Posts

Past is prologue for EY and the blockchain ecosystem

Gathering in person again for the first time since 2019, EY hosted around 200 blockchain enthusiasts for a full day of presentations, panel discussions and deep dives into the technologies, business use cases and ongoing challenges around the entire blockchain ecosystem, from cryptocurrencies to decentralized autonomous organizations (DAOs) to smart contracts. TBR attended EY Blockchain Summit both in person and virtually and spoke with EY leaders, EY clients, and entrepreneurs using the event to better understand blockchain. Following the in-person event, EY held virtual sessions for three additional days, tailored to practitioners and focused on specific use cases and technologies.

Evolving public blockchain for the masses to enterprise-ready solutions positions EY among the key ecosystem enablers

At every EY Blockchain Summit, TBR has been bowled over by the vision, clarity and passion EY brings and the diverse perspectives and commercial opportunities discussed both freely and critically. No good idea goes unspoken, and no questionable idea passes unscathed. In all these aspects, the May 17 summit in New York City — a welcome return to in-person gatherings — echoed previous summits, including an opening presentation by Paul Brody, EY’s unique blockchain proselytizer (and the firm’s global blockchain leader).

The overarching theme, in contrast to past events, centered on unlocking enterprise use cases, with EY facilitating adoption and adequately addressing privacy on the public blockchain. While last year’s summit featured extensive examinations of cryptocurrencies, central bank digital currencies and decentralized finance (DeFi), Brody and EY kept this year’s focus on getting to scaled adoption of blockchain such that blockchains do for business ecosystems what ERP did for the enterprise.

Numerous presenters and panelists took the discussion far afield, into questions such as the future of the dollar and the value of decentralized autonomous organizations, but Brody and his EY colleagues consistently presented a firm with the right strategy, investments, tool sets, alliances and leadership to act as a good shepherd for blockchain, advising clients on adoption and helping to shape a sustained push to Ethereum as the dominant ecosystem platform.

In TBR’s view, unrestrained passion for blockchain, bolstered by R&D investments (see below) and combined with a Big Four mentality around risk, compliance and consulting for large-scale enterprises, will continue to differentiate EY from peers, a separation that will become financially significant should Brody’s optimistic projections for blockchain’s revenue potential play out.

EY plus Polygon Nightfall makes Ethereum enterprise ready

Brody’s opening monologue covered the vast blockchain space, including three “killer apps,” cryptocurrencies, DeFi and DAOs, and predicted exponential growth for blockchain over the next 15 years. He hammered home the dominance of the Ethereum platform, which he described as “demonstrating all the process maturity you would expect from essential infrastructure.” And he described non-fungible tokens (NFTs) as one of the “most mature use cases” and heading for “mainstream adoption.” In this constantly changing space, Brody centered EY’s value on helping enterprises build, run and manage secure business processes on the Ethereum blockchain. To explain EY’s case, Brody helpfully provided his firm’s “secret plan for world domination” and its four component parts — essentially, advise, build, enable, and manage (tax included).

Circling back to a theme that has surfaced repeatedly at these blockchain summits, Brody said that EY understands enterprises will move to public blockchains when they are assured of privacy — not anonymity — and that the firm has worked to make that privacy possible through a partnership with Polygon Nightfall, a “privacy-centric Layer 2 network built on technology developed by EY teams and placed in the public domain.” TBR cannot assess the technological aspects of Polygon Nightfall, but two critical elements stand out from Brody’s presentation of it: First, EY dedicated people and money toward developing the technology, likely included as part of the firm’s planned $200 million in blockchain R&D spend in 2021, up from $100 million in 2021. Second, the firm released the technology into the public domain, demonstrably committing to public blockchains and EY’s role as a positive force in the ecosystem. Critically, Polygon Nightfall neatly complements EY’s existing blockchain solutions EY OpsChain and EY Blockchain Analyzer, which Brody explained the firm had expanded in the last year.

    • EY OpsChain, which notarizes documents, tokenizes assets, mints NFTs, traces raw materials and manages procurement, had a full production launch for traceability and a beta launch for application programming interface (API) services and inventory management. The latter two are critical to connecting networks and enabling the shift to smart supply chains, tying back to Brody’s suggestion that blockchain will be the ERP equivalent change agent for business networks.
    • EY Blockchain Analyzer, previously only available to EY audit clients, has been opened to non-audit clients, broadening the reach of EY blockchain software with an eye toward the 35x investment yield Brody stressed happens as emerging technologies move into early and later majority adoption over a 15-year period. The product, which reconciles transactions, tests smart contracts and calculates capital gains, has added functionality for reviewing and more options for testing smart contracts (see below). Users can now create, save and share custom tests.


