The Tough Reality Check for Private Cellular Continues at IMTS & Hannover Messe USA

The International Manufacturing Technology Show (IMTS) and Hannover Messe USA continued to manifest what became apparent when visiting the original Hannover Messe in Germany in April 2022: enterprise cellular continues to face a tough, but very important reality check when it comes to industrial applications. As the hype around fancy 5G-enabled Extended Reality (XR) and Virtual Reality (VR) use cases seems to be over for the time being, cellular connectivity continues to be praised as a wireless infrastructure to transmit existing machine automation protocols. The 5G Alliance for Connected Industries (5G-ACIA) provided the booth space for partners within its existing testbed program: HMS Networks, ifak, NXP, and Radisys presented the use of 5G connectivity as a wireless interface for PROFINET and PROFIsafe communication. Similarly, Phoenix Contact showcased the transmission of PROFINET signals over 5G. Other than that, Zebra (which recently acquired robotics manufacturer Fetch) showcased its use of private cellular connectivity for Automated Guided Vehicles (AGVs) together with Ericsson. Compared to other connectivity technologies like Wi-Fi, cellular connectivity’s compelling value mainly relies on providing robust handovers (which make mobility use cases easy to implement). Furthermore, cellular connectivity can cover particularly large areas more efficiently, than current Wi-Fi solutions can. With Wi-Fi technology advancing as well, cellular connectivity will need to develop its value proposition further to remain relevant in the market.

Overall, the trade show has highlighted that soaring costs of production and—especially in the United States—the persisting shortage of manual labor remain the most pressing issues for manufacturers and other industrial companies. While, in theory, these are prime use cases for enterprise digitization enabled by private cellular connectivity, enterprises seemingly do not make this connection. The skyrocketing cost of production (due to current geopolitical events) threaten manufacturers’ short- and medium-term profitability and survival in the market. Consequently, enterprise digitization projects face a radically shortened Return on Investment (ROI) expectation of well below 1 year (around 6 to 8 months depending on the industry). It should be in the best interest of both cellular connectivity and Wi-Fi vendors to combine forces and deliver on these challenging financial expectations.

The main inhibitors to deploying the ongoing bottleneck of available industrial-grade devices, particularly for 5G are that most of the important features for industrial enterprises (i.e., Ultra-Reliable Low Latency Communication (URLLC), full support for Time-Sensitive Networking (TSN), or Massive Machine Type Communication (mMTC)) require 5G capabilities that have been standardized in The 3rd Generation Partnership Project’s (3GPP) Release 16 (R16). Despite this release being frozen (which is telco language for completed) in the summer of 2020, industrial-grade devices compatible with this release are expected to emerge only by the end of 2023 and reach scale in 2024. Underlying reasons for this delay in R16-capable industrial-grade devices are easy to mention, but point to a plethora of interconnected bottlenecks for enterprise cellular; particularly in the consumer domain, R15-capable chipsets and devices are performing comparatively well. This was partly spurred on by the outbreak of the COVID-19 pandemic, as subsequent lockdowns created a surge in sales of consumer electronic devices. With the value proposition of enterprise cellular still being rather unclear and implementation being somewhat more complex, it is understandable that chipset manufacturers target the “low hanging fruit” instead of investing money, time, and resources into developing products for an audience that is still not completely convinced about the capabilities of cellular connectivity.

This, in turn, means that enterprises will have to wait at least until 2024 to be able to use industrial-grade features like 99.999% availability and reliability of the network, end-to-end latencies of around 1 millisecond and the connection of up to 1 million devices per square kilometer. As a result, enterprises’ dissatisfaction with cellular connectivity turns into obliviousness toward connectivity technologies in general.

Meanwhile, telco infrastructure players have realized that their industry, so far, has overpromised and underdelivered, especially when it comes to 5G and they are working hard to catch up. While Nokia continues to follow a three-pronged go-to-market strategy—directly to enterprises, through System Integrators (SIs), or Communication Service Providers (CSPs)—Ericsson begins to diversify and looks at channel partners outside the traditional telco landscape (like Zebra).

These observations around the role of cellular technology and wireless connectivity, in general, lead to important recommendations for technology providers and the traditional telecommunications industry (CSPs and infrastructure vendors) for targeting both the manufacturing and other remaining verticals.

Within manufacturing, any supplier of a private cellular network solution needs to adapt to the value proposition that currently emerges, i.e., using cellular connectivity as a wireless interface to transmit existing automation protocols, instead of pushing for advanced XR use cases that seem to go over the top of manufacturers’ key concerns. Furthermore, any supplier needs to adjust to the drastically shortened ROI expectations of well shorter than a year. The macroeconomic conditions will remain harsh for enterprises for the time being, so any new technology investment will need to provide reliable cost saving expectations almost from day 1 to remain relevant. In order to provide the most efficient digitization solutions, Wi-Fi and private cellular vendors should give up the battle lines of Wi-Fi versus private cellular once and for all, instead focusing on how both technologies can be combined in a meaningful way to ensure maximum reductions in Operational Expenditure (OPEX) with the lowest possible Total Cost of Ownership (TCO) for implementers.

Furthermore, private cellular providers should widen their focus considerably and look beyond manufacturing for verticals to target. A very elaborate landscape of connectivity solutions and a tight supplier relationship with machine automation vendors (Bosch, Rockwell, Schneider Electric, or Siemens are already present on almost every single factory floor) make it hard for new technology suppliers to gain traction in the market. At the same time, a range of other verticals face conditions in which the short-term realistic value proposition of private cellular (and 5G specifically) can be appealing.

Mining companies, for example, are looking for highly reliable connectivity technologies to digitize their operations and lessen their reliance on manual labor. As a mine can be a particularly dangerous environment, low latencies and high reliability of 5G connectivity will be a key differentiator and important decision-making factor. In addition, private cellular suppliers should look at verticals with a particularly wide coverage area (such as oil & gas, airfields, ports, and agriculture), as private cellular can provide basic connectivity to these large areas more efficiently than Wi-Fi because infrastructure is required. Therefore, Capital Expenditure (CAPEX) required from these enterprises will be lower, which, in turn, will accelerate private cellular adoption within these verticals.