Vendors Are Now Using Private LTE as a Trojan Horse to Enter Industry Verticals

Nokia is now laser focused on diversifying its revenue portfolio using its expertise in networking as well as its increasing capabilities in software and services. In its recent Global Analyst Forum, held November 5–7 at the Nokia Bell Labs in Murray Hills, New Jersey (United States), the company stressed its commitment to grow its revenues by driving connectivity and digitization in enterprise markets. This is a prime example of a network vendor with a comprehensive UnTelco strategy—a strategy that understands the opportunity provided by new sectors beyond its traditional carrier market. Among multiple enterprise markets, Nokia has identified the industrial Internet of Things (IoT) as a leading growth area.

The Global Analyst Forum was accompanied by several announcements that showcased the implementation of the company’s strategy. Nokia announced a partnership with Infosys to drive the digital transformation of industries and enterprises; presented its “Future X for Industries” strategy and architecture; and announced (in partnership with China Unicom) the deployment of a private Long-Term Evolution (LTE) network at the BMW Brilliance Automobile plant in China. While Nokia is on the right path to seize new emerging opportunities, there are challenges ahead, and, more importantly, the company’s ambitions in end vertical markets will affect the whole ecosystem in both the telco and the industry worlds.

Nokia’s industrial UnTelco strategy is built upon its “Future X for Industries” framework. The framework includes separate technology layers building on top of a high-performance networking layer that includes the multicloud layer, the digital value layer, and the application layer. This allows the company to offer an end-to-end solution that addresses multiple needs and leverages the company’s core expertise. However, this is still a strategy heavily dependent on connectivity (mainly cellular), and this can be a challenge in environments with proprietary and wired connectivity—such as in manufacturing. Providing services beyond connectivity can help to differentiate and to tailor the offering. However, Nokia;s offering must avoid becoming a derivative of a connectivity-focused approach.

While the benefits of wireless as an enabler of the IoT are obvious, not all sectors (with manufacturing as a clear example) have embraced it. Manufacturing has developed with proprietary and wired technologies in a market dominated by security concerns, long life cycles, low margins, and ease of deployment. This is a market where connectivity has been a commodity so far, and, consequently, using connectivity as an entry point will not be a swift and easy task. Among wireless technologies, Wi-Fi is one of the wireless technologies used in manufacturing environments. However, the technology is perceived in the sector as falling short in many key features, such as coverage, reliability, latency, and handover.

This creates an opportunity for a private LTE company to swoop in and deliver where Wi-Fi and other wireless technologies have failed. However, to do so Nokia and its partners will need to prove that the value that results from deploying a more expensive solution is worth the investment. With this entry path, a private LTE company could start by replacing Wi-Fi supported applications and then expand its support to an increasingly large number of new applications and use cases including Augmented Reality (AR) and collaborative robotics.

In many aspects, Nokia is setting the pace for other network vendors and Mobile Service Providers (MSPs) in terms of targeting adjacent opportunities in new end vertical markets. Nokia must now deliver on its strategy and be a pioneer in bringing the telco world into the end-market world and particularly into the industrial IoT space. To do this the vendor will have to prove that wireless technology is secure, reliable, and better to support the current and future needs of the factory. Nokia will have to strike a deal with visionary manufacturing companies to deploy private LTE networks that serve the customer beyond the factory floor and well into the supply-chain market so that they can show at a practical level why cellular is better than wired and other wireless technologies. This will not be an easy or quick task, as the manufacturing industry is conservative and does not easily embrace disruption. To accomplish this Nokia must build a deeper collaboration with leading industrial players. Since Nokia is one of the first companies from the telco world to significantly push end verticals, it will also need to spend significant time and money in educating the market.

Currently, the main risk for Nokia is to understand the need to deliver solutions to end vertical markets; however, it should not end up with too much focus on private LTE and thus fall into the trap of selling a product rather than a solution. For instance, private LTE will fit specific use cases and applications. Further, while digitization is shaping all industries, not all of them are embracing full disruption. Deploying a private LTE network is not a small task, and companies need to be fully on board with deploying a solution that heavily affects a large part of their business and their future development in terms of solutions, partners, and technologies. As connectivity is often perceived as a commodity, Nokia must not present connectivity as a prime offering but should present it as an underlying adaptable frame that supports a partnership ecosystem and opportunities such as edge computing, analytics, and so on. Private LTE must be an option among many.

Nokia’s strategy will start changing the traditional partnership dynamics of the industry, starting with a broadening of Nokia’s customer base. Expansion into end vertical markets and all vendors should happen now, and MSPs should accelerate and tailor their strategy to address one or more verticals, depending on that vertical’s size and capabilities. MSPs should fine-tune their end vertical strategies in the next year or so before the arrival of 5G or risk lagging behind a coopetition environment that is becoming less and less dependent on them.

MSPs must make difficult choices going forward. While they are often the go-to market partner for network vendors (as in the case of Ericsson), their position in the value chain is quickly shifting. License spectrum has been a scarce resource, and that guarantees their place in most initiatives centered on delivering connectivity. However, this resource is now opening up and moving away from their grasp due to regulatory developments and new initiatives. Germany seems to be set to license some of its spectrum in the upcoming auction for enterprise use. This will create a use case that, depending on its success, could well be replicated by other countries. For vendors, this initiative means a clear industry-government bet on opening up new end vertical markets where private networks could be the driver of growth. This is a great opportunity for vendors to accelerate their initiatives and deployments in this space. For MSPs, it potentially means the first end-market use case where MSPs are not essential partners. MSPs will still be able to play a role (for instance, in providing services such as running or managing a network), but they will have to become more competitive and enhance their ability to deliver services beyond connectivity, as their role in the space will not be guaranteed.