Brody netted out the two suites as covering the essentials of every asset, business process and industry, with every transaction consisting, in his words, of “money, stuff, swap, subject to agreement.”

Vision, execution, results: EY’s track record in blockchain has yet to be challenged

Brody’s opening tour d’horizon highlighted the biggest blockchain trends and EY’s latest developments while also, in TBR’s view, subtly understating EY’s core value to its blockchain clients and the blockchain ecosystem. The firm’s investments include R&D and people — not just the techies capable of developing solutions like Blockchain Analyzer and the rest but also the consultants who can explain the business value and the tax, audit and risk experts who can help clients understand the effects of blockchain on their enterprise. The tool sets, which may be the most underrated but critical aspect of EY’s approach, demonstrate EY goes beyond just hyping, advising and implementing others’ technologies and into developing its own solutions and putting the EY brand — trusted, humans at the center — behind those solutions. A yearslong effort, these tools, along with the people, institutional knowledge and stress-tested capabilities, cannot be easily replicated by competitors. In essence, EY brings consulting and trusted technology into a space littered with hype and opportunities.

We cannot help but repeat what we said one year ago: “But trust, along with translating government intentions to trackable compliance checks, will remain the last bastion of business value in an otherwise commoditized state of the technology industry as we will come to know it as more legacy players fall victim to creative destruction and Moore’s Law Economics. EY, and more specifically, Brody, has a more clear line of sight on how public blockchain networks will evolve on par with the way the public internet evolved than anyone in the technology industry today. It would be foolish to bet against them and wise to partner with them.”

TBR did note the seeming absence of at least one of EY’s traditional blockchain partners, indicating the firm’s maturity in this space may be outpacing previously strategic partners, a development TBR will watch closely over the remainder of 2022. After Brody’s opening, the next round of presentations and panels dove deeper into specific themes and challenges in the blockchain space. Everyone — academics, bitcoin bros, bankers and solarpunks — buys into Brody’s assertion that $1 in blockchain revenue today will be $36 to $40 in blockchain revenue in 15 years.

Smart contracts are proven use cases, helping EY scale up its blockchain portfolio

In addition to the morning plenary, TBR attended an afternoon session on testing the functionality of smart contracts on EY’s Blockchain Analyzer. The presentation and demonstration, led by Sam Davies, EY global blockchain platform lead and engineering manager, and Karin Flieswasser, product owner of EY Blockchain Analyzer: Smart Contract & Token Review, helped participants understand EY’s tools, beginning with the strategies and philosophies behind specific capabilities, restrictions and attributes. (Note: TBR has listened to countless product demonstrations and has rarely heard a description of the mindset going into improving a product and the very basic “why” a solution could and should be changed. This was a welcome change from the assumption everyone would know the thinking behind the technology.)

Over the course of the hour, Davies and Flieswasser demonstrated various permutations of a use case that undoubtedly resonates with administrators of smart contracts wondering, “How can I be sure this thing will work the right way?” Davies began the discussion by detailing a few smart contracts gone wrong, and Flieswasser then described how EY’s Blockchain Analyzer Smart Contract Testing and Review system could have forestalled those issues.

In recent years, blockchain clients (and potential adopters) have consistently told TBR that reluctance to adopting smart contracts begins with uncertainty about the human element, not the technology. With that in mind, two elements of Davies and Flieswasser’s presentation stood out for TBR. First, the tool itself appeared to be intuitive and user-friendly, with every option, drop-down, task and function self-explanatory — a welcome respite from the usual hyper-tech talk around blockchain. Considering people tasked with administering smart contracts may more likely reside in procurement, supply chain management or even human resources, keeping the tech simple to use will likely accelerate adoption. Second, all of the testing and review perfectly mimic on-chain realities without actually using, compromising or changing any on-chain data.

While that should be an obvious characteristic, Flieswasser repeatedly emphasized the point — and took clarifying questions on it — leading TBR to believe this feature figures prominently in the risk management concerns of enterprise smart contract administrators. Lastly, the two presenters themselves, hailing from the U.K. and Israel, reinforced the global nature of EY’s blockchain Practice, and during a post-session discussion, Flieswasser noted the Blockchain Analyzer team is relatively small and geographically diverse. In TBR’s view, smart contracts can be a readily understood blockchain use case and may be one of the quiet catalysts for enterprise ecosystems’ blockchain adoption. Making smart contracts less risky by deploying easy-to-use test and review systems will likely be a critical element to accelerating adoption.

