The Effect of COVID-19 on Private Cellular Networks

In contrast to other economic shocks, the economic downturn following the outbreak of the respiratory coronavirus disease COVID-19 will inevitably continue to affect every enterprise vertical. However, the magnitude of this effect differs between different verticals, since each of them will be hit in a different way, depending on whether the disturbances are induced by the supply side (due to supply chain disruptions or the unavailability of raw material for production purposes) or the demand side.

In the United States alone, the volume of industrial production in 2Q 2020 decreased by 15% as compared to 2Q 2019. Furthermore, global car sales in 2020 have shrunk by 22% in the first half of 2020 as compared to the first half of 2019.

While the source of economic disturbances for industrial manufacturing has been the supply side (due to forced production standstills or the unavailability of production data as well as disruptions to the supply chain), the energy sector (specifically the oil and gas industry) has been faced with a drastic reduction in demand (due to the standstill of production facilities and the reduction in aviation, maritime, and road traffic). Largely due to the COVID-19 crisis, global consumption of coal and oil fell by 33% each in the first four months of 2020 as compared to the same period in 2019. Similarly, the source of economic disturbances in the logistics and transportation sector has been a drastic reduction in demand, as there are have been fewer goods and people requiring transportation as the global demand for air cargo decreased by 9.1% in February 2020 (as compared to February 2019).

While these numbers underline the magnitude of economic disturbances in the short term (which will result in tight budgetary controls for the foreseeable future), they also reveal the need for long-term strategy toward automation and enterprise digitization to guarantee business continues and help mitigate the economic effects of political decisions following the outbreak of a pandemic in the future.

In the long term, enterprises will transform from focusing on “just-in-time” to “just-in-case” production, which will strengthen the value proposition of private cellular networks for the enterprise domain to set up reliable business continuity plans and increase resilience. The automation of operational procedures will reduce the enterprises’ reliance on manual workers, so that business will be able to continue even in a situation of labor scarcity. Furthermore, the effects of COVID-19 have revealed the imminent need of enterprise verticals to automate and digitize their operation to ensure business continuity as well as profitability in an economic climate characterized by a range of uncertainties: Connected infrastructure will enable manufacturers to rely less on workforce for equipment reconfiguration and maintenance and more on Over-the-Air (OTA) software, middleware, and firmware upgrades. In addition, workflow automation will reduce the operational expenditure of enterprises and thereby guarantee profitability even in a situation of low demand.

In driving enterprise digitization, cellular private networks will play a key role, as they offer distinct advantages over other wireless connectivity technologies or public cellular networks. In contrast to Wi-Fi, private cellular networks offer the same level of determinism as current fixed-line connections (such as PROFIBUS or ETHERCAT), without having to rely on proprietary protocols and interfaces. Furthermore, private cellular networks offer enterprises a dedicated mobile network spectrum, which prohibits unwanted interference without having to employ any kind of Spectrum Access System (SAS).

Contrary to utilizing public cellular network infrastructure (even through a dedicated network slice, which could act to imitate a private network), a private network deployed on the implementer’s premises enables the enterprise (e.g., the operator of a factory, warehouse, oil field, or mine) to customize the network with its own network slicing capabilities to ensure that a variety of use cases with different network requirements can be addressed within the same physical network infrastructure.

Furthermore, by deploying an on-premises private network, enterprises can ensure the highest possible degree of network integrity, since all network traffic (considering data on, for example, the condition of production infrastructure), can always remain on the implementer’s premises.

In order to benefit from this momentum, the telco industry—i.e., infrastructure vendors and Mobile Network Operators (MNOs)— needs to accelerate the development of specific enterprise business models that do not primarily rely on selling connectivity but rather adopt a service-based model that allows MNOs to monetize certain network performance indicators, depending on their respective requirements, like Bandwidth on Demand (BoD), the provision of network slices, or specifically low latencies.

Furthermore, MNOs need to appreciate the fact that, due to the short-term economic effects of COVID-19, enterprises will face tight budgetary controls to prevent overspending for the foreseeable future. For cellular network deployment projects, this means that network operators need to minimize the amount upfront investment, or Capital Expenditure (CAPEX), required from enterprises and focus their monetization on recurring Operational Expenditure (OPEX) instead. By reducing the CAPEX while increasing the OPEX, enterprise cellular network deployment projects will inevitably take longer to become profitable for the telco industry. MNOs and infrastructure vendors therefore need to be prepared to sacrifice short-term profitability for long-term success in the enterprise verticals domain.

To spur interest into private network deployment, a joint effort is required from the telco industry to create business blueprints that enterprises can use as guidance to successful implementation. To complement this, both MNOs and infrastructure vendors should build their messaging on convincing Return on Invest (ROI) and Cost of Inaction (COI) studies to translate the benefits of private cellular networks into business economics. The offering of “trial” kits for enterprises would furthermore offer an opportunity for potential implementers to get accustomed to cellular connectivity without having to commit to a long-term deployment project straight away.