Competition for the New Nokia – Part 2

[Editor’s Note: To see part 1 of this article, click this link.]

In addition to Huawei, which is also a global leader in smart phones, the new Nokia will surely face competition from the recently announced partnership between Cisco and Ericsson in which the companies will jointly develop new products for telecom and cloud service providers.

According to Cisco’s press release, “In a world driven by mobility, cloud, and digitization, the networks of the future will require new design principles to ensure they are agile, autonomous, and highly secure. Ericsson and Cisco will meet this challenge together by offering end-to-end leadership across network architectures including 5G, cloud, IP, and the Internet of Things – from devices and sensors to access and core networks to the enterprise IT cloud.”

The press release notes that the partnership would bring in incremental revenue of $1 billion for both companies in 2018. Under the terms of the partnership, Ericsson will also receive patent licensing fees from Cisco.

According to Dell’Oro Group, Huawei, Ericsson, and the combination of Nokia and Alcatel-Lucent are the top three players in the worldwide market for wireless infrastructure equipment. These three are closely ranked, with each having 25% to 30% market share.

Ericsson is a pure play wireless equipment and managed services vendor while both Huawei and Alcatel-Lucent design, develop and sell BOTH wireless and wireline gear. Alcatel-Lucent subsidiary Nuage Networks develops software for cloud resident data centers and specializes in network virtualization/overlay model of software defined networking.

Telecom Equipment Market & Growth Areas:

Service Provider Telecom Equipment market comprising the Access, Carrier IP Telephony, Microwave, Mobile RAN, Optical, SP Routers, SP WiFi, and Wireless Packet Core markets, are set to improve between 2014 and 2019, according to Dell ‘Oro Group. That market research firm forecasts that the Service Provider Telecom Equipment market will be $26B higher than the comparative five-year period (2008-2013).

We think there are three huge growth areas that telecom companies really haven’t yet penetrated in a big way: cloud computing networks (from customer premises to cloud service providers point of presence), software defined WAN (multiple reference models), and Internet of Things (IoT). While analyzing these are beyond the scope of this article (contact the author if you’re interested in a consulting arrangement to do so), we believe gaining market share in these markets will be critical for the big telecom equipment companies.

Internet of Things (IoT Market):

According to IDC, the worldwide Internet of Things (IoT) market will grow from $655.8 billion in 2014 to $1.7 trillion in 2020, with a compound annual growth rate (CAGR) of 16.9%.

Devices, connectivity, and IT services will make up the majority of the IoT market in 2020. Together, they are estimated to account for over two-thirds of the worldwide IoT market in 2020, with devices (modules/sensors) alone representing 31.8% of the total. By 2020, IDC expects that IoT purpose-built platforms, application software, and “as a service” offerings will capture a larger percentage of revenue.
Research and Markets forecasts the IoT in manufacturing market size to grow from USD 4.11 Billion in 2015 to USD 13.49 Billion by 2020, at a compound annual growth rate (CAGR) of 26.9%. Manufacturer’s need for operational efficiency has increased the utilization of sensors through enhanced automation and integrated connected technology solutions across the manufacturing process, which, in-turn, has increased the demand for IoT solutions for various manufacturing applications. Other driving forces include decreasing hardware and connectivity cost and increasing penetration of connected devices. The target audiences of the IoT in manufacturing market report are solution vendors, manufacturing equipment suppliers, system integrators, advisory firms, national regulatory authorities, venture capitalists, private equity groups, investment houses, equity research firms, and other stakeholders.

IoT Opportunities & SigFox’s IoT Network:

In addition to connectivity, which is expected to be mostly wireless, there are many IoT opportunities for telecom service providers (SPs) and equipment vendors. Those include control and management, service provisioning platforms, big data/analytics (making sense of the huge volumes of data collected from things), and privacy/security sub-systems.

France based service provider SigFox has built their own 2G-like network that’s just for the IoT- there are no smart phones or tablets connected! They have already started initial IoT network deployments. Fierce Wireless reports that San Francisco is the first U.S. city to receive Sigfox’s connectivity; the other cities Sigfox plans to launch in by early 2016 are New York, Boston, Los Angeles, Chicago, Austin, Houston, Atlanta, Dallas and San Jose.

“The Internet of Things can bring new opportunities to San Francisco — the Innovation Capital of the World,” said San Francisco Mayor Ed Lee in a press release. “Creating a network of this kind, the city will be able to attract new startup companies, strengthen existing businesses and provide more jobs, economic growth and continuing prosperity for our residents. I’m excited that the Internet of Things network will help the city deliver more efficient services for residents and opportunities for innovation for entrepreneurs.”

Network Requirements for IoT Traffic:

Security and privacy will likely receive a lot of attention. As IoT devices become more and more prevalent in our lives, their usefulness for applications like healthcare, energy and home monitoring will demand their awareness of increasingly personal information, or at least information that easily be profiled back to you once it’s analyzed as “big data’ in the cloud. Service providers will need to implement sophisticated network security systems that meet the expectations of both consumer and enterprise customers.

Network availability will be critical for many IoT applications. If critical infrastructure systems like industrial control, emergency, healthcare and security are going to be sending time-critical traffic over a service provider network, they need to have a very high degree of confidence that the network will be up and all the networking services will be working. Enterprise-class availability (three-nines or 99.9% up uptime) won’t be adequate: these services will demand the six-nines reliability (99.9999% uptime) that today is only achieved by telco-grade networks. Again, there will be a wide diversity of requirements for network availability, reliability and resiliency: some IoT applications will tolerate packet loss while others will demand maximum fault tolerance.

The latency (and jitter) of service provider networks will have a strong impact on the usefulness of many projected IoT applications. If you’re driving a connected car with the expectation that traffic lights or sensors are going to react to your presence, a one second delay at 70 miles an hour means that you’ve travelled 100 feet. A lot can go wrong over that time and distance. Quality-of-service (QoS) segmentation will allow service providers to position (and price) different service levels for different use cases.

All these issues point to the need for highly-reliable, low-latency, secure infrastructure platforms in service provider networks optimized for IoT traffic.  It remains to be seen if the SPs and vendors capitalize on this mega-trend.  What role the big telecom gear makers play in IoT is anyone’s guess.

Click here to read part 3, Threat of Disaggregated Network Equipment.