Matt Walker, Author at MTN Consulting

Quantifying the energy cost savings from 2G/3G network shutdowns

Posted on 18/10/2022 | 21/04/2023 by Matt Walker

With each passing day, the 2G and 3G layers of telcos’ mobile networks are looming as heavy loads on operating expenses (opex). That’s due to multiple issues but especially energy consumption and related costs. With the existence of a 4G layer in these networks and the coming, if not already deployed, energy-hungry 5G layer, such loads become even heavier. Even before 5G has become widespread, energy costs averaged to about 4% of telco opex in 2021, based on an MTN Consulting study.

Quantifying base station energy costs by generation

Many telcos publish data on their energy consumption, and sometimes provide breakdowns for different parts of the network. But there are no existing estimates on the specific impact of maintaining 2G/3G networks alongside 5G. This blog attempts to quantify the effect of these older 2/3G mobile networks on a typical telco’s energy bill.

To accomplish this, first, we need to have a closer look at overall electrical energy consumption for mobile telcos, and then break down this consumption into parts, identifying what portion of total energy relates to the base station and what parts of the base station consume the most energy.

One complication is that a pure “mobile telco” is rare: most telcos providing mobile services also provide many other services, and operate network assets well beyond the mobile RAN. Some telcos providing mobile services began their lives long ago as fixed operators. Some started as mobile but acquired or built fixed assets to support converged offerings. Some have provided both fixed and mobile services from the start. Some provide cloud or other services mainly aimed at enterprise markets. The energy consumption patterns differ across operator types. Figure 1 illustrates this, for a few large telco groups.

Figure 1: Mobile network as % of total network usage, select telcos

Source: public reports and MTN Consulting estimates

To remove this confusion, we will consider mobile telecom companies that still rely exclusively on providing mobile telecom services. For such operators, the mobile network accounts for about 90% of total company energy consumption and costs. There is some limited variation around this 90% figure, due to vendor choice, network topology, and traffic mix, but 90% is a reasonable estimate.

Taking KDDI as an example from Figure 1, this company provides a range of services that are not mobile related; MTN Consulting estimates that KDDI’s mobile network accounts for only about 60% of total company energy consumption. But for Zain, this ratio is 93% as this company is almost exclusively focused on mobile services.

After concluding that about 90% of a mobile-only network provider’s energy consumption is from the mobile network, we need to dive deeper inside the mobile network to find the network elements that contribute most directly to energy consumption.

The mobile network consists of different parts like core, transport, and base stations. As shown in Figure 2, the base stations, or the mobile radio access network (mobile RAN), account for about 57% of network energy consumption for a mobile operator. Expressed differently, the mobile RAN accounts for about 51.3% (i.e. 90% * 57%) of total company energy consumption for a mobile-only operator, such as Zain.

Figure 2: Base station’s contribution to mobile network energy consumption

Source: IEEE Communications Surveys and Tutorials

Now we need to examine the base station and have a closer look at the base station elements and their corresponding energy consumption. As shown in figure 3, the base station element that consumes the largest portion of energy is the power amplifier (PA), which consumes around 75% of total base station energy consumption as shown in figure 3.

Figure 3: Base station energy consumption distribution by network element

Source: Journal of Energy

As shown above, the power amplifier element is the biggest energy consumer in a mobile-only telco network. The power amplifier accounts for about 38% of total company energy consumption: 75% * 57% * 90%. So if a mobile network operator turns off the 2G network layer, the bulk of energy savings will come from shutting down the power amplifier that corresponds to the 2G network.

Now that we have quantified the amplifier’s contribution to total energy use, will this 38% figure be enough to measure the benefits of shutting down the 2G and 3G layers? Actually, we still need one more number: the energy consumption of the power amplifier for each technology. In other words, what is the energy consumption percentage for each of these technology layers? Let us have a look at this in Figure 4.

Figure 4 is a presentation of the key components in a base station and their typical energy consumption, in three different network configurations. The columns show the configuration of a typical base station, and the rows are the affecting elements, mainly the power amplifiers. The gray colored boxes are the elements needed for the 2G and the 3G layer, blue colored boxes are the elements needed for the 4G layer, green colored boxes are the elements needed for 2G, 3G, and 4G, and lastly, the orange colored boxes are elements needed for the 5G layer.

Figure 4: Energy consumption of key components in a base station, across three network configurations

Sources: MTN Consulting; Huawei Technologies

The values inside the elements represent the maximum energy consumption of that element. So as shown in figure 4, in 2G/3G only, the base station consumes 3.9kWh. By adding a 4G layer onto the base station, you increase the energy consumption of this base station by 51%. By adding a 5G layer on top of the 2G, 3G and 4G base station, you can expect another 66% increase in energy consumption. The red arrows in Figure 4 indicate these increases in maximum energy consumption.

That 66% figure illustrates one thing that is scary about 5G: yes, it may offer revenue upside, but it also consumes lots of power to operate 5G, which costs money and has climate impacts.

For this blog, though, what we really need to know is the contribution to total energy consumption of the legacy network elements as you upgrade to newer technology. These values are presented in figure 4 in the yellow arrows. So, in 2G/3G/4G base stations, about 40% additional energy is consumed by holding on to the 2G and the 3G layer. Similarly, in a combined 2G/3G/4G/5G base station, roughly 24% extra energy is consumed because of still holding the 2G and the 3G layers in this base station.

We now have the estimates we need to find the impact of supporting the 2G/3G network layers alongside 4G/5G for a typical mobile operator.

Approaches to 2G/3G network shutdowns vary depending on current network design

Right now telcos are wrestling with the best way to deal with legacy networks, while they upgrade to 5G. The ideal solution depends on the current position of the operator’s network. In the following table, you can see some potential paths to 2G/3G network shutdowns and the impact on energy consumption. In the first scenario, where the telco currently has only 2G and 3G network layers, an upgrade straight to 5G would result in an approximate 50% reduction in energy costs. In the last scenario shown on the bottom of the table, where an operator is simultaneously operating 2G, 3G, 4G, and 5G networks, the ideal solution is to shut down the 2G and 3G layers. This would save an estimated 40% in base station energy consumption.

Of course, energy costs are not the only factor in planning 2G/3G network shutdowns: spectrum, regulatory, legacy service revenue, and other factors also matter. But telcos nowadays are very focused on reducing their opex burden whenever possible, given weak revenue growth. As such, energy costs are a central focus of most telcos.

Table 1: Energy usage impact of 2G/3G shutdown scenarios

Mobile network’s current scope	Likely migration path for 2G/3G shutdowns	% reduction in energy use for typical base station
2G and 3G network	Upgrade straight to 5G, bypassing 4G, then shut down both 2G and 3G	50.0%
2G and 4G network	Upgrade to 5G then shut down the 2G layer	30.1%
3G and 4G network	Upgrade to 5G, then shut down the 3G layer	33.2%
2G, 3G and 4G network	Upgrade to 5G, then shut down both 2G and 3G layers	39.9%
3G, 4G and 5G network	After upgrading all sites to 5G, shut down the 3G layer	33.2%
2G, 4G and 5G network	After upgrading all sites to 5G, shut down the 2G layer	30.1%
2G, 3G, 4G and 5G network	The operator is ready to shutdown both the 2G layer and the 3G layers	39.9%

Source: MTN Consulting

The above table represents cost savings for the “typical” mobile-only telco we described early in the blog. In follow-up blogs, we expect to detail the impacts of 2G/3G network shutdowns for a few specific mobile operators in different regions of the world.

The author, Samir Ahmad, is a telecommunications and IT consultant based in Amman, Jordan. Samir has a Master’s in Telecommunication, Electrical, Electronics, and Communications Engineering, from the University of Sydney, and a B.S. in Electrical Engineering – Communications & Electronics, from the Jordan University of Science & Technology. Prior to entering the consulting field in 2017, Samir worked for Zain Jordan for 8+ years, most recently as Expert, RF Planning and Optimization.

Telco capital intensity hits 10 year peak in 2Q22

Posted on 06/09/2022 | 20/04/2023 by Matt Walker

Vendors continue to wrestle with supply chain constraints in the telecom sector. That’s clear from several recent vendor earnings reports, including those issued by Dell, HPE, and Ciena in recent weeks. Telco spending, though, has surged in recent quarters. With 2Q22 results now compiled, the industry has reached a new capex peak. For the 12 months ended June 2022, telco capex was $329.5 billion (B), while the ratio of capex to revenues (i.e. capital intensity) was 17.8%. Both figures represent new record highs, at least for the 46 quarter (11.5 year) period that MTN Consulting data covers (1Q11-2Q22).

On the supply side, vendors selling into the telco vertical are seeing some growth, in aggregate. For the broadly defined “telco network infrastructure” (telco NI) market, revenues were $60.1B in 2Q22 (up 4.1% YoY), or $237.6B on an annualized basis, up 6.7% YoY. The telco NI market includes some vendor revenue streams which dip into telco opex, not capex, but there is usually a correlation between total capex and vendor revenues.

The figure below illustrates telco capital intensity over the last several years.

