#117 Nokia CEO Pekka Lundmark

This is graham lynch welcome to comms live well in this episode we have a very special guest the ceo in fact the global ceo of nokia pekka landmark he's traveled to australia for the first time as CEO, where he's been for four years.

He has a very interesting background. He actually started his career at Nokia back in the 1990s, and then around 2000, left the Turco industry, went into some other areas where he rose to the level of CEO. Including a state energy company in his native Finland. Four years ago, he returned to Nokia, this time as the CEO. And it's a very interesting point in Nokia's history that he is running the show there.

You could say, without fear of hyperbole, that we're at a major inflection point in the global telecom sector. There's an enormous shift in who is spending the capex away from traditional telcos and towards, for want of a better word, the hyperscalers, whether that be through data centers or through submarine cables or indeed, and this is what Nokia is interested in, the fiber objects and the systems that connect those pieces of infrastructure.

So also, of course, the mainstay market for Nokia, the mobile infrastructure sector is also going through its own teething issues with the transition to standalone 5G and of course, in a few years, 6G. So here he is, Pekkanon Mark. Welcome to Australia. And to what do we owe this pleasure? Thank you. This is of course one of our largest markets and I'm very excited to be here. It's actually a bit crazy. I started with Nokia in August 2020 and I haven't made it to Australia since then yet.

So it's long overdue, I have to say. In my previous jobs, I've been a lot in Australia. This is one of my favorite countries in the world, but now it has been too long. But obviously, I'm super happy to be here. We have so many good customers here and more to come in the coming years. You have a very interesting history with Nokia because, of course, you worked at Nokia in the 1990s for about a decade.

Then you went and did other things for 20 years and then you've come back to Nokia as the CEO. What?

Changes did you observe in telecoms in that intervening 20 years well there there are there are similarities but then there are differences as well obviously the interesting thing is that when we when we talk about the way we do business with delcos now we are now we are in in in 5g and super fast fixed networks and and and the latest generation in optical and routing and so on back then in the 1990s my first job at nokia was to lead the project that led to the opening of the first digital

mobile network in the world in Helsinki, Finland, on the 1st of July 1991. That was 2G and now we are at 5G. But I have to say that still, despite of us having gone from 2G to 3G and 4G and 5G, still kind of the nature of discussions that we are having with customers, they are pretty similar. That how do we help them to monetize their network? How is their RARPU developing? How do they attract customers? How do we maximize the performance of the radio network and everything?

So, I mean, there are some fundamentally similar elements in the discussion. And then, of course, how much does everything cost? And how do you finance it and everything? That's the same. But then at the same time, there are some completely new elements in the whole thing, and obviously, cloud, as I say, thing that did not exist at that time, has changed the way networks are built now.

We have made pretty much the whole core network cloud native, which enables completely new approach to things like automation and productivity for operators. AI is making huge inroads now finally, even though that also as a concept was very well known already in the 1990s. I remember having studied neural networks at Helsinki University of Technology in the 1980s. But now we have this immense computing power, which means that you don't need to teach the network everything.

It can learn through the trial and error methods of similarities, but then also completely new things like cloud and AI, which enable new business models.

One of the other big changes, of course, that's happened in those 20 years is the emphasis we have now on emissions reduction and on reaching net zero.

That's been a very big part of what Nokia has been talking about in the past year, accelerating your emissions reductions at the same time you've been really emphasizing how your customers can use the technology that you supply to achieve those same goals so coming to australia do you see an appreciation here for for i guess those themes that you've been emphasizing you know how you can use digital infrastructure to drive society-wide emissions reduction goals.

Oh, absolutely, I see. And in an economy like Australia, this is extremely important, because we've been able to show through multiple use cases, that not only does the network infrastructure in general, create a massively positive handprint to the world, but when we zoom into specific industry verticals, such as mines or boards, two examples which are so important to the Australian economy, there is a significant potential to improve both productivity, safety and sustainability.

When you connect all the moving machines, optimize their routes, optimize their fuel consumption, when you optimize the resource consumption of different industries, is when you're in a port, optimize the way how containers are moving and how they are handled, you save a lot of energy, you improve the productivity a lot, and especially in an economy like Australia, which obviously is an island with a heavy component of transportation and a resource-heavy economy, such as mining,

I would say that in this type of economy.

You can even make a bigger difference in relative terms through digitalization than in some other economies okay so obviously we're in an era now where we've pretty much solved the basic connectivity puzzle everyone's got connectivity nokia is talking about enhanced connectivity you know areas such as greater capacity greater ubiquity of of connectivity can this next stage of connectivity drive even more meaningful productivity gains than the mere act of getting online in the first place?

The answer is yes, and it really comes from the fact that when you are able to combine cloud and AI and the latest generation of silicon that we provide for networking, that will enable another productivity leap. And we have only seen the first early benefits of AI in real kind of industrial use. It's still very early stage. So far it has been through kind of just connecting machines and so on, which is this industry 4.0 promise, which has been there for over 20 years.

