Now that the Mayan apocalypse has passed without event, and we are all still here, there is no avoiding 2013. For an analyst like me, the start of a new year is a time to take stock of the previous year and to think about what the new one will bring.
Within the wireless infrastructure space, trends tend to play out over several years, rarely resolving themselves in a neat 12-month package. When I started to think about what I expected to see in 2013, I quickly realized these were all trends I had been watching to one degree or another for several years. Limited infrastructure revenue growth, market consolidation, and greater need for vendor differentiation were all things I have talked about in the past, and all appear to be very relative trends that will continue to shape the market in 2013 as well.
LTE is ushering in a new more data oriented age in mobile telecommunications that promises to bring in new service models as well. What LTE isn't ushering in is an age of aggressive revenue growth for radio access network (RAN) vendors. While full 2012 revenue results are not currently available, it appears the RAN market is on path to lose around 10 percent of revenues versus 2011. One of the primary reasons is that operator investments in older technologies like CDMA and GSM are declining at a faster rate than LTE investments are growing. At the same time, operators in some markets, like Western Europe, remain conservative with their spending in that market operators are content to continue to upgrade existing HSPA networks, versus putting large sums of money into newer LTE networks. These HSPA upgrades are less capex intensive than building a new LTE network. Mobile operators' movement to HetNets (heterogeneous networks) won't change the revenue picture much either.
Small cells and HetNets are not going to drive massive overall capex increases. Instead the spending on small cells will come at the expense of macro cells, similar to how operators are currently shifting spending from older mobile technologies to LTE.
New things and technologies may come along, but operators still have to maintain capex so as not to negatively impact profitability. If revenues don't dramatically grow overall market capex wont grow dramatically either. In 2013, RAN infrastructure revenues might meet 2012 levels, but it is hard to believe they will climb back to 2011 levels. It is also hard to believe growth in 2014 and beyond will be much different than it was in 2012 and what I expect it to be in 2013.
The ongoing RAN infrastructure revenue outlook is a major driver behind another continuing mobile infrastructure trend, vendor consolidation. Over the last several years we have seen Ericsson purchase Nortel and Nokia Siemens Networks purchase the mobile infrastructure business of Motorola. As it stands now, three vendors hold over 70 percent of RAN market share. Those three vendors are Ericsson, Huawei, and Nokia Siemens Networks. This leaves Alcatel-Lucent, Samsung, ZTE, and other smaller vendors fighting over less than 30 percent of the market.
Between limited revenue growth and a shrinking customer base, it is not difficult to see more RAN vendor consolidation. The obvious suspects for consolidation are the smaller vendors, as their market share will make it difficult for them to maintain the scale of business needed for long-term profitability. Of course Nokia Siemens Networks, despite its recent financial successes, has had its own profitability struggles making it the subject of consolidation conjecture at times as well. However, consolidation among the remaining RAN vendors will be complicated and take time to accomplish. So while I would be somewhat surprised if one of the six largest RAN vendors disappeared in 2013, I would definitely be surprised if we weren't still talking about consolidation going into 2014.
What won't surprise me when it comes to consolidation in 2013 is if at least one or two of the small cell vendors don't go away. Not only do all the major macro cell vendors listed above have their own small cell solutions, there are at least another eight vendors pursuing small cell opportunities as well. Given the market challenges already discussed in this piece, it is hard to believe there is enough business to go around for that many companies. As many of the small cell vendors are privately held and have significantly smaller revenues than those of the large traditional macro cell vendors, their removal from the market could take a relatively short time. It took Ericsson around three months to acquire small cell specialist BelAir Networks in 2012. I will be surprised if at least one or two small cell specialists don't disappear in 2013.
The two trends discussed here already, constrained revenue growth and a crowded playing field, will drive another trend in 2013. That is the continued need for vendor differentiation. Some of the ways differentiation has manifested itself is with application enablement, network optimization solutions, and customer experience management solutions.
There is no doubt in my mind that mobile operators and their needs are one of the major drivers for things like application enablement and customer experience management solutions. Vendors would not be developing solutions in these areas if their operator clients weren't asking for them. At the same time another driver is the vendors' need to differentiate their network solutions beyond such standard performance areas like base station rate of date throughput and power output. In a tight competitive market vendors need everything they can to differentiate. Because of this I expect to see plenty more around application enablement, network optimization, and customer experience management in 2013. I especially expect to hear about these things from vendors who are concerned that they will be the consolidated and not the consolidator.
Daryl Schoolar is Principal Analyst of Wireless Infrastructure for Ovum. Daryl's research includes not only what infrastructure vendors are developing in those areas, but how mobile operators are deploying and using those wireless networking solutions. Contact him at [email protected] and follow him at @DHSchoolar.