Nokia Says Software, Virtualization Will Shift Telecom Spending

Telecommunication operators will refocus spending saved from the increased use of software and virtualization on innovation, according to Nokia. The infrastructure vendor explained that while arguments around whether software and virtualization will impact CapEx or OpEx have raged for years, the true impact is much broader. “I don’t think this is cost driven,” said Bhaskar Gorti, president of applications and analytics at Nokia, speaking on the move by telecom operators in deploying software-defined platforms. “The net-net costs will not come down. The spend will just get revectored. A lot of the money in the past was on just keeping the lights on and less on innovation. This move will redirect spending into R&D for differentiation.” Others tout the network savings from increased use of automation. “When you take a centralized network and distribute it, it becomes more complex to manage. That’s the opposite of what customers want,” said Mike Murphy, CTO for North America at Nokia, during the recent Mobile World Congress Americas event. “They want to lower operating expense. That then brings in automation, virtualization, and SON [self-optimizing networks].” Murphy’s comments did lean toward potential OpEx savings. He claimed there will never be a CapEx advantage in migrating radio access network (RAN) assets to a virtualized environment. In fact, Murphy said price comparisons from 18 months ago showed a more than 10-times CapEx price difference in favor of not virtualizing RAN assets. That has since moved down to just a 5x or 6x difference. “The whole picture is that in a larger scale and over a longer time period [virtualization] will be more cost effective,” Murphy said. Nokia Software Focus Nokia created its standalone software business last year, taking advantage of the work at Bell Labs it acquired when it purchased Alcatel-Lucent. Gorti said the company has started to see traction with its software moves. “We are seeing traction with customers as part of the overall transformation of the market,” he said. “The people and processes are changing, and it’s become visible within many of these organizations.” As an example, Gorti noted a recent visit to Verizon’s headquarters showed a very different company then what he had seen from past visits. “It does not look like an old telecom facility anymore,” Gorti said. “It’s now very streamlined.” However, he did explain that retraining of the workforce to take advantage of software innovation remains a challenge. “We see a lot of operators working on getting their workforce to think differently with more of a DevOps model, Gorti said. “That’s really a lot of the focus now, and is even something that we are working through internally.” Open Source is Not Free Nokia controls a substantial portfolio of intellectual property patents, though it is in the process of monetizing some of those assets. Even with its portfolio, Gorti said the company is actively taking advantage of open source work as the foundation for many of its software platforms. “Open source is not free,” Gorti said. “It does provide more choice, but you still need to put it together for a business outcome. It makes more sense to spend it there than to go and drill your own oil well.” Nokia is also looking to expand outside of its core communication service provider (CSP) business. Speaking at last week’s Mobile World Congress Americas event, Ricky Corker, head of the North American Market at Nokia, said this includes expansion into large enterprises, the public sector, and public safety. Corker said the efforts will take advantage of the company’s already embedded portfolio of products to go directly to new market segments, as well as working with service provider partners in targeting those markets. Corker added Nokia is also “heavily engaged in the webscale space.” “We continue to believe that’s an important strategy for us, but not forgetting that CSPs are our core business,” Corker said. Nokia CEO Rajeev Suri recently warned that the company expects market conditions to be more challenging this year than it had previously expected and is forecasting a 3 percent to 5 percent decline in 2017. While the equipment maker’s second quarter profitability was strong, the company did report that its network division sales were down 5 percent primarily due to weakness in the mobile sector. “The second quarter showed ongoing challenging market conditions,” said Suri during the investor call.

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