing this trend.”
But Ericsson blinked first in the standoff, says Bubley. Has Nokia’s focus been clearer? “Until recently, yes,” he responds. “Ericsson has been trying to pitch the idea of mobile operators selling slices of their macro 5G networks, but that’s going to take a lot of time. It is now going down the ‘dedicated networks’ route, with a better product line-up and a more permissive attitude to what companies count as ‘service-provider’ partners.”
Tomasi reckons the differences are more reflective of their press strategies, with one more expansive and instructive (and exaggerated in interpretation by media) and the other just more buttoned-up. Their business philosophies are both pragmatic, invariably. “The messaging appears slightly different as the two companies want to highlight different sides of their activity. At the end of the day, however, their approaches are not that different. Both are happy to capture opportunities with and without telcos,” he says.
What about the opportunity with private networking, generally, to reflect the strategic shift from the pair, plus interest in the discipline from so many other parties? “It is very important for Nokia,” reflects Bubley. “Clearly, it has had a tricky year on its main 5G business, so while this part is still relatively small, it’s growing faster and clearly has legs for the medium term.”
How medium-term, and how big? Is Nokia, in any way, placing bets on industrial 5G over consumer 5G, and on enterprise customers and private installations versus operator customers and big national networks? Bubley doubts it. “It is pushing as hard as possible on consumer 5G with mobile operators, although it has had some glitches. The enterprise bit is done in a separate division, so I’m not sure it’s really got much direct effect.”
Tomasi comments: “It is about developing private networks and enterprise 5G alongside its traditional business, and not as a replacement. Even highly promising verticals such as manufacturing will see a steady growth rather than a spike, as many pieces – devices, onboarding, education – need to fall in the right place for the market to really grow. And that will take many years.”
But Gergs at ABI repeats that enterprise-grade 5G is the only 5G story in town, or will be by the time the book has been written anyway. “The whole telco industry needs to understand the long-term revenue opportunity with 5G is in the enterprise domain. Consumer rollouts will not pay back [on] the necessary investment in 5G. So it is not surprising to see all vendors gearing up and targeting enterprises,” he says.
ABI has run the rule on 5G pay-back; it will take 15 years for the telecoms industry to get a return on its 5G investments in the consumer space alone, and 10 years “if enterprise business models are in place”, it reckons. It projects revenues for private 5G to reach $32 billion by 200. This looks, well, big, but also kind of meaningless. The 15-to-10 reduction seems more significant, although hardly the kind of ROI fast-tracking the market-sizing seemed to suggest.
What was it again? Nokia counted-out its industrial targets two years ago, quoting research, and came up with almost 15 million (14.58 million) potential venues for private LTE and 5G. “Ten million factories, three million warehouses, 50,000 mines,” ran the headline. “Its seven million macro-cells versus 15 million private LTE sites,” ran the text. Does that stack up? Does it justify the interest from network vendors, and the ecosystem looking to piggyback on the 5G ride?
“Probably not, no,” says Bubley, responding to the question about market-sizing, and making judgement on the potential share available to the likes of Nokia. “There’s a lot more competition on the enterprise side, for a start – tons of vendors looking, and a much easier target for the cloud players. It depends if they can layer extra solutions on top of the connectivity, or make consistent money from the systems integration, maintenance, and outsourcing.”
Gergs says the 15-million figure is about right, but reckons a chunk can be dismissed out-of-hand. “The number is reasonable, though optimistic.” Again, ABI has run the numbers; it has counted-up the enterprise space and come up with 16 million venues, in line with Nokia’s quoted figure. This covers manufacturing plants, mines, oil and gas fields, shipping ports and airports, plus train stations, farms, retail outlets, and financial institutions.
But Gergs adds: “Not all these are potential customers for private wireless.” A proportion will not be interested, quite simply. The retail sector, for example, which does not even register in Nokia’s count, is a market-too-far. “It would be very ambitious to believe that by 2030, say, all retail outlets would be fitted with private cellular.” He says, as well, that “one-to-two percent” of every vertical should be counted-out of the math(s), straight away.
“There will be enterprises in each vertical that will never deploy private cellular connectivity,” he says. But these are small potatoes; the real challenge to this telco-wide drive on private wireless is general resistance and constraint in industrial sectors around capital investments in infrastructure.
“A large proportion of these enterprises will be hesitant; the adoption rate will be low to begin with and only pick up over time. So, yes, while the total addressable market could be around 15 million [venues], it will be slow, [and only] gradually… convert into actual business opportunities,” says Gergs.
What about the rest of the market – which might be considered to be more significant competition than the question suggests? After all, hyper-scalers are busy in the sector, plugging the gap in their so-called ‘end-to-end’ Industry 4.0 offers with purchases and partnerships. Microsoft has picked up Metaswitch and Affirmed Networks to offer cloud-based core networking to enterprises, and AWS is partnering with the likes of Athonet, Druid Software, and Federated Wireless to offer the same in its AWS marketplace.
Are they rivals to Nokia et al for supply of radio networks, as well as for core components? On balance, most think not; infrastructure is just that – a limited platform for more-limitless ambitions.
Tomasi reflects: “I don’t believe infrastructure provision is their goal; they are after what goes on top of the infrastructure – although the acquisition of Metaswitch suggests it is a part of Microsoft’s strategy. Most importantly, with their marketplaces, they can provide more resonance to niche vendors and alternative service providers, like Athonet and Federated Wireless, and thus drive competition.”
Bubley says: “Microsoft has a core-as-a-cloud offer with Metaswitch and Affirmed Networks. AWS is hosting other vendors’ cloud elements. For both, I think they see enterprise cellular as a stepping stone to sell cloud platforms to telcos. It remains unclear if either will get into the open RAN space with radio offers.”
As an aside, Microsoft is “undermining its telco strategy by acquisitions”, says Gergs, of its deals for Affirmed Networks and Metaswitch. He thinks AWS’s partnership approach is better. “Because it combines existing resources and know-how,” he says. Either way, they are formidable competitors, and likely have the edge. “AWS and Microsoft will become important players in the enterprise connectivity landscape,” he says.
Tag-along core network specialists will do well, too, he suggests. “They will win from their partnerships with hyperscalers.” But he zooms-out, and sums-up. “In the end, the key to success will be to provide scalable co-activity solutions for medium-sized enterprises. While the telco industry struggles with this, the hyperscalers are experienced enough to design these offerings and therefore offer serious competition for the telco industry,” he says.
