Nokia surprised a lot of people by beating Q2 forecasts, sending its stock up on July 21st. It’s beating rival Ericsson in stock performance for 3, 6, and 12 months, too. Ericsson, as I noted in a blog on July 18th, has bet billions on a Vonage acquisition, and Nokia seems to have been on an open 5G model. Why have the two taken different paths, which seems best tuned to market conditions, and what does this all say about the telecom space? That’s what we’ll look at today, starting with Nokia.
While Nokia has been criticized for being “open in name only” with respect to 5G, it has certainly moved to support the open model. I summed this up in my blog, so rather than repeat the criticisms, I want to look at whether the open approach has been helpful.
Operators have long been concerned about vendor lock-in, particularly in mobile infrastructure. The problems Huawei has been having, relating to the US government’s position on the company and the use of its technology, has raised the perceived risk level. Open-model 5G, including O-RAN, is a logical response, but it wasn’t something Nokia cited explicitly on their earnings call last week. They stressed execution and managing the supply chain issues, which is kind-of-pablum for earnings calls these days. The only mention of 5G was the comment that Nokia got off to a slow start and has caught up.
To a degree, Nokia is a kind of natural winner in the 5G space. 5G is a combination of mobile network upgrade (and Nokia has a division for that) and a general infrastructure capacity upgrade (for which Nokia also has a division; two, if you count optical separately). It’s always an advantage to cover most or all of the bases in a network upgrade like this; if you don’t the other vendors you admit may fight you for some or all of the pieces. Both Nokia and Ericsson can provide mobile-specific transport elements, but Nokia has a pretty strong general metro infrastructure story.
Did Nokia’s open-model embrace help, then? A quick check of comments operators have made to me about them was interesting. Roughly five of every six said Nokia was “open”, far more than competitor Ericsson garnered. Slightly less than half said that “open” was an essential attribute to them, so that suggests that Nokia had an advantage among roughly 38% of operators I sampled. Nokia and Ericsson matched each other in other “essential” attributes, like expertise, cost, and support for the required feature set, so this is a good thing for Nokia.
Ericsson, as I noted, didn’t fare as well with “open” comments. Only two operators in five said they were “open”, slightly less than half the number who described Nokia that way. Ericsson doesn’t have the product breadth in metro infrastructure Nokia has either, which gives Nokia an edge that’s difficult to measure.
What about Ericsson’s Vonage acquisition? As I noted in my blog on the deal, Ericsson seems to be focusing their attention on UC/UCC services, which are connection services. That’s a comfortable place for operators, but it doesn’t move the ball all that much, particularly when the same sort of services could be offered as OTT services (as Vonage has been doing). However, almost the same percentage of operators who thought Nokia was “open” thought that the Vonage deal “could be positive” for Ericsson’s customers.
Wall Street didn’t like Ericsson’s quarters; their stock took a hit. Nokia’s went up on their own quarterly results. On the basis of all of this, it would appear that Nokia has positioned itself better, but it’s not totally clear what role “open” participation had in their results.
We might even be justified in saying that Nokia may have staved off open-model 5G just a bit, if one takes the broadest sense of the term. Operators, confronted with no major/credible vendor who promised an open-model 5G, might well have been way more active than they have been in seeking open solutions from less familiar vendors.
The problem those less-familiar vendors goes beyond the obvious point that they’re not the usual suppliers of mobile or telecom infrastructure. Because few vendors provide the actual RF components of a mobile network, and many of the most active supporters of open-model 5G are smaller firms, their solutions are necessarily integrated offerings. Operators have long been wary of this model, making exceptions largely when one member of the open project is a giant in another space. That’s one reason, IMHO, the operators have been promoting a public cloud strategy.
The other reason, of course is that 5G service requirements spread far beyond the traditional wireline footprint of operators. That means that they don’t have real estate to place metro hosting in all the places where they need, for competitive reasons, to offer service. This is the best reason I can see for the Ericsson/Vonage deal. If Ericsson could use the Vonage platform to create a means of “federating” the elements of a 5G service, or even offer to be the “interexchange player of last resort” to link locations away from where an operator would have facilities for hosting, they might be able to fend off the public cloud people. If that were the case, Ericsson could expect to see its fortunes improve considerably, and literally.
Another possible reason for the deal is the AT&T link I mentioned in yesterday’s blog. If AT&T is seeing a need to transform its business voice services to VoIP and a universal 5G platform, then the use of the Vonage platform might help, and it might be at least a contributing reason for AT&T’s selection of Ericsson in its 5G expansion.
For Nokia, anything that could help Ericsson poses the principle risk to Nokia’s current success. As operators respond to commoditization in the connection services space, they are likely to have to elevate their current services, including voice, to something like OTT. Vonage could help support that transition too, and if Ericsson pushes Vonage’s platform properly they could generate enough operator interest to threaten Nokia’s momentum.
But is that likely? All telcos are conservative, glacier-like in their movement. Telecom vendors tend to be the same, and Ericsson has always been perhaps the Great Marketing Sloth in a group that’s pretty slow overall. Nokia, with so many different corporate DNA contributions over the years, has at least some senior people with a more aggressive background. There are a lot of ways they could fend off this latest Ericsson push, and if they do they may take the top position in the telecom infrastructure space for quite a while.
We can’t declare Nokia’s upside a victory for open-model networking, and it’s too early to say just how well Ericsson will, or even can, play its Vonage acquisition. Any way you look at it, the Nokia/Ericsson and AT&T/Verizon duels suggest that we’re in for some interesting times in telecom.