But now finally, through the latest generation of networks with their capabilities, we have been able to really start proving the concept. But I believe that when we start treating the benefits, real benefits of cloud and AI, there is a possibility for another productivity leap.

And this is going to be enormously important for the world, because most advanced economies in the world, as you know, we are all fighting against kind of pretty bad demography, that the number of people that we will have available to do all these things will get smaller and smaller in the future. And I believe that the AI in combination with cloud and the next-generation networks will be a significant part of the answer as to how to get to that next-generation productivity.

At a recent results call, you talked at some length about a pivot towards the data center market. I guess I want to get some more details on what Nokia has in mind with DCs, and specifically what can you offer in that sector that's not been currently satisfied by their existing supply chains? If I take one step back first and deal with the question why, and then after that, I will continue with the how part.

So the why is pretty simple. We are a company that is heavily dependent on service providers, operators in our business. And operator capex is cyclical. And the thing is that capex is not going to be a growth market. going forward. There is kind of slow growth, but it is typical. But if you kind of eliminate the effect of cycles, we are talking about a market that grows with GDP or inflation or something like that, low single digit growth.

And that will continue to be an enormously important market for us. And we absolutely continue to have growth ambitions there. But that growth needs to happen through market share gains, through technology leadership and then market share gains. But the market itself will not be a growth market. And what we really want to tap into is some genuine growth markets in the world.

And when the operator market for us is about 85 billion US dollars or something like that, and not growing or growing at best single low single digit, The data center market is about 20 billion today and it is growing fast. And we are clearly seeing that in this fast growth market, there is room for an additional player.

And the way we are approaching that market is through everything that we have learned with carriers in highly demanding applications, in mission-critical applications, because the carrier network is something that has extremely high demands on security, reliability, and trustworthiness, talking about 99.999999 availability and so on.

And now with this explosion of data in data centers, what is going on is that companies are putting more and more mission-critical applications and the data that they generate on data centers. So it means that the requirements on data center operators are increasing rapidly. And that's where we are coming in. So we are offering high quality, high reliability.

High security, and most importantly, high degree of flexibility and programmability, and high degree of automation to the data center infrastructure. So that operational cost is under control and trustworthiness and security can be offered to anyone who trusts their data on this particular data center operator. And what we are offering is several things. We are now developing organically our data center switching solutions.

We already have Microsoft and Apple as references, and as a later reference, CoreWeave, which is a leading GPU as a service operator at the moment. But we are not only on the IP layer in data centers, we are also in data center inter-connect through our optical network solution. Gradually, also with optical networks, we will be entering the datacenter fabric itself.

Because what's happening there is that inside the datacenter, the fabric actually becomes a large optical network that connects the servers inside the datacenter to each other. Data center, intra data center will become inside data center market as well. This is where the acquisition of Infinera comes in. So Infinera will significantly enhance our capabilities in data center market and especially the optical connections inside the data center.

So with this acquisition we will have a pretty complete offering of both optical and IP solutions for data centers, be it inside data centers, or then connecting data centers to each other. And what we are clearly hearing from WebScalers and some of the other large data center operators is that, of course, there are incumbents in that business as there are in all businesses, but we are clearly hearing that there is room for a new player there.

We are tracking towards roughly 100 data center customer deals this year, which is about double compared to last year. And we expect that this market will offer significant growth opportunities for us going forward. And once again, this does not take anything away from our service provider, Telco Business. that will continue, but this is one of the three growth segments that we have been talking about, that we will invest in.

The two other growth focus areas for us will be private wireless and campus networks and campus edge compute platforms for industry verticals, such as mines and ports, like we are doing in Australia. And then the third growth segment that we are investing in is communication solutions for defense.

Both connecting military bases, but then Gradual also started to offer 5G as a platform for tactical military communications. That's the third growth area that we are focusing on. I just wanted to move on to 5G and I guess where the core revenues for Nokia are right now. There's been quite a lot of industry commentary suggesting that 5G has been a bit underwhelming for telco bottom lines. It hasn't really enhanced ARPUs or revenues or even customer acquisition. Is that a fair analysis?

And is it perhaps a case of early days? It is a fair analysis, but it does not mean that it would not change in the future, and I believe it will. So, in a way, your wait-and-see comment is also accurate, but I believe it is coming now. There's a couple of things that need to happen so far. Most operators have not been able to really increase their output thanks to 5G. There are some exceptions. Elysa in Finland, actually, in our home country, is one such exception.

They've been able to develop a 5G offering that consumers are willing to pay more for. On the technical side, we have to remember that even though people see the 5G logo on their phones, in most cases, the underlying network is not a true 5G network. To get the real benefits of what 5G was designed for, you need to, on the radio network side, you need to go for mid-band radios that offer much larger bandwidth than low-band radios.

