Adoption of 4G Drives Capex: ACG 1Q18 Mobile IP Report
First quarter year over year volatility continues to mark network ups and downs for 4G ahead of 5G
In the Mobile IP space, global capex continues to be driven by the adoption of 4G devices and networks as well as densification related to small cells. According to Ericsson’s June Mobility report, the global average for mobile penetration is 104%, and every region globally except 2 are now over 100% penetration (Africa is at 83% and India is currently at 88%). The high is Central and Eastern Europe at 142%.
We expect that 5G will be initially targeted for high bandwidth services (eMBB) and less towards the sexy ULRRC applications such as robotic control for the MNOs with those applications being more targeted at manufacturing and perhaps distribution industries until two things happen: network slicing is standardized and MEC gains broader acceptance around 2020 (perhaps as late as 2021).
The continued maturation of LTE, as the technology lives up to its name of Long Term Evolution (especially in the later deployed 4G networks in Europe, South America and Africa), means that 5G needs a stronger focus on the business cases and not just use cases.
Huawei, Cisco and Nokia continue to lead in the Mobile IP categories as shown in Figure 1, even as the Packet Core continues Y-Y slide for past 3 years: -22.1% Y-Y from 2017, mostly driven by MPC.
As in the last three years, MPC continued its declines: down 34.3% Y-Y from 2017; down over 50% from 2013. EPC retreated to 2016 levels, but we anticipate a rebound later this year: +1.7% Y-Y but -23% Q-Q after a strong Q417. Although more difficult to track with virtualization integration is the PGW and SGW look for a stronger market in 2018 to keep up with MBB deployments.
The impact on the Mobile Infrastructure markets is that core investments have been slacking off for a few years, and the expected increase in 2018 has not appeared yet and is not anticipated to materialize this year.
Necessary upgrades to the mobile core are largely transferring to virtual implementations to augment the physical platforms. Core networks installed at the beginning of the 4G network era are undergoing upgrades.
Key vendor takeaways:
- Cisco is well positioned to drive core services such as network slicing and automation but needs to jump on upgrading 4G networks, not wait for 5G.
- Asia, Europe and Middle East provide some positive news for the Huawei, less so for ZTE.
- Nokia’s early focus on the (virtualized cloudified) edge and packet core is a good position for the future.
- Ericsson’s regained focus should make a difference this year. Ericsson is appearing in conversations again, and this is a positive for the industry.
- 2H 2018 should see more core-related trials such as network slicing and prioritization services, MEC and EPC related.
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