What’s behind recent capex growth

One factor behind the recent capex spending spike is a post-COVID bump. Economies shutdown during COVID, depressing network spend. The capital intensity effect is shown in the figure, above (“COVID slide”). Capex also dropped in absolute terms. Annualized capex bottomed out at $299.8B in 2Q20. Some of the current growth is just making up for lost time. The quarterly average hasn’t changed much, if you expand the time horizon. For the last ten quarters, from 1Q20 (the onset of COVID) through 2Q22, telco capex averaged out to about $77.9B per quarter. For the ten pre-COVID quarters, the average was $78.5B.

Another factor is many telcos are scaling up initially small 5G deployments, and beginning to build out 5G SA core networks. 5G RAN builds have been underway for several years, but the spending has been small to start due both to the software-centric nature of 5G networks and telcos’ desire to wait for new revenue models to emerge. Incidentally, a shift to 5G core spending tends to benefit a different type of vendor – not just the Ericssons and Nokias of the world. Cloud providers AWS, Azure and GCP, for instance, are all actively involved in helping telcos with 5G core migrations. Their collective revenues in the telco vertical were about $3.4B for the 12 months ended June 2022, up nearly 80% YoY. Many of the vendors involved in this are less vulnerable to supply chain issues.

Another capex plus: fiber spending is strong in a number of markets, especially the US but also in Europe, Australia, China, and India. That’s to support FTTx deployments but also to connect together all the new radio infrastructure needed to support 5G. Government subsidies and other investment incentives are a factor as well. Vendors focused on fiber optics are seeing strong growth right now. For instance, Corning and Clearfield saw their telco vertical revenues grow by 25% and 84% YoY in 2Q22, respectively.

Supply chain limitations have a mixed effect. They sometimes mean delay or cancellation of projects, which cuts capex in the short term. They also can mean price increases, though, as telcos push suppliers to accelerate timelines or adjust designs to work with available alternatives. This can result in projects costing more than expected. Let’s not forget, though, that a huge portion of telco spend is unaffected by current supply chain constraints. Services- and software- focused vendors – like Accenture, Amdocs, IBM, Infosys, TCS and Tech Mahindra – are not citing supply chain issues as a drag on results.

Inflation is a bit more straightforward. This has impacted the entire telecom food chain, from chips to components to systems to services. All else equal it causes an increase in US$ capex, though the impact on capital intensity is less clear.

Finally, there’s China. Given how closed a market this is, there’s not as much attention paid to it nowadays. But China’s capex has been growing recently. For the 2Q22 annualized period, Chinese telco capex totaled $58.3B, up 12% from 2Q21. That growth comes despite efforts to share costs on the network side.

China is also relevant to the vendor share question. Huawei continues to rank at the top of the global telco network infrastructure (telco NI) market. For the 2Q22 annualized period, we estimate its telco NI share at 18.7%, far ahead of Ericsson (10.9%) and Nokia (8.9%). This surprises some, as Huawei has become a non-factor in many markets over the last two years. Yet Huawei’s stability is no mystery. It’s dominant at home, and local telcos have been spending big, and steering more of their capex dollars to local suppliers over the last couple of years. Huawei also has a huge customer list overseas – these revenue streams don’t just disappear overnight, especially since many telcos remain loyal to the vendor.

Hardware hit hardest in supply chain crunch

Vendors recorded about $237.6B in sales to the telco vertical for the 2Q22 annualized period. This is a huge market, with many different players; MTN Consulting stats track 132. Some supply the latest and greatest hardware innovations. They often have high margins but can also be subject to supply chain hiccups. Vendors specializing in solutions which revolve more around software and/or services tend to have different constraints. Labor cost and availability is always a concern, but hardware is rarely an issue. We believe the current supply chain disruptions will improve in the next couple of quarters, though. Even those vendors hit by short-term supply issues are generally optimistic. For instance, Gary Smith, Ciena’s CEO, noted last week that “Despite supply chain challenges and elongated lead times, strong secular demand trends show no signs of abating. And we remain confident that the fundamental macro drivers propelling this demand are durable over the long term.”

The biggest near-term risk to that is China’s ongoing series of COVID shutdowns. Longer term, the bigger risk is any interruption to Taiwan’s ability to continue functioning as an independent, self-governing country – it plays a key role in the telecom supply chain, and that of many other sectors. This issue is the elephant in the room that few like to address, but all vendors need to have a plan for this worst case scenario.

Source of cover image: iStock

Vendor landscape continues to shift in telecom market as cloud and 5G scale

Posted on 29/07/2022 | 20/04/2023 by Matt Walker

Telco network spending has been on the rise over the last few quarters. Vendor sales of network infrastructure to the telco vertical (“Telco NI”) totaled $55.5B in 1Q22, up 5.7% YoY. On an annualized basis, Telco NI revenues through 1Q22 were $234.8B, the highest total in our 1Q13-1Q22 database and 6.8% higher than the 1Q21 annualized figure. Telco capex has been strong the last few quarters, and vendors are benefiting. The growth is not dramatic, but any kind of growth at all in telecom is a plus, and often a surprise.

As telco spending has risen post-COVID, the top few vendors remain at the top. While share always varies a bit by quarter, the biggest five network equipment providers (NEPs; excludes China Comservice) have collectively accounted for about 50% of the Telco NI market over the last few years. Figure 1 shows annualized share evolution for these vendors, from 1Q19 through 1Q22.

Figure 1: Annualized market share of top 5 NEPs in the telco vertical, 1Q19-1Q22

Source: MTN Consulting

While the top 5 remain the same and their aggregate share of wallet is stable, there are some significant shifts underway in the vendor landscape.

What drives these shifts? Some are driven by financial machinations or politics, but most are aimed at improving competitive positioning. More specifically, improving a vendor’s ability to address key customer needs. In the telco vertical, these include: deploying telco cloud functions and architectures; monetizing new network capabilities, in particular 5G; lowering the cost of transport and routing; improving the energy efficiency of networks; automating networks; lowering the cost of customer acquisition and retention; and, developing revenue streams in new areas like mobile payments, digital advertising, home networking, connected cars and security. There are probably more shifts underway nowadays because 5G cores are beginning to be implemented in a big way, and Huawei’s problems continue to open up new opportunities for smaller vendors.

Most of the shifts in the vendor landscape involve smaller players, outside the top 5. Ericsson’s acquisition of Vonage is an exception; MTN Consulting published a blog post on this deal in May. Setting aside the top 5, ongoing changes in the vendor landscape fall into a few broad categories.

Growth of the cloud providers

Alphabet (GCP), Amazon (AWS), and Microsoft (Azure) together booked approximately $3 billion in revenues to the telco vertical for the 1Q22 annualized period, from less than half a billion USD in 2Q18-1Q19. They now partner with telcos on a range of areas, as MTN Consulting mapped out in the report “Telcos aim for the cloud by partnering with webscale cloud providers.” Their aggregate share of Telco NI is now about 1.3%, around the same as Accenture and a bit more than IBM. They have a long way to go, but they are already making a dent in the market and continue to invest heavily in the telco vertical.

Most of the cloud providers’ success in telecom stems from organic investment, but not all; Microsoft has completed three acquisitions that accelerated its push into telecom: Affirmed Networks, Metaswitch, and AT&T’s Network Cloud.

Vendor partnerships with webscalers

As webscalers began to make a real dent in the telecom market in 2020, traditional telco-facing vendors realized they could benefit from some joint development and marketing ventures with the webscalers. That was especially apparent as telcos began to deploy 5G cores and needed cloud smarts from their suppliers. Over the last three years, most big telco-focused vendors have entered into partnerships with traditional telco-facing vendors like Ericsson, Nokia, NEC, Fujitsu, and Amdocs. Some of these are generic, some are customized for specific large telco accounts, e.g. Telecom Italia.

Restructuring and realignment

Dell, including its majority holding in VMWare, saw its revenues in the telco vertical rise steadily in the 2019-21 period. The company’s 2021 revenues in telecom amounted to just over $2.7B. VMWare is responsible for much of this, boosted by its Telco Cloud offerings. Late last year, Dell spun out its majority holding in VMWare. This was aimed partly at raising cash, but also at creating more value in VMWare, which has a different business model and profit margins than parent Dell. The two retain strong connections and partnerships, including in the telco space.

Since the Dell-VMWare spin-off in 4Q21, a bigger shift has occurred: in May 2022, Broadcom agreed to acquire VMWare, for $61 billion. Broadcom says the deal will combine its software portfolio with VMWare’s multi-cloud offerings. Telco is only one of many reasons for this deal, not a central one. Prior to the deal, Broadcom alone did have some small position in Telco NI, due largely to previous acquisitions (Brocade, and CA Technologies). The synergies involved in this deal seem questionable, but importantly Broadcom claims it will allow VMWare to operate with a degree of independence.

In the same quarter as Dell’s spinoff of VMWare, IBM separated its services group into a new company, Kyndryl. This deal was also driven by an interest in separating two companies with significantly different business models and profit margins. Both go after telco business though. Red Hat is at the core of IBM’s efforts to improve its penetration of the telco sector, and it has had some success. Kyndryl inherits many relationships with telcos cultivated by IBM’s services group over the years. That includes deals with Bharti in India, including a blockbuster $1.4B deal for IT operations outsourcing, way back in 2004. Interestingly, 5G monetization is front and center of Kyndryl’s messaging for the telco vertical, which is a similar driver to what’s behind Ericsson-Vonage.

