Incumbent NEPs lean in to CSP software solutions

Ericsson, Nokia this week announced new CSP software offerings

This week incumbent network equipment providers Ericsson and Nokia made major service provider software announcements, the former around service management and orchestration and the latter on a multi-faceted SaaS offering. These launches are indicative of the move away from hardware-based and toward software-based revenues which both firms indicated a little more than a year ago.

Let’s rewind to the third quarter of 2020. Ericsson CEO Börje Ekholm, speaking on an earnings call in October last year, said, “We think the industry will be more of a software industry longer-term so that’s critical for us to position ourselves in that.” His peer at Nokia, CEO Pekka Lundmark, also speaking on an earnings call late last year, said, “We see value migrating from integrated systems to cloud-native software systems.” He called out the “broad opportunity for Nokia to provide a trusted, software-led and cloud-based network capability that can be rapidly integrated, deployed and self-managed as a complete service.”

Ericsson’s Intelligent Automation Platform for service management and orchestration is meant to help CSPs “optimize network performance, enable operational efficiency and deliver enhanced customer experience.” Ericsson described the new platform as “in line with Open RAN principles, taking automation forward with support for diverse vendors and multiple radio access network technologies.”

Eyeing commercial availability early next year, Nokia announced a SaaS product covering analytics, security and data management. Nokia President of Cloud and Network Services Raghav Sahgal said in a statement: “The convergence of 5G, cloud native software and SaaS creates a great and fast-growing opportunity for Nokia. With the groundwork we’ve already been laying, our SaaS delivery framework is in a very strong competitive position. It enables a combination of rapid time to value with on-demand access for Nokia SaaS applications and low cost of ownership, based on a pay-as-you-go / pay-as-you-grow commercial model.”

Of the big three NEPs, Huawei is also moving toward software albeit based more on geopolitical challenges rather than an embrace of open network principles. CEO Ren Zhengfei, in an internal presentation earlier this year, covered the topic with employees.

Analyst Monica Paolini, founder and president of firm Senza Fili, summarized Zhengfei’s talking points in an August blog post: “The first topic – the one that captured the headlines – was the need to shift the focus of R&D, product development and, eventually, value and revenue generation from hardware to software. This will free Huawei from some of the restrictions imposed by the U.S. and other countries, which mostly target hardware. Software can run on third-party hardware, and this will make it more difficult to prevent Huawei’s entrance into a market.”

As it relates to Open RAN, carriers are pushing for supplier diversity. Couple this with a move toward RAN virtualization, and software specialists like Altiostar, Mavenir and Parallel Wireless are poised to take share away from the incumbent players. Another vector of market disruption is the move to cloud-native and increasing role of hyperscalers in the telecoms sector. Also relevant is the commoditization of hardware wherein general-purpose server infrastructure running specialized software is replacing purpose-built integrated systems.

In his landmark “Why software is eating the world” essay from 2011, investor and software engineer Marc Andreessen wrote: “More and more major businesses and industries are being run on software and delivered as online services — from movies to agriculture to national defense. Many of the winners are Silicon Valley-style entrepreneurial technology companies that are invading and overturning established industry structures.”

Whether we’re witnessing the natural evolution of incumbent CSP vendor portfolios or disruption from “entrepreneurial technology companies” is up to the market to decide but, regardless, software-based services will be essential to delivering on the promise of 5G-enabled digital transformation.

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