Magic Quadrant for LTE Network Infrastructure

Transcription

1 Magic Quadrant for LTE Network Infrastructure 12 July 2012 ID:G Analyst(s): Sylvain Fabre, Frank Marsala, Jessica Ekholm, Akshay K. Sharma, Joy Yang, Akiyoshi Ishiwata, Deborah Kish, Tina Tian VIEW SUMMARY This Magic Quadrant evaluates end-to-end vendors of Long Term Evolution network infrastructure. This segment is expected to grow to over 40% of mobile infrastructure spend in Leaders separate from the pack as more LTE networks are launched during 2012 and Consolidation could follow. Market Definition/Description Long Term Evolution (LTE) network infrastructure products for communications service providers (CSPs) include radio access infrastructure (enodeb) located in base station sites, and core network equipment where switching and radio resource management is handled. The latter are new core network elements compared to legacy second generation (2G) and third generation (3G) networks for example, mobility management entity, packet data network gateway and signaling gateway. This Magic Quadrant includes end-to-end infrastructure vendors of network equipment for CSPs wanting to roll out LTE, whether as an overlay network layer or with partial integration with and some reuse of legacy network equipment. The market for LTE end-to-end infrastructure for CSP networks includes nine vendors. Overall, the worldwide LTE infrastructure market for radio and core service architecture evolution equipment is expected to grow from $4.1 billion in 2012 to $21.1 billion in LTE is expected to grow at a compound annual growth rate of 58.5% in that period, and will be the fastest-growing segment within mobile network infrastructure (radio and core). Magic Quadrant Figure 1. Magic Quadrant for LTE Network Infrastructure

2 Source: Gartner (July 2012) Vendor and Cautions Alcatel-Lucent Alcatel-Lucent has shown thought leadership around small cells, and with the lightradio Network concept, and counts some prominent references for LTE (for example, with Verizon). Alcatel- Lucent's overall financial position improved in 2011, despite weaker revenue, due to improved profitability, balance sheet and cash flow metrics. Still, the company's balance sheet metrics in terms of debt-to-earnings before interest, taxes, depreciation and amortization (EBIDTA), and EBIDTA-to-interest and debt-to-free cash flow warrant monitoring since they are not on a par with the overall mobile infrastructure market share leaders, Huawei and Ericsson. The company is well positioned to leverage wireline assets, particularly in service-aware Internet Protocol/Multiprotocol Label Switching (IP/MPLS) for Evolved Packet Core (EPC) and mobile technology. Alcatel-Lucent will try to leverage its incumbency in these segments, where it can to an extent offset its more limited mobile infrastructure position. Alcatel-Lucent is a leader in the 3G small-cell segment. Alcatel-Lucent's approach to the evolution to LTE is based on an end-to-end perspective, including global architecture design, interoperability, operations support systems, business

3 Cautions support systems (BSSs), service transformation and vertical applications (for example, leveraging its IP Multimedia Subsystem solutions, mobile analytics as service, and so forth). The company's main strengths are its presence in North America and its code division multiple access (CDMA) solutions; however, it lacks the scale of its larger competitors in terms of mobile infrastructure footprint which could affect its ability to gain more LTE contracts quickly. Alcatel-Lucent will need to gain more LTE deals, as LTE rollouts by CSPs gather further momentum, in order to secure its viability as a leader in the LTE infrastructure space. However, limited 3G incumbency creates a challenge as new LTE deals will have to displace an incumbent vendor. The strongest competitors can and will use their superior financial position as a selling point against Alcatel-Lucent. The company must, therefore, continue improving its financial position to ensure it remains an option for CSPs and retains its credibility with customers and investors. It will have to do this in the face of a challenging macroeconomic environment in which its CSP customers are spending cautiously. Datang Telecom Datang manufactures radio and core equipment in the Time Division-LTE (TD-LTE) segment, with a focus on Chinese customers, but it also has an agreement with Ericsson for R&D on TD-LTE. Datang has done well in the Chinese 3G flavor (Time Division-Synchronous Code Division Multiple Access) market, capturing about one third of the Chinese market having supplied China Mobile. Datang is a specialist in TD-LTE, for which it holds a large set of patents. Datang has a good chance of ending up providing part of the infrastructure for China Mobile. Cautions There is little chance of Datang deploying beyond the Chinese market, despite TD-LTE becoming a serious alternative in other markets. Datang's brand is little known, and having a significant portion of its time division duplex (TDD) sales via other vendors does not help the company to gain visibility. Datang did not grow revenue in this business unit in 2011, and its margin was negative. Its overall viability comes in slightly below that of other Niche Players such as Fujitsu and Samsung. Ericsson Ericsson remains in a position to do well in the LTE market, leveraging its dominant position in the 2G/3G sector. Ericsson's wideband code division multiple access (WCDMA), CDMA and end-toend LTE offering and "footprint" together with its professional services put it in a uniquely

