Two paths to 5G deployments are emerging: consumer and enterprise deployments. The former is how operators make the vast majority of their revenue. The latter is receiving much interest as it promises a new bump in revenue. Enterprise private networks is not a new idea: it has been slow to realize it because of economics among other factors. New technologies promise to reduce the cost structure. Some equipment vendors, like Nokia, are making a bet on private networks. Operators in their turn are looking to play a role in the enterprise market as the consumer segment reached saturation.
In my view, making a bet on the enterprise segment requires new operating models that the mobile ecosystem has been slow at evolving. Moreover, 5G is not a prerequisite to success in this space: it’s not evident that enterprises are ready to benefit from the advantages that 5G provide. Additionally, competing technologies exist. It may be that applications in vertical markets will take time to mature by which time the 5G ecosystem would be ready. However, this only serves to increase the market risk.
Enablers of private networks
Two developments play in favor of private networks: Virtualization and new spectrum regulations.
Virtualization: Private networks based on cellular technologies first came onto the scene with the development of WiMAX and LTE. The bottleneck is expensive core network elements that cannot scale to support the small number of nodes and users. Virtualization solves this problem by allowing scalability to support small-sized networks. Vendors build solutions to scale to large number of subscribers, which is at the opposite end of requirements. Specialized vendors support small-scale scalability designed to meet niche market requirements.
Shared and unlicensed spectrum: MNOs are rightfully highly protective of spectrum. This forces the enterprise to work directly with a MNO, or in the case of remote areas, to arrange for a commercial agreement on spectrum utilization. The CBRS band in the US and a new allocation for Industrie 4.0 applications in Germany provide enterprises the flexibility to deploy networks without the involvement of MNOs.
Virtualization and spectrum regimes are two important developments that remove critical barriers from the path of private networks. However, there remains many challenges that will affect the uptake of private networks.
Challenges in private networks
Understanding the customer: Enterprises in vertical markets have their unique operating requirements that are very different from mobile network operators. Companies focusing on vertical markets need to develop a deep understanding of their customers’ requirements. This starts by knowing the operating environment which is critical to develop the appropriate solutions and services.
Working with an ecosystem of partners: Enterprise most likely lack the expertise in deploying and operating wireless networks. This necessitate working with ecosystem partners to deliver, plan and deploy solutions. Partners and flexible business models are critical.
Market fragmentation: There is a wide set of customers with many different requirements. The demand on different product requirements requires specialization. Scalability is a major challenge.
Sales and support channels: Mobile operators are excellent at selling mobile subscriptions to consumers. A few MNOs are good at selling to enterprises. Most MNOs need to upgrade their sales channels to succeed in the enterprise market. Moreover, these channels have to scale to mitigate market fragmentation.
Small deal size: Unlike carrier deals which run in the tens and hundreds of millions of dollars, the deal size in vertical markets run in the few millions at the most. Clients could be located in remote areas and not easily accessible which increases the cost of delivery and deployment.
Technology savvy: Many enterprises don’t know telecom and don’t care for many features that the carriers care about. Features like massive MIMO or coordinated multipoint are irrelevant. What enterprises care about is reliability, security and ease of use and maintenance. Enterprises will not have armies of engineers to trouble shoot problems.
Risk of liability: Enterprises are concerned about financial losses, security, reliability, and business interruptions. Their priorities are different from those of mobile network operators. How enterprises define liabilities will play an important role in determining the adoption rate.
Prognosis on private networks
Addressing vertical markets requires new business models to cater to different operating parameters. These parameters stand in stark contrast to the models used by the mobile industry for service providers. As such, it is not a foregone conclusion that the mobile ecosystem will benefit immediately from private networks. This is particularly true in the case of companies that reap billions in service provider revenue. It takes a lot of enterprise deals to compensate for the shortfall in a single carrier deal!