Network equipment providers can become digital infrastructure natives

STAMFORD, Conn., October 6, 2016

Transition to Services Revenue Key to NEPs' Long-Term Viability

Network equipment providers (NEPs) can remain competitive in a rapidly changing environment. Martina Kurth, research director at Gartner, discusses how this can be achieved.

Why should NEPs change their business model?

The network infrastructure market is undergoing a rapid shift. Traditional telecom equipment providers must reinvent themselves to remain relevant in an increasingly digital world. Simply selling routers, towers and boxes will not be enough to survive as margins on hardware become increasingly slim. NEPs have to find new ways to leverage their core assets, while simultaneously acquiring new technology skills to align with the new digital economy technology.

The world's largest wireless equipment provider, Ericsson, is an example of the need for change. It has been through major turmoil recently, struggling with precisely this shift. Hans Vestberg stepped down as CEO in July 2016, after the company suffered several consecutive quarters of declining growth. The recent merger of Nokia and Alcatel-Lucent, along with Huawei's aggressive stance in the market, has put enormous pressure on Ericsson, but this also underlines the big efforts all major companies are making to align themselves with the new realities of this market.

Where can network equipment manufacturers find growth in the new digital marketplace?

Communication service providers (CSPs) are inclined to use a single strategic technology supplier for a combined software and services offering. Infrastructure technology suppliers will be expected to cover the entire end-to-end stack across virtualized network infrastructures, IT software and cloud data center capabilities. This is a big opportunity for those suppliers that can deliver on this need, and a threat to those who can't.

However, NEPs must provide more than new software-driven technology architectures — the big challenge is to operationalize and monetize new cloud-based technologies, like software-defined networks and network function virtualization.

Capabilities that center on software-driven and cloud-based telecom operations will be critical. Eventually, CSPs will expect their suppliers to provide viable end-to-end solutions to capitalize on the market potential that future technologies such as 5G, machine-to-machine, the Internet of Things, cloud and multimedia hold. New digital standards, such as Narrowband IoT, will need new digital operational and support system orchestration capabilities, such as partner management, onboarding and settlement, charging, policy and analytics.

What will a leading NEP look like in the future?

NEPs must redesign their business to address larger digital transformations. This will require a total transformation of vertical operations support system (OSS)/business support system (BSS) stacks to fully automated, horizontal execution environments. Vendors also need to assist with the design of new operating models, the introduction of DevOps, and the associated organizational and operational network and IT alignment. Development tools and guidance on operational and organizational processes must be part of the solution to facilitate any changes required to a company's culture and mindset.

As telecom operators change the way they create, manage and deliver digital services, big changes will also be required in the DNA of technology providers as they must facilitate the shift toward digital infrastructure. The good news for market-incumbent infrastructure providers is that their legacy network and OSS capabilities will be critical. We will mostly see hybrid CSP architectures for some time, before CSPs transition to fully virtualized infrastructures over the next decade. Established players will need to gain credibility in the emerging digital areas by beefing up capabilities in the cloud, data center and enterprise domains.

There is a huge market opportunity in enabling CSPs' architectural integration and ensuring interoperability across an end-to-end digital infrastructure. However, NEPs must evolve into facilitators that help overcome the challenges between business strategy, technology and operational planning for CSPs. For most providers, this means making the cultural shift to new digital development and operations paradigms. This will require them getting the attention of prospects well beyond traditional CSP constituents, as CIOs and CMOs take a key role in the new digital service delivery models.