4 strong position to leverage Third Generation Partnership Project (3GPP) accounts. Ericsson's inhouse IP capabilities are improving; it remains to be seen what uptake its upcoming Smart Services Router (SSR) EPC platform will get, and how much business will result from Ericsson's partnership with Akamai in the content delivery network space. Ericsson has a long-standing and strong focus on Global System for Mobile Communications (GSM) and WCDMA technology, it is a strong advocate of the heterogeneous network (HetNet) and a leader in LTE deals. The company has scale and size in legacy 2G and 3G accounts in all geographies including the U.S. market where some competitors are not as strong or are not even present for LTE. Ericsson's financial metrics remain the strongest in the industry and its balance sheet metrics suggest sustainable viability in the long term. While rivals will continue to edge closer, Ericsson has been able to grow its market share in mobile infrastructure during the past couple of years albeit at lower margins because it chose to protect its embedded base of customers. Ericsson's dominant share of carrier infrastructure overall remains a solid advantage. Cautions Ericsson continues to deal with an aggressive set of competitors, especially in certain regions, and must continually manage its cost structure in order to maintain competitiveness. Ericsson continues to face a long-term challenge as Huawei gains scale, market share and mind share in the carrier infrastructure space. Fujitsu Fujitsu is a small vendor, and very focused on Japan for LTE infrastructure. It cooperates with Nokia Siemens Networks in the joint development of the Service Architecture Evolution (SAE) Gateway provided to NTT Docomo. Fujitsu offers its BroadOne LS LTE enodeb base station family with a distributed architecture, consisting of a remote radio head and a baseband unit. The baseband unit is available in indoor or outdoor models, while the remote radio head is designed to take advantage of the lower operational cost of an all-outdoor deployment. A significant share of NTT Docomo's early investment for LTE in Japan went to Fujitsu. Cautions Fujitsu is very Japan-centric, with just one customer for LTE. It has not shown evidence of traction in international markets. Fujitsu did not grow revenue in this business unit in 2011, but was able to generate positive margins. Its overall viability is sufficient for a position in the Niche Players quadrant.

5 Huawei Huawei has good traction in the LTE infrastructure market with respect to deals won, with much better early momentum than it had in the 2G/3G sector in terms of CSP mind share. Gaining more orders from Tier 1 CSPs in mature markets is increasing the company's recognition as a leading provider of advanced technologies such as LTE, but continued security concerns hamper its access to the lucrative U.S. market. Huawei remains a strong competitor in the CSP space, but must maintain its focus on this market even as it expands and invests in enterprise networking and mobile devices. Huawei's business has expanded from China to emerging markets in Asia, Eastern Europe and the Middle East and Africa. It is now growing quickly in Western Europe, with some deals in Japan. Huawei ranks in the top three for carrier infrastructure in all regions apart from Japan and North America. Huawei's overall financial performance remains strong relative to its peers. The company posted industry-leading revenue growth, while maintaining good profitability, cash-flow and balance sheet metrics, which makes it a viable vendor for the long term and could be an effective selling point against a few of its competitors. Huawei has a large number of R&D employees and is driven to satisfying customer demands, both in frequency division duplex and TDD. It has also demonstrated greater willingness and ability than some competitors to improve product developments and deployments, and has a strong small-cell offering. Cautions Huawei lacks significant wins in North America and finds penetration in this market challenging due to the large CSPs having already announced their main vendors for LTE, and the uncooperative regulatory environment. Huawei is also not present in Korea and Japan which, together with the U.S. market, represent the only large-scale deployments worldwide. This limits Huawei's LTE market share for revenue, despite an otherwise large number of deals in other geographies. The company's professional services remain a relative weakness, though it has been working to improve its multivendor capabilities. While Huawei's overall financial performance remains strong, its overall financial score decreased in 2011 due to slower revenue growth and weaker profitability and cash flow scores than in prior years. CSP infrastructure revenue grew only 3% in 2011, so its doubledigit overall revenue growth was driven more by enterprise and mobile devices than it was by CSP infrastructure. NEC NEC has an historical and continued focus on the Japanese market with 2G and 3G technologies. The company has international aspirations for LTE networks, but lacks references outside Japan. NEC has a solid base in its home market of Japan, with technology and market references with NTT Docomo one of the key early adopters here.