Still pending: CommScope has been attempting to spin out its Home (CPE) division for several quarters, but there is no confirmed buyer. There’s some chance that the company will just reintegrate the division, as options are limited. Acquisition by private equity is likely being considered, though.

Telcos investing directly in technology supply

There are a few cases of telcos either creating a vendor in-house or acquiring a large ownership stake in one which already exists:

Rakuten Symphony: Rakuten’s creation of Symphony is most notable in recent years – the highest stakes, and probably the most expensive. Payoffs may be many years down the road, as more telcos consider open RAN for brownfield networks and Symphony develops more of a track record.
Tata Sons-Tejas Networks: Tejas Networks sold a controlling stake (43.4%) in July 2021 to Tata Sons group, which wants to help Tejas grow. The Tata group includes a telecom division, Tata Communications, with $2.3B in 2021 revenues, making it India’s fourth largest private telco. Tejas is focused on optical networks.
Verizon-Casa: in April 2022, Verizon announced it would invest $40M in one of its smaller vendors, Casa Systems, at the same time as agreeing to a multi-year contract.
NTT-NEC: further back, in June 2020, NTT announced a $560M investment into key supplier NEC, for a 4.8% stake in the company. This aimed partly at helping NEC expand its 5G offerings and leverage an opening in the global market for wireless technology opened up when Huawei began to face supply chain and political constraints in 2019-20.

Vendor-vendor M&A deals

The vendor landscape also continues to be impacted by more traditional M&A deals, where a vendor acquires another technology supplier. Some of the recent transactions include:

NEC: this Japanese vendor has committed to expand in the mobile technology space, with focus on open RAN. Earlier in July, NEC agreed to acquire Aspire Technology Unlimited, an Ireland-based systems integrator, to help with this pursuit.
ADVA-Adtran: these two small but profitable wireline vendors announced plans to merge in late 2021, and the deal just closed. The new company, ADTRAN Holdings, may have a leg up in pursuing the many transport network upgrades and broadband access buildouts underway worldwide right now. The new ADTRAN may also be better able to deal with supply chain constraints, which continue to be an issue for smaller NEPs.
Sterlite: this India-based optical supplier has been growing over the last few quarters, exploring overseas markets for fiber optics, launching a small range of wireless products, and acquiring a UK-based systems integrator, Clearcomm Group, in 2021.
Accenture: has spent heavily on a wide range of acquisitions in the last two years, across industry verticals. Deals impacting telecom include Arca, a Spanish engineering services company, in 2020; umlaut, a German network engineering, testing and analytics company, in 2021; and Advocate Networks, a technology consultancy and managed services provider, in 2022.
Aviat-Ceragon: most mergers are friendly, where both sides agree. As Elon Musk’s attempted purchase of Twitter reminded the world, there are also less friendly forms of acquisition. This Aviat-Ceragon deal is basically a hostile takeover of Ceragon, proposed by Aviat. It’s still pending and the two parties may not come to agreement. However, the motive is worth noting. Aviat’s hope is that the deal would give the combined company more scale and better margins, and a stronger ability to compete with Huawei, Ericsson and Nokia in the wireless transport space as opportunities arise for 5G backhaul & fronthaul and support for private wireless networks.

Finally, one significant acquisition involves a large established telco-facing vendor acquiring telco assets. In September 2021, Ciena acquired AT&T’s “Vyatta” virtual switching and routing technology. As Ciena said at the time, the deal aims to address “the growing market opportunity to transform the edge, including 5G networks and cloud environments.” Many shifts in the vendor landscape aim at this same opportunity.

Photo by Hans-Peter Gauster on Unsplash

Telecom’s top 3 vendors betting big on enterprise expansion; Huawei has early lead

Posted on 14/06/2022 | 25/04/2023 by Matt Walker

Telco NI’s top 3

Telcos buy products & services from dozens of different vendors. Our research tracks 130. Some are relatively easy to classify into a segment, e.g. Corning, a “cabling & connectivity” vendor in our terminology. Most are much harder. Even those which may once have been called NEPs (network equipment providers), such as Ericsson, went beyond the implications of this term long ago. They also provide software and services, and most of their future development – measured by both R&D spend and acquisitions – is targeted towards software and the cloud.

Setting aside the vendor classifications, there is less dispute about who the overall top suppliers are in telecom. According to MTN Consulting’s most recent vendor share report on this “telco network infrastructure” (telco NI) market, the top 3 are Huawei, Ericsson, and Nokia. Nobody else comes close. ZTE and Cisco round out the top 5, if you set aside the strange creature that is China Comservice, a services specialist which is majority-owned by China’s telcos. Figure 1 illustrates recent trends in annualized telco NI revenues for these top 5.

Figure 1: Vendor revenues in telco vertical, annualized ($B)

Source: MTN Consulting

Top 3 trying to expand beyond telecom

Focusing on the top 3, all face challenges related to addressable market. For Ericsson and Nokia, the common issue is that telco spending is relatively flat, even with the occasional growth spurt from a new generation of technology (e.g. 5G RAN). For Huawei, the problem is due to US-driven supply chain restrictions and boycotts by a number of countries that used to be important markets for the vendor.

Prior to Huawei’s current issues, its diversification was impressive, as its huge consumer business helped offset some of the risk in focusing on one primary market, telcos. But Huawei’s consumer business revenues have collapsed in the last 2 years: they ended 1Q22 at approximately 209.7B RMB (annualized), from 462.9B RMB in the 1Q20 annualized period. Its carrier revenues have also fallen, as overseas telcos have been reticent to commit, but the drop is modest due to strong support from Chinese telcos and key overseas partners. Still, the writing is on the wall. Huawei recognized two years ago that it needed to reinvent itself, committing more to R&D and exploring new business opportunities beyond telco. One major focus is finding ways to expand its enterprise market. Its starting point in this expansion is a strong position in global optical and IP markets, and a solid offering for data centers. The company’s April analyst event made clear that its datacom group would play a central role in attacking the enterprise (CloudCampus, SD-WAN, Wi-Fi 6 and 7, etc.), as would Huawei Cloud.

Both Ericsson and Nokia also view enterprise as important. Ericsson is focused mainly on private wireless, and acquired Cradlepoint in large part to pursue this opportunity. Ericsson’s microwave transport gear, security and software, and IoT solutions also have applications outside the telco. Nokia has a larger enterprise business to begin with. It’s also pursuing private wireless, and trying to leverage its wireline gear (optical and IP) further into enterprise markets. It also has had success in the webscale market, including a data center switching at Microsoft recently.

Figure 2 illustrates the revenue breakdown for these three vendors into several major categories: telco, enterprise, consumer, IP licensing, and all other.

Figure 2: Annualized revenues by market, % total (2Q21-1Q22)

Source: MTN Consulting

As shown above, Huawei gets less than half its corporate revenues from telcos, even after Consumer’s decline. What may surprise some is how much of its revenue base comes from enterprise. For the 1Q22 annualized period, the enterprise market accounted for 18% of Huawei revenues. Nokia and Ericsson recorded 7% and 4%, respectively.

Moreover, enterprise as a percent of total revenues was about the same for Ericsson and Nokia two years ago, in the 1Q20 annualized period. For Huawei, though, enterprise has nearly doubled, from about 9.7% in 2Q19-1Q20 to 18.2% in the most recent four quarters. As Huawei has faced pressure in other markets, the enterprise has proved to be more resilient. And Huawei has plowed new resources into enterprise to grow it further.

The enterprise is not a hobby

To date, Huawei’s big enterprise wins are mostly in China. For the company overall, 65% of 2021 revenues were in China. It’s likely that well over 80% of enterprise division revenues are in China. But this was true of Huawei’s carrier group revenues in the early years. With any new product line or market, Huawei has usually penetrated Chinese accounts first while it has ramped up resources overseas to support an expansion.

Clearly there is no guarantee that Huawei’s enterprise group will thrive outside China. For larger enterprises subject to public pressure, some will still be concerned about the politics of picking Huawei. Even without concerns about appearances, Huawei’s reputation has taken a hit over the last couple of years, which it is working to overcome. Another challenge is channels. Even for the large enterprise targets – such as big banks, government agencies, railways, and energy companies – Huawei will need to rely on channel partners. It can’t develop its own internal team as it did with telco; there are too many enterprises, and the average size is too small. Huawei needs to identify the best country and vertical markets to attack, and develop a network of trusted, certified partners to both sell into this market and support it after the sale. Enterprise market leader Cisco has invested heavily in building and maintaining its network of channel partners for decades. Huawei also has to battle numerous vendors with established positions in specific enterprise verticals (e.g. energy) or product areas (e.g. Ethernet switching).

All this won’t be easy, but don’t count out Huawei. It has exceeded expectations many times in the past, and views the enterprise as crucial to growth. One indicator of the importance of the enterprise market to Huawei is its leadership. For most of the last half of the 2010s through 2020, Yan Li Da served as Enterprise group president. Yan was in charge of international marketing for Huawei’s early 2000s push into overseas optical markets. That push was key to Huawei initially establishing its name in the global telecom market. Yan is now on Huawei’s board of directors.

