Let’s face it, when there’s an uncertainty in a market, companies get antsy because investors do. When the uncertainty is doubled because the sellers and buyers both have issues, they get real antsy. So it is with telecom, and a Light Reading article on Ericsson is a good indicator.
The basic problem with telco equipment vendors today is telco buyers, and their problem (as the article seems to demonstrate) is 5G. But the vendors have their own issue here; for decades vendors have depended on the advance of telco standards rather than growth in telco opportunity to drive growth in infrastructure spending. Remember the old joke “We’re losing money on every deal but we’re making it up in volume”? Telcos are at the mercy of their own customers, who are happy to get new service benefits only if they don’t have to pay for them. So, there’s little or no realistic revenue opportunity driven by things like 5G, and 6G will almost surely be the same. Invest to stay competitive, even if you can’t earn any incremental return on that investment? Not a formula for buyer success, or one likely to drive enthusiastic spending.
I’ve blogged a lot about why 5G missed and 6G will also, so I don’t propose to go through that again here. There is nothing that can be done for 5G at this point, and little chance that the essentials needed to make 6G a success will be seized by telcos or their vendors. Little, but non-zero. Ericsson rival Nokia has been making determined efforts in the real-time services space, and some telcos say they’re buying in to the story, but there’s a big barrier in play here, those investors.
5G hype was hype, and 5G didn’t measure up, but while that’s now curtailing mass infrastructure spending, it did generate some spending. The problem is that 6G is a 2030 story, and that’s just too long for either telcos or vendors to wait. It doesn’t have to be, but the fact is that the Street simply won’t believe in telcos driving an opportunity, only in implementing a standard. So Ericsson and others are faced with cost-cutting; the article subhead “The axeman cometh” is appropriate. Given that (as I noted last week) most of the opex apples have been picked, this means focus will fall more and more on the capex side, to the disadvantage of the telecom vendors.
The notion that AI might save things here seems optimistic; telcos would have to make a massive investment in edge computing, which I think is impossible unless their vendors make massive progress in building a realistic AI platform ecosystem, and that would almost surely require them to move way faster than their own history suggests they can. What might help? M&A on the part of the vendors, but what telcos tell me is that they don’t believe their vendors are willing to chase the right startups in competition with the AI giants.
Could there be startups, meaning VCs, willing to go after telecom-centric opportunity? That happened a couple decades ago, but likely because it seemed that could be an avenue for a fast flip. VCs don’t see that today because of the same AI-giant situation I’ve already mentioned. Cloud providers see an urgency that telcos do not…yet.
This whole thing, IMHO, is driven by the telcos’ supply-side mindset. There is no such thing as opportunity for a supply-side type. Buyers simply have to be presented with your services, in classic field-of-dreams-think. Standards, since they operate on infrastructure, are supply-side elements. By ceding the discussions on opportunity to standards groups, telcos avoid having to change their thinking. Of course, this works only if the standards groups are better at opportunity thinking than the telcos, which is unlikely given that telcos and telco-centric vendors make them up.
Still, it’s almost certainly a waste of time to talk about massive changes that somehow bypass standards dependence. That’s particularly true of vendors. Even in the article, it’s clear that Ericsson lays blame for the failure of 5G more on a too-slow transition to the standalone form (5G SA) from the early (NSA) evolutionary form. To expect a 5G SA deployment without an NSA evolutionary path would have raised immediate 5G capex and offered a longer-tail spending period because SA would have been adopted more fully at any given point. But would this have increased RAN spending and favored the telco vendors who had RAN technology to sell, like Ericsson? The only way you get more 5G RAN is to displace 4G and 3G, which means disconnecting their phones, which means churning customers for telco services. This isn’t smart thinking, folks.
Ericsson’s investment in Vonage, done ostensibly for the “enormous” API opportunity, has been a failure, as the article also points out. Realists, a group I count myself among, never believed it would pay off, and having sales dropping by 17% sure doesn’t sound like a good payoff to me. I think you can make the same statement on private 5G. Yes, there are verticals where it makes sense, but it was never a big opportunity, and the majority of the private 5G opportunities can be realized by cloud providers like Amazon or Microsoft (for which, however, private 5G has also failed to pay off).
“Patience is wearing very thin,” says the article in closing, and I totally agree. But impatience, the thing that has to be waxing if patience is waning, doesn’t equal a business policy change, and that’s what Ericsson and other telco equipment vendors need. I think that the parameters of a successful strategy are pretty clear, and have been so for a decade. Public network services is inherently a mass-market business, for which you need (surprise!) a mass market. Telco equipment vendors can’t sustain their businesses when the mass-market component is languishing by looking for niche markets.
Nokia’s interest in emerging real-time applications and services is surely a better approach, in terms of potential, but even Nokia isn’t pushing their themes effectively. Yes, part of that is because there’s a lot of work needed to promote a concept like real-time, latency-sensitive, applications, but if you’re going to bet on that and at the same time dodge that work, you’re wasting your time and money. Which, sadly, is what all the telco equipment vendors including Ericsson are doing in one way or another.