6 NEC supplies KDDI, provides the radio access network (RAN) and core network elements of LTE to NTT Docomo, and will also provide its product to SoftBank from NEC's overall viability is as good as many of its larger competitors, and is sufficient for a player in the Visionaries quadrant. Cautions NEC has ambitions for global expansion; however, its two LTE contracts to date are, although significant, limited to Japan indicating that it has a lot to prove to market LTE internationally. NEC has limited scale and brand visibility (for example, it had significant 3G RAN sales in Europe but these were resold under the Siemens brand). NEC's ability to gain system integration and multivendor environment contracts outside its home region may prove difficult, because it has no mind share for network management outside of Japan. Nokia Siemens Networks After a strong start in 2011, NSN's pro forma financial results weakened in what was a difficult environment. Now in restructuring mode, NSN is expecting volatile operating margins although an improvement is expected in 2Q12 as compared to 1Q12. The company's restructuring program and asset sales should have a beneficial impact over time, but it must be able to fight off a perception of financial weakness. This can only happen with good step-by-step execution on its plans and demonstrated financial improvement. As a combined entity now including former parts of Motorola Networks NSN has a larger installed base within CSP networks. NSN needs to improve on its financial position and its presence in North America. NSN has a comprehensive end-to-end LTE solution that includes radio, EPC, selforganizing network, voice core, transport, network management and professional services, and an interesting vision for small cells with its Liquid Radio and Network architectures, and its Customer Experience Management solutions. It is among the leaders in terms of contracts signed for LTE. NSN has strong traction in Japan and Korea for wireless infrastructure, and benefits from its good 3G presence and skill set as well as LTE wins from both its historical NSN and Motorola customer bases. Motorola brought with it strong skills in radio and TD-LTE, as well as improved global presence (in the U.S., for example, and also in Japan through recent strong expansion). T-Mobile USA announced at CTIA-The Wireless Association in early May 2012 that it will continue to use Ericsson and NSN as its mobile infrastructure vendors for LTE. NSN adds T-Mobile to other North American operators, Telus and Bell Mobility. This was an important win for NSN and demonstrates the value of incumbency. Cautions NSN's recent restructuring has helped improve its financials somewhat, but results are likely to be volatile while it progresses through its restructuring plan. Like Alcatel-Lucent, NSN's overall financial position warrants monitoring since it is not on a par with the overall mobile infrastructure market share leaders, Huawei and Ericsson.