Cover image: Marvin Meyer on Unsplash

After failure to adapt to 4G, telcos need to evolve

Posted on 19/05/2022 | 20/04/2023 by Matt Walker

It was the Greek philosopher Heraclitus who coined the phrase, “Change is the only constant in life.”

Well over a thousand years later, Benjamin Franklin continued the thought, saying, “When you are finished changing, you are finished.”

From the wheel to the internet and beyond, the need for change, for new ideas, new technologies, has been a defining element of humanity. Through trial and error, innovators conceive of an idea, conduct research, prove their hypotheses, and develop and refine their concepts. Such research and development have become absolutely vital to the success of the telecommunications industry. Without R&D, humanity might never have evolved past the rotary-dial telephone. There would be no internet, no cell phones, none of the technological marvels we often take for granted … amazing tools that our predecessors likely could not have envisioned even in their dreams.

Or… perhaps they did. After all, the myriad technologies of science fiction are continually becoming science fact. For example, many of the technologies of the original “Star Trek” are commonplace today. The communicators, viewscreens and tricorders of that fictional future exist today as cell phones, laptops, video chats, and advanced sensor packages.

AT&T is another example. Back in 1993, the telecommunications provider (telco) aired commercials that examined what its researchers were developing, and extrapolated the impact of those technologies on the future. The commercials accurately predicted global positioning systems, laptops, tablets, smart watches, keyless entry and on-demand video entertainment … in an era before most homes even had internet connections or home computers.

That was nearly three decades ago. In the time since, you’d expect that AT&T would be spending more on R&D, particularly this far into the digital age.

You’d be wrong.

From 2000 to 2021, AT&T’s annual spending on R&D hovered between 0.7 percent to 1.3 percent of its total revenue. For 16 of those 22 years, AT&T’s R&D expenditures remained less than 1 percent of the company’s total revenue.

Surprised?

Don’t be.

Other telcos show much the same spending pattern. From 2018 to 2020, SK Telecom spent an annual average of a mere 2.2 percent of its revenue for R&D expenses. Telefonica spent less, at 2 percent. NTT spent 1.9 percent; Chunghwa Telecom, 1.8 percent; Orange, 1.6 percent; Comcast and KT Corp., 1.1 percent; and China Telecom, 1.0 percent. Most others, including AT&T (0.7 percent) and LG Uplus (0.4 percent), spent less than one percent of their overall revenue on R&D.

“Telcos (tend to) spend very little on R&D, instead relying mainly on their suppliers for innovation,” Matt Walker, chief analyst at MTN Consulting. “The world has hundreds of telcos but only a few dozen significant suppliers, so some of this is inevitable. The smaller telcos can’t afford to do it all themselves,” said Walker, as they often lack the staffing or the financial resources to conduct their own R&D.

On top of their lack of spending, telcos are also largely slow to innovate. When 4G wireless debuted, telcos rejoiced at the idea of earning new revenues from the networks, which were expensive. However, the majority of the revenue from the new networks went to the companies that build telecommunications devices, like Apple; app companies; content providers, like Netflix; and cloud services companies. This left telcos out in the cold, as they could buy the technology needed to provide 4G, but not truly profit from it.

When 5G networks emerged, the telcos spent big, again hoping for a revenue upside from the investment. Thus far, however, they are in the same position where 4G left them … not benefitting financially, and still wary of spending much on their own innovation and R&D.

“This arrangement worked alright when telcos had limited competition from other sectors,” Walker noted. “However, in the last five years or so, these new ‘big tech’/webscale players have begun encroaching on different aspects of the telco turf.”

Are telcos doomed to repeat the same mistakes? Hopefully not.

Should they be spending more on R&D to help develop new revenue streams? Yes.

Are there examples of leaders in the sector to learn from? Yes.

Telcos should not have to wait on their downstream vendors to innovate and create new technologies, from which they can benefit. Instead, they should take advantage of the growing and rapidly evolving technologies and innovate on their own.

Indeed, some industry leaders are already beginning to call for such a paradigm shift. Aaron Boasman-Patel, vice president of AI & Customer Experience at TM Forum, and Brian Smyth, Accenture’s Global Comms & Media Innovation Lead, conducted research on the matter, the results of which they published in their white paper, “The tech-driven telco.”

“At the most basic level, the world has changed since the telco business model was introduced,” said Smyth. “… At Accenture, we see three mega trends, the first one being the customer – so how we live our life, how we engage with civil society and government, how we work; the second being business model reinvention, … how technology transforms not only customer experiences, but also how customers buy into products and services. We’re seeing within this also a big focus on partnership and partnering together with other organizations to offer new services and experiences.”

“And then finally, it’s the technology revolution. So, in telcos a lot of talk today is around 5G, edge networks, and a lot of this is the confluence of these three points of customer imagination, reinvention, and the technology revolution I think are all leading to this transformation from the traditional telco” to a more tech-driven model.”

Added Boasman-Patel, “If you don’t evolve, then you’re not going to be able to take a slice of the pie – the $700 billion worth of new revenues which are out there today. … If you think about, what we’ve seen through the pandemic, telecoms shares have increased by about 4.8 percent compared to other industries like semiconductors and electronics up by nearly 50 percent, media technology, high 35 percent. … I think when you get above 20% of (revenue spending), whether in industrial manufacturing, or sensor management or whatever it may be, that’s where you can start to say you have become a true techco,” he said.

In November 2021, Ericsson, the world’s second-largest supplier of technology to telcos, surprised many observers by announcing that it was purchasing Vonage, a cloud communications company. That one company would acquire another is standard fare for financial news. Also, it wouldn’t be unprecedented for a telco to buy one of its vendors. The November deal, however, was the reverse: Ericsson, a vendor/supplier to telcos, was buying Vonage, a telco.

“That deal was surprising because it was a traditional vendor buying what seemed to be a telecom provider/telco, i.e. Vonage,” noted Walker.

Unlike the typical telco, vendors do usually spend quite a bit on R&D. Ericsson, for example, spent an annual average of 17 percent of its revenue for 2019-2021. Many others spend less, including Alphabet and ZTE (15 percent each); Microsoft (13 percent); Amazon (12 percent); Samsung (9 percent) and IBM (8 percent). In contrast, Ribbon Communications spent 24 percent; Juniper Networks (21 percent); Nokia (19 percent); and Huawei (18 percent). Alphabet and Microsoft are included in these figures because their cloud divisions GCP and Azure, respectively) have become important suppliers to telcos.

Figure 1: R&D spending as % of revenues for select Telco NI vendors, 2019-21 average

Source: MTN Consulting

Ericsson made the $6.2 billion deal in the hopes that, if approved by regulators, its acquisition will help it work with telcos to better monetize apps and services. Ericsson has mapped out a plan to help their telco customers get new sources of revenue from the new networks currently being built. Its acquisition of Vonage means that it now has a telco subsidiary with a dedicated R&D mission. Indeed, unlike the regular low numbers shown at other telcos, Vonage’s R&D numbers tend to trend higher. In 2011, Vonage spent 1.8 percent of its revenue of R&D. In 2014, that number rose to 2.4 percent. In 2019, it hit 5.8 percent, then rose to a high of 6.5 percent in 2020 before dipping to 5.7 percent.

Indeed, Vonage hews closer to the “techco” model favored by Boasman-Patel and Smyth than it does to that of a standard telco model.

“I think mindsets are really important here to drive that change,” said Smyth. “A really interesting example is Microsoft. When Satya Nadella took over Microsoft in 2014, at that point they were hugely profitable as an organization, but not very exciting. And Satya talked about actually wanting to build an organization and products and services that customers would love. And they had missed big trends at this point. They had missed things like search (engines) and mobile, and a lot of people were questioning whether Microsoft’s best days were really behind it at that point, where he came in with this focus on building this growth mindset.

Smyth continued, “The growth mindset is actually … about shifting from the sort of know-it-all to the learn-it -all mindset and being hungry and open to change and collaboration. And what we’ve seen since is a 10x growth in the market cap of Microsoft. And an incredible performance and a complete refresh of the brand, attracting young talent, attracting the next generation of sort of leaders across new technology domains and re-cementing their position in future technologies, whether it’s cloud, or now looking at the metaverse.”

Vonage, like Microsoft, leaned into its own evolution.

“Vonage was no longer just a telco” by the time Ericsson announced the acquisition deal in 2021, said Walker. “It started life as this, but had evolved more into a hybrid in the last five years, creating lots of its own intellectual properties (IP). From 2018 to 2021, Vonage spent about 6 percent of revenues on R&D, way higher than the average telco, and closer to a vendor.”

Indeed, Vonage’s most recent annual report tells the story of its evolution from telco to techco: ““Founded in 2001, Vonage was among the first companies to provide Voice over Internet Protocol technology offering feature-rich, low-cost home phone services. Through a series of strategic acquisitions and organic growth, Vonage since has transformed from a VoIP-based residential service provider to a global leader in business cloud communications.”

Vonage also has a long list of patents, which helps fuel its innovations.

