Ericsson (Nasdaq: ERIC) hosted Ericsson Enterprise Industry Analyst Day in Boston to discuss strategy and portfolio updates in its Enterprise business unit (BU). The event kicked off with Ericsson’s Global CTO Erik Ekudden providing a strategy overview of Ericsson’s Enterprise BU, which includes the company’s Wireless WAN (Cradlepoint), Private Networks (which includes Ericsson Private 5G and Cradlepoint-provided NetCloud Private Networks), and Cloud Communications & Network APIs (Vonage) subunits. Following Ekudden’s overview, leaders from each of the subunits provided deeper dives into their respective business areas. Peter Linder, head of thought leadership in North America, also discussed key trends occurring in the U.S. and where the telecom industry is heading in the country.
Ericsson’s Enterprise BU is exhibiting strong growth and serves as a bright spot amid the company’s broader challenge of operating in a post-peak RAN spend market environment. Ericsson has built a compelling 5G-related portfolio that builds solutions addressing the unique needs of enterprises ranging from small- and medium-sized businesses (SMBs) to large industrial entities. Ericsson also has a compelling story for Vonage and the global communications platform the company is building, though Vonage’s ability to achieve sustainable profitability remains uncertain.
Overall, TBR is confident that Ericsson will carve out and capitalize on a meaningful portion of the nascent private 5G opportunity but notes that the company needs to take disruptive peripheral trends more seriously. Specifically, TBR’s research indicates that hyperscalers are likely to move deeper into private networks and capitalize on the opportunity in network APIs as well as key growth areas such as Communications Platform as a Service (CPaaS). There is also a range of other disruptive players (e.g., Celona and Athonet, which is now owned by Hewlett Packard Enterprise [HPE] [NYSE: HPE]) that are vying to sell enterprises niche products and services pertaining to private networks. Additionally, the spectrum situation continues to evolve, and unlicensed and shared bands are likely to become a more disruptive force in the industry.
Impact and opportunities
Network application developer conundrum
Ericsson noted there is a worldwide dearth of application developers who understand the network enough to effectively leverage network APIs. This limitation needs to be addressed by vendors to unlock the value of the network. Ericsson aims to influence network-oriented app developers to address this issue via sponsorship programs in academia (e.g., hackathons, training programs) and by reskilling experienced workers.
Channel is critical for scaling adoption of private networks
Ericsson is almost exclusively leveraging partners to pursue enterprise opportunities, with communication service providers (CSPs) being one type of channel partner. Ericsson is focused on a multichannel approach, which includes consulting & system integrators (C&SIs), value-added resellers (VARs), and managed service providers (MSPs), in addition to CSPs. The channel partner route to market has become a necessity for vendors to profit from the private network opportunity. Though some vendors, like private cellular networks (PCN) market leader Nokia (NYSE: NOK), have achieved strong traction by selling directly to enterprises, this approach is unsustainable. Even Nokia is now trying to rely almost exclusively on the channel so that it can profitably scale.
With all of that said, TBR notes that Ericsson made little mention of C&SIs in its messaging about partners, with much more emphasis given to CSPs and other types of VARs. Given C&SI (aka global systems integrator [GSI]) firms are deeply entrenched with enterprises, this underemphasis or lack of strong focus is a limitation for Ericsson. Conversely, Nokia has established deep partnerships with a range of C&SI firms, such as Accenture (NYSE: ACN), Deloitte, EY and Kyndryl (NYSE: KD), for PCN opportunities, and these relationships are driving significant deal flow.
C&SI firms have been slowly moving away from vendor-agnostic strategies and more fully embracing joint go-to-market and sales efforts with their technology partners, in part because hyperscalers have demanded the change. Ericsson could ride that change wave and partner more closely with specific consultancies and SIs, using them as a gateway to enterprise buyers.
