Computing, telecom industries on collision course

An exhibitor points to a screen displaying 5G spectrum during the Mobile World Congress in Barcelona. REUTERS

 Telecom network gear makers are on a collision course with Silicon Valley computing giants as software and cloud computing have begun to change the way operators from AT&T to China Mobile run their networks.

The shift, while in its early stages, involves relying on ever cheaper computer boxes and powerful software that promises to make networks more flexible and efficient.

As networks move to relatively standard hardware, formerly entrenched equipment groups must increasingly compete for contracts with the likes of Cisco, Hewlett-Packard and VMware, as well as a slew of startups.

Relying more on software to run networks could boost the gear makers’ profit margins one day, but will also force them to search for new sources of revenue. They must learn skills such as acting more as consultants or finding business beyond their traditional telecom operator clients.

The changes, which simplify how networks are managed, are blurring the lines between the telecom and computer industries, setting the stage for a wave of acquisitions as a virtual showdown in the clouds takes shape.

At the annual Mobile World Congress being held in Barcelona this week, the brewing battle was apparent in dozens of partnership and product announcements.

Likewise, some equipment makers talked tough about their rivalry with information technology (IT) groups as the operators make greater use of cloud computing — running software networks and storing data remotely on centralised servers.

“We actually see the transition to the cloud as less of a threat that IT players will disrupt our markets and more of a threat that we will disrupt theirs,” Nokia Chief Executive Rajeev Suri told a news conference in Barcelona before the Congress.

Finland's Nokia, the world's third largest mobile equipment maker after Ericsson of Sweden and Huawei of China, believes its strengths in wireless radio, navigational map systems and its large amount of patented technology cannot be easily duplicated by fast-moving Internet players.

The pace will accelerate over the next five years as industrial rivals compete for trillions of dollars in contracts to build a new generation of networks known as 5G. These networks must handle mushrooming demand for video and billions of new devices including wireless connections to cars, industrial sensors and home appliance. They must do all this while helping operators to slash costs in an industry looking to pare back capital spending.

Bread and butter

Network operator Telefonica set the cat among the pigeons this week by awarding a major contract to computer company HP for it to overhaul how the operator's networks run to make them more flexible and cheaper.

“What we are seeing is a coming together of two industries,” Ian Miller, an executive with Telefonica, which runs networks in Europe, the Americas and Asia. “Each industry is moving into the other side,” he said.

Meanwhile, Cisco Systems, which started out building computer networks, announced smaller deals with carriers across Europe to deliver new cloud-based Internet services and “small cell” antennas to improve mobile phone and data coverage in busy calling areas. Such contracts would once have been the bread and butter for telecom network gear makers such as Ericsson, Nokia, France’s Alcatel-Lucent, or their newer Chinese peer Huawei.