What happens when a market runs out of new customers? What happens when a media hype wave collapses? What happens when you’re a vendor looking to improve your credibility when all this is happening? Nokia is likely going to find out, or at least some financial sites are suggesting it will.
Nokia, like other vendors with a lot of exposure to the telecom market, has faced some hard times as telcos put pressure on capital spending plans. How do you respond to that kind of problem? As the second piece I’ve cited suggests, operators themselves seem to recognize that they need a business transformation, but fail to accept that “transformation” inevitably means moving into new and probably uncomfortable directions. One reliable driver of telco capex has been next-gen wireless standards, but 5G has failed to deliver hoped-for growth and 6G is (besides being at risk for the very same sort of disappointment) too far out in the future to be much help in keeping profits and stock price up in the present. What Nokia seems to be doing falls into three areas.
The first is what we could call “5G reaffirmation”. 5G’s buildout isn’t done; there’s still a ton of mid-band life left in the standard, and of course APIs are an explosive opportunity yet untapped. Reports of the death of 5G capex have been greatly exaggerated.
The second is AI, particularly AI in network operations missions. OK, maybe new revenues for connection services haven’t developed, but you can improve profits by lowering costs. Apply AI to traffic analysis, capacity planning, roaming efficiency, and you save the telcos.
The third is partnerships, aimed largely in both the 5G and AI areas. Another channel to the customer means more engagement, right? That new channel may also create visions of telco revenue that Nokia itself can’t quite get a handle on. That raises Nokia’s own revenue as telcos invest in equipment again.
OK, three strategies is better than none, right? Let’s look at them and see.
There are surely things that remain to be done in 5G, but that’s not the same as saying that there’s nascent opportunity. Buyers of technology tend to focus first on stuff that makes the best and easiest business case, and work toward that important boundary where ROI no longer justifies an investment. Low apples, right? Well, the 5G tree is pretty bare where fruit is attractive and easy to reach, and even if there’s stuff that might be reached by stretching, it’s not going to be enough to sustain the level of capex we saw in 5G’s heyday. Spectrum-related capex growth is possible where operators can monetize the cost of licensing and the necessary equipment investment, but if there were an enormous pent-up opportunity there, we’d be seeing evidence of it in telco budget planning, and nobody claims to see that. Same with APIs and things like 5G SA. Wishing and hoping and planning and dreaming aren’t a strategy unless hype is all you’re trying to build.
AI? OK, it’s hot, but we’re already seeing growing skepticism about the business case for AI. Yes, it’s generating a lot of interest, but how much of that is going to translate into a telco opportunity? Truth be told, just the focus on the operational missions of AI is an admission that AI isn’t likely to be a telco service opportunity. And how much profit can you ring out of using network infrastructure more efficiently. More significantly, how does an equipment vendor win in that game, given that the cost savings is pretty likely to come by having telcos spend less on infrastructure?
How about partners, then? This is a harder one to evaluate. On the one hand, a partner as a product channel dilutes a vendor’s margins. On the other, it does increase feet on the street, but if the buyer community is limited and known to the vendor (telcos fit this), if buyer budgets are the problem, then what good is a partner? But if the partner is better at innovating than the vendor, and if they can innovate their way into a new service and revenue model for the telcos, it could be good, even great.
That’s a big “if” though. To most vendors these days, AI announcements are just for show, lacking any convincing path to buyers’ making a major business case. Even if the companies involved have a real interest in moving the ball, the hype and the need to deliver something quickly may combine to derail any serious effort, and that’s particularly true if the AI story is tied to 5G.
I understand the need of vendors like Nokia, who have won deals based on their mobile network incumbency, to try to leverage every shred of opportunity that may remain in 5G, but I think that the situation with telco infrastructure spending has fallen into a deeper hole than shreds of something can deal with. Not only that, I think it’s clear that vendors’ reliance on regular standards changes to drive investment isn’t working, which means that 6G isn’t going to deliver vendors from capex pressure.
Any successful tech vendor who’s survived decades of industry evolution knows that any technology, any service, is going to mature and exhaust its total addressable market (TAM) and the value propositions buyers can harness to justify spending more. The key is to use the maturing technology as a jumping-off point to something new. IBM has proved itself a master of this, and Nokia has to look at the IBM model if it wants to advance. In the near term, I think that means two things.
Thing One is that as 5G matures, the best business cases for it are taken, leaving steadily more marginal ones on the table. Cost management is inevitable, which means that a realistic view of how 5G costs could be managed via AI would be smart. Opex should be the target, though, not “efficiency”, which implies managing resources to reduce capex, the same capex that’s revenue to Nokia. In my last blog, I talked about AI netops shortfalls, and Nokia is in a position to deal with them, particularly if they draw on partnerships that have meaningful goals in that area.
Thing Two is that cost management vanishes to a point. You cannot build a business, or sustain one, by relying on making everything cheaper and cheaper. You will run out of runway. Telcos can only spend more on infrastructure in the long term by earning more service revenue. Past initiatives aimed at generating new revenue have been, to be frank, pathetic. Yes, telcos resist change, but you can’t tell someone who’s on the deck of the Titanic to have another drink and listen to the music because the water looks cold.
You can’t tell them to wait for the Lusitania, either. All connection services are sinking ships. What Nokia needs is a realistic evolutionary path for telecom services, and an infrastructure model that supports it. Having that in hand, it’s fine to smear some strawberry jam on an unappealing cracker, to build a path to the future that’s more appealing than simply jumping overboard. Rescue is a long way off, through a lot of cold and discomfort, but a lifeboat can get there. Give telcos sight of the rescue ship, and a lifeboat to ease the transition, Nokia. It’s the only way to save them, and it will guarantee your own future too.