FWA in the U.S. remains underestimated and has huge potential
Though the U.S. government’s preference is to connect every premise across the nation with fiber, the financial reality is that the current round of stimulus programs (e.g., Broadband Equity, Access, and Deployment [BEAD]; Rural Digital Opportunity Fund [RDOF]; U.S. Department of Agriculture ReConnect; Tribal Broadband Connectivity Program) are not able to fully achieve this goal. TBR believes that 5G fixed wireless access (FWA) will ultimately be widely embraced as a viable alternative to fiber-to-the-premises (FTTP) as the technology can achieve the minimum speed requirements set forth by the U.S. government of 100Mbps download and 20Mbps upload.
5G FWA will be prioritized in more locations as a means to reduce lead time-to-market and cost-per-connected premise. When including unserved and underserved premises that would be excellent candidates for 5G FWA, TBR’s research suggests FWA has significant runway left in the U.S. market, greatly exceeding the modest subscriber targets put forth by incumbent CSPs like T-Mobile (Nasdaq: TMUS) and Verizon (NYSE: VZ). The spectrum problem will be mitigated over time by a mix of new technologies (e.g., carrier aggregation, massive MIMO, NR-U, extended range mmWave) and new or underutilized spectrum bands (especially unlicensed bands like 6GHz as well as mmWave, CBRS and the K-Band.
Cellular convergence with Wi-Fi needs to be taken more seriously in the industry
Most enterprises already use Wi-Fi and are unlikely to replace those systems with cellular technologies like 5G. Instead, swim lanes are forming whereby certain use cases and situations are best addressed by either Wi-Fi or cellular, but these access mediums must still coexist in an enterprise’s environment to bring the full benefit of IT-OT convergence and digital transformation. This convergence piece remains under-addressed by the ecosystem but represents a potentially massive opportunity. Ericsson, which has significant experience with Wi-Fi from past acquisitions (e.g., BelAir Networks) and R&D (e.g., Wi-Fi calling), can and should play a key role in convergence between cellular and Wi-Fi.
One of the biggest challenges to IT-OT convergence is not the technology but the people. At enterprises, IT and OT buyers are separate, with potentially divergent business priorities that sometimes compete for budget. Ericsson appears to understand that they need different selling motions for these buyers, even at the same enterprise — e.g., Wi-Fi-like experience and solutions for IT buyers; hardened network experience, and solutions for OT buyers. That understanding could be a successful way for Ericson to partner across the IT-OT ecosystem.
Vonage has interesting technology, strategy and vision but faces major threat from hyperscalers
TBR’s research indicates hyperscalers continue to encroach on the communication applications domain, the evolution of which will leverage network APIs. Examples of this are evident with the integration of Microsoft Teams (Nasdaq: MSFT) with Azure Communication Services, and hyperscaler development of super apps that blend social with commerce and other features into an integrated platform, similar to Tencent’s WeChat in China. Hyperscalers already have several billion users on their communication applications globally (e.g., WhatsApp, Instagram, Messenger [Nasdaq: META]; Teams; Google Meet and Google RCS [Nasdaq: GOOGL); iMessage [Nasdaq: AAPL]), which are all conduits to bring network API innovation to their install bases. Though Vonage currently has a compelling market position in the communication applications domain, the company could quickly be blindsided by hyperscaler moves, similar to what has occurred with Microsoft Teams taking significant market share from prior leader Cisco Webex (Nasdaq: CSCO) in the unified communications & collaboration (UC&C) domain.
Ericsson has compelling ideas and portfolio to address nascent opportunities in the private networks and network API domains, but TBR is skeptical the company will be able to build critical mass in these areas due to hyperscalers’ role, road maps and ambitions in the ecosystem. Ericsson’s primary customers, CSPs, also face this disruption, which has historical precedent in voice, text, linear TV, and other business areas that have been fundamentally disrupted by hyperscalers over the past two decades.
TBR believes further integration of the telecom industry into hyperscaler ecosystems is inevitable. Ericsson and its partners are encouraged to think more about focusing on niche areas where hyperscalers cannot or will not play and/or integrating deeper with hyperscalers to achieve joint critical mass in a cooperative framework. If it chose to take both approaches, Ericsson could make itself indispensable, which typically comes from being trusted, dependable and easy to work with. Any company can bring the technology; Ericsson needs to become the best possible ecosystem partner, so every player in the ecosystem wants to partner with it.