Introduction:

On December 2^nd, Nokia shareholders overwhelmingly approved the acquisition of Alcatel-Lucent . The only remaining full service telecom equipment company in either North America or Europe is being sold to Nokia in a 15.6 billion Euro (€) deal which could make the “new Nokia” a market leader in network equipment and cloud services for telecom wireless AND wire-line networks. The only other full service telecom suppliers left are Huawei and ZTE from China.

In October, Nokia said it would pay € 4 billion to shareholders as the company raised its outlook for the year. Nokia will hold 66.5 percent stake in the new company, Alcatel-Lucent will hold the remaining 33.5 percent stake.

Nokia’s Position & Executive Quotes:

Currently, Nokia is ranked the third largest network equipment manufacturer after Ericsson of Sweden and China’s Huawei. Dell ‘Oro group says that Huawei has now surpassed Ericsson as the #1 provider of wireless network equipment, according to a recent WSJ article. That desite Huawei being shut out of the U.S. market after a congressional report deemed it a risk to national security. The company has strong sales in Asia and Latin America and is the #1 smart phone vendor in China.

Following the sale of its mobile phone business to Microsoft, Nokia focus on wireless telecommunications infrastructure and mapping services. Last August, the company sold its digital mapping business to German carmakers BMW, Audi and Mercedes for approximately € 2.5 billion.

Rajeev Suri, Nokia’s CEO, said he was delighted by shareholders recognizing the “long-term value creation opportunity” of the deal, which is expected to close during the first quarter of 2016. “I feel quite confident because as we have seen we have broad shareholder support, support from costumers, regulators, government and so on. There’s broad support overall for the deal,” Suri said.

“Nokia’s shareholders have today shown the full extent of their support for our proposed combination with Alcatel-Lucent. By ratifying the transaction in such great numbers, they have endorsed our strongly-held belief that the combined company will be better positioned to compete as a world leader in network technologies over the long-term,” said Risto Siilasmaa, Chairman of the Nokia Board of Directors.

Competition for the New Nokia:

In addition to Huawei (which is also a global leader in smart phones), there will surely be competition from the recently announced partnership between Cisco and Ericsson, in which the companies will jointly develop new products for telecom and cloud service providers.

According to Cisco’s press release, “In a world driven by mobility, cloud, and digitization, the networks of the future will require new design principles to ensure they are agile, autonomous, and highly secure. Ericsson and Cisco will meet this challenge together by offering end-to-end leadership across network architectures including 5G, cloud, IP, and the Internet of Things – from devices and sensors to access and core networks to the enterprise IT cloud.”

The press release notes that the partnership would bring in incremental revenue of $1 billion for both companies in 2018. Under the terms of the partnership, Ericsson will also receive patent licensing fees from Cisco.

According to Dell’Oro Group, Huawei, Ericsson, and the combination of Nokia and Alcatel-Lucent are the top three players in the worldwide market for wireless infrastructure equipment. These three are closely ranked, with each having 25% to 30% market share.

Note that Ericsson is a pure play wireless equipment and managed services vendor while both Huawei and Alcatel-Lucent design, develop and sell BOTH wireless and wireline gear. Alcatel-Lucent subsidiary Nuage Networks develops software for cloud resident data centers and specializes in network virtualization/overlay model of software defined networking.

Opportunities Knocking:

We think there are three huge growth areas that telecom companies really haven’t yet penetrated in a big way: cloud computing networks (from customer premises to cloud service providers point of presence), software defined WAN (multiple reference models for SDN, NFV, others known as SD-WAN), and Internet of Things (IoT).  

SD-WANs:

Gartner indentifies several companies (many are start-ups) as building products for SD-WANs:  

1. Representative Vendors: Cisco, Citrix, CloudGenix, FatPipe Networks, Nuage Networks (a subsidiary of Alcatel-Lucent), Ocedo, Silver Peak, Talari, VeloCloud, Versa Networks, Viptela

2. Other Vendors: InfoVista (Ipanema Technologies), Riverbed, Sonus

https://www.gartner.com/doc/3173719/market-guide-softwaredefined-wan

In an evocative blog post,  Mushroom Networks CEO wrote:

“SD-WAN gives enterprises additional options when it comes to the configuration of not only their networking devices, but their network itself. With SD-WAN, companies can utilize different types of networks that weren’t available in the past. For example – in traditional networks, it’s possible to send different traffic over different kinds of networks, i.e. to send critical traffic over a dedicated MPLS network, and less important traffic over a less expensive network, like a broadband network or even a wireless LTEnetwork. Some SD-WAN technologies can take this to a new level whereby various algorithmic nodes (configured by software) can be implemented as a function of application type. Think in terms of special treatment of, say VOIP packets, such as optimizing the WAN connectivity for latency, jitter etc, to ensure VOIP quality and reliability. If these types of specialized flow based complex algorithms can be pushed down to the hardware via a software defined environment with ease, the benefits are limitless.

This is not only useful for enterprise branch office setups but also useful for small and medium-sized businesses, who are often challenged to justify the expenditures of an MPLS circuit at all of their locations, and often lack the in-house IT networking talent to manage their network complexity.

SD-WAN gives you the ability to mix and match your WAN network types, and synch your different classes of network traffic with those different classes of network.  It will allow a company’s network to become much more efficient and dynamic, and allow for much more efficient utilization of network resources. And over time, when companies compare the savings on a monthly basis on the network spend versus the one-time (or close to it) spend on new hardware, many companies will find that it’s a no-brainer.

If you have an enterprise which has several locations or more and/or significant network traffic, SDWAN offers enormous potential. And if you’re a medium to large enterprise, the potential savings of SD-WAN are truly impressive, especially over time. But even if you have a very small company, with one or two locations and relatively little traffic, SDN can provide the SLA and QoS targets your applications need, such as VOIP/SIP, over very cost effective broadband connections.

The full scope of applications and impact to be felt from SDN is yet to be determined. But one thing is definite – the next few years are going to be very interesting.”

Here’s Google’s Open Network Summit presentation on their SD-WAN

We think SD-WAN represents a great opportunity for the new Nokia and other telecom/ network equipment vendors like Ciena.