Mobile World Congress (MWC) 2023 brought together more than 2,400 exhibitors and 88,500 attendees from across the global ICT sector, including representatives from many enterprises that are pursuing digital transformation. TBR notes that the level of engagement and executive exposure at this year’s event returned to pre-pandemic levels, solidifying MWC’s role as the most important, must-attend event in the world for all things related to mobile technology. The most popular topics discussed at MWC23 included private networks, APIs, satellite connectivity, the metaverse and cloud transformation.
An undercurrent was evident at MWC 2023 that suggests communication service providers (CSPs) are losing their grip on their own market. New market opportunities, such as private networks and edge computing, are increasingly developing outside the purview of CSPs. TBR notes that an alternative ecosystem of players — including hyperscalers, pure play software companies, chipmakers, incumbent network and IT equipment providers, systems integrators, application developers, and non-telco enterprises — is emerging to capitalize on opportunities enabled by new technologies (e.g., private 5G networks, edge computing and AI). Even governments are participating in this disintermediation in the telecom sector via stimulus programs, regulation and the trend of spectrum democratization.
Thus far, the 5G era has been playing out very similarly to the 4G era, when CSPs invested hundreds of billions of dollars in spectrum and network infrastructure and realized paltry ROI as the majority of the new value from those investments went to over-the-top players, most notably hyperscalers. CSPs risk remaining largely confined to their traditional roles of providing mobile broadband (i.e., smartphone connectivity services) and high-speed broadband (i.e., internet services) as value from new areas benefits other players. There are very real concerns in the industry that CSPs could miss out on the nascent network API opportunity and be disintermediated from key markets such as edge computing.
With CSP capex set to decline this year, according to TBR’s research, vendors dependent on CSPs are holding out hope that 5G-Advanced will drive a new wave of capex spend growth starting in 2024 and, finally, enable CSPs to generate new revenue. However, delays in standards creation and increased complexity are causing many CSPs to push out deployment timelines or take a wait-and-see approach before implementing new technologies. This is currently reflected by most CSPs globally sticking with the 5G Non-Standalone (NSA) variant of 5G versus migrating to SA, which uses a 5G core. TBR notes an increasing number of vendors are hedging their exposure to CSPs by targeting opportunities with enterprises across a range of verticals.
Taken together, one thing was very clear at MWC: The ecosystem CSPs belong to is not waiting to capitalize on these new technologies and market opportunities, nor is it waiting for CSPs.
Impact and Opportunities
Large Enterprises Will Show the Way to Digital Transformation and Industry 4.0
Large enterprises will be among the earliest adopters of new technologies and business models, showing the world what digital transformation and Industry 4.0 look like. BMW, Pepsi (Nasdaq: PEP), Micron (Nasdaq: MU), Intel (Nasdaq: INTC), Amazon (Nasdaq: AMZN) and others are among these early adopters, implementing cutting-edge technology solutions such as digital twin and computer vision to drive business outcomes. In most cases, these entities are sourcing their ICT solutions either directly from the vendor or via partners such as systems integrators. CSPs either are not present or are assuming a relatively minor role in the value chain in these implementations.
Digital Twin Is the Initial Gateway Into the Industrial Metaverse
Though a broad range of use cases are being implemented in private network environments, digital twin has emerged as one of the most pervasively considered use cases for private networks, especially for 5G. Digital twin involves cyber-physical immersion, which is a key tenet of the metaverse, and represents a foundational building block of and gateway into the industrial metaverse. Though most digital twins today are rendered in 2D, the jump to 3D will occur this decade.
One of the most advanced digital twin examples presented at the event was BMW’s “factory of the future,” where the company digitally replicated an entire physical factory located in Regensburg, Germany. BMW will leverage the blueprints and learnings from that factory as it builds net-new factories. Digital twin technology is helping BMW achieve a variety of business outcomes ranging from improved worker safety to design and factory planning optimization and a reduction in downtime.
Sales and Compensation Models at Most Companies in the Telecom Sector Need to Evolve
Companies that continue to focus on selling SIM cards, point products and disparate solutions (and compensate employees based on these metrics) are at a competitive disadvantage versus companies that sell (and compensate based on) outcome-based solutions.
Partnerships are becoming more important in selling motions, and end customers increasingly want to see a direct path to business outcomes to justify spend. Companies primarily want technology solutions that produce business outcomes such as increased revenue and/or reduced costs. TBR notes that systems integrators (SIs) have generally been doing a good job on this front, evidenced by the high-value digital transformation contracts they are winning.
Telecom Industry Hopes 5G-Advanced Will (Finally) Deliver on the Promises of 5G
5G has been broadly underwhelming thus far, and CSPs remain behind in implementing the new network architecture and business model structures required to capitalize on 5G-related opportunities, especially those in the B2B domain. Many in the industry view 5G-Advanced (which is typically thought of as 3GPP Release 17- and Release 18-compliant technology) as a key catalyst that will finally enable CSPs to begin realizing the benefits of 5G.
CSPs Should be Careful Pushing for Hyperscalers to Pay for Networks
Especially in Europe, CSPs continue to insist that hyperscalers should pick up some of the bill for networks, which could include paying CSPs a fee for traffic carriage. CSPs should be careful what they wish for because it could provide justification for hyperscalers to build their own end-to-end networks, which could marginalize CSPs or disintermediate them from their role in the value chain. Hyperscalers already own and operate the largest networks in the world when considering their metro and backbone assets, and if they were to build out their own access layer networks (especially the last mile) that would remove one of the last major competitive advantages CSPs have in the market.
Open RAN Is Not Ready for Mainstream Adoption
Despite a lot of marketing by vendors around open RAN, the reality is that the technology remains immature. Open RAN gear has been implemented successfully and is running live traffic in a few commercial networks (mostly in greenfield environments) in various parts of the world, but significant gaps still need to be closed in terms of feature parity, performance parity and implementation cost parity with traditional RAN before open RAN can truly be seen as a replacement, or augmentative, to traditional RAN. It was evident at MWC that this inflection point remains at least a couple of years away.
Once-in-a-generation Talent Acquisition Opportunity Is Here
Workforce right-sizing in the tech sector (mostly due to over-hiring during the pandemic) has created a once-in-a-generation opportunity for companies that are willing and able to take on more workers. Many of the estimated 200,000-plus tech workers who have been laid off since the beginning of 2022 have valuable skills that CSPs and their vendors could leverage to assist with technology transformation, application development and the transition to becoming digital service providers.
Opportunities resulting from new technologies promise to unlock trillions of dollars in new economic value globally. The big question is: Who will capture this opportunity? Given significant structural challenges endemic to CSPs, it is becoming increasingly likely that other players will step up to the plate, including hyperscalers, proactive ICT vendors, non-telecom enterprises and other new entrants. CSPs still have a chance to be relevant in these nascent areas, but it will require significant changes in their cultures, ways of working, ways of thinking and execution. 5G-Advanced may provide the spark that helps CSPs catch up in adopting technologies that will enable them to bring new value into the market. But in the interim, other players in the ecosystem will continue moving forward.
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