Crypto’s hope and hype are dashed by the history of money, bolstering EY’s role as the community shepherd

If the past is also the prologue for EY innovation, then EY’s foray into smart money tied to smart contracts will likely start in the consumer space. Just as EY’s first scaled blockchain use case was assisting Microsoft with tracking developer royalty payments, this concept has test cases starting with loyalty rewards programs and consumer gaming. In this manner, smart money use cases with small-dollar impacts will not roil capital markets. If the technology works, then it can be applied to higher-value situations in both wholesale and retail financial settings.

In his talk Brody made clear a distinction between privacy and anonymity. One blockchain camp stresses anonymity, and Brody and EY are in the privacy camp. To audit and attest business transactions to regulatory agencies, there cannot be anonymity. Privacy, however, protects the information on a need-to-know basis, leaving competitors unable to garner valuable business information regarding private matters such as unit pricing and discount structures.

When it comes to the overall merit of and need for cryptocurrencies, University of Southern California (USC) professor and former U.S. Federal Reserve executive Rodney Ramcharan’s keynote provided a history lesson on the U.S. dollar, offering ample evidence of lessons learned from not having a reserve bank to backstop against runs on a currency. In this regard, fiat currencies and stablecoins tied to fiat currencies rather than to algorithms appear to provide the kind risk mitigation that will be necessary for commerce. Crypto as a wealth store on par with gold is a different application area where risk is unquestionably higher.

In the past two iterations of TBR’s Digital Transformation Blockchain Market Landscape, we have provided some initial analysis on central bank digital currencies (CBDCs) and DeFi with a few developments worth noting, including the recently published paper by the Federal Reserve Board focused on CBDCs, in particular the digital dollar; the U.S. Security and Exchange Commission’s approval of a Boston-based exchange — BOX Exchange — that will use blockchain for faster settlements and potentially enable exchange tokenized securities; and lastly President Joe Biden’s executive order ensuring the responsible development of digital assets, including CBDCs.

The U.S. government’s awareness of and initial interest in CBDCs are steps in the right direction toward recognizing the implications of digital assets for the economy and everyday consumers. However, given the complexity, particularly around reaching consensus among community participants on the governance side, we believe it will be a while before a digital U.S. dollar will be deployed at scale for everyday merchant transactions and trade. The implications between wholesale and retail CBDCs carry risks, scale, speed and rewards. Connecting Main Street and Wall Street economies through blockchain is a necessary step that we believe will have a bigger, broader impact on enterprise buyers’ digital transformation (DT) initiatives. One might see such a framework as a bit of a long shot, but historically, financial services institutions have paved the way in new tech adoption.

Below is a direct quote from a CTO and a blockchain executive we recently spoke to that perfectly summarizes the implications around CBDCs.

“First, you have to differentiate between wholesale and retail. So if I’m talking about wholesale, then I’m probably talking about cross-border transactions between central banks or Tier 1 banks, for example. And so those are low transaction volume but high-value transactions. So that’s very important to get that right, more than anything else. And I can’t afford to have that hack because we’re talking billions of dollars. So, again, the experiments have proven that it can be done cross-protocol. I know I’ve seen some standards proposed in this space, mostly by some folks at Bank for International Settlements.

So they’ve done a lot of CBDC work. There’s a gentleman in Singapore who has proposed that, if you peel back the covers, he’s basically proposing everything should be on Quorum, everything should be on JPM Coin, which I don’t think that’s going to happen. But nice try, buddy. But you could maybe argue, OK, somebody like SWIFT could say, ‘OK, for international banking, at the wholesale level delivery versus payment kinds of scenarios or end up day netting between multiple banks, we can help you come up with a standard between the banks.’ Again, the technology will have to evolve to meet that because if you’re doing integration between the two different protocols, that’s a weak spot. That’s an attack vector for a hack right off the bat. So if I’m a hacker, I’d be looking at that kind of cross-border protocol switching, or integration play.