And globally, I believe that only about 25% of the base stations have been upgraded to mid-band. So the radio network, in most cases, does not offer that much more than what 4G was able to offer. And then when you get to 5G mid-band radios, you need to combine that with 5G standalone core network. and not a network that relies on the old legacy 14 cores. Why is this important? Because FindG core can be made cloud-native, it can be automated.

That is the platform that makes it possible for operators to quickly develop and launch and monetize new services. If you have a lot of network legacy and you are relying on your subscriber data and your packet core and your voice core and your signaling and your policy and everything on a very complicated legacy. It's extremely cumbersome and difficult and expensive for operators to develop new services. 5G standalone.

Especially when you go fully cloud-native, it will enable all of that to be automated, which will be a platform for the operator to really monetize 5G. And unfortunately, this has taken much longer than people originally thought. But the good news is that now it is finally coming, and that also means that 5G will be a platform that will stay highly relevant a long way into the 2030s.

That's an interesting point there, because is there really a need to push hard on 6G? Traditionally, we have the new generation every 10 years, which makes 2030 the nominal D-day for 6G. Is that just an arbitrary target and perhaps not necessary in terms of where the market is taking us right now?

Well, what I believe will happen is that 6G will be needed, but it doesn't matter what it will be called, because I don't think that it should be positioned that something that when it comes, it would somehow replace 5G. I believe the core network goes cloud native. That is a cloud native software platform that will be then serving the future, be it 5G radios or 6G radios.

What will happen is that when we get to the end of this decade, we will see that the bandwidth needs in the networks will in many places have exceeded the capabilities of the available 5G frequencies. The data traffic continues to grow 20 to 30 percent per year.

And once we start to see the new use cases coming from virtual reality and new generation of gaming, new generation of video conferencing, where you really get a 3D-like virtual presence, etc., we will see completely new demands on bandwidth again. So we do not see an end to the bandwidth demand growth in the future.

And assuming that we continue with this 20 to 30 percent per year, when we get to around 28, 29, operators will see that 5G frequencies will have been more or less exhausted, especially in the densely populated areas. Okay, so what will that mean? It means that they will need new frequencies. But when they need new frequencies, that is then at the same time an opportunity to bring in new modulation technologies and new chipset generations.

Why is that important? We need to continue to push down cost per bit. Because in every generation, the cost per generation... Bit that you transport in the network has typically been lowered by 90 percent, a factor of 1 to 10, roughly. And we know already today that around 28, 30, when the 6G deployments will start, that will again have been enabled by the technology development starting from silicon and then the radio network process.

Using capabilities, new computer and AI capabilities and everything. This is really important because if the bandwidth data amounts continue to grow. But if we don't push down the cost per bit, these new services will become unaffordable. And that's why technology development is important, so that the new services will be affordable. And that's why there will be new radios available around 20-30 time frame.

Standard first pilots, 28 mass deployments in 2030. That's how it looks like at the moment. But they will be radios that will be installed in places where high capacity is needed. But they will be relying, they will be part of the same network architecture. And they will be working together with the 5G platform that we are now building. And that's why I'm saying that this platform that we are now launching will be highly relevant one way into 2030s.

Australia has recently become a very, very significant geography for investments in hyperscale data centres. We're now... Home to the world's most valuable data center company in the form of Air Trunk, we've took a $24 billion deal recently. And also a lot of submarine cables are not just coming from traditional places like the US and Singapore, but Eastern Africa, South America, Oman in the Middle East and so on. What are the opportunities that come to Australia from these developments?

And I guess what role can Nokia play in helping to leverage and exploit some of those opportunities? Well, first of all, it's very clear that Australia is a very natural hub for data centers, and that is now driving the subsea network investments and everything. Nokia, we are divesting our submarine network business, the infrastructure business that lays these subsea cables. Cables, we are divesting into the French state because we came to a conclusion

that that's a completely different business model. that's offshore project business, which is not something that is natural for Nokia to be in. But we absolutely, as I said earlier, we continue to target the data center market, data center fabric and data center interconnect. And of course, when these submarine cables then hit the land, there's a lot of technology that will be needed then on the ground to deal with all the traffic that these submarine cables bring in.

So I believe that data centers and geopolitical development that is partially driving us to these data centers into Australia, that's a highly positive development for both Australia and Nokia. We certainly plan to, over time, grow to a meaningful data center technology player in Australia. Pekka, thanks so much for joining us on Comms Day and enjoy the rest of your trip to Australia. Thank you so much. You're back home after this or are you touring the region?

Stay two days in Australia. Then from here, I go to Japan and then Indonesia, then home. Okay, terrific. Enjoy the rest of your trip. And thank you so much for the time today. Thank you. And that's the CEO of Nokia, Pega Lonmark. And that's it from me, Graham Lynch for Comms Day Live. We'll see you next time. Music.