Telco Infrastructure Vendors Need to Ride a Wave of Creative Destruction to Address Industrial Verticals

Telco infrastructure vendors are increasingly pursuing new-growth opportunities beyond the traditional telco value chain. In tandem with the core telco market, there is growing interest in nurturing a disruptive growth wave coming from industrial digitalization and automation. Specifically, vendors are investing in new technologies that aim to replace the inefficient legacy industrial structure(s) of today with new automated and converged processes set to redefine the inner workings of asset-heavy enterprise segments.

Capturing the value that Information Operations Communications Technologies (IOCT) creates in enterprise verticals effectively translates into the convergence of Information Technology (IT) and Operational Technology (OT). For telco infrastructure vendors specifically, this calls for an evolutionary step change on three fronts:

• On the technology front, changes in management and orchestration for highly distributed capabilities, accompanied, of course, by End-to-End (E2E) Service Level Agreements (SLAs), Quality of Service (QoS), billing, and resource provisioning
• Organizational changes that empower the workforce with an industrial and software-centric mindset
• Educational marketing initiative to educate and guide industrials on the benefits of automation and digital transformation

All telco vendors, and particularly Tier Ones (e.g., Ericsson, Huawei, Nokia, Samsung, and ZTE), are currently attempting to transform their operations to address enterprise verticals. Growth in these verticals, however, calls for vendors’ organizational attitude and vision to align with the enterprise market digitalization needs and associated commercial value.

Nokia has announced its intent to pursue new growth opportunities in enterprise segments. The Future X for industries architecture is an endeavor that aims to redefine current industrial markets based on an intelligent architecture characterized by a distributed, deterministic, and dynamic network fabric. This extends across several of its products: Airframe servers, 5G infrastructure, CloudBand orchestration, analytics, and security. Further ongoing technological enhancements are still in the works, particularly for managing SLA complexity and provisioning heterogeneous Quality of Service (QoS) needs, as a truly E2E automated arrangement and the coordination of connectivity, network resources, and applications that surface atop the hierarchy may not be an easy undertaking. To that end, Nokia should institute a universal and unified orchestration stack that tracks data from digital and physical assets to monitor interaction and dependencies between multiple applications, resources, and connectivity channels.

Nokia’s push into enterprise verticals is a horizontal play that entails a diversification in a new (historically unrelated) market. This expansion leverages expertise coming from numerous vertical acquisitions. The acquisition of Alcatel Lucent is an example where a downstream vertical integration brought expertise in optical and IP. Analogously, the Comptel acquisition was also a vertical integration, but upstream, to further expand into Business Support System (BSS)/Operations Support System (OSS) domains. These vertical integrations put together differing core competencies that Nokia must fully harmonize to have a silo-free, holistic offering. Nokia should also outline and subsequently educate industries on how their proprietary, siloed systems could be integrated into Future X. A large-scale foray must be accompanied with an educational process that guides the industries on the benefits of the broader automation story.

Vendors’ solution set, whether acquired or organically developed, is one facet of a multi-faceted commercial opportunity. Given that enterprise verticals constitute an uncharted territory for telecoms vendors, Nokia—and all infrastructure vendors—  need to institute new business processes driven by enterprise-specific marketing initiatives and an appropriate organizational structure. A case in point is Nokia’s “Go Allwhere”, a company-wide marketing imitative that aims to advance the vendor’s strategy in enterprise verticals. Nokia is hitting the right note, but an effective enterprise proposition should be underpinned by an organizational vision and skills that elevates the vendor to a position where they can be seen as a valid partner that offers something beyond telecoms software and networking.

Nokia’s push into industrial segments raises a question for the wider vendor community: should they wait to gauge industries’ appetites for automation and high-performance digital networks, or should they shape an ‘industrial growth strategy’ on a “build-it-and-they-will come” basis? Infrastructure vendors are not typically seen as go-to partners for industrial automation, therefore they must trigger the right leverage points today to capture the value that will amass tomorrow. For example, while the automation and digitalization of industry verticals may well be the hallmark of a new growth imperative, for vendors to be fully entrenched in this emerging value chain, they must highlight the (economic) utility that industries receive from the adoption of the “new” digital offerings. Scale remains a key determinant for industries; therefore, vendors must institute E2E management operating models, clear governance structures, and enterprise-specific commercial models that outline the true benefits and value add that goes beyond the “structural” and automated telecom processes. To meet and exceed the complex demand of industry verticals, the vendor community should seek to understand pertinent unique enterprise challenges, and thereafter promote flexible solutions with dedicated capabilities tuned to those challenges. In some cases, these technology solutions will include non-3GPP or vertical-specific technologies, for example, Time Sensitive Networking over Ethernet for smart manufacturing.

A vendor’s pursuance of automation in industry verticals is a direct example of what economist Joseph Schumpeter termed “creative destruction.” In this case, a new market disruption entails a period of substantial value creation before the destruction of the current industrial structures materializes. This new value creation has the potential to alter the structure from the supply side, so vendors must be cautious that a steady focus on industries does not detract from their ability to serve current telco needs (e.g., 5G, OSS/BSS modernization, etc.). Pursuing enterprise vertical growth from an autonomous business unit equipped with enterprise acumen may be an option for the vendor community. Moreover, the technical attributes of potential solutions are only one piece of what matters to achieve success. Just as important are customization, support, and a vendor’s willingness to tailor its offering in line with the customer’s needs, all of which must be supported by an overarching story that highlights the value of a holistic offering, as opposed to merely the “parts.” This must be approached on a top-down basis with the leadership weight fully behind it.

Lastly, there is no vendor that currently fully addresses the industrial opportunity with an E2E orchestrated offering, as highlighted in ABI Research’s Orchestration and Automation for Telecom Networks (AN-4906) report. It also remains to be seen whether telco infrastructure vendors will be able to address these opportunities at all. Vendors and telcos alike must factor in (local) compute and intelligence (AI) into a wholesale offering propelled by appropriate workforce skillset and company-wide organizational vision.