“Now at the retail level, let’s say we’re talking about replacing U.S. dollars, for example, with digital dollars, whatever. First of all, I’ll believe it when I see it, because the technology has to scale up to those, that level of transaction. But same thing, it could be, ‘OK, I’ve got my digital dollar, I’ve got an app on my iPhone, now I traveled to Japan, should there be an app, or should there be some bridge between the digital yen and the digital dollar?’ I think that’s decades off. If I’m a central bank in Japan, I’m going to be really, really careful about letting people plug into my letting travelers, for example, plug into my network or do conversions of a digital dollar to a digital yen, just again, for fear of the hacks, the fear of attacks. That loss of control, perhaps over the circulation of that digital yen, the only place where that might work. And now we’re really getting political here.

But you could probably argue that the whole reason that China’s doing its digital yuan, for example, is really about social control. So they have the social scoring in China, where, OK, if [someone] talks negatively about the Communist Party, then he gets points added to this, or points deducted from a social score, however it works. But it prevents you from getting credit, for example, prevents you from getting a plane ticket, things like that.

So they’re really trying to control behavior, social behavior with this point scoring system. And forcing everybody to use digital money really plays into that, because OK, now that [someone] has a negative score, I can block his account, I can prevent him from spending money, I can deduct money from his account, that sort of thing. To me, it seems like the digital currency in China really is just an extension of control of the population. And so maybe in that sense, like, if I go visit China, they really would want me to convert to their digital currency, because they could control it. They could see what I do, they could see where I spend it. And they could block me from accessing it if they want to. So yeah, that’s the negative side of that integration that you were talking about. OK. They would let me use their digital currency because they have ulterior motives for doing so.”

Conclusion

In-person events provide opportunities to gather insights and information not shared on a screen or on the plenary stage. Perhaps the two-year absence from being live in New York City helped make the participants more eager to talk. From conversations with blockchain entrepreneurs, crypto-enthusiasts and EY professionals, TBR heard two common themes.

First, the skepticism around cryptocurrencies has not been skeptical enough for what is out there and what is coming. The current split on crypto falls along the lines of regulation versus total anonymity, with regulated, stable currencies having greater potential than the unregulated coins that have roiled capital markets of late. Further, bad actors, present in any ecosystem, would be shaken out if governments regulate the new instruments (history as prologue), provided total anonymity does not win out.

Second, enterprises and the blockchain providers servicing them increasingly see smart contracts as the use case most likely to scale and accelerate blockchain adoption across the enterprise ecosystem. A final nugget specific to EY made the (persuasive) argument that EY’s most successful blockchain-related engagements to date reside in the firm’s Tax and Risk practices. In TBR’s view, the fact that EY is doubling its R&D spend in blockchain yet earning the most blockchain-related revenue in its legacy practices may be the most compelling evidence of the firm’s all-in bet on blockchain.


Market and competitive intelligence straight to your inbox each month, absolutely FREE

Subscribe to Insights Flight today!

Will the quantum computing investment summer of 2021 continue?

Volume of information being released around quantum initiatives leads TBR to believe the so-called quantum winter has passed

Last year the demand for agile solutions to persistent global challenges helped raise awareness of quantum computing’s potential. Investors took notice, as the quantum computing industry saw unprecedented backing from investors and progress in alliances around innovation, commercialization and workforce development. TBR believes this uptick in enterprise interest in quantum potential will continue throughout 2022.

In 2021 we saw some of the main hardware players continue to hit development road map milestones, new entrants in the market, and increased commitment to the technology stack, all of which we discuss further in our recently published 4Q21 Quantum Computing Market Landscape. While intimidating performance development gaps remain, the amount of funding that has been committed to the industry has provided clarity in a critical ingredient of innovation.

To access the entire 4Q21 Quantum Computing Market Landscape or speak with our subject-matter experts on quantum’s impact on your business, sign up for a 60-day free trial of TBR Insight Center™.

Additional developments highlighted in our recent 4Q21 Quantum Computing Market Landscape include:

  • Rigetti, the only pure play superconducting quantum computing startup, announced plans to become a public company via Special Purpose Acquisition Company (SPAC), Supernova Partners Acquisition Company II Ltd. As is customary with SPAC acquisitions, the deal will result in Rigetti receiving a massive cash infusion of $358 million, plus additional investor funds and $100 million in Private Investment via Private Equity. Rigetti would be the second company to go public, after IonQ, which went public in October. The $458 million Rigetti is to receive from this SPAC deal would well position the company to refocus on R&D objectives and invest in the system development race. To do so, the company would need to hire aggressively, as the talent pool that has the capability to lead and contribute to quantum system development is extremely limited. Based on the timeline of the IonQ deal announcement to execution, TBR predicts Rigetti will become public in May or June 2022.
  • It seemed to only be a matter of time until Amazon Web Services (AWS) launched its own initiative to build a quantum computer. In October the cloud computing division announced it has built and operationalized AWS Center for Quantum Computing, located in Pasadena, Calif., officially launching AWS into the quantum computing race. AWS plans to build its quantum computers based on the superconducting architecture, positioning it to compete directly with IBM, Rigetti and Google. AWS has teased its intent to build a quantum computer hosted on Amazon Braket, its quantum computing resource provisioning service via AWS Cloud, and has released several quantum research papers, most notably one regarding a new method to build a fault-tolerant quantum computer based on Schrödinger’s cat qubits. The theoretical method incorporates both active and passive quantum error correction to combat the two main types of errors prevalent in quantum computing, bit flip and phase flip errors. It should be noted that, to this point, AWS has not yet realized a full prototype, or at least has not made such progress public.
  • IonQ, a leading vendor in the development of ion-trap quantum computers, made international commercial progress with its partnership with South Korean car manufacturer Hyundai Motor Company. The two companies plan to codevelop what will be the largest Variational Quantum Eigensolver algorithm run on a quantum system to date. The purpose of the algorithm is to simulate the properties of lithium oxide to improve battery technology used in electric vehicles. This partnership marks the second major alliance in South Korea, after IonQ’s three-year deal with Quantum Information Research Support Center at Sungkyunkwan University. TBR believes this activity is largely a result of co-founder and CTO Jungsang Kim’s strong ties to the country. Kim attended Seoul National University, widely regarded as the top university in the country, before receiving his Ph.D. in physics at Stanford University. In addition to his role at IonQ, Kim is a professor at Duke University and serves as a member of the National Quantum Initiative Advisory Committee.
  • Quantinuum, the newly minted business combination of Honeywell Quantum Solutions and Cambridge Quantum Computing, released one of the first true quantum offerings in 2021 in its cryptographic key generator service, Quantum Origin. While relatively narrow in use, the service generates truly random cryptographic keys, something that could previously only be simulated. In January the company announced a deal to make Quantum Origin available within the Strangeworks ecosystem. Strangeworks is attempting to create value in the enterprise space via a quantum ecosystem that allows members to access quantum offerings, software tools and educational services as well as a community of quantum-involved companies.
  • Capgemini and IBM announced a partnership to explore quantum use cases, particularly in the quantum communication and sensing areas, and to launch Capgemini’s Quantum Lab, which has quantum computer facilities in the U.K., Portugal and India. Capgemini will also serve as an IBM hub, meaning IBM will build an on-premises quantum computer for Capgemini, which will effectively expand IBM’s quantum system reach to European customers with lower latency. The deal includes IBM’s latest 127-qubit quantum processing unit, Eagle, which it released in December. 

Business ecosystems must invest in massive supply chain pivots

COVID-19 supply chain impact

COVID-19 laid bare the underinvestment in contingency capabilities during the decades-long pursuit of cost optimization. In short, business leaders assumed a certain status quo in business continuity and did not leave sufficient capital tied up in unfinished inventory to provide necessary buffers in supply chain efficiency. Firms had over-rotated on optimization and perhaps assumed their trading partners were on par with them in terms of the technology “twinning” of their activities. COVID-19 exposed the need for agility, and when scale advantage only enabled top-tier firms to have the automated tool sets, working with the vital Tier 3 and Tier 4 suppliers resulted in the cascading pileups now in the news.

Future supply chains have to be embrace open contributions

Uneven technology enablement with supply chain participants certainly has created a network effect, but not the positive force multiplier discussed in third-wave economics papers. Supply chains, by definition, are a collection of ecosystem participants. For there to be a positive network effect, there has to be democratized access to technology innovations. Tier 3 and Tier 4 suppliers lack the funds and the skills to build digitally transformed supply chains on their own. In this sense all enterprises have to learn a lesson from the technology industry in terms of IP contributions to the ecosystem.

Ecosystems have to provide a common platform of nondifferentiable value-add to all participants —value-add in terms of stripping labor and labor mistakes from process flows, and nondifferentiable as it impacts neither ideation nor sales engagement. Open source is how technology has wrung cost of compute out of the model. This is how platform businesses achieve the network effect, as positively espoused in third-wave economics. 

