MWC Showed That the Enterprise Cellular Discussion Is Maturing, but the Legacy Telco Industry Needs to Innovate Desperately!

After a massively scaled down version in 2022, Mobile World Congress (MWC) returned almost to full force in the beginning of February 2023. The absence of breathtaking new technological innovation on the show floor, however, does not mean that the industry is at a standstill—far from it actually. Rather, it shows that companies have begun doing their homework in the background and instead of shiny new marketing initiatives, are presenting actual ways to execute a sound commercial strategy, especially when it comes to enterprise connectivity. There were a few interesting announcements regarding enterprise connectivity in the buildup of the show: Hewlett Packard Enterprise (HPE) acquiring Athonet; Vodafone showcasing its pilot to put a 5G network on a Raspberry Pi (see the recent ABI Insight, “What Does the Announcement of Vodafone’s 5G Network on a Raspberry Pi mean for Enterprise Cellular Connectivity?” for a thorough discussion); and NTT announcing a partnership with Cisco to drive its enterprise connectivity portfolio. All of these announcements show that companies are still working on their private cellular strategy. Therefore, it is worth looking at how it unfolded at this year’s MWC.

The topic of private networks was omnipresent on the show floor in Barcelona, as it already was in 2022. The main difference was the understanding of private cellular networks has become much more realistic, so companies’ messaging and their own positioning around it have become much more mature compared to 2022. From a commercial point of view, this has been shown mainly in market consolidation and the announcement of more and more partnerships. From a technology point of view, even the last proponent of private cellular connectivity has now understood that enterprises won’t replace all their existing (wireless) connectivity technologies with a private cellular network solution. Not all industry players are looking at opportunities for providing combined private cellular and Wi-Fi solutions. More specifically, the discussions at MWC highlighted two distinct trends for enterprise connectivity:

1. Market Consolidation Is in Full Swing

Arguably, the most important news around private cellular networks was announced just days before the start of MWC—HPE acquiring the until-then independent core software vendor, Athonet. Not surprisingly, this announcement dominated all private cellular discussions on the show floor in Barcelona. From a macro perspective, this is yet another announcement highlighting that market consolidation is in full swing. What started with Microsoft acquiring Metaswitch and Affirmed Networks in 2020 and Ericsson taking over core software vendor Quortus in 2021 has reached a new height. This is a positive sign for the private cellular industry, as it shows that the market is maturing, and players are looking to complement their existing capabilities. It is an open secret that this consolidation is far from over and, in fact, the industry openly speculated about who will be acquired next and by whom. At the same time, Communication Service Providers (CSPs) are exploring different partnerships to leverage their assets and combine them with the capabilities of hyperscalers, infrastructure vendors, and/or System Integrators (SIs).

1. Neutral Host Providers and Hyperscalers Continue to Drive Market Innovation

While neutral host providers have been a topic for cellular macro networks for some time already, the concept is becoming more interesting for enterprise connectivity as well; because of the outbreak of the COVID-19 pandemic and recent geopolitical events, enterprises are desperately looking at digitizing their operations. At the same time, harsh macroeconomic conditions result in tight budgetary controls, preventing enterprises from making significant Capital Expenditure (CAPEX)-intensive investments in acquiring their private cellular network infrastructure.

Furthermore, this year’s MWC showcased that hyperscalers continue to be essential actors on the telco stage, with everyone else accepting that they are here to stay and trying to engage in partnerships with them. To underline its telco ambitions, Microsoft presented its new Azure Operator Nexus platform—a carrier-grade hybrid cloud platform for mission-critical mobile network applications. Regarding partnerships with hyperscalers, Deutsche Telekom (DT) announced a partnership with Microsoft for private cellular networks. By tapping into Microsoft, the operator aims to complement its portfolio with a scalable, pay-as-you-grow model and price plans that lower the barriers to entry for 5G campus networks. The solution is built on Microsoft Azure private Multi-access Edge Compute (MEC), which includes the new Azure Private 5G Core service deployed on Azure Stack Edge.

Both of these observations should be a last warning for the legacy telco industry to gear up its innovation capabilities to remain competitive in the enterprise market. CSPs, in particular, have a long way to go. The growing popularity of neutral hosts and their managed service provision model underlines the need to evolve their value proposition and understand that in the wake of more and more spectrum liberalization initiatives, licensed spectrum assets will lose part of their attractiveness. Protecting this antiquated value proposition by diminishing the attractiveness of liberalized spectrum (through lobbied transmission power constraints, in the case of spectrum sharing arrangements in the United Kingdom; regulatory limits to addressable use cases, in the case of the campus network spectrum at 3.7 Gigahertz (GHz) in Germany; or the prevention of roaming between public and private networks) will do little to position CSPs as capable partners for enterprise digitization. Instead, traditional CSPs need to position themselves as enterprise digitization partners, embracing all spectrum opportunities and providing Business-Outcomes-as-a-Service. In order to do this successfully, this years’ MWC showed that CSPs still need to develop a solid understanding of key enterprise requirements and potential use cases, so that outcomes can be monetized (e.g., a manufacturing plant will only pay a subscription fee for reducing its machine downtime by a pre-arranged percentage value).

The democratization of the telco value chain and developments around Open Radio Access Network (RAN) can be an important enabler for such a business model. Previous ABI Insights have argued that a more diverse vendor landscape does not necessarily lead to a lower overall Total Cost of Ownership (TCO) for implementing enterprises, as any decrease in component costs could be offset by the increase in integration costs. At the same time, this will enable CSPs, SIs, and hyperscalers to design private network offerings with a lower CAPEX component (which is predominantly determined by infrastructure component costs) and increase the Operational Expenditure (OPEX) monetization component without taking on any additional economic risk.

At the same time, telco network infrastructure vendors should understand that their technology capability-focused marketing message will, over time, not resonate with the large enterprise market. What might be enough for early adopters—large enterprises like machine automation vendors with sufficient networking knowledge and in-house resources to integrate and operate the network—will most likely not echo with the much larger community of medium-sized enterprises. These will require a much easier-to-consume value proposition that addresses enterprise pain points. Instead of talking about output power, the number of antennas, or form factors, in line with previous ABI Insights, infrastructure vendors should develop reference architectures illustrating how their components can reduce machine downtime, how much more efficient enterprise operations can become, or how much energy can be saved by deploying a private cellular solution.