With IoT Warming Up, Nokia Pushing NB-LTE To Improve Wireless Footing And Curb Competition

by Trefis Team
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The development and deployment of fourth generation networks has been the primary growth driver for network infrastructure companies such as Nokia (NYSE:NOK), Ericsson (NASDAQ:ERIC) and Alcatel-Lucent of late. The emergence of the Internet of Things (IoT) domain is likely to provide the next wave of growth for these players. With the expansion of IoT, wireless communications across everyday devices should increase considerably, creating demand for technologically advanced equipment capable of handling large data flow.

Recently, Nokia announced that it is working with Ericsson and Intel (NASDAQ:INTC) to develop and launch products compatible with Narrow-Band Long-Term Evolution (NB-LTE) technology. The Finnish company considers NB-LTE as an ideal wireless connectivity technology for the IoT domain, because of its power and cost-effectiveness. NB-LTE, an optimized variant of 4G-LTE, provides a narrow-band alternative for applications that aren’t data intensive, but it can also be used with an existing LTE network in shared spectrum. [1] The effective roll-out of NB-LTE with accelerated adoption of IoT could help boost Nokia’s wireless networks market share.

NB-LTE is being regarded as a direct challenge to Huawei’s earlier launched and already popular Narrow-Band Cellular IoT (NB-CIoT). However, NB-LTE appears to have an edge because unlike NB-CIoT, it can be easily deployed across the existing LTE networks. In fact, Nokia pointed out in a press release that since 90% of the world’s population is covered by cellular networks, it makes sense to drive IoT adoption through standardized NB-LTE. [1]

Our $8 price estimate for Nokia is around 20% higher than the current market price.

See our complete analysis for Nokia stock here

Internet Of Things Getting Hot

The IoT domain includes computing devices other than PCs, tablets and smartphones. According to Mckinsey, it is the networking of physical objects through the use of embedded sensors, actuators, and other devices that can collect or transmit information about the objects. [2] The main factors that have contributed to the growing interconnectedness of objects are: 1) The emergence of the cloud platform, which enables the storage of large amounts of data to be transmitted and received via wired or wireless devices, and 2) The declining cost of manufacturing semiconductors, which makes their installation on frequently used unconnected devices economically feasible.

Cisco (NASDAQ:CSCO) estimates that the IoT market will be worth $19 trillion over the next decade, representing a $1.7 trillion market for service providers. [3] McKinsey estimates that the impact of IoT on the global economy could be as high as $6.2 trillion by 2025. The installed base for IoT devices is estimated to grow from around 10 billion connected devices today to as many as 30 billion devices (or 50 as per some estimates) by 2020. [2] While these estimates may vary, they are in agreement regarding the huge potential of the market. Clearly there is a lot of growth potential for network infrastructure players, in addition to semiconductor companies.

Nokia, Ericsson And Intel Pushing For NB-LTE

Nokia recently announced that, along with Ericsson and Intel, it is looking to develop and launch pertinent products for the commercialization of NB-LTE synchronized with the market demand. The company believes that NB-LTE technology is well suited for the IoT domain, since it is easy to use, power efficient and has a low cost of implementation. Nokia even said that products compatible with NB-LTE will improve user experience by providing them with improved connectivity at lower costs.

NB-LTE networks allow data to be transmitted and received via the 200KHz channels, which means that reframed GSM bands can be used for the technology. However, it can even be used in shared spectrum with existing LTE networks. [4] In fact, this feature gives Nokia’s NB-LTE an advantage over the Huawei’s NB-CIoT technology. According to experts, NB-CIoT isn’t compatible with LTE networks older than Release 13, and they even require new chipsets. NB-LTE, on the other hand, does not require any overlay network and can be easily integrated with existing LTE networks. [5] By utilizing the existing network infrastructure, NB-LTE can provide better economies of scale.

Working with Nokia and Intel, Ericsson is looking to accelerate IoT adoption by driving the existing ecosystem and ensuring a strong global foundation across verticals such as consumer, industry and government for the launch of IoT applications. Intel will play a support role for the technology’s commercial roll-out with NB-LTE chipsets and product upgrades from 2016 onwards. Nokia and Ericsson will provide the network upgrades required to support and extend existing LTE networks with optimized NB-LTE low power machine-to-machine communication. [1]

What This Means

Nokia’s push to develop and roll out NB-LTE compatible equipment is aimed at improving its wireless footing in the market and diluting the competitive threat from Huawei. The Chinese telecommunications giant’s NB-CIoT technology has already gained support from big operators Vodafone and China Unicom. However, with a notable competitive advantage over NB-CIoT in terms of deployment, NB-LTE provides Nokia an opportunity to improve its networks wireless market share.

We currently project Nokia’s share in the networks wireless market to increase marginally from 18.3% in 2014 to 18.8% in the near term and remain stable thereafter. However, if its share increases to 21% instead over the next six or seven years with the NB-LTE and 5G push, backed by the Alcatel-Lucent acquisition and accelerated roll-out of IoT, there is a potential for a modest upside in the Finnish company’s value.

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Notes:
  1. Press Release, Nokia, Sept 11 2015 [] [] []
  2. The Internet of Things: Sizing up the Opportunity, Mckinsey, Dec 2014 [] []
  3. Press release, Cisco, June 8 2015 []
  4. Tech giants team on Narrow Band LTE effort for IoT, Mobile World Live, Sept 14 2015 []
  5. NB-LTE Vs NB-CIoT: You new favorite 3GPP acronym war, Telecom Asia, Sept 16 2015 []
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