Once upon a time, the wireless equipment industry was a whole separate industry. The Network Equipment Providers (NEP) like Nokia and Ericsson made gear only for wireless operators, and they made a lot of money doing it. Then the world changed, put another way, the Internet happened. We will skip the technical details, but the end result was that the telecom operators started using standard Internet gear for their core networks. Lucent used to make these hugely profitable switches, but like some species of gazelle that over-evolved to eat only one species of savannah grass, those switches only worked for telecom operators. Then the climate changed, that species of grass disappeared, and the operators started buying switches from Cisco which now cost a couple orders of magnitude less, and Lucent does not exist anymore.
To survive, the remaining NEPs pushed into services, managing the operators’ networks for them, and essentially doubled down in making gear for the other half of the network – the Access layer, base stations and the like (i.e. the Radio Access Network or RAN).
But the world kept changing, put another way, the Cloud happened. This is poised to hit the service side of the NEPs’ revenue. To make matters worse, the operators are not terribly happy about the RAN gear they are getting, opening the door to initiatives like Open RAN (about which we will have a lot more to say in another note). Put simply, Nokia and Ericsson are losing the legs of their business.
Yes, networks are sticky and slow to change. And yes, they NEPs still have offer important pockets of specialty products (like Nokia’s optical portfolio). But viewed from a high level, they are adrift and throwing out life lines.
One approach that they are taking is looking to expand their customer base. The idea being that as wireless networks get less specialized they get easier to build, which makes them approachable to large, non-telco corporates and government entities. This is problematic. The market for this is not that large yet, since most enterprises are going to rely on telecom operators to provide them with telecom services. It is a great opportunity for small companies, but hard to see it becoming a new pillar for the NEPs this decade.
Another problem is these companies lack an enterprise sales capability. We have written about this before. Nokia tried a major push a few years ago, but have not jettisoned both that plan and the management team that promoted it. Ericsson paid a $1 billion for Cradlepoint and then $6 billion Vonage on the plan that they could provide the kernel of a broader push into enterprise sales. Cradlepoint was a great company with great products, and Vonage has some solid software/API chops, but changing a company’s culture via M&A rarely works out.
Recognizing their limitations both companies have also been broadening their attempts to build “ecosystems”, partnering with other companies. Some of these seem worth trying. For instance, Nokia partnered with Bosch to jointly deploy Nokia’s wireless gear at factories running Bosch’s equipment. Others look more dubious, such as partnering with public cloud providers. Vampires do not need to be invited in your house to enter, that’s just a myth, but inviting them anyway is just going to make the carnage worse. All of these approaches leave open a very important question – what role does is left for the NEPs? If they are just providing RAN equipment, wiring into corporate IT systems that means they are just specialty systems integrators, which is not a great business.
We have a friend who installs high-end audio/video equipment for Bay Area companies. He makes a good living kitting out fancy board rooms (even in this economy), but he is forever at the mercy of the Electricians. And for some reason, Electricians hate AV installers. He is always finding his equipment tampered with, his wiring removed and a host of other “pranks”. A not so subtle reminder that all his work is dependent on the Electricians. That is the role looming for Nokia and Ericsson.
To be fair, both companies still have significant technical capabilities. Radios are hard to build and will get a lot harder in 6G. And Ericsson and Nokia still have a lock on their relationship with the telecom operators. That being said, they remain strategically adrift, with no sign of relief on the horizon.