Supply chain has the attention of the boardroom

The value of the interconnected supply chain ecosystems has been gaining boardroom attention and, as EY notes, COVID-19 only accelerates the need. The pandemic was a blindside disruptor and, as enterprises get back up from the blindside hit, the focus shifts from the diminishing return of investing in supply chain for cost optimization and turns back to the double-digit revenue hits enterprises took due to pandemic-fueled disruptions. The board focus is now on gaming out what other events could have a similar impact on business resiliency that the pandemic has had.

Does the boardroom see value in ecosystems yet?

Boards generally are populated by mature executives well versed in the current ways of working. Ecosystem business models are not a legacy best practice with which TBR would expect many board members to be familiar. They are too new. The idea of taking huge sunk investment costs and donating them to a buyer/supplier consortium will likely be anathema to many boards, but, as technology has proven time and again, open-source communities accelerate innovation. Linux/Red Hat represents just one illustration of that value creation in technology.

Advisory firms have permission to play to educate boards on ecosystem business model best practices

TBR hears a constant refrain in its discussions with services firms that people and process are the constraints and not the technology itself. This rings true with large enterprises but not necessarily with the small businesses comprising many of the Tier 3 and Tier 4 suppliers in enterprise supply chains. Outlining the value of a resilient supply chain will be an easy boardroom sell based on the current pandemic-related constraints being felt throughout the global economy. Convincing the board to contribute sunk IP investments to a consortium will be a harder sell. If any services entities can convince the boards of this efficacy, it will be the tax and audit advisory partners who have been providing business guidance to enterprises for centuries.

TBR’s recently published November 2021 Digital Transformation: Voice of the Customer Research bears out these notions. Based on survey data, respondents allocate 13% of their digital transformation services budget to business advisory services, another 16% to IT advisory services and an impressive 43% for managed services. TBR believes these managed services will more frequently flow from the advisory-led firms rather than the technology-led firms given the advisory firms’ advantage in knowing the business rules and business risks to digitization more than how to get the technology plumbing to work seamlessly.

Figure 1

From a straight technology perspective, firms invest in cloud computing, cybersecurity, IoT and analytics for digital transformation. Cloud localizes the activity where the firm wants it, cyber mitigates risk, IoT allows for more workflow automation, and analytics tells the business leaders what is important from the frictionless business flows. Cloud similarly was brought to the fore during the pandemic given the need to accommodate remote workers and reduce the amount of on-premises IT equipment requiring on-site staff.

Figure 2

Of course, all of these statements hinge on having IT platform plumbing built correctly and then transforming the business workflows that sit atop the IT platform. Figure 3 highlights the need for this gradual rollout strategy. Right now, improving IT operations management dominates the list of respondents’ digital transformation objectives. In two years, however, there will be a string of different business workflows on the customer docket. Workflows are automating business processes that often engage with other corporate entities and customers. This is where the deep knowledge of business rules and business risks come into play, and where tax and audit firms have clear market distinction.

Figure 3

Technology-led firms, hyperscale cloud companies and equipment manufacturers will certainly all play roles in moving industries further along the path of digitization. But just as business is turning to ecosystems, so too must the technology-based firms move to ecosystem offers where advisory-led firms will increasingly take the leadership role to advise boards in formulating business risk and resiliency policies that drag the tech stack participants along as the derived decision from the C-Suite aspirations.

Supply chain is the current example where tech innovations, business rules and employee training will give businesses competitive advantage providedthose ecosystems extend the IP value to the Tier 3 and Tier 4 suppliers. Like a chain only being as strong as the weakest link, ecosystem networks are only as strong as the weakest participant.

The statement stands for all business ecosystems. Other aspects of the business value chain come to the fore as different events trigger different reactions and technological choke points in need of modernization and remediation.

Enterprise interest in 5G has greatly increased since the pandemic began, pulling forward adoption timelines

Global 2000 companies and governments will drive the vast majority of spend on private 5G infrastructure

Global 2000-sized companies and governments have the scale, financial resources and technical acumen to handle the complexity of 5G and realize its full benefits. TBR estimates over 90% of private 5G investment will stem from these entities through mid-decade, at which point network slicing, solution maturity and lower price points will enable SMBs to participate more pervasively in the 5G opportunity. TBR expects most SMBs seeking 5G will leverage public infrastructure for their needs as the cost and complexity of private 5G will be too much for many of these smaller companies to handle.

Leading enterprises intend to fundamentally transform their operations by converging IT and operational technology with 5G, edge computing, AI and machine learning, and IoT.

Manufacturers and governments are expected to be among the largest investors in private 5G networks through mid-decade.

