2016: The Year of the Infrastructure Vendor Partnership

Jan 22, 2016

With the landscape of equipment vendors shifting rapidly, the confirmation of the Nokia and Alcatel-Lucent (ALU) pairing seems all the more timely. 2016 will be the year in which market dominance is re-established or lost. Ericsson has chosen its Cisco partnership as the means to protect its market leadership, while Nokia has absorbed ALU in a $15.6 billion, all-share acquisition of near equals.

The Erics-sco partnership pairs the global leaders in wireless and IP networking in close cooperation, only marginally short of a full scale merger. The dominance of both firms ensure they already enjoy economies of scale, with a joint sales strategy that was constructed in the months before the deal was announced. The companies expect an additional $1 billion USD in sales each by 2018. It remains to be seen whether this will work as smoothly in practice as the theory suggests. 2016 will be the year in which this is tested.

The newly created Nokia will still trail Ericsson in overall market share, though it will become the leader in LTE RAN. However, with telco equipment sales nearly flat following the LTE roll out race of 2012 – 2015, it will need to look to growth markets to achieve true dominance. That said, with mobile data traffic set to surge in the coming years there is a huge opportunity in the growing complexity of networks to cope with demand in the short-medium term, then in the longer term with rollout of 5G networks. However, the upgrade to 5G is unlikely to yield the vast investments from telcos seen when moving from 3G to LTE.

Consequently, all of the major players are now looking to the enterprise for new sources of growth, with the buzz of digital transformation set to surge in the next 5 years. This throws up added complexity as equipment vendors could find themselves competing with their operator clients for business in the enterprise space. It remains to be seen how this delicate issue will play out as telcos will remain the largest revenue source by far for the network vendors, even if lower as a proportion.

What becomes of the joint ventures and mergers of 2015/16 remains to be seen. History does not paint a pretty picture with Nokia-Siemens ending unceremoniously and ALU itself falling short of its full potential. One thing is for sure Mobile World Congress is set up to be an exciting week! See you there, if you are in Barcelona and would like to meet please contact me at lee.dendy-sadler@frost.com.

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Lee Dendy-Sadler

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