LTE: The Vendor's Worst Friend?
Why? Because soon there will be one national mobile network in the U.K., where there are currently two, and that means a dip in the operator duo's aggregate capital expenditure. That's bad news for the sales teams at companies such as Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. , Nokia Networks (NSN) and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), and suggests a trend that could wipe out billions of dollars of potential network infrastructure rollout business in the coming years.
And it seems the introduction of Long Term Evolution (LTE) could be a key catalyst in this potential trend. Only two weeks ago, Eduardo Duato, the CTO of Orange Spain, noted that the only way to make the business case work for Long Term Evolution (LTE) is for operators to share radio access networks (RANs). (See Orange: Operators Must Share LTE Networks .)
Ovum analyst Emeka Obiodu is on the same wavelength. In an emailed media alert earlier today, he noted that he expects that "at least 50 percent of all LTE network rollouts in the world in the next five years will involve some form of active network sharing."
And Obiodu believes that in the U.K. alone, Vodafone and Telefónica could save up to 25 percent of their network costs during the next three years through their new network sharing deal, with the pair potentially saving more than £1 billion (US$1.56 billion) between them in that time.
Now, those are back-of-the-envelope style calculations and don't appear to take into consideration the cost of setting up the joint venture and the significant changes the two operators will need to make in order to be able to share active radio access network (RAN) equipment while retaining separate services over different spectrum.
But even if Obiodu is 50 percent out in his calculations and if LTE does prove to be the catalyst for mass mobile network sharing arrangements that reduce the number of physical networks to just two in each country, the news is all bad for the equipment vendors.
But it has to be good for someone, right? Well, consider this. If operators are sharing networks, how do they differentiate themselves in the market? Through better, innovative services, greatly improved customer experience and intelligent marketing, is how. All of which requires the operators to invest their money elsewhere -- mainly in Service Provider Information Technology (SPIT) systems such as advanced analytics, converged billing and real-time charging platforms, service delivery platforms and so on. (See The SPIT Manifesto 2.0 and SPIT Infographic.)
Clearly there is a recognition amongst the major mobile equipment vendors that SPIT is growing in importance: It's not by chance that Ericsson spent $1.15 billion on SPIT giant Telcordia or that NSN has been investing time, money and human resources on the development of customer experience management (CEM) systems, which form part of its new three-pronged strategy. (See Ericsson + Telcordia: What the Analysts Say, NSN's Rajeev Suri: Carrier Capex & Customer Experience and Analysts: NSN Focus Makes Sense.)
But of course the competition in the SPIT sector is just as intense as it is in the radio networks market, with big hitters such as Amdocs Ltd. (NYSE: DOX), Comverse Inc. (Nasdaq: CNSI), IBM Corp. (NYSE: IBM), Netcracker Technology Corp. , Oracle Corp. (Nasdaq: ORCL) and many more looking to help the service providers become smarter telcos.
Investments in mobile access networks aren't going to disappear totally, of course, but it looks likely that the market is going to decline in the medium-to-long term. (Does LTE = long term erosion? That would be ironic, given how hard the vendors have pushed the technology....)
So, in the same way that the service providers need to find new sources of income to make up for their flagging voice revenues, so the mobile network vendors might need to find ways to compensate for declining radio access network revenues. And it could be those that have the best SPIT assets, and the best SPIT pitch, that could prove to be the long-term survivors.
— Ray Le Maistre, International Managing Editor, Light Reading