Software upgradability of private LTE systems to 5G will enable some enterprises to accelerate their migration to 5G

A large portion of the global private LTE install base is software upgradable to 5G, which will hasten some enterprises’ move to 5G, but the timing of these upgrades will be contingent on 5G device readiness.

TBR expects leading enterprises will upgrade their private LTE systems starting in 2021 as compatible devices and 3rd Generation Partnership Project (3GPP) features from Releases 16 and 17 become available. This upgrade cycle is a key factor in why the private 5G market size will be able to scale in the early years of the forecast period.

TBR’s Private Cellular Networks Market Forecast, which is global in scope, details private cellular network spending trends among enterprises and governments, particularly as it pertains to 5G. The report includes current-year market sizing and a five-year forecast of the private cellular networks opportunity by vertical, by provider type and by region.

Enterprise spend on private 5G infrastructure will grow at a TBR-projected 97.4% CAGR from 2020 to 2025 to $7.5B

Enterprise spend on private 5G infrastructure will grow at a TBR-projected 97.4% CAGR from 2020 to 2025 to $7.5B

Key Insights

Global 2000 companies and governments will drive the vast majority (more than 90%) of spend on private 5G infrastructure through 2025.

Leading enterprises intend to fundamentally transform their operations by converting IT and operational technology with 5G, edge computing, AI, machine learning and IoT.

LTE and Wi-Fi will have a place in the private networks domain, but most enterprises will ultimately need 5G.

TBR’s Private Cellular Networks Market Forecast, which is global in scope, details private cellular network spending trends among enterprises and governments, particularly as it pertains to 5G. The report includes current-year market sizing and a five-year forecast of the private cellular networks opportunity by vertical, by provider type and by region.

Private 5G networks market will see strong growth as a broad range of industries and governments adopt the technology

The environment after COVID-19 will prompt enterprises and governments to take a hard look at how they can apply new technologies such as 5G to mitigate operational and safety risks. Leading enterprises in the U.S., Germany, Finland, South Korea and Japan will drive the first wave of private 5G network investment through 2021, giving way to broader adoption beginning in 2022 as key 3rd Generation Partnership Project (3GPP) standards are finalized, devices become available and the technology matures. The governments of these countries will also be key initial investors in 5G for civilian, first responder and, in the case of the U.S. and South Korea, military purposes. The Chinese government will also invest in private 5G networks.

Preliminary private 5G deployments are mostly exploratory in nature

Private 5G network spend in 2020 is primarily for exploratory purposes. The ecosystem is experimenting with different use cases, business models and value chain structures in a bid to test the technology and prove the business case as well as to formulate a plan on how best to go to market and which solutions to focus on commercializing.

One key feature of this exploration is ecosystem participants innovating in their own environments, such as RAN vendors applying their own 5G solutions in their factories and industrial companies coinnovating with their partners on pilots. This will help parse out reference cases that can prove the business case for 5G, and some of these pilots will result in commercial contracts.

TBR’s Private Cellular Networks Market Landscape deep dives into the market for private cellular networks, particularly as it pertains to 5G. This global report covers enterprises and governments that are investing in private cellular networks as well as all of the major vendors and some of the key disruptors (e.g., startups) that supply infrastructure in this space. The research includes key findings, key market developments, market size and forecast, regional trends, technology trends, vertical trends, use cases, and acquisitions and alliances that are occurring in the market. The report also provides lists of key companies in the private cellular networks ecosystem that play a role in the market.

Enterprise adoption of private cellular networks poses opportunities and threats for telecom industry

An overview of key findings from TBR’s upcoming Private Cellular Networks Market Landscape

Digitalization and Industry 4.0 have sparked an emerging trend whereby some enterprises are opting for private cellular networks that they buy, own and control. These enterprises will be looking to not only leverage these private networks for traditional communications but also institutionalize these technologies into their operational IT environments, which are business critical and highly sensitive from a data and security standpoint. This approach challenges the notion that communication service providers (CSPs) will supply a 5G network slice to enterprises and it could disintermediate the CSP from these enterprise opportunities altogether.

TBR’s Private Cellular Networks Market Landscape deep dives into the market for private cellular networks. This global report covers enterprises that are investing in private cellular networks as well as all of the major vendors and some nascent players that supply infrastructure in this space. The research includes key findings, key market developments, market sizing and forecast, regional trends, technology trends, vertical trends, use cases, and key customer deals that are occurring in the market. The report also provides profiles of each major vendor in the private cellular network market. Key vendors covered include Cisco, Ericsson, Huawei, Nokia and others.

