5G in the Enterprise Domain: Enhancing Proprietary Automation Solutions or Creating New Use Cases?

The year 2020 has been a year of rapid developments for enterprise connectivity. While the year has seen multiple commercial announcements around private networks for enterprises from the telco industry, we are also witnessing a fundamental change in the competitive landscape of enterprise 5G. On the one hand, Microsoft, Amazon, and Google have underlined their ambitions to advance towards enterprise connectivity (as has been discussed in the ABI Insight “Amazon and Microsoft’s Strategies in the Telco Domain”). On the other hand, we see industrial automation companies enlarging their product portfolios to include 5G devices and therefore advancing their offerings towards 3GPP technologies. Siemens, for example, announced its first industrial 5G router in the middle of November 2020, which will be commercially available in Spring 2021.

The Scalance MUM856-1 is targeted to provide both 4G and 5G cellular connectivity to enterprises (predominantly in the industrial manufacturing environment). To address the heterogenous enterprise requirements, it can be integrated into both public as well as private campus networks. This is the first step of industrial automation companies extending their offerings to include industrial 5G devices and therefore present themselves as an important stakeholder for 3GPP technologies, as well.

Interestingly, in its messaging, Siemens positions 5G as a wireless communication infrastructure to carry existing industrial automation interfaces (like proprietary fieldbuses). Similarly, in its Guide 5G in Mechanical and Plant Engineering, the German Mechanical Engineering Industry Association (VDMA) is looking into how 5G can be used to support the transmission of existing fieldbuses (such as PROFINET or Modbus). In other words, the main advantage from 5G on a factory floor would be to replace Ethernet cables to enable mobile production workflows. This is a stark contrast to the understanding of the telco industry, which wants to present 5G as the key enabler for fundamentally new use cases enabled by new features like network slicing.

These developments underline the fact that the 5G value proposition in the enterprise verticals is far more complex than what the telco industry is used to from the consumer domain. As ABI Research sees it, there are two different propositions at play:

• 5G as an enabler of completely new use cases (e.g., hyperlocalization of entertainment content, network slicing, or remote operations for industrial environments)
• 5G as an enhancement of existing use cases (e.g., putting existing use cases like PROFINET or Modbus on a wireless infrastructure)

Resulting from the heterogeneity between enterprise verticals, it is very unlikely that one of these value propositions will prevail over the other. Rather, we will see a combination of these two aspects within each vertical that is likely to evolve with time. The important question to ask is how to strike the right balance and anticipate which vertical will swing to which version of the value proposition more quickly.

In order to determine ideal industries to target, the telco industry needs to be aware of the factors determining whether enterprises will see 5G as an enhancer or enabler. Ultimately, this will help to assess which verticals are more open towards 5G as an enabler of new use cases, and which ones will continue to see 5G as a cable replacement to support existing use cases. As we see it, there are two factors influencing this:

• The Maturity of Legacy Automation Solutions: While in the industrial environment (i.e., industrial manufacturing, logistics, and warehousing) existing automation solutions like fieldbuses are very prominent and difficult to replace (because this often would require the whole automation solution within a factory or warehouse to be replaced), enterprise verticals like oil and gas, retail, media and entertainment, transportation, or indeed smart venues do not have similarly matured automation solutions in place.
• Degree of Mission-Criticality among Vertical-Specific Use Cases: The more mission-critical (or even life-critical) use cases are, the more reluctant enterprises will be to depart from legacy automation solutions. In industrial manufacturing, for example, malfunctioning of the cellular network could result in highly expensive production standstills, with every hour of unplanned downtime costing a factory operator several US$100,000. On the other hand, for non-industrial verticals like retail, media and entertainment, or smart venues, use cases do not have the same degree of mission-criticality. Enterprises operating within these verticals will therefore not be as risk averse as in the industrial domain and therefore adopt 5G as an enabler of new use cases, rather than a mere replacement of fixed line connections for existing automation applications.

For 5G as a technology, this refined understanding means a more streamlined and therefore more efficient value proposition. While before, industrial enterprises were under the impression that in order to adopt a 5G-based cellular connectivity solution on their premises, they would need to let go of all legacy automation interfaces (losing their reliability), the 5G value proposition especially for industrial enterprises can center around the enhancement of existing M2M automation protocols. 

For the telco industry, this refined understanding carries two implications:

• From a technology point of view, infrastructure vendors would have to guarantee 5G interoperability with legacy machine automation solutions. Since in most industrial verticals (like manufacturing) these machine automation solutions are largely based on proprietary interfaces (such as different fieldbuses), the telco industry would need to partner with the respective industrial automation company to achieve this interoperability. In this context, Siemens’s recent announcement does not come as a surprise, but is a rational extension of the company’s product portfolio for factory automation and makes partnerships with telco network infrastructure vendors unlikely.
• Acknowledging this, the telco industry should focus its attention on verticals where the immediate 5G value proposition centers around enabling new, transformative use cases. Oil and gas or mining as well as shipping ports and airports are exemplary domains where we see large momentum for enterprise digitization (accelerated by the effects of COVID-19) that are more easily accessible to be approached by telco companies as well as hyperscalers.