7 As is the case with Alcatel-Lucent, the strongest competitors can and will use their superior financial position as a selling point against NSN. NSN must, therefore, be able to demonstrate good execution against its plan in order to retain customer confidence. It will have to do this in a challenging macroeconomic environment where CSP customers are spending cautiously. One of the goals of the Motorola acquisition was to strengthen NSN's U.S. footprint. However, expanding its customer presence in this market remains an uphill battle; NSN will need to be patient about its progress in this region and will have to continue to invest in order to maintain its visibility. NSN is executing its restructuring, which includes a 17,000 head count reduction. It remains to be seen which assets will eventually be sold off (for example, likely the BSS division and sales operations in non-core countries). Samsung Samsung has leveraged its historical dominance in WiMAX infrastructure to secure its position in LTE equipment as well. Good traction with LTE infrastructure in the important Korean market, but also in the Japanese and North American markets. Samsung's legacy expertise and footprint in WiMAX is useful in approaching the CSP market for TD-LTE evolution (for example, Mobily in Saudi Arabia). Samsung's viability score is very good because the company generated positive revenue growth and margins, and has a good cash-flow metric. Samsung has managed to deploy beyond its native Korean market. It has been chosen by Sprint for its Network Vision plan: which will roll out over the next three to five years and will encompass different frequency bands such as 800MHz, 1.9GHz and 2.5GHz. Samsung established its Europe Network Operations in 2011, to increase its focus on regional operations in Europe. Cautions Although Samsung's strong orthogonal frequency-division multiple access experience from WiMAX can be leveraged for LTE, it is not clear whether this will lead to a scalable market advantage. The company's lack of a footprint in 2G/3G globally will pose a challenge to expanding its LTE infrastructure share. While it has been getting commercial deals for LTE infrastructure, Samsung would benefit from more deals with larger CSPs. Samsung needs to improve the CSP mind share of its LTE offering, because many CSPs have very little understanding of Samsung's LTE infrastructure capabilities. ZTE

8 ZTE places strong emphasis on the Chinese and Asia/Pacific markets, but is making steady progress toward becoming a bigger international player with some recent international LTE wins. ZTE's revenue grew faster in 2011 than it did in 2010 and while its scores on profitability, balance sheet and cash flows were maintained, the metrics underlying these scores did weaken partly due to a changing mix in its business (23% overall growth but with 52% growth in terminals and only 10% in networks). ZTE's financial performance remains promising. Its revenue growth was better in 2011 than it was in 2010, and other financial metrics that Gartner uses to assess overall viability were maintained. As a stepping stone to gaining mind share and market share in North America, ZTE opened an LTE lab in the U.S. in 2009 to demonstrate, test and interoperate with CSPs. It has also been working toward becoming more visible in Europe and the Middle East and Africa. Cautions While the company is working toward emerging from China to gain more contracts and a bigger footprint in international markets, it still lacks significant presence and mind share outside its home country. It may have difficulty competing against stronger players in the international market. ZTE's revenue remains heavily weighted toward legacy technologies such as GSM and CDMA. While ZTE scores reasonably well in our financial assessment model, the company maintains high levels of debt and its debt-related metrics such as debt-to-ebidta and debt-to-free cash flow are weak. This is not an overriding concern while the company is in growth mode, but if this growth were to slow down these metrics would need to be monitored more closely. Vendors Added or Dropped We review and adjust our inclusion criteria for Magic Quadrants and MarketScopes as markets change. As a result of these adjustments, the mix of vendors in any Magic Quadrant or MarketScope may change over time. A vendor appearing in a Magic Quadrant or MarketScope one year and not the next does not necessarily indicate that we have changed our opinion of that vendor. This may be a reflection of a change in the market and, therefore, changed evaluation criteria, or a change of focus by a vendor. Added Datang Telecom has been added this year. Dropped

9 No vendors were dropped this year. Inclusion and Exclusion Criteria Vendors included in this Magic Quadrant are end-to-end vendors of LTE network infrastructure equipment for both LTE radio and core networks for CSPs. Many are already included in our mobile infrastructure market share report, and have LTE customer references or advanced trials with a wireless CSP. Evaluation Criteria Ability to Execute Gartner analysts evaluate technology providers on the quality and efficacy of the processes, systems, methods and procedures that enable provider performance to be competitive, efficient and effective, and to positively impact revenue, retention and reputation. Ultimately, technology providers are judged on their ability and their success in capitalizing on their vision. The technology providers' positions on the Ability to Execute axis have been determined by evaluating them against the following criteria: Product/Service. Goods and services offered by the technology provider that competes in/serves the defined market. This includes current product/service capabilities, quality, feature sets and skills, whether offered natively or through OEM agreements or partnerships as defined in the market definition and detailed in the subcriteria. Both radio and core equipment are included, and professional service offers including system integration skills specifically related to LTE are also considered. Potential advantages gained in the LTE market through capabilities within important neighboring segments are also taken into account. Overall Viability (Business Unit, Financial, Strategy, Organization). Overall viability includes an assessment of the overall organization's financial health, the financial and practical success of the business unit and the likelihood of the individual business unit to continue to invest in the product, to continue offering the product and advancing the state of the art within the organization's portfolio of products. The volume aspect of the access market and derived challenges for LTE technology providers are included in this part of the evaluation, where a technology provider's market share and number of enabled subscribers across the customer base are key indicators. Sales Execution/Pricing. The vendor's capabilities in all presales activities and the structure that supports them. This includes deal management, pricing and negotiation, presales support and the overall effectiveness of the sales channel. Market Responsiveness and Track Record. Ability to respond, change direction, be flexible and achieve competitive success as opportunities develop, competitors act, customer needs evolve, and market dynamics change. This criterion also considers the provider's history of responsiveness. Ability to adapt and scale activities in individual markets and work with own partners as well as crucial third parties such as regulators, municipalities and civil work contractors to "cast a wide net" and still be able to execute and scale fast when opportunities turn into actual contracts.