“Vonage does some things that don’t look like what a vendor (Ericsson) would normally do,” noted Walker. “But Vonage’s R&D creations (will) allow Ericsson, in theory, to provide valuable support to its other telco customers in an important area, i.e. monetizing the network through use of APIs,” or Application Programming Interfaces, which permit different applications to communicate.

Although most U.S. telcos continue to play it safe, telcos in the United Kingdom have begun to increase their R&D sending. In 2020, they spent over 1 billion pounds (1.2 billion pounds, or $1.56 billion USD) on R&D … the first time they have done so in nearly 10 years.

According to the British Office for National Statistics, the telco sector boosted its R&D spending by 4.5 percent during 2020, to 1.03 billion pounds. They last spent that type of money on R&D in 2011, when they spent 1.04 billion pounds.

However, not surprisingly for a time during a pandemic, UK R&D spending by telcos and all other industries remained in the shadow of pharmaceutical sector, which boosted its R&D spending by 6 percent to 5.02 billion pounds ($6.19 billion USD).

“There’s a demand from industry to actually partner and collaborate with (communications service providers) to build out these new services,” said Smyth. “… It’s quite interesting from some of the initial feedback we’re hearing there is a desire on the CSP side to really just offer connectivity solutions, sell connectivity. So, I think what industry is looking for is support in solving their business problems. And I think there’s great opportunity for CSPs as they’re building the scalable platforms to actually go in and partner and co-create with industry to build solutions.”

4G set sail some years ago, and telcos largely missed the boat. It’s still relatively early in the rise and growth of 5G. Hopefully, telcos will learn from the mistakes they made with 4G. If they prioritize creating and funding new R&D initiatives, they can evolve into more technology-driven companies. This will allow them to benefit, in terms of technology and revenues, from 5G.

It’s not too late for telcos to fully get on board with 5G … before that opportunity also sails out of reach.

About the author

Melvin Bankhead III is the founder of MB Ink Media Relations, a boutique public relations firm based in Buffalo, New York. An experienced journalist, he is the president of the Buffalo Association of Black Journalists, and a former editor at The Buffalo News.

Cover image: iStock

Telcos are upgrading their workforce, but it comes at a price

Posted on 11/05/2022 | 17/11/2023 by Matt Walker

One of the many telecom stats we track is “labor costs”, i.e. what telcos spend in salaries and benefits to support their workforce. Not a lot of other analyst firms track labor costs, if any. It’s not an easy one to track, as telcos aren’t required to report it, and the data can be hidden. But it is essential to understanding the telco’s business and challenges they face.

What’s important to know about labor costs and the telco workforce in general?

Labor costs represent a lot of money. The capex spent by telcos on their networks gets lots of attention, and for good reason. It’s a huge cost, at roughly 17% of revenues across the globe. Yet spending on the workforce is nearly as much as capex. In 2021, telco capex was $326 billion (B), while labor costs totaled $273B. Some telcos spend significantly more on labor costs than capex. Saudi Telecom (stc), for instance, spent $2.6B on labor costs in 2021, 60% more than that year’s $1.6B capex figure for the company. The labor cost to capex ratio exceeded 1 for a number of other large telcos in 2021, including: Chunghwa (1.26), Orange (1.10), Singtel (1.2), Telecom Argentina (1.20), Telefonica (1.23), and Telstra (1.26).

Labor costs are not just salaries. When we say “labor costs”, we mean to capture the fully-loaded cost of an employee. That includes salaries and wages, short-term benefits, retirement benefits, any required government contributions, and share-based compensation. Labor costs are around 20-60% more than just direct salaries, depending on the company. Some companies report the breakout of the various categories, but many do not. For Verizon and AT&T, we estimate the labor cost to salary ratio as 1.4.

Headcount is falling. As MTN Consulting detailed in its 4Q21 market review for the telco sector, headcount in the telco industry continued to fall last year. Total employees dropped 2% in 2021, to 4.69 million. Only 5 of the top 20 telcos increased headcount in 2021. The 2021 decline follows a much worse 3.7% drop for the industry in 2020, when COVID forced cutbacks, office closures and acceleration of timelines for digital transformation and automation programs. Prior to COVID, telcos were already in staff-cutting mode, but COVID sped up the process. Looking down the road a bit, telco headcount should fall to ~4.4M by 2026. Figure 1 illustrates changes in 2021 for the top 20 telco employers.

Figure 1: Total employees and YoY % change of top 20 telcos, 2021

Source: MTN Consulting

Labor cost per employee is rising. Amidst this drop in headcount, average labor costs have been rising. From $49.2K in 2017, the average telco employee in 2021 cost $57.6K, or 17% more. Prior to 2018, labor costs per employee were flat for most of the last decade, hovering around US$50K per employee. The inflationary pressures of late 2021 may have played a small role, but more important is the changing nature of a telco. With deployment of software-based platforms in the network, and digitization of a whole range of processes across the company, a different type of employee is required. Some may be younger, but their skills are in demand and can be costly. There is rising competition for these employee types, including from cloud providers like GCP and AWS.

Labor costs a large part of opex. The rising cost per employee is interesting, but even more important may be labor cost’s contribution to opex. As a percentage of opex, excluding the non-cash items of depreciation & amortization, labor costs can exceed 30%. That was the case for a number of large telcos in 2021, including BCE (labor costs equal to 32.6% of opex ex-D&A), BT (31.7%), KPN (30.8%), Swisscom (39.8%), and Telecom Italia (35.9%). Some of these companies face constraints in how they structure their workforce, for instance, union rules limiting layoffs or locking in salary increases. On average, labor costs account for about 22% of opex ex-D&A.

The labor cost burden isn’t equal across markets. Telcos across the globe face similar price levels for their technology inputs. Prices vary somewhat, of course, but the variation is rarely on the order of 3-5x. More important is the variation in technology choices made across different markets, and the way they finance capex. For labor costs, though, the variation in the cost of an employee can be huge. Labor markets are highly localized, even with a more remote/hybrid workforce than in the past. The average employee at UAE-based Du, for instance, cost US$199.8K in 2021, nearly 6x that of another UAE-based telco, Etisalat ($34.0K). The reason for that is most of Etisalat’s workforce is in lower cost countries such as Pakistan, Egypt, and Morocco, whereas Du operates solely out of high-cost UAE.

Telcos investing in upskilling. As telcos deploy more software in their networks and digitally transform all aspects of their operations (including sales & customer support), many are investing heavily in upskilling their employee base. Vodafone, for instance, says “the transformation into a new generation connectivity and digital services provider requires new skills and capabilities in our organization, such as software engineering, automation and data analysis.” Vodafone invested an average of 470 Euros in FY2021 on “training each employee to build future capabilities.” Similar things are occurring at many other telcos, including Deutsche Telekom, which is investing in “upskilling and reskilling programs with a focus on digital skills”. There is also a growing focus on hiring younger employees with skills more appropriate to the digital age.

Propensity to adopt automation varies widely. Vendors talk a lot about how their solutions allow customers to do more with less: automate tasks and processes which previously required manual intervention. This has always been a part of the telecom industry, from the days when telcos migrated away from manual telephone switchboards. It continues to be important as telcos aim to lower their cost of operations, deploy services more rapidly, and maintain network quality. The importance of automation varies widely across country and operator, however. Companies which face high unit labor costs tend to be more eager to adopt automation, all else equal. When labor costs are a relatively high portion of overall opex, that eagerness multiplies. Figure 2 below illustrates the issue.

Figure 2: Labor cost burden variation across 30 large telcos, 2021

Source: MTN Consulting
Notes: Size of bubble is indicator of relative revenues. Red star icon represents the global average.

For 30 large telcos, the above figure shows labor cost as a % of opex (ex-D&A) on the x-axis, and labor cost per employee on the y-axis. The companies in the top right quadrant tend to be more open to automation, while the bottom left (low labor costs) are the opposite. Swisscom is a bit of an outlier, as its labor costs are so high. That’s a reason for Swisscom’s adoption of Red Hat’s Ansible Automation Platform in 2018, for instance. Other big telcos with an economic inclination to automate include: Telefonica, DT, Telstra, NTT, Orange, BT, BCE, and Telecom Italia.

One thing that telcos won’t be automating anytime soon is the CEO. The top few managers in many leading telcos continue to earn millions of US$ per year, and there often seems to be little relationship between these sky-high pay packages and the company’s performance. Light Reading detailed this situation recently in an insightful article. LR notes that the ratio of CEOs’ pay packages with the median employee in 2021 was 312:1 for T-Mobile, 231:1 for AT&T, 166:1 for Verizon, and 106:1 for Telefonica. Swisscom’s CEO Urs Schaeppi had to make do with a relatively paltry margin of 14:1.

