Nokia's Rajeev Suri: On 5G, IoT & the AlcaLu Deal

The Nokia CEO tells Craig Matsumoto why telcos need to find new opportunity in 5G and why the Alcatel-Lucent acquisition succeeded.

Craig Matsumoto, Editor-in-Chief, Light Reading

October 9, 2017

10 Min Read
Nokia's Rajeev Suri: On 5G, IoT & the AlcaLu Deal

Rajeev Suri's master plan is on the verge of paying off, if the telecom market would only cooperate.

With the 2015 acquisition of Alcatel-Lucent, the Nokia Corp. (NYSE: NOK) CEO believes he has set up his company to address a world of 5G networks and the Internet of Things. He has a complete chain of telecom gear to offer telcos and even entice enterprises and industrial IoT clients.

I got my first-ever chance to meet Suri in person at Mobile World Congress Americas in San Francisco recently. Our conversation starts below -- or use these links to peek ahead:

  • Page 2: Cellular Slowdown

  • Page 3: Why Alcatel-Lucent Worked

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Craig Matsumoto: How "real" is 5G going to be, in the early going? I'm confident the radio standards will be ready on schedule, but what about the middle of the network -- things like network slicing? Will the network be ready for these things the telcos want to do?

Rajeev Suri: I think it will be [real], in the lead markets, in the lead countries: US, Japan, South Korea and China. We think it will be more 2019, not 2020 or 2021 -- in the lead markets. You're right that it isn't just radio, it is about transporting the backhaul, and it's also about densification; transport in the urban areas has to be there as well, plus of course fronthaul, for cloud RAN. The core network's got to go to cloud and SDN so you can do network slicing and have these separate virtual networks.

In the core network there's a lot of activity on already. It's not waiting for 5G. Transport is there in some cases, not there in some cases -- that's going to move along. If the chipsets and devices line up, then everything will line up for 2019. But, again, it will be the commercial launches in these lead markets first.

I also think from a spectrum standpoint, the midband spectrum is turning out to be a favorite for 5G. So, the 3.5GHz to 4.2GHz range. Some markets will do 28GHz for ultra-high speeds like 10 Gbit/s. And there's a lot of spectrum available in that space. and then some countries are also talking about low-band. T-Mobile is talking about 600. China might look at 900.

CM: Carriers' 5G plans sound like they're going to depend on NFV. What do you think it's going to take to make NFV really happen, to force something into shape?

Suri: My sense is that there are operators doing this full move to the cloud. Not just NFV, because NFV is [about] taking some elements, and you're going to virtualize them. That won't give you the full effect.

We've got a lot of leads now on, really, the end-to-end cloud. It's moving to native cloud, full end-to-end, where we're supplying orchestration and Nuage SDN and our own AirFrame data center solution -- the whole thing. I just visited one in Europe, and that's a full cloud infrastructure. We've won deals in Asia that are also along the same lines.

There's a recognition that NFV is not the goal. It is the full move to the cloud.

CM: You're looking into enterprise verticals too -- what's your pitch there? Nokia is not a traditional enterprise name. (See Nokia's Leprince Hails Enterprise Growth.)

Suri: Our expansion into cable comes first, because we bought this company called GainSpeed that gives us a disruptive hybrid access architecture that can move us to provide cable access products. It's sort of in the cable space but not fully. (See Nokia Swings Deal for Gainspeed.)

On the enterprise, we've picked a few verticals. Let's pick the examples of utilities. Their need is modernization of the smart grid. Their need is to reduce leakage in transmission and distribution. And typically, that means providing them with a private LTE network -- we have a solution called a digital automation cloud, so you can get the core network through that, and we provide the private LTE network. Our other solutions include IP/MPLS packet gear to do modern packet-switching, and working with them on smart metering devices. And there the opportunity is to sell them software -- analytics, customized case-management software, dashboards and so on.

We wouldn't do it without the acquisition of Alcatel-Lucent. Because as Nokia, I'd only have the wireless play. Which is important, but I'd go to a utility and sell them 500 basestations. Now I can sell them IP and optical -- it's a full solution.

Once you're in there, you go up the chain. We have an Impact platform, it's like a GE Predix; it's an IoT platform for connecting devices and management of devices but also analytics and stuff like that. I don't want to just provide them the -- if you like, the plumbing. I also move up the value chain and provide them these software platform solutions we can horizontalize across several verticals.

CM: On the business side, your sector is going through a bit of a slump. It's not just you. It's Ericsson, Cisco -- what do you think are the root causes? Can I just attribute a big chunk of that to Huawei and ZTE?

Suri: Not really, because they have been around for many years. But -- let's go to wireless first. We're in this situation between 4G and 5G. There's a lot of coverage that's been built out around 4G around the world.

Second, China just did a massive build, in just a couple of years, that would normally take several years. I think China Mobile put 1.2 million basestations in the ground in two years. That skewed the opportunity somewhat.