10 Marketing Execution. The clarity, quality, creativity and efficacy of programs designed to deliver the organization's message in order to influence the market, promote the brand and business, increase awareness of the products and establish a positive identification with the product/brand and organization in the minds of buyers. This "mind share" can be driven by a combination of publicity, promotion, thought leadership, word-of-mouth and sales activities. Ability to market offered solutions under different regulatory contexts and adapt to different carrier LTE business models. Customer Experience. Relationships, products and services/programs that enable clients to be successful with the products evaluated. Specifically, this includes the ways customers receive technical support or account support. This can also include ancillary tools, customer support programs (and the quality thereof), availability of user groups, SLAs and so on. Table 1. Ability to Execute Evaluation Criteria Evaluation Criteria Weighting Product/Service High Overall Viability (Business Unit, Financial, Strategy, Organization) Standard Sales Execution/Pricing Standard Market Responsiveness and Track Record High Marketing Execution Standard Customer Experience Standard Operations No rating Source: Gartner (July 2012) Completeness of Vision Gartner analysts evaluate technology providers on their ability to convincingly articulate logical statements about current and future market direction, innovation, customer needs and competitive forces, and how well they correspond to Gartner's position. Ultimately, technology providers are rated on their understanding of how market forces can be exploited to create opportunity for the provider. The technology providers' positions on the Completeness of Vision axis have been determined by evaluating them against the following criteria: Market Understanding. Ability of the technology provider to understand buyers' needs and translate these needs into products and services. Vendors that show the highest degree of vision, listen and understand buyers' wants and needs and can shape or enhance those wants with their added vision. The ability to see LTE in the wider context of CSPs' overall network transformation strategies is of particular importance, provided that this insight is reflected directly in the product road map of the technology provider. Marketing Strategy. A clear, differentiated set of messages consistently communicated throughout the organization and externalized through a website, advertising, customer programs and positioning statements. Alignment of the technology provider's LTE marketing strategy with its current market position and its overall LTE portfolio strategy, including a regional focus. Offering (Product) Strategy. A technology provider's approach to product development and delivery that emphasizes differentiation, functionality, methodology and feature set as

11 they map to current and future requirements. This includes differentiated approaches to the different LTE segments, including traditional carriers, municipalities and utilities. Innovation. Direct, related, complementary and synergistic layouts of resources, expertise or capital, for investment, consolidation, defensive or pre-emptive purposes. This includes: o Sustained evidence of technological expertise. o Ability to commit to an individual service provider network rollout where it is economically feasible. o New product development milestones and compliance with the road map of milestones. o Migration path for existing wireless network infrastructure technologies to include software upgrade evolution to LTE. o Support for ecosystem partners via interfaces and interoperability. o Demonstration of appropriate budget for R&D planning. Geographic Strategy. The vendor's strategy to direct resources, skills and offerings to meet the specific needs of its stated market: typically geographies outside the "home" or native geography, either directly or through partners, channels and subsidiaries, as appropriate for that geography and market. Table 2. Completeness of Vision Evaluation Criteria Evaluation Criteria Weighting Market Understanding High Marketing Strategy Standard Sales Strategy No rating Offering (Product) Strategy High Business Model No rating Vertical/Industry Strategy No rating Innovation Standard Geographic Strategy Standard Source: Gartner (July 2012) Quadrant Descriptions Leaders Leaders in this market have scale in terms of market presence, size and early indications of significant market share. They have also gained momentum in the LTE infrastructure space. They have a broad portfolio and, even where they need partners, would still be preferred prime vendors for CSPs again owing to their large scale. Their weight makes them appear in nearly all CSP procurements and trials for LTE infrastructure, and their presence in the Leaders quadrant tends to be fairly stable. These are high-viability technology providers. They are well positioned with their current product portfolio and are likely to continue to deliver leading products. Leaders do not necessarily offer the best solution for every customer requirement, and their products may not be "best-of-breed" in every area of their portfolio. Overall, however, they provide solutions that offer relatively low risk, and can achieve and sustain deployments of high quality. Vendors in this quadrant are: Alcatel-Lucent, Ericsson, Huawei and NSN.

