How Can the Telecommunications Industry Rescue the SME Opportunity? - Insights from Hannover Messe 2021

Hannover Messe (HMI) is the largest trade fair for the industrial technology market, attracting hundreds of thousands of visitors every year. It is the trade fair where industrial technology leaders announce new products and where the whole industrial market converges to discuss new technologies. Traditionally held in one of the world’s largest exhibition grounds in Hannover, Germany, the trade show, like so many other industry events during the COVID-19 pandemic, was transformed into a virtual experience consisting of lectures, panel discussions, and hands-on demonstration videos.

As the annual HMI is an important platform for any connectivity technology to attract the attention particularly of small & medium sized manufacturers and other heavy industry enterprises, industrial 5G was one of the key topics to be discussed.

The 5G messaging at HMI 2021 was not very different from HMI 2019, when industrial 5G was discussed for the first time and the 5G Alliance for Connected Industries and Automation (5-ACIA) was formed under the roof of the German Electrical and Electronic Manufacturers’ Association, ZVEI. Network operators and infrastructure vendors spent the majority of their time trying to educate the industrial community about the benefits of 5G and the opportunities to introduce this technology to their respective workflows and operations.

If this year’s Hannover Messe showed one thing, it is the fact that the telecommunications (telecom) industry and small & medium size industrial enterprises (SMEs) are not any closer to each other. To preserve the enterprise 5G opportunity, the telecom industry therefore needs to consolidate their efforts and draw the right conclusions from recent developments at this year’s Hannover Messe.

To understand the impact of this, and in order to be able to give actionable advice on how the telco industry can bridge the gap,  particularly between the small & medium size industrial enterprises, it is important to first of all understand the key underlying issues that have led to this divide in industries. In addition to aspects like technology complexity and a lack of understanding of practical concerns (discussed in previous ABI Research Insights), there are three main themes that need to be considered:

1. Unrealistic timeline communication: After serious talks about industrial capabilities for 5G at Hannover Messe in 2019, SMEs were left with the impression that all of these 5G capabilities (i.e., enhanced mobile broadband, ultra-reliable low latency communication, and massive machine-type communication) would become available to enterprises at the same time with 5G rollout. There was no mention about a staggered timeline and individual 5G capabilities being standardized in different releases of the 3rd Generation Partnership Project (3GPP). With enterprises realizing that industrial 5G requires ultra-reliable low-latency communication (URLLC) capabilities (which have only been standardized with 3GPPPs Release 16, in July 2020), these enterprises are still waiting for compatible network infrastructure to deliver the very same performance indicators they felt they were promised a few years ago already. This mismatch in communication has contributed considerably to enterprises moving their focus to technology alternatives that are able to address their pain-points as of today.
2. Lack of Industrial 5G devices: In addition to an unclear communication about the timeline for industrial 5G, enterprises also realize that the device ecosystem for industrial 5G devices that are compatible with 3GPP’s Release 16 is only starting to mature, as only a few industrial 5G modems and routers have entered the market so far. While Qualcomm has announced the first Release 16 capable chipsets (Snapdragon X65 Modem-RF System) in February 2021, there are reports that other chipset manufacturers are further delaying the launch of R16 capable chipsets. One possibility for the delay might be related to increased working from home and social distancing measures to combat the global spread of the COVID-19 disease, as this has increased demand for consumer entertainment devices and hence created a surge in demand for consumer electronic chipsets. While this might serve as a tentative explanation, the exact reason for delaying R16 capable chipsets is not fully intelligible.
3. Mismatch in the communicated value proposition: As well as having communicated an unrealistic timeline for 5G, the telecom industry also employs a different messaging to underline the key value proposition of 5G to manufacturers and other industrial SMEs. While the telecom industry focuses their messaging on advanced new concepts and use cases, like network slicing, this might be far too advanced for enterprise ears and does not necessarily address their pain-points. Certainly, network slicing enables enterprises to address different (mission-critical and non-mission critical) use cases within the same network infrastructure, but it turns out this is too abstract for enterprises, as the architecture of a connectivity is of secondary importance to them.

In contrast, industrial enterprises already have mature communication and automation technologies (based on OPC-UA standards) in operation, with a proven track record within the community for several decades, which they are not looking to replace completely. Thus, these enterprises are much more interested in utilizing 5G connectivity as wireless infrastructure for existing machine automation protocols, thereby using it as a “data pipe,” rather than using it as an enabler for disruptive new applications. The fact that 5G-ACIA has only managed to sign a memorandum of understanding (MoU) with OPC-UA in April 2021, showing the telecom industry has been late to realize the importance of incumbent technologies.

Since in deploying new connectivity technologies, industrial SMEs take a pain-point focused view (and do not consider the underlying technology as important), these enterprises will start looking at alternative technologies to industrial 5G, As these enterprises are looking at an investment cycle of several decades, this could result in seriously jeopardizing the enterprise 5G opportunity within manufacturing and other industrial deployment scenarios. Therefore, the telecom industry needs to consolidate their efforts to bridge this gap now. As has been discussed before, successfully targeting enterprises requires a radical rethinking of business models and monetizing strategies to minimize the amount upfront investment necessary for network deployment, which would serve as barrier to entry for SMEs that are governed by particularly tight budgetary controls. In addition, the presentations at this year’s HMI underlined three distinct aspects for the telecom industry to follow:

1. The telecom industry needs to adjust to the pain-point focused view of enterprises, instead of supplying 5G as a mere technology. At the heart of this, telecom infrastructure providers, as well as CSPs, need to be able to offer full end-to-end (E2E) solutions targeted towards the respective pain point, rather than just individual components. Notably, a full E2E connectivity solution should include analytics capabilities, datahubs and storage capabilities, a clear understanding of the convergence of operational and information technology (OT/IT) sensors and devices, as well as device management. To be able to supply this, CSPs, infrastructure vendors, and hyperscalers, as well as chipset manufacturers, need to extend their domain expertise sensibly without duplicating expertise that is already available within the market.
2. In addition to the first aspect, the telecom industry needs to design these 5G solutions to be easily deployable and hide any technology complexity away from the implementer. Trial kits like the MECSware’s Network Evaluation Kit or Singtel’s GENIE 5G-in-a-box platform (developed together with Ericsson) can serve as an example of how to achieve this.
3. To understand implementer’s key concerns and ensure 5G interoperability with adjacent technologies, the telecom industry needs to seek partnerships and co-creation initiatives. Recently announced partnerships between 5G-ACIA and the VDMA (German Mechanical Engineering Industry Association), as well as the Memorandum of Understanding between 5G-ACIA and the OPC-UA are important steps. The telecom industry needs to ensure to stay reactive to feedback from these collaborations and treat them as a two-way-street rather than a lecturing forum.

With the emergence of shared spectrum initiatives and hyperscalers, as well as system integrators, pushing towards providing full end-to-end private cellular solutions to enterprises, mobile network operators will have a difficult battle to fight. Network operators therefore need to develop solutions that utilize their existing public network resources to give them a competitive advantage.