Cover image credit: Scott Webb on Unsplash

Cisco, Samsung, and ZTE benefit most from Huawei bans in 2021 telco NI market

Posted on 29/03/2022 | 21/04/2023 by Matt Walker

2021 results for the 100+ vendors selling into the telco market are just about finalized. Contrasting 2021 “telco network infrastructure” (Telco NI) share with 2020, Cisco clearly came out on top, gaining 0.7% share in a market worth $231.4 billion (B). Cisco was helped both by a telco shift in 5G spending towards core networks, and Huawei’s entity list troubles. Samsung’s share growth of 0.3% was due to a big win with Verizon and a growing telco interest in seeking RAN alternatives beyond Ericsson and Nokia. ZTE, which has escaped the US entity list to date, also picked up some unexpected 5G wins but its growth is more broad-based due to optical, fixed broadband, and emerging market 4G business.

Dell (including VMWare), Microsoft, and Amazon also picked up share as telcos have begun investing in 5G core and cloud technologies. Their growth has little to do with Huawei, and more due to telcos’ ongoing changes to network architecture and service deployment patterns. Corning was an unexpected winner in 2021, gaining 0.2% share on the back of fiber-rich wireless deployments and government support for rural fiber builds.

On the flip side, both Nokia and Ericsson lost share in the overall telco NI market in 2021. Their RAN revenues benefited from Huawei’s troubles in 2020 but telco spending has since shifted towards product areas with more non-Huawei competition. Both vendors are attempting to diversify beyond the telco market, with Nokia so far having more success; its non-telco revenues grew 12% in 2021.

Huawei’s share of telco NI declined to 18.9% in 2021, down from a bit over 20% in both 2019 and 2020. The US Commerce Department’s entity list restrictions were issued in May 2019 but hit the hardest in late 2020 and 2021, after Huawei’s inventory stockpiles began running out.

Huawei’s messaging on its recent fall is muddled. During its annual report webcast yesterday, it cited three factors behind its 2021 revenue decline: supply continuity challenges, a drop in Chinese 5G construction, and COVID. In MTN Consulting’s opinion, supply continuity was the main factor. A related factor were the many government-imposed restrictions on using Huawei gear around the world, especially in Europe where 5G spending was strong in 2021. The other two factors cited by Huawei’s CFO, however, are misleading. Chinese telco network spending, overall, was relatively strong in 2021: total capex for the big three telcos was $52.8B, up 8% from 2020. Without this rise, Huawei’s 2021 results would have been worse. As for COVID, few other vendors cite the pandemic as a factor restraining 2021 telco spend. More vendors cite the opposite: 2021 spending was strong in part because telcos were forced to delay many projects during COVID’s early spread.

To date, Huawei’s troubles have impacted RAN markets the most, but in 2022 and 2023 will begin spreading more clearly to IP infrastructure, optical, microwave, fixed broadband, and other areas. A number of vendors are eager to pursue new opportunities as this happens, including Adtran/ADVA, Ciena, Cisco, CommScope, DZS, and Infinera. The CEO of Infinera, in fact, said on its 4Q21 earnings call that “it was a nice taste, a nice appetizer in 2021, but…we said all along that we would see the design wins and RFPs really scaling and we thought that we’d see revenues from that really beginning to take hold as we got into 2023.”

To date, Huawei has been unable to fully adapt to the supply chain restrictions put in place in 2019. It remains the global #1 in telco NI, however, due to dominance in China and a huge installed base across the globe. The company is investing heavily in carrier services & software, Huawei Cloud and new product areas. One certainty is that it won’t simply fade away, despite the current decline.

Connected cars – Data protection, privacy, and cybersecurity

Posted on 03/09/2021 | 19/07/2022 by Matt Walker

CONNECTED CAR TECH SERIES PART 4: Complex regulatory landscape threatens to restrict the market’s development

Contributed by: Waseem Haider

In the last three parts of our Connected Car Tech Series, we talked about the immense possibilities this space is offering to car manufacturers, network operators and other stakeholders. This obviously creates an impression of the grass as all green which is not the case. Connected cars have a number of challenges.

One significant roadblock facing the connected car industry relates to regulations and standards. The need for regulations governing in-vehicle data and other connected car resources is one of the most pressing issues affecting connected car stakeholders. This is partially because regulations were meant to deal with basic connectivity, e.g. emergency calling, and partially because of the expansion of the connected car ecosystem. Current regulations do not sufficiently address the challenges posed by increased connectivity and the role of different stakeholders.

Though there are multiple areas which are affected by lack of standardization and proper regulations in the connected car ecosystem, there are two significant areas which stand-out due to their impact on both the end-consumers and service providers: data protection and privacy, and cybersecurity.

Data Protection and Privacy

One of the biggest challenges faced by the connected car ecosystem is the protection of consumer data. Even though regulatory authorities have made some significant policy changes around connected cars, data access and privacy regulations have yet to be tackled adequately. For example, the EU updated its Motor Vehicle Type Approval Regulation in 2019, but the increasing vehicle connectivity is still a topic of discussion.

One major data protection law from the EU is the General Data Protection Regulation, or GDPR. There is a lot of uncertainty between the EU and US since the introduction of GDPR. Meanwhile, numerous regional efforts around data protection have emerged, inspired by the GDPR. One such regulation is the California Consumer Privacy Act (CCPA). The CCPA directly addresses car manufacturers and automotive suppliers globally on their telematics data capture, and influences cloud service providers’ data privacy practices.

The amount of data generated not only within the car but also outside of the car, certainly poses a threat to the protection of personal data and raises serious privacy issues. According to some estimates, almost 25 gigabytes of data is produced per hour from a connected car. Most of this is driver’s personal data and that of passengers. Moreover, suddenly the data generated by connected cars have attracted the interests of multiple stakeholders – enforcement and government authorities, car insurance companies, car manufacturers and other third parties.

Primarily, connected cars are generating data from three different categories of functionalities: Telematics, V2X and Infotainment (see Figure 1 below).

Figure 1: Main Data Sources in Connected Cars

Source: ENISA

The functions shown in the graphic enhance the customer experience for car owners and some of them are essential for safety and emergency services. However, the amount of personal data which the connected car systems are generating becomes a cause of worry for the protection of the data and privacy of individual car owners and/or related parties. Note that we are not talking about the fully autonomous vehicles of the future, which will generate and gather even larger amounts of data than today’s connected cars.

Hence, the question arises how to adopt data protection and privacy standards today which will stand the test of time. While there is some progress in creating standards and regulations surrounding connected cars, for instance the new Motor Vehicle Type Approval Regulation, EU GDPR, and CCPA, many issues have not been addressed comprehensively or consistently enough to support growth of this new market.

Cybersecurity

Another big challenge for the connected car ecosystem is the now-increased vulnerability of cyberattacks and hacking threats. The transformation of the automotive industry into one offering digital mobility products and services has given rise to importance of cybersecurity in the connected car ecosystem (see figure 2 below). Though the digital features in connected cars are adding great customer value, they are also exposing connected cars to multiple touchpoints for possible cyberattacks. As connected cars have more and more in-vehicle software units, hackers have access to electronic systems and data, posing potential threats to critical safety functions and data privacy.

Figure 2: Cyberattack scenarios in connected cars

Source: Frost & Sullivan

In the past few years there have been multiple instances of cyberattacks on connected cars, where hackers have taken full control of the vehicles. The major challenge is lack of clear regulatory guidelines and standards for the connected car ecosystem. As such, the cybersecurity problem is related to data protection and privacy. Cybersecurity and data protection/privacy are two sides of the same coin: cybersecurity presents the outside-in scenario and data protection is the inside-out scenario.

One important point to highlight here is that regulators are having a tough time formulating such laws. Part of the challenge is the involvement of multiple stakeholders in the connected car ecosystem. This influences current supplier contracts with OEMs and other third-party relationships for software development, testing and managing over-the-air (OTA) updates.

Regulators face a difficult situation in adoption of standards across the entire automotive value-chain. For the last few years, however, regulators have been working on a cybersecurity framework for the automotive industry that will cover the entire value-chain. This year, the United Nations Economic Commission for Europe (UNECE) passed a law called the Vehicle Cyber-Security Management System (CSMS), to be implemented by automotive manufacturers. The law will make cybersecurity an integral part of the entire connected car ecosystem and OEMs need to implement a certified CSMS across the entire lifecycle of any given connected vehicle in near future.

Next Up: Data ownership

Among the many regulatory issues in the connected car ecosystem is, who owns the data generated by connected car ecosystem. In the next part of this series, we will take a deeper look at ownership of data in the connected car space.

Image credit: Erik Mclean

Telco NI vendor market in 2Q21 – preliminary findings

Posted on 11/08/2021 | 19/07/2022 by Matt Walker

Growth returns to telco NI market; momentum shifts to cloud, away from Huawei

Preliminary results show 2% YoY sales growth in 2Q21

Enough vendors have now reported their 2Q21 results to allow for some preliminary conclusions about the market. As of August 10, we have compiled earnings figures and analyzed customer segmentation for 72 vendors, including Huawei. These 72 account for roughly 3/4 of the market based on historic revenue trends.

Focusing on vendors’ sales to the telco vertical, what MTNC refers to as “telco network infrastructure” or telco NI, revenues climbed 2% YoY in 2Q21.

That’s slower than the 8.7% YoY growth rate recorded by this subset of vendors in 1Q21. However, the 1Q21 surge was influenced by a weak base period (1Q20), when economies were dragged down by COVID’s early spread. On a six month basis, telco NI revenues in 1H21 grew 5.1% YoY. Annualized (12 month) telco NI revenues through 2Q21 grew 2.8% over the 2Q20 figure. These growth rates may be modest in other parts of the tech sector, but for telco NI they are an improvement.