12 Challengers These are technology providers with strong market capabilities and good solutions for specific markets, but overall their products lack the breadth and depth of those of the Leaders. Their solutions do not offer a clear vision of how the market is evolving and are not as innovative or advanced as those of the Leaders. Vendors in this quadrant are: ZTE. Visionaries Visionaries demonstrate a clear understanding of the market and provide key elements of innovation, illustrative of the future of the market. However, they either lack the ability to influence a large portion of the market or have not yet fully expanded their sales and support capabilities to achieve a global reach, or they do not yet have the funding and scale to execute with the same capabilities as a technology provider in the Leaders quadrant. The main characteristic of vendors in the Visionaries quadrant is that they are not as stable as those in the Leaders or Niche Players quadrants. Visionaries are in various phases of transition, so some may move over time into other quadrants where they could end up in a more stable state. They could achieve this stable state by gaining strength and scale, or by wider market adoption (in terms of global share, multiple geographical markets and recognition) in order to move into the Leaders quadrant, or by judiciously specializing in a smaller segment and ceasing activities in others as part of a strategic transformation and thereby move into the Niche Players quadrant. Vendors in this quadrant are: NEC. Niche Players The technology providers in this quadrant offer products that tend to focus on a segment of the market or a subset of functionality. These players tend to be more specialized with regard to regional coverage and/or technology. This can be an advantage, because CSP customers that are aligned with the focus of Niche Players can find such providers' offerings to be a good fit. In some cases, Niche Players have made specific decisions about where to compete and where not to compete, so being a Niche Player does not preclude having a well-defined strategy. They could also be attractive partners for some of the larger players in this space, thanks to their specialized markets or technology strengths. Vendors in this quadrant are: Datang Telecom, Fujitsu and Samsung. Context The LTE network infrastructure market for CSPs is still in its early days. Although 72 commercial LTE networks had launched as of April 2012 according to the Global mobile Suppliers Association (GSA) this is still only a fraction (less than 9%) of approximately 800 CSPs

