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The first in our "lean, mean, green telco machine" series
Private wireless networks are forcing a seismic shift in the telco industry. Traditional telco companies must pivot to gain market share in the emerging sector.
These 4G and 5G private networks enable large enterprises to provide coverage in remote areas, such as isolated mining sites, while maintaining full control of their network and user data. Soon enough, 5G private networks combined with expanding edge cloud infrastructure could supply newfound levels of computing speed for cutting-edge Industry 4.0 processes—such as autonomous robots in production lines.
Although private network adoption is still in its early days, the size of this market is estimated to reach $5 to $8B by 2027. The true potential of the market is manifold if considered as an entry point for multi-edge cloud offerings, IoT, and OTT services.
But the real opportunity for operators is much larger. As enterprises evolve their core business processes into private wireless networks, whoever provides the network will hold a “sticky”, high-value position in the enterprise value chain. This will grow over time as new network capabilities, like ultra-reliability and indoor location precision, are introduced.
Traditional telco operators must act now, before these capabilities are readily available and while the competitive landscape is still open. We believe traditional telco operators have an opportunity to win against incumbent vendors and new entrants in the B2B space.
An increasingly crowded market demands a new approach
One might think that traditional telco operators would own this space, as enterprise customers need powerful wireless providers to enable their private networks. However, what we’ve seen is very different.
Without exclusive access to spectrum, operators no longer control the single gateway to the ecosystem, and new entrants are charging ahead. As a result, original equipment manufacturers (OEMs) and cloud players such as Amazon, Google, and Microsoft are aggressively gaining market share. The OEMs who build and maintain wireless networks, alongside new entrants such as Dish Network—and similar telco companies who used to be vendors or partners to operators—are taking the lead by tailoring solutions to the private wireless sector.
So why are OEMs (network vendors in this case) pulling forward while telco operators are yet to position themselves aggressively? We see telco inaction stemming from:
- Emerging market signals flying under the radar of key decision makers who generally focus on revenue stabilization.
- The complexity of executing a symbiotic solution-selling approach, which requires cross-department coordination in a nascent market.
We believe operators should revisit their approach to gain first-mover advantage and position themselves to control this market.
Among the OEMs, and the market overall, Nokia has the early advantage, with more than 500 private wireless customers announced back in Q3 2022. Ericsson has also built a strong foothold. Both vendors expect sales CAGRs around 30% in the market, which is aggressive for the industry.
“Webscalers” and cloud players are also prioritizing market share gains. Amazon, Google, and Microsoft have all launched private 5G wireless solutions through their cloud technology. The hardware for each tech giant is either offered as part of the monthly service subscription or sold by an OEM partner such as Nokia.
What’s next for telco service providers?
Verizon and Vodafone are two of the few telco service providers who have started developing structured offerings. They have done so by partnering with web-scale cloud providers to offer enterprise solutions that vary from a simple network to a full-blown private wireless deployment.
But the challenge these and other traditional operators face in the private network space is far from trivial. To turn this around, we believe operators must focus their execution on four elements:
1. Proactive disruption
Operators have deep relationships with enterprises and must leverage the strength and history of these relationships—particularly around customer data, traffic profiles, existing contracts, and network knowledge—to proactively hunt for new business. Operators must take a solution-selling approach that focuses on the unique advantages they can offer compared to OEMs.
2. Partnership-centric delivery models
Telco operators are the largest customers for many competitors in this market. These incumbents would rather work with operators than compete against them.
Telcos can become the ecosystem supplier that coordinates the delivery of these moving parts: technology from OEMs, connectivity the telcos themselves provide, software solutions from cloud providers, security from companies like CrowdStrike, and integration from a leading systems integrator. By becoming the go-to ecosystem supplier, operators can create new revenue streams and increase their market share.
While Fortune 50 companies have the size and capabilities to go their own route, remaining companies will appreciate the convenience of having a single partner orchestrating the ecosystem.
3. New pricing and spectrum offerings
CBRS spectrum available at no cost in the U.S. sets a new pricing reference, which pressures the premiums operators charge for licensed usage. Germany, France, and others are planning on enacting the same model soon. Operators can offer private wireless networks with features none of the non-telco vendors can by creating a customized network slice with a different bandwidth than CBRS spectrum, and mitigating the native CBRS spectrum challenges. Regardless of licensed or unlicensed spectrum, the sourcing process for private networks is complex as users face various supplier types, technologies, and deployment models. Bringing the full range of solutions to market is something only an operator can provide.
4. Integrated delivery engine
Sales and delivery of private wireless networks need a use-case driven, industry-centric approach, but too often this isn’t the case. Experience from a recent operator planning a private multi-edge cloud launch was eye-opening. Effective delivery requires cross-functional collaboration, but while each meeting included 20+ stakeholders, clear decision rights were not defined. Most of the activity focused on planning, business case calculation, and pilots. An effective deployment engine was missing, leading to issues.
Telco is uniquely positioned to go to market in the private network space
The telco world is now more competitive, but opportunity beckons for traditional operators who move proactively and strategically to build market share in private wireless.
Companies that want to control their networks and user data are eschewing levels of customer information and network knowledge that only telco operators can provide. By working with tech partners and first adopters, telco operators can control the private network market and capitalize on this new revenue stream.
The market is still in its early days. Telco operators must act now to gain a foothold in the emerging market or become a bystander delivering connectivity services with diminishing returns. Reach out to AlixPartners today to see how your company can accelerate growth around this opportunity.
Stay tuned for future publications in our "lean, mean, green telco machine" series.
