Ericsson, DT tie-up won't quell doubts about network APIsEricsson, DT tie-up won't quell doubts about network APIs
The APIs market looks too small to make a big difference to the telecom industry, and Deutsche Telekom's move raises fresh concerns.
September 21, 2023
It's almost impossible to attend a telecom event these days and not hear talk of network APIs (or application programming interfaces). The industry's big plan is to come up with standardized versions of APIs for important network features and expose these to the wider world. Developers given access could then produce applications that make better use of the network. So valuable are these features that developers will pay for the privilege.
This, at least, is the logic, and it largely explains why Ericsson spent more than $6 billion two years ago to acquire Vonage, a communications platform-as-a-service (CPaaS) company that already dealt in APIs. The Swedish vendor finally has something to show for its efforts, this week revealing that Deutsche Telekom – Europe's biggest operator – is to launch a network APIs marketplace powered by Vonage.
MagentaBusiness API, as it is called, will initially market three APIs. Quality-on-demand, as the name implies, would suit applications that need improved latency or bandwidth. Another API called device status would suit banks and other organizations needing to check on a customer's whereabouts, perhaps to mitigate the risk of credit card fraud. Device location, the third API, would allow a SIM card to be tracked precisely even without GPS availability. That could hold interest for logistics firms monitoring deliveries.
What's still untested is developer willingness to pay for these features. For one thing, any bank's customers are likely to be on multiple networks, not just Deutsche Telekom's. Even if the German telco sticks to standardized APIs defined by CAMARA, an open source project, the bank interested in device status would presumably have to shop with other German telcos as well. Otherwise, how could it check on customers served by Telefónica and Vodafone? A multinational faces the unwelcome prospect of having to sign deals with numerous different networks.
The API middleman
Far better would surely be an arrangement whereby Vonage functions as the commercial intermediary between telcos and developers. Ericsson had previously hinted this would happen, and the Deutsche Telekom deal does not rule it out, but it would now lead to some overlap with the Deutsche Telekom offer. Telcos might also worry about making less money this way.
Unfortunately, the revenue opportunity does not look big enough to make any real difference to the industry, even by Ericsson's assessment. By 2028, says the company in its latest release, the market will be generating more than $20 billion in revenues, according to a forecast from STL Partners on which Ericsson apparently relies. "That's small beer in the context of a $1tn+ telecom industry," said James Crawshaw, a principal analyst for Omdia (a Light Reading sister company), in a LinkedIn post.
On top of this, Deutsche Telekom's MagentaBusiness API seems focused on the relatively small German market. "Most developers are targeting bigger markets like the US and China if not the entire world," said Crawshaw. "So while the DT deal is a good first step Ericsson probably needs to get another 50 MNOs [mobile network operators] on board for this to gain traction."
Ericsson is confident that operators will see "vastly higher revenue opportunities" from new services based on network APIs, but it's unclear how. If a customer paid a developer for an app that came with latency guarantees, there would be no reason to pay the operator for a higher-quality service.
The other problem for Ericsson, as Crawshaw points out, is platform-based competition from the likes of Nokia, Microsoft and Amazon, all of which have also talked about network APIs, not to mention existing platforms like Twilio and Sinch. If multiple platforms offer the same features, Ericsson may have to settle for a much smaller share of the market. Competition could also drive down the prices that developers are charged.
The value of network APIs could soon become apparent with the launch of the Deutsche Telekom marketplace. But there is little sign of investor excitement. Deutsche Telekom's share price barely moved yesterday, when the announcement with Ericsson was made. Ericsson's has nearly halved since it first revealed plans to buy Vonage in November 2021.
In the recent second quarter, Ericsson booked about 4.2 billion Swedish kronor (US$380 million) in revenues from its Global Communications Platform, which houses Vonage, up from SEK3.9 billion ($350 million) in the first. But sales would have to grow astronomically for the telco sector to benefit as well under the revenue-sharing plans previously disclosed to Light Reading.
Ericsson's real interest remain the basestations and network equipment that earned it SEK42.4 billion ($3.8 billion) in revenues during the second quarter. Inventory corrections and a telco spending slowdown in North America have chewed into profits margins at Ericsson, which reported a second-quarter net loss of SEK600 million ($54 million). If it can boost telco-sector revenues through network APIs, network operators are likelier to spend some of that money on Ericsson's latest equipment. No one could accuse Ericsson of not being in it for the long haul.
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