NSN has changed ownership but not its name, it’s simply changed what the acronym decodes to. “Nokia Solutions and Networks” is actually kind of appropriate at two levels. First, obviously, it conveys Nokia’s sole ownership of the venture. Second, it conveys that what NSN has been turning into is a “solutions” or professional services player. By shedding more product lines, NSN has actually anticipated a general trend among the giant telecom vendors—spin off or sell off the low-margin stuff where you can’t differentiate on features and abandon those fields to Huawei or ZTE.
If you ran a plumbing supply store, you might find yourself with a mixture of pipes and fittings on which you earned maybe 15% gross margins, some fixtures like toilets that gave you 30% margins, and some gilt-edged toilet seats that delivered 100% margins. You might also have an installation department that delivered 40% margins. If customers were looking for one-stop shop, your profits on an overall plumbing job could be decent. The problem comes when they start shopping around for all the pieces, acting as their own “general contractor”. Then you’re forced to stop carrying the low-end stuff because you can’t compete on price, and that low-margin basement product set doesn’t pull through the good things.
The question is whether, once you’ve done this, you see enough deals. When a customer wants a new toilet they likely want a new seat, and if you sell only seats they get used to seeing the guy who sells both seat and toilet. They then go to that supplier when they need a seat alone. The moral is that you can’t shed pieces of a natural ecosystem. NSN wants to supply mobile technology, which at one level seems like an ecosystem but which is really a part of a larger system called “metro”. That makes them vulnerable.
You probably know by now that I’m a champion of metro networking as the foundation for carrier spending and vendor opportunity, but I have a good reason. First, everybody invests where they get return, and metro return is in some cases ten times core return. Nearly all the profitable traffic operators carry never gets out of the metro network. Second, metro is being transformed by ecosystemic pressure, which means that the combination of metro toilets and metro seats (so to speak) is highly valuable to buyers.
One ecosystemic pressure on metro is SDN, which is a technical response to the problem of low return on access bandwidth. Operators want to flatten the OSI layers to reduce both capital and operations costs, and SDN offers a theoretical way of doing that. I emphasize the “theoretical” because there have been few presentations of SDN that actually live up to potential. Operators today tell me that there has been no significant improvement in metro economics other than the consistent reduction in unit cost we’ve seen all along. Price is falling faster, so that’s not enough.
Another ecosystemic pressure on metro is created by NFV. NFV is a kind of one-two punch in terms of impact. In the near term, NFV evolution is justified by the reduction in capital spending on custom devices. In the middle term, the key is the operationalization of cloud-hosted services and features, and in the long term it’s the agility that software-based networks offer in responding to market trends. But whatever drives NFV deployment, the impact of it is to create a different style of metro network, almost an overlay or parallel structure. The “metro cloud” is a highly meshed collection of NFV-justified data centers, some as small as perhaps a rack or two of gear and some large enough to change local weather. Metro today is an aggregation network. Further, this future metro cloud becomes the way that we deliver things like content and even the way we manage mobility. There’s a continuous connection between it and the old aggregation structure, and that creates this highly dynamic ecosystem. If you can supply the metro of the future, then you win. You can supply the metro of the future if you can supply the key elements in the metro cloud. The rest of the infrastructure is just those low-margin pipes and fittings.
So where does that leave NSN? My view is that they believe that because mobile networking, meaning things like IMS and the RAN, are getting more capital attention than the rest of the network, they can leverage a mobile win and control enough accounts. My view is different; NSN wants the toilet seat to pull through the toilet. In order to gain conclusive control of metro without having all those cheap pipes and fittings, NSN has to command the metro cloud and that’s a very tall order for a company without a shred of cloud DNA.
Even that won’t be enough, though. Anyone who has ever shopped for bathroom fixtures knows that advertising is a big part of any victory a seller might gain. Nobody becomes a retail giant by building a store somewhere and then hoping people will stop in on their way by. You have to draw people in, and that’s something network vendors are truly awful at in general, but that the Eurogiant vendors have been particularly bad at. Does NSN have an SDN, NFV, and cloud position? Not really; they said they were addressing “business issues first and technology issues second”. The problem is that buyers in the metro space are looking for technology that transforms their business, and the NSN articulation seems to be a set of goals without any realizations (see http://www.lightreading.com/packet-core/nsn-unveils-its-technology-vision/240156505).
NSN didn’t change their acronym, and that’s a good thing for people like me who would otherwise struggle for six or more months getting used to a new name. The real question is whether they changed anything, and that’s the question I now want them to answer…for me and for the market.