Amazon’s Next Big Target: The Telecom Industry?

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At the end of October Amazon (NASDAQ: AMZN) Web Services and Nokia (NYSE: NOK) announced a partnership that flew under the radar for a lot of investors but could be very consequential for both companies' future in both 5G and the Internet of Things.

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The partnership will marry Amazon's Web Services division with Nokia's comprehensive networking solutions to create a unified offering to service providers, large enterprises, and government entities for the next generation of connectivity.

IT and Networking converge

You might wonder why Amazon, the leader in public cloud infrastructure, and Nokia, a diversified networking equipment vendor, would need to form a partnership in the first place. That's because the nature of IT and networking infrastructure is changing drastically by becoming more "converged," or unified.

This is in contrast to when you would select a network provider, on-premise hardware, data center storage and switching, and other components of a network from separate equipment vendors. Today, thanks to the rise of software-defined networking and cloud computing, these separate components can now be controlled via a unified central software controller.

It makes sense that large companies with complementary technologies would team up to offer turnkey solutions for customers. Nokia has hardware and software solutions for wireless networks, fixed broadband, and optical networking, and 5G connectivity will likely use a combination of these technologies at once to deliver next-generation IoT applications. Amazon, on the other hand, is the dominant cloud infrastructure company, and has developed artificial intelligence, machine learning, database, and IoT software technologies of its own.

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The new partnership will have four broad components: 

1. Unified implementation strategy

Nokia's teams will offer a complete implementation strategy to help service providers and enterprises implement AWS into their infrastructures. These strategies will encompass design, consulting, integration, migration, and operations.

2. Integrate AWS into Nuage Networks

Nuage Networks is a subsidiary of Nokia that was acquired when Nokia acquired Alcatel-Lucent in 2016. Nuage's software-defined networking allows network administrators to manage and automate their networks, data-centers, and clouds all from a single "plane of glass," or controller.

The two companies are working to more seamlessly integrate AWS into Nuage's product so that companies can easily scale up with new branches from a centralized office without having to go out to the site and install large amounts of new equipment.

3. 5G 

The companies also plan to work on and develop full 5G and Edge Computing solutions for service providers and enterprises looking to build out networks built on this next-generation wireless technology.

4. Internet of Things 

Amazon and Nokia are also combining their IoT technologies. Amazon will integrate its Greengrass software with Nokia's Multi-access Edge Computing (MEC) offering in a comprehensive IoT solution. Greengrass allows edge devices to be programmed so that they can operate and communicate without continuous connectivity back to the cloud, and MEC allows for local computing at the network edge, with connective solutions across Wi-Fi, LTE, and other technologies, depending on optimal usage and availability.

Nokia reveals an example of this Greengrass-MEC collaboration on its blog.  In the blog, they detail how an oil and gas company can transmit data from nearby producing wells in order to adapt current drilling strategy, without sending every data point back to the cloud first. This computing capability "at the edge" increases efficiency and decreased latency by 39%, which would also save on network and storage costs. 

The Amazon-ification of telecom?

It is striking how powerful Amazon and its enormous web-scale compatriots Google and Facebook have become in just the past decade. It would be entirely prudent for Nokia to view Amazon as a threat, with Amazon and other web-scale players increasingly buying their own fiber networks and developing their own hardware through ventures like the Open Compute Project and the more recent Telecom Infrastructure Project (TIP) .  The objective of these projects is to develop lower-cost networking hardware that threatens the traditional hardware vendors' businesses.

In contrast to other equipment providers, however, Nokia is fully embracing the TIP, looking to collaborate rather than fight. Nokia's VP of Stategic Partnerships Laurent Le Gourrierec believes it's safer to embrace change, collaborate, and innovate than to hold onto the past. By partnering with Amazon on these next-generation technologies, Nokia's newer software offerings will at least have a place in the future, even if its traditional hardware becomes increasingly commoditized.

Amazon, on the other hand, seems to be further cementing itself as the dominant cloud player, forcing once-powerful telecom equipment companies like Nokia to become allies, which only helps to make Amazon even bigger and stronger than it already was before.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Billy Duberstein owns shares of Alphabet (C shares), Amazon, and Facebook. The Motley Fool owns shares of and recommends Alphabet (C shares), Amazon, and Facebook. The Motley Fool has a disclosure policy.