Disaggregation – Large Vendors Have Vested Interests

Continuing with the same example of microwave antennas, let us examine now why the Large Vendors like Ericsson / Nokia tried to prevent the disaggregation and what did they do, apart from preying upon ignorance of the operators.

Why Disaggregation was bad for them

• They were to lose Top Line i.e. Orders and Revenue in case the Operator buys these products directly.
• They were to lose the Bottom Line i.e. profit margins; the money they made by marking up the price of these pass-through products. Their incremental cost of sale was negligible, so all markup was just pure margin.
• The loss of Top Line and Bottom line numbers meant that for the same sales teams and overheads they will have to sell more of their own products.
• They also had to deploy smarter and stronger teams for network operations, to make sure that the field problems are properly isolated and addressed, so their cost increased.

What did they do to avoid or delay Disaggregation

• They created a proprietary antenna interface for outdoor mounted ODUs, so even though the antenna manufacturer is Andrew, an antenna for Ericsson was different than that for say Nokia.
• That meant different part codes, complex planning, ordering and sparing for the Operator.
• They arm-twisted the supplier like Andrew to
  • Stay away from operators
  • Give high prices
  • Restrict supply quantities

This may not have been enough in the end, as the disaggregation did happen. But it made is a complex and evolved process, slowly unfolding. As per my last article, only a few Operators invested in people and got the benefit of the Disaggregation initially, while all others were content with some price negotiations with the large vendors.

I will talk about the role of specific business models of small suppliers and how that happened to delay disaggregation in my next week’s blog.

The same process is now repeating in the new wave of “Disaggregation”. So stay tuned.