Editor’s note: Patrick Filkins is Telecom Analyst for Technology Business Research.
HAMPTON, N.H. – With company-wide restructuring and Gainspeed integration complete, Nokia’s Fixed Networks unit stands ready to address the cost and technical barriers that have stalled many of its capex-constrained customers’ fixed-line deployments and prompted a wave of M&A designed to sidestep the hurdles associated with high-cost network builds (e.g., AT&T’s acquisition of DirecTV).
Nokia’s goal is to be a one-stop shop for fixed solutions, ready to address the fixed-mobile convergence many of its largest customers are preparing to tackle to introduce gigabit services. However, the reality remains that building FTTH networks will be too expensive for many of Nokia’s customers; therefore, a multipronged approach, which includes leveraging fixed backhaul to deploy wireless solutions, will likely support the strongest business case when selling to fixed operators.
Nokia hosted a select group of analysts at its Fixed Networks-centric event held at its Sunnyvale campus, where the company provided its market overview, strategy and portfolio updates, and presented about ongoing initiatives with customers.
Day 1 included a range of presentations by key executives from Nokia’s Fixed Networks line of business, including the unit’s president, Federico Guillen, who provided assessments on the state of the fixed market as well as an update on Nokia’s strategy and portfolio.
The day closed with a feature presentation by Geert Heyninck, general manager of Broadband Access, that showcased Nokia’s copper-based (G.fast) solutions as well as its pipeline of next-generations solutions, which are set to be announced later this year.
Among the key takeaways: Nokia indicated it will continue to invest in copperbased solutions, as most operators will refrain from taking a “rip and replace” approach with fiber, only sunsetting assets when the business case presents itself.
Day 2 consisted of additional presentations on Nokia’s cable and fixed-wireless strategy as well as customer presentations.
Among the day’s key takeaways: While many subscribers continue to opt for plans that provide less than 1GB speeds, which could be problematic for Nokia if its business customers refrain from building networks until demand for higher speeds increases, forthcoming services, such as 4K, 8K, and virtual and augmented reality, could provide the catalyst for additional spending.
Impact and opportunities
- Expansion into the enterprise continues
Nokia continues to press for broader exposure in the enterprise, mostly relying on its carrier customers to resell solutions. Additionally, the company is relying heavily on partner integrators, which Nokia incentivizes to become certified on its solutions through discounts. Doing so enables it to drive higher-margin equipment sales, without the need to scale out its professional services group.
Still, telecom equipment makers have thus far struggled to significantly penetrate the enterprise market, as evidenced by Ericsson’s slow progress. Huawei, which can mine its China-based market, is growing its business, but it will face stiff competition to make headway in Europe and North America, where Cisco commands a sizable portion of the enterprise and cable markets.
- Cable remains a significant focus, and an area in which Nokia is primed to disrupt
Nokia is throwing substantial resources behind Gainspeed’s virtualized solution as a way to disrupt and take share from incumbent cable infrastructure suppliers. Nokia’s early strategy is differentiation through Gainspeed’s vDAA framework, which it feels can nullify ongoing technological discourse in the cable space by virtualizing network components.
By virtualizing portions of the network, operators can elect to customize architectures that achieve substantial cost savings (e.g., lower hardware and power costs). Nokia’s solution is compelling from a technical and business standpoint, but convincing Tier 1 customers, such as Comcast, to adopt its solution will take time, as many cable operators are heavily vested in supporting legacy frameworks, or locked in to proprietary models.
However, the company is working with several U.S.-based cable operators that it gained exposure to through the acquisition, and that can provide valuable proof points for the validity of its solution.
- The FWA business case is improving
In addition to lower equipment costs, technological readiness and spectrum availability, webscales are pressing for end-user access, prompting some operators to accelerate their fixed-wireless road maps.
For these reasons, Nokia believes business conditions have ripened to a point where fixed wireless access (FWA) at scale is now a feasible option for its customers, and the company is prepared to fulfill the “last mile” of networks through FWA. Scaling up its fixed-wireless business will provide another tool through which Nokia can deliver gigabit connectivity in cases where the cost economics associated with laying fiber to the premises prove to be too high.
To support these initiatives, Nokia launched a dedicated FWA unit, housed within Fixed Networks, as the company notes the bulk of early demand for FWA comes from its Fixed Networks customer base, with sales to wireless operators also being targeted. However, Nokia will cross-pollinate with its Mobile Networks division, as many FWA deployments will leverage a range of spectrum bands to fill gaps.
While we agree the FWA business case is moving in a positive direction, the challenge for Nokia lies in its ability to assuage capex concerns now, enabling its customers to make strategic decisions and begin rollouts, which can take months to execute. The level of complexity alone will prove a challenge to delivering the most economical solution, but Nokia’s portfolio breadth at least encompasses all the options a service provider requires to blanket its footprint with either fixed or wireless coverage.
While Nokia’s broad portfolio is well-positioned to address its customers’ principal concerns, Fixed Networks’ growth will be limited by the timing of its operator customers’ capacity and connectivity upgrades if end users remain satisfied with current speeds. As noted above, the vast majority of end users have yet to subscribe to available premium gigabit services, signaling 100Mbps or less is likely good enough for now. This could significantly hinder growth in Nokia’s Fixed Networks business in the interim, or until demand for gigabit-based services rises.