As Figure 1 shows, Huawei has tracked very differently from the overall market: outperforming in 1H20 due to Chinese 5G spending, and lagging in the last two quarters as supply chain restrictions and security concerns caught up to the company.

Figure 1: YoY change in annualized sales to telcos: Huawei vs. all others (preliminary)

Source: MTN Consulting
*Data for “all others” represents the sum of 71 vendors already reporting 2Q21 earnings, including historical data for acquired companies (e.g. Amdocs-Openet)

This growth is welcome news for the many vendors with strong positions in the telco sector. Moreover, the growth comes despite Huawei’s 7% decline in first half telco NI revenues. As the market’s (still) largest vendor, this 7% drop has a big impact on the overall market. Removing Huawei’s figures from our calculations, for 2Q21 alone preliminary telco NI vendor revenues grew by 11% on a YoY basis.

Among reporting vendors, the best 2Q21 results in terms of YoY change in telco NI revenues (on a USD basis) came from Ericsson, Nokia, Samsung, Microsoft and Capgemini. Ericsson and Nokia are benefiting from uptake of 5G worldwide and picking up some of Huawei’s old business. Samsung’s improvement is due both to its Verizon 5G deal and to making strides in smaller 5G markets like Canada and New Zealand. Microsoft’s result is due to a long list of telco collaborations, as well as two 2020 acquisitions (Affirmed and Metaswitch). Capgemini’s growth is due largely to acquiring Altran, an engineering services business with strong telco roots. As far as YoY drops in telco NI revenues in 2Q21, the only significant one among companies reporting to date is Huawei: we estimate its 2Q21 revenues at $12.2B, down from $14.4B in 2Q20.

Moving back to a more long-term comparison, Figure 2 illustrates the biggest swings in annualized telco NI revenues for 2Q21 (versus 2Q20 annualized).

Figure 2: Biggest swings in annualized telco NI revenues, 2Q21 vs. 2Q20

Source: MTN Consulting

As Figure 2 makes clear, Microsoft (shown as “Azure”) is not the only cloud provider making progress in the telco sector. AWS also recorded an impressive bump in annualized telco NI revenues in 2Q21, just a bit behind Microsoft. GCP is not in the top 10 but its 2Q21 annualized telco NI revenues measured $129M, double the 3Q19-2Q20 figure. Combined, the three companies accounted for approximately $1.9B in annualized sales to telcos in 2Q21, from $970M a year earlier. That puts the three companies’ collective telco NI market share a bit ahead of Juniper Networks. Increasingly these webscale-based cloud providers are competing against vendors with a much longer track record in the telco industry: Amdocs, Cisco, Nokia, etc. AT&T’s recent deal with Microsoft will accelerate this competition as it entices more telcos to consider outsourcing and collaborating with the cloud.

Huawei’s changing fortunes opening up opportunities

The Huawei dip in 1H21 is not unexpected. We wrote earlier this year that Chinese telco NI vendors would likely lose $4B of revenues in 2021 due to supply chain restrictions and security concerns. What we predicted is largely coming true:

“US policy will continue to restrict much of the Chinese technology sector’s access to US supply chains; the US government will aim to minimize deployment of Chinese technology in both US communications networks and those in allied countries; and, US policy will support alternative technologies and companies that can help smooth the transition away from China. Implications: Huawei will see market share in the telecom sector decline markedly over the next 2 years; China will push harder on its own allies to purchase Huawei/ZTE gear; Huawei and ZTE will emphasize services and software more, and hardware less; China will explore many ways around the rules but see limited success without crucial chipmaking technology; Open RAN will see an accelerated adoption curve; US companies like Ciena, Cisco, and Infinera, and others (e.g. Fujitsu and NEC), will see telecom opportunities pick up significantly in 2H21 and 2022.”

In recent earnings reports and calls, many vendors are pointing to the recent Huawei weakness as one driver for improved results; for instance:

ADVA: “With some of the Chinese competitors being limited in Europe due to security relevant issues, we see additional growth potential here.”
Dasan Zhone: cites “numerous Huawei and ZTE replacement opportunities”
Infinera: “On the competitive side, we see significant competitive disruption with the situation in Huawei being removed from the European and Asia operator
networks over the course of the next 2 years to 5 years type time frame”
Ribbon: “Competing in large addressable markets such as optical and IP networking…there are opportunities for significant share growth and a favorable competitive environment with the global pressure on Huawei and other Chinese suppliers.”
Nokia: “there are cases…where operators for various, sometimes politically-driven
reasons, have decided to … switch suppliers. And we have already estimated and I can confirm that, that we have won approximately 50% of such opportunities.”

As Nokia’s discrete wording suggests, discussing Huawei publicly can still be tricky for top execs. Many of these companies rely on China for various parts of their supply chain, or as an end use market. Ericsson’s decision to go after Chinese business more aggressively than Nokia has put it in a tough spot. Chinese officials are explicitly linking Sweden’s ban on Huawei in 5G with Chinese telco procurement decisions. This is a good reminder that China’s telcos are not private entities, and that Huawei’s fate is extremely important to Chinese politicians.

Final results available in September

As noted, this short note is based upon roughly 75% of the market reporting. A number of significant vendors have not yet published 2Q21 earnings. The largest of these, by far, are Cisco and ZTE. We will publish final results and commentary on the 2Q21 telco NI market in September.

It’s time for tech to take a stand

Posted on 08/06/2020 | 19/07/2022 by Matt Walker

In 2000, Google famously incorporated a simple catchphrase into its corporate code of conduct: “Don’t be evil.”

The idea, said Google, was that “everything we do in connection with our work at Google will be, and should be, measured against the highest possible standards of ethical business conduct.”

Google’s founders recognized that the growth of its search and ad platforms was turning the company into a powerful entity with the ability to shape user’s understanding of the world. While the “don’t be evil” catchphrase was mocked by some, it did at least imply that the company saw that its growing power came with certain responsibilities. The tech industry could use more of this sentiment in 2020.

Chaos in the streets is a feature, not a bug

Fast forward 20 years, 3.5 years after Facebook helped elect Donald Trump to the presidency, and America is in crisis.

The country is now run by a president who, as Jim Mattis, Trump’s first Secretary of Defense, put it, “is the first president in my lifetime who does not try to unite the American people—does not even pretend to try. Instead, he tries to divide us.” There are parallels in this to how Trump ran his 2016 campaign, deftly using Facebook and other social media to micro-target his messaging.

Since George Floyd was killed by a Minneapolis police officer on May 25, and the video of the killing went viral, protests have spread nationwide, to even the smallest of towns. Some opportunists have used the protests for looting, as is always the case, and some far-right, pro-Trump actors have deliberately engaged in looting and vandalism in order to give cover to any resulting police crackdowns. The bulk of the violence, though, is top-down. Egged on by Trump, police officers and an array of other armed security officers have reacted to largely peaceful assemblies of their fellow Americans with violent tactics and gear designed for fighting wars.

Patrick Skinner, a writer, former intelligence officer, and now police officer in Georgia, implied this violence was by design on his Twitter feed recently:

“Don’t let us off the hook by saying this orgy of violence is a failure in training. It is not. It is the result of training for war. Don’t say it’s a lack of a few de-escalation power points. It is not. It is the result of training for war. Our entire mindset is a war on crime.”

Racism didn’t start with Trump, nor did the militarization of the police. But this President has used a unified right-wing mass media propaganda machine and the tech industry’s social media tools to make both hip again. Cultivating a tough-guy image, he once urged a police group, “Please don’t be too nice” to suspects. Note his focus: “Suspects,” as opposed to convicted criminals.

Today, hundreds of thousands (if not millions) are protesting to be heard, at great personal risk, while the COVID-19 pandemic rages on. Republican politicians are under pressure to preserve an image of a good economy, in hopes of a Trump re-election, so public health concerns take a back seat. The political movement that claimed to be concerned with the lives of the unborn, and responds to “Black Lives Matter” chants with the inane “All Lives Matter,” is now persuading the public to overlook the 100,000+ deaths from COVID-19 and just get back to work.

In my home state of Arizona, which has a population of over 7 million, more than 1,000 people have died from COVID-19. Prior to this, I lived in Thailand for a decade. That country, which has more than 70 million — more than 10 times than that of Arizona — has recorded fewer than 100 COVID-19 deaths. And Arizona’s gross domestic product per capita (nominal) is over five times that of Thailand. What good is wealth if elected leaders don’t use it to invest in things like public health for their constituents?

As Mattis said in his recent statement, “We are witnessing the consequences of three years without mature leadership.”

Tech executives continue to hedge their bets

We are also witnessing how obsessed with money the rich and powerful of this country have become.

The hundreds of Internet companies to make it big since Google’s advent have become even bigger since Trump’s 2017 tax reform directed massive tax cuts to corporations and high-income individuals. Their top execs have become far wealthier. Even with extreme levels of unemployment and a steep GDP drop inevitable in 2020, these folks are doing just fine.