13 worldwide. However, based on contract announcements and the size of the CSPs involved, the relative early market traction of the different end-to-end vendors can already be observed. As was the case in the 2G/3G market even prior to the latest economic downturn the number of larger end-to-end technology providers in the LTE carrier infrastructure market could continue to decline over time due to consolidation. Vendors of fourth-generation (4G) LTE technology claim that the technology will increase mobile network capacity, reduce latency, cope with the explosion in data traffic and cut production costs. CSPs should take into account the many commitments that need to be made in deploying LTE infrastructure in terms of invested capital, time spent, duration of the project and impact on network complexity when added as an overlay when shortlisting potential suppliers. In particular, LTE deployment is such a complex project that switching out under-performing vendors after implementation has already begun can be impractical. Market Overview We estimate that 6% of all mobile connections in 2016 will be LTE connections, despite a fairly slow start in At the end of April 2012, 72 LTE operators had launched commercial services which included 25 networks that have launched so far in 2012 (according to the GSA). TeliaSonera was the first to launch, in December Commercial LTE services are available today in 37 countries: in developing and developed markets in all regions around the world. In terms of uptake, the U.S. has seen the strongest growth and had over 75% of all LTE connections worldwide at the end of Some of the growth can be attributed to the fact that CSPs offered LTE-enabled smartphones, rather than opting to sell LTE access via USB modems only. LTE-enabled devices will help push LTE services and uptake over the coming five years, an example of this is the new LTE-enabled ipad which launched in March 2012; also, several LTE-enabled smartphones are set to launch during the course of the year. We assume that CSPs are likely to charge a premium for accessing LTE data at least in the early stages of the commercial launch of LTE services. We have, therefore, forecast that data average revenue per unit (ARPU) for LTE services will be higher than other data ARPU such as smartphone data ARPU and 3G cellular modem access ARPU over the coming three to four years worldwide. However, as competition increases, and as LTE handset access increases, we believe that prices for LTE services will decrease and align with 3G access over time. The price of LTE will depend on the maturity of the LTE market, the availability of LTE handsets and the number of CSPs offering LTE services. We predict that LTE revenue will comprise just over 7% of all mobile services revenue in In this Magic Quadrant, we examine the end-to-end vendors of LTE equipment (radio and core). In addition to these, Gartner is also currently tracking several LTE network infrastructure vendors that do not yet meet the minimum criteria for inclusion in the Magic Quadrant, because they don't provide end-to-end offers for LTE network equipment but focus on the radio or core network only. For example: Starent Networks (now part of Cisco) is a strong provider of packet core switches and is offering femtocells, but lacks macrocellular base stations; Hitachi supplies KDDI with EPC technology, and reuses what was Nortel's packet core; Potevio only has a radio product; Panasonic collaborates with NSN in NTT Docomo.

14 LTE is still a new technology, so it is important that vendors in this space are seen to offer a differentiated product offering for radio and core equipment related to LTE. There are still many vendors in the mobile infrastructure space, so further consolidation in the LTE infrastructure sector remains a possibility. CSPs will therefore continue to favour larger, more stable vendors, in order to minimize the risk of disruption from acquisitions or exits from this space while containing supplier management overheads. We also note that while the race for market share in the LTE infrastructure market has just started, vendors are achieving many different levels of traction when it comes to commercial contracts (as opposed to just trials) with CSPs. A history of delivering with quality is also considered by CSPs during vendor selection. CSPs will tend to be more responsive to vendors with a strong track record that effectively promotes their LTE network equipment brand and that clearly provides differentiation beyond the standards. Such vendors are more likely to be invited to trial, then bid and, potentially, be given a chance to become an LTE supplier. CSPs want to partner with vendors that show vision and understand their wants and needs. They don't just want a vendor for boxes, but also ultimately as a partner to help them with the business models for LTE. There are several LTE vendors for CSPs to choose from, and they vary greatly in the scale and scope of their offerings. It is therefore vital that equipment providers have a clear and differentiated network value proposition and strategy, and that they emphasize their differentiation, functionality and feature set in order to stand out. Software quality and network stability is also expected now. CSPs also need to know that their vendor will maintain an adequate road map and enable them to sustain a high-performance network. Vendors therefore need to show evidence of resources, expertise and capital for investment in LTE technology in the longer term. For vendors seeking business outside their traditional home market, CSPs will look for evidence that the provider has an effective strategy to direct resources to meet the specific needs of their stated international market. In order to capture how well vendors fit the above requirements, Gartner scores them on a series of criteria, which have been chosen to capture their capabilities when it comes to addressing CSPs' wants and needs for LTE infrastructure, as described above. These criteria are, ultimately, summed up in our framework as "Ability to Execute" and "Completeness of Vision" in the market for LTE infrastructure for CSPs. Several players in the lower half of the Magic Quadrant are much broader, larger technology conglomerates (with the exception of Datang Telecom) than those in the top half. The leaders/challengers in the top half of the Magic Quadrant therefore naturally have more commitment to this segment, because they expect to generate a significant proportion of their overall revenue from LTE./4G. Strategically, this has implications for vendor selection because LTE is bound to be a long sales cycle, long cost recovery model for CSPs. The main change since last year's Magic Quadrant, apart from the relative movement of the various vendors, is the addition of Datang Telecom. Evidence Questionnaires to vendors provide Gartner with an up-to-date view of their LTE activities and achievements to date, as relevant for this Magic Quadrant. We had direct discussions with technical

