In February 2007 I was invited, whilst at 3GSM, to talk to George Bailey, who was at that point General Manager of IBM’s global electronics business.
Working with Bailey, IBM’s Global Business Services team had been doing the numbers and its considered view, produced in a paper titled “And then there were few” was that the industry would, in the medium term, not be able to provide such a Wonderful Life for network equipment vendors as previously.
In fact, Bailey thought that in the long term there might be space for only three major NEPs and what he said then is worth revisiting because he has been proven right.
Writing back then Bailey said that an increasingly competitive situation driven by service provider consolidation, allied to convergence between the electronics and telecoms industry “enabled by common IT standards”, would “separate those NEPs with the capability and vision to compete globally from the remainder of the industry”.
He went on to say, “By 2017, we expect only a handful of NEPs – perhaps even as few as three – to be legitimate, global players in the marketplace.”
OK, you might say, by early 2007 we’d already seen Alcatel and Lucent join forces. Nokia had just merged into a network unit with Siemens. Marconi had gone (into Ericsson). You could see which way the wind was blowing. But look at this chart (left), and you can see there were still plenty of NEPs that could legitimately have ambitions to remain globally relevant.
So here, now, a decade later are your three surviving NEPs – Cisco/Ericsson (counted together to take account of their deep sales and R&D partnership), Nokia, and Huawei. ZTE would beg to differ, perhaps. Maybe NEC too, at a push. But you can legitmately argue that we have three main global superpowers left, a year before IBM’s 2017 cut-off.
By the way, IBM also foresaw that the NEPs would see a rise in competition from “emerging players” from the software industry that would require a strategic response. I think this too is indeed what we have seen.
Allied to that, Bailey and IBM had identified three categories that NEPs would fall into. These were the artisan, the allrounder and the orchestrator.
The artisan referred to a focussed equipment manufacturer meeting limited use cases. The artisan stood to have the most to lose from competition from the common IT standards-based electronics industry. You might put any number of optical network companies in here, or appliance-based network function vendors. In IBM’s view the artisan had the least chance of being one of the very few left standing in 2017 and here, again, it was right.
The allrounder had more chance but would be both challenged and boosted by its attempt to act in an end to end manner, competing directly with other players in all areas, rather than looking for partnerships. NSN tried to be an allrounder, then stopped, and now is again after taking on Alcatel-Lucent. Ericsson acted as if it was an allrounder, although its Cisco deal has shown that that wasn’t entirely the case. Huawei is still very much the allrounder. IBM’s view was that being an allrounder was a legitimate route, but a tough one.
Although he thought the allrounder would be a viable business model for a NEP to be one of the three left standing in 2017, the final category, the orchestrator, was where Bailey saw the most value heading. The Orchestrator would see software be increasingly important, and would “disaggregate” its business model to become focussed on “orchestrating” its value chain. I would say that this is the most problematic of Bailey’s three categories, given the lack currently of any such player you could point to. But what is SDN-NFV, what does the cloud telco, the OpenX network give us if not this very potential for the creation of value for an “Orchestrator”, sitting above a partnership ecosystem, software-reliant, with a “disaggregated” business model. To repeat, I think our three big NEPS are presently in the “Allrounder” category, but one possible end result of open platform and open source networks could be to enable such an “Orchestrator” category, benefiting from being the brains of a network that has been commoditised onto standard “electronics”.
So, on the day that Nokia celebrates its merger with Alcatel-Lucent, arguably bringing our global scale vendors down to three (or perhaps four or five), let’s give a nod to George Bailey and the team at IBM, and their 2006 predictions.
Bailey, by the way, went on to be Chief Transformation Officer at Sony, and now holds a clutch of board positions in the industry. And you can read the original , “And then there were few”, here.
