Mallinson: Can European wireless vendors reclaim their past glory?

Keith Mallinson

Mobile communications and computing is growing apace, with smartphones and tablets displacing PCs, rollout of 4G LTE networks and prospects for many billions of connected devices. Where does Europe stand in driving this change and growth? Can European companies re-establish leadership in core technology developments and platforms, or is their future mainly as applications developers and service providers riding on top of these? Is Europe fading irrevocably with the advance of Silicon Valley, from dominance in IT to dominance in ICT; and with the rise of Asian behemoths such as TSMC making chips, Foxconn seemingly assembling for virtually everybody, and Huawei designing and manufacturing pretty much everything?

A few leaders remain, retrenchment for others

Europe still has some world-leading wireless and mobile technology vendors; but the region is a shadow of its former self in the GSM heyday-- from the mid 1990s to mid 2000s--when European technology suppliers and their operator customers were predominantly setting standards and leading the world in deployments. Swedish-based Ericsson remains a clear market leader in underlying technologies and infrastructure products, but has exited the chipset and handset businesses. UK-based success story ARM Holdings has an almost unrivaled position in licensing processor chip intellectual property. However, without application designs such as 3G baseband implementations, selling or manufacturing chips itself, it is a minnow in comparison to Qualcomm and Intel.

Former market leader Nokia is splitting itself up. The handset business talent will be subsumed into Microsoft with the €5.44 billion ($7.5 billion) sale of its devices and services business to Microsoft. Working life might not change much for many of those who are retained in Finland, while strategic decisions and leadership will be stateside in Redmond. Nokia Solutions and Networks, the new NSN, has struggled to remain significant and may end up in an awkward marriage with troubled Alcatel-Lucent.

Nokia is on its back foot despite the prospect of having nearly €8 billion cash on its balance sheet after it completes the sale of its handset business. Nokia is facing activist shareholder pressure to retrench rather than invest. Hedge fund manager and stockholder Dan Loeb wrote to investors this week stating "[w]e expect a meaningful portion of the excess will be distributed to shareholders in coming quarters." This is inauspicious for Nokia's senior management if it has aspirations of rebuilding some of Nokia's former glory. Meanwhile,  U.S. leaders including Apple, Google, Microsoft and Qualcomm sit on mountains of cash that can be readily be deployed if and when needs or opportunities arise.  

On the operator side, Vodafone shareholders and British commentators seem rather more interested in the "torrent of money" from the $130 billion sale of Vodafone's 45 per cent stake in Verizon Wireless flowing back to shareholders, than the company investing to restore its European mobile networks to the world-leading positions they enjoyed in the late 1990s. However, £6 billion ($9.7 billion) is earmarked to be spent on Vodafone's Project Spring network investment program globally. This might also encourage competitors to accelerate their network investments in response. Much of that will be spent on equipment from European technology vendors.

So Europe has one or two major network infrastructure vendors, but no major handset or semiconductor companies still in the game independently. The promising chip designer Icera--with its software-defined baseband processors--was acquired by Nvidia in 2011. Europe is completely out of contention for now in software platforms with the demise of Symbian in favour of Android, iOS and Windows Phone, and as Silicon Valley's Google, Facebook, Twitter, Snapchat become increasingly mobilized. Skype with its Estonian origins and many of its developers still there was acquired by Microsoft in 2011.

Rise of the angry phoenix

It is without question that the enormous stock of highly-skilled European staff will significantly continue to develop radio and core network technologies and platform software --even if their employers are Asian or American companies.  Where else do, or might, European companies get to rule the roost?

Finnish software developer Rovio Entertainment is an exemplar with its high-profile Angry Birds applications. Its founders and other staff are products of the ecosystem Nokia has helped create in Finland. Helsinki has become one of Europe's leading startup capitals, also thanks to support from the Finnish government. Companies such Rovio, gaming company Supercell (recently acquired by Japan's SoftBank) and even a new handset company called Jolla have tapped the enormous pool of talent that has been laid off by or has for other reasons departed from the former world leader. Similarly, technology communities such as in Cambridge and 5G-focused University of Surrey in the UK are seeking to spawn the next cycle of innovation in this sector.

The travesty is that Europe has fallen behind the U.S., South Korea and Japan in licensing spectrum, deploying LTE-based networks and services. In addition to government delays and dysfunctional licensing in some European nations, including the UK, some policies are also impeding deployment and adoption by hiking in spectrum fees.

LTE is the new network platform, and the pace at which it is displacing existing technologies in network deployment plans of leading operators is worldwide staggering. For example, once Voice over LTE, including HD voice, is reliably proven on leading networks in technical trials and commercial implementations, LTE will be unassailable and most swiftly deployed in many nations worldwide. Similarly, small cell and HetNet developments need to be tried and tested close to their developers and implementers. Initiatives with Distributed Antenna Systems in major U.S. sports stadiums by AT&T and its suppliers illustrate this.

It is therefore vital that the European development community--from silicon design to software applications--work to benefit from making, using, optimizing and commercializing 4G LTE here at home. Thankfully, and most importantly, market growth potential for mobile and wirelessly connected devices and services is substantial and certain. However, we can't be effective in developing 5G or becoming leaders in providing it to the world if we are not even on the pace in 4G.

Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. WiseHarbor publishes an Extended Mobile Broadband Forecast. This includes network equipment, devices and carrier services to 2025. Further details are available at: Find WiseHarbor on Twitter @WiseHarbor.