Join Principal Analyst Chris Antlitz on March 18 for an in-depth and exclusive review of TBR’s upcoming Private Cellular Networks Market Landscape.

Don’t miss:

  • How the market for private cellular networks is evolving
  • Why some enterprises will opt for private cellular networks
  • How the prevalence of private cellular networks will impact the CSP 5G business-to-business opportunity

TBR webinars are held typically on Wednesdays at 1 p.m. ET and include a 15-minute Q&A session following the main presentation. Previous webinars can be viewed anytime on TBR’s Webinar Portal.

For additional information or to arrange a briefing with our analysts, please contact TBR at [email protected].

Nokia bets big on enterprise

TBR perspective

Nokia (NYSE: NOK) remains in a state of transition. The company is not only addressing challenges with its 5G New Radio (NR) products but is also contending with business disruption as CSPs increasingly migrate toward a webscale-like, next-generation network architecture, which is prompting Nokia to accelerate and broaden its own internal digital transformation to remain a competitive player. Though management provided assurances that it is addressing its 5G NR issues and that they will be short-lived in nature, the underlying challenges facing Nokia, as well as all incumbent telecom network infrastructure OEMs, remain firmly in place.

TBR believes Nokia’s big bet on enterprise, which includes webscales and other industries such as manufacturing, transportation, utilities and mining as well as the public sector, is timely and critical to ensure the vendor can make the transition from relying on CSPs for the bulk of its revenue to relying on a more diversified mix of customers (CSP and non-CSP) to hedge itself from the prevailing winds of shifting CSP spend while exposing it to adjacent growth opportunities that are aligned with its offerings and capabilities. Currently, CSPs account for around 85% of Nokia’s corporate revenue with Enterprise comprising over 5% and patent licensing fees and other corporate revenue sources contributing the remainder.

Event overview

CEO Rajeev Suri kicked off Nokia’s 2019 Global Analyst Forum by addressing “the good, the bad, and the ugly” issues the company has been contending with, specifically as they pertain to Nokia’s 5G RAN kit and how these issues are impacting the company’s financial performance and investment decisions. Suri’s message reiterated that Nokia’s management is fully aware of the problems and have taken pragmatic and decisive steps to address them, most notably shifting from a field-programmable gate array (FPGA) chipset to a system on a chip (SoC) in its 5G NR. Suri stressed these issues are temporary and that the company’s overarching strategy remains the right approach to grow revenue and margins over the long term. One of the key aspects of that overarching strategy, which was interwoven throughout the event, is that Nokia is doubling down on enterprise.

Suri was succeeded at the event by a mix of Nokia’s other C-level executives as well as a mix of business unit and regional heads, all of whom provided updates on their respective domains and how they are addressing new opportunities in the market. A few representatives from leading CSPs, namely Sprint (NYSE: S), Vodafone (Nasdaq: VOD) and Zain, also presented during the event. The customer presentations confirmed that leading CSPs are focused initially on the consumer use cases of 5G (i.e., enhanced mobile broadband [eMBB] and fixed wireless access) and are taking a wait-and-see approach toward enterprise use cases. This is in alignment with TBR’s broader research on the 5G market, which suggests nontraditional use cases of the network that are enabled by 5G are not imminent and that, aside from eMBB and fixed wireless access, other use cases for 5G will take time to become economically and technologically feasible before being commercially deployed. Though private networks represent a key growth area, TBR notes the vast majority of net-new private cellular network engagements to date are using LTE, not 5G.

Panel, small group and one-on-one sessions were also hosted at the event covering a wide range of topic areas. A demo bazaar was also provided for analysts to see new technology innovations from Nokia in areas such as network slicing, cloud RAN and network automation.

After the event, analysts were treated to an exclusive tour of Nokia’s RAN factory in Oulu to see demonstrations of how private networks can be utilized in manufacturing environments to achieve improved business outcomes. The tour was well received and thought-provoking, but it was apparent that 5G technology is not imminently ready to address operations transformation and that more work needs to be done in that arena before the technology is commercially ready.

Enterprise was in the spotlight at Nokia’s 2019 Global Analyst Forum. Though communication service provider (CSP)-centric topics were also widely covered at the event, enterprise and the opportunity to sell private networks to that customer segment were emphasized throughout, indicating Nokia is placing big bets on non-CSP customers to drive the vendor’s recovery and next phase of growth.