Enterprise private wireless networks been around ever since commodity base station silicon came to market in the mid-2000’s. 15 years later, deployments remain few and small. So the questions for investors are: are private wireless networks for real? How big a market is it? If I were to put money, where and how should I play this market? While I will not answer these questions here, I wanted to share some of my observations working on private wireless networks and make the case for a new breed of vendors that can take on this market segment.
Supply and Demand Framework
To help analyze the market, I suggest to think of technology adoption as a function of supply and demand – just like any asset. Taking this framework, we see clear disjoints in the market that inhibited the adoption of enterprise private networks on both the supply (vendors) and demand (enterprise) sides. Here, I will focus more on the supply side, looking at the supply chain and ecosystem of enterprise private wireless.
On the demand side, enterprise digital needs are rapidly evolving. Data collection and warehousing, cloud hosting models, security, and many other requirements set the context for enterprise private wireless networks. These vary by industry vertical. I will leave this topic aside for now, but can refer you for more on this aspect here and here for private wireless in the oil & gas sector.
Spectrum and Cost
Spectrum is becoming more accessible to enterprises than ever before with over a dozen countries enacting regulations that enable such access (see here and here on CBRS). However, while spectrum is a show stopper, it does not alone account for lack of adoption. For example, the US and Canada allowed access to the 3.65 – 3.7 GHz band since 2007. 5 years later, the number of installed systems in that band did not exceed 50,000 units – not enough for a serious ecosystem to develop. Another example is Canada’s allocation of 30 MHz allocation in 1800 MHz to utilities since the late 2000’s – not much in enterprise private wireless despite many trials.
Cost, on the other hand, is a multidimensional challenge. I will focus on the capital expenses which get high consideration in the early stages of planning. Capex invariably comes down to the backend infrastructure to support enterprise private wireless – the core network and associated network elements. These elements used to make up for a disproportionally large percentage of the cost. But this changed with virtualization and as-a-service business models offering hosted core and backend functions that provide an alternative to owning the infrastructure. (See here for the cost analysis; and download our white paper here)
Cost is tied to spectrum: WiFi exemplifies this relationship. Odd bands, like the 1800 MHz I mentioned earlier, raises the cost of equipment and makes the market less attractive for vendors. A good example is the new 900 MHz band for US utilities which uses 3 MHz channels. For vendors to engage, the opportunity has to be of the right size – so we should watch how it will develop.
The Sales Channels
15 years into private wireless networks, both spectrum and cost moving on the right track. But there are still many gaps for appropriate intersection of the supply and demand curves. Channels and business models come next – the recent $1.1 billion acquisition of Cradlepoint by Ericsson provide a good illustrative example.
As a telecom equipment vendor, Ericsson focuses on the carriers. Cradlepoint gives it the enterprise sales channels it lacks (evokes memories of the relationship with Cisco of years past!). Contrast this with Nokia who has enterprise channels by virtue of its prior acquisitions and diversified product portfolio: Nokia claims to lead the market with some 190 deployments.
A side note: The flip point of TEMs are industrials such as ABB, Schneider, Honeywell, Siemens which are entrenched in verticals such as energy, mining, utilities and others. These companies have different positions on private wireless that spans the entire spectrum. I will not expand on this here, but wanted to highlight their potential role in this ecosystem.
Business Models
Sales channels are born out of business models. Taking the example of Ericsson, its private wireless strategy favours pairing enterprises with service providers. This is problematic since the largest of enterprises – the ones who could most afford private wireless – are the least amenable to work with an operator. Can you imagine running a mission critical service on a public network? Who would you call for a service interruption and how long it would take to get service back? Then, what happens to millions of IoT devices if the operator decides to sunset a technology?
While operator-managed enterprise private wireless is possible, it will be only one model among many. In their pitch to enterprises, operators play the card of taking the complexity out of private wireless. This is exactly an issue that some enterprises have against private wireless.
The tension between vendor and service provider and the system integration and management aspect highlights an opportunity for a new breed of vendors that I will get to later.
The Technology
Private wireless networks are part of the enterprise digital transformation process. But why should anyone use LTE or 5G? Is it speed, latency, or reliability? 5G claims ‘extreme’ performance on all three points and some more! Putting hype aside, enterprises need different features from mobile network operators – the features even drastically contrast. Operators want more bandwidth and capacity. Everything else is secondary: have you come across an operator who monetizes latency today? [Monetizing latency is another issue that we have been working on; we can talk about that elsewhere!]
Enterprises on the other hand have a variety of needs: latency for micro-grid switching; bandwidth for data dump from an aircraft that just landed; and robust connection for remote drilling.
For years, enterprise private wireless networks did not offer the features required by enterprises not because LTE was not capable, but because the market was not big enough to make it attractive for vendors to commercialize custom offshoots. Solutions that offered such features were either not robust, not complete, or provided by small companies unable to sustain the necessary investment. Companies like Nokia, Ericsson and Huawei focus on selling thousands of base stations to carriers, not a dozen of base stations to an enterprise with unique requirements. In other words, the adoption of private wireless networks is a chicken or an egg problem.
A New Type of Vendors
The enterprise private wireless market attracted many type of players – e.g. equipment vendors, system integrators, service providers. None of these players proved to be capable of bridging the divide between telcos and enterprises.
This opens an opportunity for a new, nimble vendor with sufficient financial weight, technical clout and market expertise to bridge the divide. A vendor with strong channels to enterprises and one not constrained by their relationship with the mobile network operators. This vendor needs to have deep technology development expertise that’s today in short supply.
There are vendors who are taking a shot, but most are small and lack many of the requirements to play in enterprise private wireless networks. The large TEMs on the other hand can supply part of the market but will fail when the size of the deal is not large enough to justify their effort. The business case for uncommon enterprise requirements will challenge them.
So, will someone step up to the plate to make enterprise private wireless networks a reality?
Contact me for information on enterprise private wireless network activities and services.