Both Ericsson and Nokia showed continued growth in their top-line revenues during the 1Q 2022 although profits and margins were adversely affected by numerous factors. In particular, Ericsson reported a 12% growth in its mobile networks revenue while Nokia reported a 14% growth in its fixed networks business, but both were boosted by favourable currency conditions. Counterpoint Research expects that the vendors will face a continuation of the headwinds experienced in Q1 during the remainder of the year, which include supply chain issues, inflationary pressures plus the impact of developments in Russia and the Ukraine. In addition, both are increasing R&D investments which will hit their bottom lines.

However, there are encouraging signs that efforts to develop new 5G monetization technologies will start to come to fruition during 2022 with the commercial launch of a range of ARPU-boosting services leveraging CSPs' recent 5G SA core deployments - plus accelerating enterprise wireless revenues.

AI-based Network Optimization

For the first time, both vendors reported commercial traction in the use of new AI-based network optimization services by their CSP customers. After many years of R&D investment this is a welcome development as it will result in a transition from low to high margin network support services. With their large installed base of CSPs, Counterpoint Research believes that both vendors are well placed to benefit from this opportunity. However, with several CSPs exploring alternative platforms with the hypercalers, it is becoming clear that this could turn out to be a very competitive market.

For example, Vodafone recently announced the roll-out of its alternative Unified Performance Management (UPM) platform, a pan-European network optimization platform in partnership with Cardinality.io and Google Cloud. Other vendors with similar initiatives include BT, which earlier this year signed a AI/ML and data analytics deal with AWS.

ARPU Boost via Network Slicing

 With ARPU either static or falling, many CSPs are looking to vendors to help them monetise their 5G networks. As 5G SA core deployments accelerate during 2022, Counterpoint Research believes that vendors will start to introduce a range of ARPU-boosting services during 2022. During the first quarter, Ericsson announced two such services: Dynamic Network Slicing and Dynamic End-User Boost. The latter is particularly interesting as it is a data-boosting app controlled by smartphone users themselves.

Offered by Ericsson One Network Solutions - the vendor's cloud-based intelligent platform - the app enables users to boost mobile data connectivity on-demand on 4G and 5G networks as well as improve security. For example, using the app could enable an user to download a file quickly or participate in a video conference when out of the office. The service is offered as a white label service, which means that CSPs can market the service as they wish and decide whether to target consumers, enterprise users or both.  Counterpoint Research understands that both services are now being offered on a commercial basis by Hong Kong CSP SmarTone. However, Ericsson claims that several CSPs in Europe will be launching similar services throughout 2022.

Targeting The Edge

While Nokia has been offering its MXIE edge-focused platform for some time, Ericsson made an effort to catch-up this quarter with its own edge-related product launches including an Edge Exposure Server and a Local Packet Gateway (LPG).

The LPG is a single unit/single-server full-stack appliance which integrates seamlessly with Ericsson’s dual-mode 5G Core and OSS systems. The key objective here is to reduce the cost and complexity of deploying 5G edge use cases and enable enterprises to launch new services quickly.  As a hybrid private network solution, Ericsson claims that the LPG can be a more cost-efficient alternative to a traditional, dedicated private network solution, while still maintaining strict 5G central core security and satisfying the highest data privacy requirements. The vendor claims that it has six customers working to deploy its LPG and expects commercial services to start in 3Q 2022.

Incumbents vs Hyperscalers

It is inevitable that all incumbent vendors will face stiff competition from a multitude of new entrants, but particularly from hyperscalers such as AWS, Google Cloud and Microsoft Azure, who are leveraging their core technical competences and huge enterprise customer base to target all the emerging opportunities described above, including private networks. As Exhibit 1 shows, the majority of CSPs have already developed edge partnerships with one or more of the hyperscalers. However, as no player can offer end-to-end solutions across all verticals, developing the best ecosystems through partnerships will be critical for all of them, including the hyperscalers.

Exhibit 1:  CSP Edge Partnerships with Hyperscalers

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