According to Light Reading, a senior Ericsson exec doesn’t think that 5G will kickstart telecom spending. Ericsson also issued a profit warning, causing its stock to take a big hit. That this is even a surprise is hard for me to understand, frankly. Telcos have been telling me for years that they couldn’t continue to invest in infrastructure with their profit per bit declines. That means they’ll spend less on vendors. Even the notion that 5G would save things is baseless; technology advances don’t improve profits just because they’re “advances”, and linking 5G to a business case has been challenging.
Don’t count out 5G, though. The value of 5G is less in its ability to drive change as in its potential to focus it. Most operators have planned for 5G evolution, to the point where advance funds are being set aside for spending as early as 2018, and growing through 2022. One of the challenges in transformation is finding a vehicle to showcase early activity, because rarely do technology shifts create benefits as fast as they drive costs. So, Ericsson is right in a sense, but perhaps missing an opportunity in another.
There are really only two product areas that are assured budgeting in the next five years—wireless and fiber (particularly metro). We are going to see a lot of incremental spending in these areas even if we don’t see a specific technology transformation like 5G. Vendors who have strong assets in either space have an inside track in presenting a broader strategy, one that could address the problem of declining profit per bit and the growing interest in a new model for networking.
In the 5G space, the near-term opportunity is metro fiber deployment aimed at enhancing FTTN deployments with RF tail circuits to replace copper. The one application for 5G that operators really like, and that they’re prepared to invest in quickly, is that FTTN-tail mission. Everyone in the telco space is concerned about the race for residential bandwidth, a race that cable companies with their CATV infrastructure are better prepared to run, at least in the downstream capacity sense. FTTH, like Verizon’s FiOS, isn’t practical for more than about a third of households, even presuming better passive optical technology down the road. 5G RF tails on FTTN would be a good solution.
5G-FTTN would obviously drive up metro bandwidth needs, but it could also pull through at least some additional 5G features, like network slicing to separate wireline broadband from mobile use of the same remotes. Slicing might also be useful for operators who want to offer IPTV separate from the Internet. SDN could well be accelerated by 5G-FTTN too, to provide efficient connection between metro content cache points and customers. Even NFV might benefit, particularly if the 5G-FTTN remotes were applied to business sites.
Fiber players have an even better shot, though. At the easy level, lower-cost fiber capacity with greater resiliency and agility (via agile optics) could reduce operations costs directly by reducing the number of “actionable events” that the higher layers see. The big and still unanswered question of fiber deployment is the extent to which fiber could change the way services relate to infrastructure. Could you combine fiber and SDN to create electro-optical virtual wires that would separate services and even customers? Could that reduce reliance on traditional L2/L3, and the need for security devices?
A combination of fiber, SDN/electrical virtual wires, and hosted switch/router instances could build virtually all business services and also frame a different model of broad public services like the Internet. The result could be a significant reduction in L2/L3 capex and operations cost and complexity. My model says that you could largely resolve the profit-per-bit problem for 20 years or more, simply by combining service lifecycle automation and virtual-wire-and-hosted-instance service-layer infrastructure.
All this frames what may be the real problem for Ericsson. We have fiber players—Ciena, Infinera, ADVA. We have mobile players, like Nokia. Just what kind of player is Ericsson? They don’t have a strong device-and-technology focus, which means that they don’t have a natural way of engaging with the buyer, a foothold technology that could be leveraged to bigger and better things.
Professional services are a great way to turn limited product offerings into broader engagements, but you have to be able to present a minimum product offering to take advantage of that. If Ericsson stands for anything at the product level, it would probably have to be software, and yet they’re not known for that either. Either they have to make themselves the first real “network software” company, or they have to spend a lot of marketing capital making a service-and-integration-based model into the centerpiece for the network of the future.
The same problem exists at various levels for the other vendors, of course. You can think of optical networking as selling more fiber, without facing the overall shifts that would drive the buyer to consume it. You can think of 5G as a dry set of standards whose adoption (presumably simply because they’re “newer” than 4G) will be automatic, and never see the business cases that you’ll somehow have to support. In those cases, you’re stuck with a limited model of your business that can succeed only if none of your competitors do things better.
The biggest problem network vendors face is in the L2/L3 area, where people like Cisco and Juniper now live. There is nothing ahead for L2/L3 technology except commoditization or replacement by a virtual-wire-and-hosting model. Cisco has hosting capability, and I think they understand that they have to change their business model. Juniper still rides the limited data center networking trend, because they’re small enough to live there. Neither has really faced the longer-term reality yet, which is that you can’t support the end game of network infrastructure evolution if you don’t play in the deals that drive it.
We are, in networking, facing the most significant set of changes that have ever been presented, far more significant than the transformation from TDM to IP and the Internet. We are rebuilding society, civilization, around network technology. That this would create enormous opportunity is a given; that the network vendors will fail to recognize it isn’t yet a given, but we’re running out of time. That’s what Ericsson proves, to themselves and to the rest of the industry.