There is a prediction by CSS Insights; a market research company, that Microsoft might buy Nokia Networks in 2021. This is because of the former’s new found appetite in acquiring Telecom gear companies as it reposition itself as a highly vertically integrated operation. Microsoft recently acquired Affirmed Networks and Metaswitch in a drive seen by many as positioning itself as the dominant cloud player. In 2013, Microsoft bought Nokia’s devices division for $7B in a largely failed deal that was seen as Microsoft’s attempt to catch up on the mobile space which it had lagged to innovate/invest into for some years.
With the telco network going to the cloud, it is now possible to host in the cloud, RF and other equipment traditionally found in a base station, on the cloud and share these resources across the entire network. With this change, telcos can roll out services with lightning speed and lower network costs significantly as resources are cross-shared on the cloud and can therefore be purchased as-a-service and not as equipment. Telcos will also enjoy a pay-per-use model which will significantly lower their capex on network roll-out and maintenance. The role of the telco equipment manufacturer is also changing as they now move from sale and maintenance of network equipment to the sale of full scale telco services from the cloud. This means that manufacturers such as Nokia, Huawei and Ericsson will run massive cloud based telco networks and lease these as a service to operators. This possibility of running large parts of mobile networks on the cloud is what is I believe is what the market analysts see as attracting Microsoft to Nokia. The reverse is also true, for Nokia to offer telco on the cloud, it will need robust cloud infrastructure and services which it currently lacks, pairing up with a large cloud player such as Microsoft will give it access to an already existing cloud platform run by Microsoft.
The other factor that I think is giving this prediction higher chances of coming to pass is that Over The Top (OTT) content providers market reach is being slowed down by telcos who levy a fee to subscribers for them to access the internet/content. By eliminating them from the content supply chain, OTT content providers such as Facebook, Netflix, Google and and cloud platforms will reach more customers who are currently unable to enjoy their services due to data costs. At the moment in many countries including Kenya, Facebook Inc is already working with telcos to zero rate access to Facebook page and WhatsApp on many data plans. Facebook does not believe you should pay your mobile provider to use their services, same for Google, Netflix, Microsoft who also fortunately or unfortunately have deep pockets and research and development teams to roll out far superior networks. These players will soon start taking up shareholding telcos as is the case of Facebook’s recent $5.7B investment in India’s Relliance-Jio. I discussed this developing trend of OTT content providers investment in telecommunication services in detail in a previous post here.
The ongoing trade war between China and the US which saw Huawei network gear and software being banned in US network could also be a factor. I discussed this trade war in detail here. With no major US based telco equipment manufacturer (after Nokia absorbed Alcatel-Lucent), Microsoft sees an opportunity to build an image of a US-owned supplier with the acquisition of Nokia as it will position Microsoft/Nokia as the preferred supplier to US networks. With 5G being heavily dependent on the cloud and edge computing, Nokia’s experience at the edge will enable Microsoft dominate the 5G space from the cloud to the edge with ease.Follow @tommakau