Chuck Robbins - CEO, Cisco and Hans Vestberg, CEO, Ericsson
Coupled with Ericsson’s top-class managed services skills and Cisco’s IP expertise, Mendler believes both parties hope to have a winning proposition.
However, as Mendler puts it, “virtualisation will shift, rather than grow expenditure”.
Ovum’s NFV forecasts indicate that total NFV vendor revenues will reach $750 million during 2018, of which Cisco and Ericsson will claim some, but not all of the market.
In fact, telco NFV spend is likely to be a very small percentage of CAPEX, close to two percent during 2019 according to Ovum’s CAPEX and NFV forecasts.
Huawei and Nokia also target these areas, with the benefit of an already integrated portfolio and one company to deal with.
For Mendler, the future race is dependent on software, end-to-end and services skills, areas in which all three “Tier-0” vendors are investing and jostling for position.
“History shows that it is not the best technology or operational processes that tend to win vendor battles, but tawdry issues of money,” she adds.
“Vendor financing options - from pay-as-you-go, managed capacity, deferred capex schemes or simply low equipment costs - are highly attractive to customers.”
Also, the willingness to share risk and reward particularly for brand new service lines (like cloud and IoT) is influencing some deals and changing long-held telco-vendor relationships.
As a result, Mendler believes the two allies must make clear position statements here to avoid losing ground.
Enterprise?
Not least, Mendler insists that Ericsson and Cisco shouldn’t ignore their enterprise opportunity.
“Both mention the enterprise market as a secondary target from their alliance,” she adds. “Admittedly, individual contract values are smaller, but unlike service providers, client numbers continue to grow.
“Not least, neither of Ericsson and Cisco’s major telco-focused competitors can claim strong or differentiated positions in the global enterprise market.
“That said, the allies can’t ignore the new dual persona HP, VMWare or Oracle, among others.”
At present, Mendler says an analogy exists in how telcos have fared targeting multinational corporates (MNCs).
In this segment, intense competition has polarised telcos’ resources and created what is effectively a zero-sum game.
“Defections between service providers are rare and hard fought,” she adds.
“Meanwhile, as telcos duke it out for big enterprise accounts, the ICT needs of smaller enterprises are growing, and proving very attractive to a number of nimbler digital service providers.”
So, Mendler asks, what is the new alliance’s true ambition: Defence or attack?
The promotional language echoes - almost to the word - what Alcatel-Lucent said in 2006 about its merger: “[It] creates new growth opportunities and identifies annual pre-tax cost synergies of approximately Euro 1.4 billion (then $1.7 billion) within three years.”
“So, is this a very special partnership, or a stop gap precursor to a merger?” Mendler asks.
“Either way, more needs to be said to sustain attention in a jaded and stressed market.”
By Camille Mendler, Research Analyst, Ovum
Ovum is the no.1 telecommunications research provider across the world.