Surely, you would think, the largely liberal (so we’re told) tech sector would have spoken out by now, publicly critiquing not only specific acts of police violence but, more importantly, the messaging sent from the top. Yet, when we surveyed the top few execs of the largest companies in the U.S. Internet and telecom sectors, we came up largely dry. If wealth is supposed to free you to do and say what you want, the results have been revealing (Table 1).

Table 1: Public comments on George Floyd and Racism by Tech Execs

Company	Market cap (U.S. $B)	Tech executive	Public comments
Alphabet	977.0	Sundar Pichai, CEO	Posted a picture of a modified Google search home page, with new text: “We stand in support of racial equality, and all those who search for it.” Pichai’s post: “Today on US @Google and @YouTube homepages we share our support for racial equality in solidarity with the Black community and in memory of George Floyd, Breonna Taylor, Ahmaud Arbery & others who don’t have a voice. For those feeling grief, anger, sadness and fear, you are not alone.”
Amazon	1,220.0	Jeffrey Wilke, CEO, Consumer	Two tweet thread: (1) “A friend who is a Black man sent me an email today that included: “The narrative that security of accomplishment will somehow lead to equality in this country for people of color, especially Black men, is a false narrative. It is simply not real.” (2) “Since I’ve subscribed to this idea — that facilitating achievement was the key to solving the problem — I looked in the mirror and asked “Have I done enough? Have I listened carefully enough?” Clearly the answer to both is “no.””
Amazon	1,220.0	Andrew Jassy, CEO, Amazon Web Services	Tweeted “What will it take for us to refuse to accept these unjust killings of black people? How many people must die, how many generations must endure, how much eyewitness video is required? What else do we need? We need better than what we’re getting from courts and political leaders.”
Amazon	1,220.0	Jeff Bezos, COB & CEO	Posted an essay on Instagram called “Maintaining Professionalism in the Age of Black Death is…A Lot”. Bezos’ personal intro to the essay: “The pain and emotional trauma caused by the racism and violence we are witnessing toward the black community has a long reach. I recommend you take a moment to read this powerful essay from @goldinggirl617, especially if you’re a manager or leader.”
Apple	1,380.0	Tim Cook, CEO, Director	Tweeted “Minneapolis is grieving for a reason. To paraphrase Dr. King, the negative peace which is the absence of tension is no substitute for the positive peace which is the presence of justice. Justice is how we heal.”
Disney	211.9	Robert Iger, Executive COB	Tweeted “Below is a link to a statement we sent to our fellow @Disney employees. It’s from Bob Chapek, our CEO, Latondra Newton, our Chief Diversity Officer, and me. Thank you.” The link is a letter to Disney employees that discusses George Floyd.
Microsoft	1,390.0	Satya Nadella, CEO, Director	Re-tweeted a Microsoft Corp. post that it would be using its platform to “amplify voices from the Black and African American community at Microsoft.”. Nadella’s post says, “There is no place for hate and racism in our society. Empathy and shared understanding are a start, but we must do more. I stand with the Black and African American community and we are committed to building on this work in our company and in our communities.”
Netflix	184.6	Reed Hastings, COB, President, CEO	Retweeted a video promoting non-violence, which said: “Some protestors in Brooklyn calling to loot the Target, but organizers are rushing in front of the store to stop them, keep things non-violent #nycprotest”
Snap	27.4	Evan Spiegel, CEO, Co-Founder, Director	Posted a Snapchat with intro saying, “We condemn racism. We must embrace profound change. It starts with advocating for creating more opportunity, and for living the American values of freedom, equality and justice for all. Our CEO Evan’s memo to our team:”, followed by a link to a message written by Evan to his team members.
Twitter	24.3	Jack Dorsey, CEO, Director	Active participant in online discussion, largely through re-tweets, several of which highlight police violence. In May, raised Trump’s ire by flagging one of his tweets for “glorifying violence.” An important but small step, though: the New York Times reviewed a set of Trump tweets for the week of May 24th, and found at least 26 out of 139 posts contained clearly false claims.
Verizon	237.4	Hans Vestberg, COB, CEO	Pinned a Tweet and posted the video on Instagram as well as from Verizon’s Twitter feed of a video clip of himself speaking up on the death of Floyd, captioned “We cannot commit to the brand purpose of moving the world forward unless we are committed to helping ensure we move it forward for everyone. We stand united as one Verizon.”
Verizon	237.4	Ronan Dunne, EVP, CEO Consumer Group	Tweeted, “While it’s hard to find the right words, we need to do more than speak — we need to listen and act. I’ll do my part to learn and help elevate the voices that will drive the change we want and need to see in the world. #ForwardTogether”, followed by a link to a video of CEO Hans Vestberg speaking on the subject.

Note: all posts are from the May 30-June 3 timeframe; exact dates available in links.

Most prominent execs have simply kept their heads down. One big exception is Jack Dorsey of Twitter, who appears to have had a recent awakening as to the power of his company’s platform and how well it has been manipulated by the powers that be. Watch Jack.

Snap CEO Evan Spiegel has also started to find a voice, first deciding to stop promoting (for free) content from Trump on Snap, and saying that Snap needs to “embrace profound change.”

Many more execs have issued bland, low-risk statements, sometimes head-scratchingly vague, as with the Verizon CEO’s focus on “the brand purpose of moving the world forward.” Apple CEO Tim Cook quoted the Rev. Dr. Martin Luther King Jr. on Twitter, saying “positive peace” requires the “presence of justice.” Cook also sent a letter to employees which received some public praise.

Yet the Cook letter also risked almost nothing, for Apple as a company and Cook personally. Silicon Valley VC Vinod Khosla pointed this out in response, saying that “it’s easy to support equality & justice…it’s when one has to give up something to support it that belief in our real values show up. @tim_cook easy to talk but why do you suck up to @realDonaldTrump?”

Exactly the point.

Let’s not forget, we are talking about some of the wealthiest, most powerful people in America. The few who have spoken recently are clearly in favor of equality, and pro-human rights, but their statements read as largely vacuous lip service. Recall that clause within the U.S. Declaration of Independence, “All men are created equal.” Inspirational, yes, but, at the time, white male property owners just happened to be a little more “equal” than others.

Words are easy to toss around, then and now. Actions count.

If you have ever read the Bible, whether as a believer or a student of philosophy, this quote seems apt: “To whom much is given, much will be required.”

What can tech do?

The first step to fixing a problem is accepting that you have one. Some tech companies have arrived at this point, notably Twitter.

The second step, in this case, is deciding that you have the resources to fix the problem. On that note, some market data may come in handy.

Figure 1 below illustrates just how deep the pockets are in the sector of webscale network operators, tracked by MTN Consulting. The “webscale” sector encompasses big companies in the Internet services industry like Facebook and Google who have built out their own physical network infrastructure to support their services and operations, with data centers taking up much of the spending. The figure shows the free cash flow generated in 2019, and year-end cash reserves, of U.S.-based webscale players.

Figure 1: Free cash flow and cash & short term investments at year-end in the webscale sector, 2019

Source: MTN Consulting, “Webscale Network Operators: 4Q19 Market Review“

These are immense companies which have recorded profit margins far above most other sectors, and for many years. There’s always pressure to grow profits more, or use more of the cash for mergers and acquisitions in order to position for growth of forestall new competitors. But saying that they can’t afford to improve their platforms is a hard argument to make.

Then there’s another question: Why should they bother? Many will read this and, even if they oppose Trump, may think it’s not tech’s job to get involved in politics. It’s not a tech CEO’s job to combat rising authoritarianism, racism, or the metaphorical shredding of the Constitution. That, they will argue, is the job of voters.

However, these tech and telecom CEOs do have a responsibility to ensure their platforms are not used and manipulated by evil actors to do evil things. Not just for moral reasons, but also to ensure their platforms can thrive over the long-term. It’s been clear for at least 3.5 years that many are failing at this aspect of their job.

MTN Consulting’s contribution

MTN Consulting is an industry analysis and research firm, not a company that typically comments on politics. We remain focused on companies who build and operate networks, and the vendors who supply them. That isn’t changing. However, we are going to dig into some of the technology issues related to these networks and networking platforms which are having (or will have) negative societal effects.

Specifically, over the next few weeks, we will issue reports on:

Bots on social media platforms: How they work, how they shape public opinion, and how they can directly impact elections
Privacy: How social media and telecom companies exploit user data to sell more ads, and how this user data is often sold to and misused by third parties (including government actors)
Digital advertising and journalism: How tech companies’ takeover of advertising markets has impacted the news industry and complicated citizens’ efforts to get reliable information
Deep fakes: How machine learning and artificial intelligence (AI) research, much of it done by the webscale sector, is about to make it even harder to distinguish fact from fiction; how that may reduce the value of social media platforms; and how both webscale players and users will have to cope.

For those of you accustomed to seeing us write about data centers, optical fiber, mobile radio access networks and similarly dry topics, have no fear – that will all continue. This is a moment in time, however, when sitting on the sidelines of more consequential debates is no longer an option.

-end-

Photo by Khalid Naji-Allah, Executive Office of the Mayor via AP

Author: Matt Walker

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It’s time for tech to take a stand