This posting is a continuation of my earlier posting with the same title But the idea for this posting is to go in detail and analyze consolidation story in one segment i.e. network Infrastructure vendors of mobile industry .
Let’s go through the present state and dynamics of infrastructure market so that it gives a basis to continue to predict why and how consolidation might play out in future. To understand the industry dynamics we need to understand what the prominent technologies in the mobile communication are. Basically mobile communication industry has evolved from basic old telecommunication (meaning basic telephony i.e. landline) industry and hence it carries some of the traits of that industry and not that of PC or Internet industry. Although PC and
- Standardization-In PC,internet world technologies are first developed and immediately introduced by individual companies and then market forces determine which will survive .The most popular and widespread technology in that segment becomes defacto standard. But in telecommunication side the story is other way round technology are standardized first in standardization forums like 3GPP, 3GPP2 by industry players (i.e in reality by major dominant existing players).Then based on those standards companies introduce products .Typically this process takes years for example it took nearly 6-7 years to just introduce the new 3G (UMTS) systems into market.
- Systems are sold not Products – This is another fundamental difference i.e. in mobile network industry generally systems are sold and not individual products .For example in 3G or GSM networks vendors generally sell complete radio access network(RAN) , Core network or both together .Each of those things consists of many products and infrastructure to link them(ex: RAN consists of BTS,BSC and required transport elements to connect them ).So this kind of model has lead to domination of market by few big companies who can afford to not only invest in large scale R&D but also has influence in standardization bodies .Compare this with internet vendors were there are many small companies providing niche individual products of the network .Though still you can absorb big companies existing like Cisco how can provide system solutions.
Now coming back to topic of consolidation .the fundamental drivers that I think will drive consolidation story are
- Customer consolidation –Mob infra vendors customers namely operators are consolidating as their basic revenue stream mobile voice starts to become a commodity and they still are unable to find profitable revenue streams in data applications-as customers consolidate the vendors needs to consolidate as well.
- Technology Changes –There are 2 fundamental changes in technology side
- Fixed –Mobile convergence :As Voice becomes a commodity fixed –mobile convergence technology gives ability to cut costs for operators and they look more and more for solution in this space from their vendors .So vendors tend to fill their portfolio gap by either consolidating with other vendors who are complimentary to them .Lucent alcatel merger according to me partly is in this category
- Service business: As operators try to concentrate more on their customers they will try to outsource basic network operation to outside companies .This is similar thing that happened in IT industry .So in this kind of business scale matters more and hence vendors need to consolidate to compete with number 1 player like Ericsson.
- Disruptive wireless technologies: Technologies like Wifi, WImax which are not typical evolution of existing standards are becoming popular .These a technology are not standardized by 3GPP like standardization bodies but more or less resembles internet tech standardization process. These tech are gaining momentum as they are much more cost effective technologies and also can rolled out by new incumbent operators ,So this puts question mark on 3GPP based evolutions on which most of the existing big vendors rely on for their further growth ..So it is imperative either mobile vendors start to change their culture drastically towards internet based culture so that they develop similar technologies in small amount of time or spend money constantly acquiring companies to fuel further growth ,
I would argue that based upon above mentioned points that consolidation will continue further especially till 2008 .as vendors position themselves for changed business landscape.