So, I think the supercycle of 4G has sort of slowed down. 4G is still growing, but the rate of growth has slowed down. And we're waiting for 5G. So, the market is down -- it's not just us. We said on our latest guidance in the Q2 report that it's probably going to be 3% to 5% down. (See Nokia Shames Ericsson on Profits but Sees Trouble Ahead.)

Having said that, our gross margin is very strong. We were actually flat, contrasting it with Ericsson and others that were down. So, one could say we are probably taking share.

When it comes to IP routing, a lot of the traffic has moved to the over-the top players, to the web-scale players. The telcos are therefore spending less. That's an expansion area for us; we're not with web-scale, so we're suffering from that market transition, if you like.

But our next-generation product called the FP4 router, we launched a couple of months ago here in San Francisco, it's big, it's got security embedded, it's got analytics embedded with the Deepfield acquisition we did. That is well positioned for exactly the sweet spot of web-scale. (See Nokia heralds fastest network processor ever and Deepfield Buy Goes Beyond Telco Opportunities, Says Nokia Exec.)

CM: Let's talk more about the public cloud -- the Amazon Web Services types. How does their rise affect life for the telcos? I see them as possible competitors -- and, in your case, different types of buyers of equipment.

Suri: Traffic is going to them. That transition is underway. Having said that, there are operators that are also building their own public clouds. There are institutions in countries that probably would rather buy from their operators in the market, rather than just Azure or AWS. But I have no doubt that traffic will continue to move in the web-scale direction, especially when it comes to IP traffic.

CM: What should telcos do about that?

Suri: Telcos mostly are consumer companies. They supply a broadband experience to consumers. With 5G, there is a unique opportunity for them to pivot in a greater way toward enterprise and industries.

Some of that, we spoke about -- because you can do network slicing, you can build separate networks for different utilities. You can lease spectrum in specific slices for customers.

A lot of mission-critical, low-latency services, telcos could play a role in. Take the example of utilities. We're supplying to Tata Power in India with [latency of] 3.5 milliseconds. That's very low compared to what we see on our networks. There are cases when you would want to go even below 1 millisecond of latency; take autonomous driving, if you build national coverage, or remote VR robotic surgery.

But that doesn't mean you can just provide connectivity. You have to insert yourself higher up in the value chain.

We see some operators positioning themselves for that, because that's the new revenue opportunity for 5G. Of course, there's the extreme mobile broadband opportunity that's driven by the massive increase in traffic and AR and VR, and 4K and 8K video -- that game is known. The new revenue opportunity is the industrial IoT. The mission-critical stuff and the low-latency stuff. Building your own edge cloud.

Telcos have the real estate they can make into an edge cloud. You can provide low-latency services onto that edge cloud. That is an insertion opportunity to position yourself for industrials. That, to me, is a tangible way to pivot.

CM: I can't resist asking about Alcatel-Lucent. I know when the acquisition was announced, there were doubts.

Suri: You're right. If you take the track record of mergers in the sector, it's a bit mixed.

CM: Well, just look at Alcatel and Lucent.

Suri: Or even Nokia and Siemens, way back. The first couple of years didn't go well, but then we had a great turnaround.

I think the one difference in both these cases is that they were structured as mergers of equals. We didn't do that in this case. We were very clear, from the beginning. This was going to be very clear who called the shots.

CM: After the deal was signed, at what point did you know this was going to work?

Suri: We made a very good call. If you remember, in January of 2016, we got the majority ownership of Alcatel-Lucent through the public tender exchange process. And we made a call that we were going to close the transaction then, and we found a way to do a legal setup where we actually closed the acquisition then. Had we waited until we got 100% ownership, that would have been October of 2016.

We saved a number of months in that process, so we were very clever about that.

After the merger, we were very careful to learn from the failures of the past. We were very keen on making the roadmap decisions -- because mostly, it was a complementary acquisition, except for wireless. So we made those roadmap decisions in the first few months, and then we got on to executing on the next three months.

Once I was three or four months into it, I knew that we were going to call it a day in terms of ending all integration sometime in August 2016. So, we started in January, and in August we said, "The heavy lifting is all over. Now it's about executing the new strategy." That was, I don't know, two-and-a-half or three years earlier than Alcatel-Lucent was able to do it. Alcatel and Lucent had competing products in the marketplace. Nokia and Siemens didn't make the calls on these roadmap decisions early on.

Of course, culture is an ongoing process, but I feel that the cultures are also getting aligned now.

— Craig Matsumoto, Editor-in-Chief, Light Reading

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About the Author(s)

Craig Matsumoto

Editor-in-Chief, Light Reading

Yes, THAT Craig Matsumoto – who used to be at Light Reading from 2002 until 2013 and then went away and did other stuff and now HE'S BACK! As Editor-in-Chief. Go Craig!!

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