15 personnel from carriers that have deployed LTE from one or several of the vendors. We also conducted surveys of all available and relevant commercial contracts for LTE for the vendors concerned. Country-specific and region-specific views have also been provided by our local analysts as appropriate. Revenue market share for LTE mobile network infrastructure in 2011 was also part of the input. Gartner requested that vendors provide supplemental information for this research, and our analysis is also based on earlier briefings and credible sources including public information. Note 1 Long Term Evolution LTE was initially intended as the acronym to identify the new RAN introduced in Release 8 of the 3GPP standards. The term LTE has since been extended to identify the entire technology, including core network elements. Evaluation Criteria Definitions Ability to Execute Product/Service: Core goods and services offered by the vendor that compete in/serve the defined market. This includes current product/service capabilities, quality, feature sets and skills, whether offered natively or through OEM agreements/partnerships as defined in the market definition and detailed in the subcriteria. Overall Viability (Business Unit, Financial, Strategy, Organization): Viability includes an assessment of the overall organization's financial health, the financial and practical success of the business unit, and the likelihood that the individual business unit will continue investing in the product, will continue offering the product and will advance the state of the art within the organization's portfolio of products. Sales Execution/Pricing: The vendor's capabilities in all pre-sales activities and the structure that supports them. This includes deal management, pricing and negotiation, pre-sales support and the overall effectiveness of the sales channel. Market Responsiveness and Track Record: Ability to respond, change direction, be flexible and achieve competitive success as opportunities develop, competitors act, customer needs evolve and market dynamics change. This criterion also considers the vendor's history of responsiveness. Marketing Execution: The clarity, quality, creativity and efficacy of programs designed to deliver the organization's message to influence the market, promote the brand and business, increase awareness of the products, and establish a positive identification with the product/brand and organization in the minds of buyers. This "mind share" can be driven by a combination of publicity, promotional initiatives, thought leadership, word-of-mouth and sales activities. Customer Experience: Relationships, products and services/programs that enable clients to be successful with the products evaluated. Specifically, this includes the ways customers receive technical support or account support. This can also include ancillary tools, customer support programs (and the quality thereof), availability of user groups, SLAs and so on.

16 Operations: The ability of the organization to meet its goals and commitments. Factors include the quality of the organizational structure, including skills, experiences, programs, systems and other vehicles that enable the organization to operate effectively and efficiently on an ongoing basis. Completeness of Vision Market Understanding: Ability of the vendor to understand buyers' wants and needs and to translate those into products and services. Vendors that show the highest degree of vision listen to and understand buyers' wants and needs, and can shape or enhance those with their added vision. Marketing Strategy: A clear, differentiated set of messages consistently communicated throughout the organization and externalized through the website, advertising, customer programs and positioning statements. Sales Strategy: The strategy for selling products that uses the appropriate network of direct and indirect sales, marketing, service and communication affiliates that extend the scope and depth of market reach, skills, expertise, technologies, services and the customer base. Offering (Product) Strategy: The vendor's approach to product development and delivery that emphasizes differentiation, functionality, methodology and feature sets as they map to current and future requirements. Business Model: The soundness and logic of the vendor's underlying business proposition. Vertical/Industry Strategy: The vendor's strategy to direct resources, skills and offerings to meet the specific needs of individual market segments, including vertical markets. Innovation: Direct, related, complementary and synergistic layouts of resources, expertise or capital for investment, consolidation, defensive or pre-emptive purposes. Geographic Strategy: The vendor's strategy to direct resources, skills and offerings to meet the specific needs of geographies outside the "home" or native geography, either directly or through partners, channels and subsidiaries as appropriate for that geography and market Gartner, Inc. and/or its affiliates. All rights reserved. Gartner is a registered trademark of Gartner, Inc. or its affiliates. This publication may not be reproduced or distributed in any form without Gartner s prior written permission. The information contained in this publication has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information and shall have no liability for errors, omissions or inadequacies in such information. This publication consists of the opinions of Gartner s research organization and should not be construed as statements of fact. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner s Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see Guiding Principles on Independence and Objectivity on its website,