Good morning and welcome to Nokia's Capital Markets Day 2016. I'm Matt Shimao, head of Nokia Investor Relations and your host for today. Our last CMD was in 2014, and the one previous to that was way back in 2009. How many of you remember our CMD in Espoo in 2009? How about Brooklyn, 2008? A lot has changed since those days, and we have a good amount to share with you over the coming hours. For those of you with us for prior CMDs, welcome back. For those of you with us for the first time, welcome. I have now been at Nokia for 9 years, and in many ways there has never been a better time to be at Nokia. We have a strong leadership team, industry-leading assets and market positions, a strong balance sheet, and a clear long-term strategy.
Yet, our current market valuation clearly reflects concern over market conditions in our industry. In this context, what is the investment case for Nokia? How are we leveraging our unique assets and focusing our efforts differently than our competitors in order to create value? Today, our goal is to provide you with answers to these questions. We will cover the significant opportunities ahead of us and why we believe we are well positioned to capture these. We will also spend a good amount of time on our disciplined operating model, which is an important competitive advantage. Rajeev, Marc, and Timo, who many of you already know well, will lead the first part of the day. Then we will dive deeper into Nokia Technologies. As part of that, Maria Varsellona, our Chief Legal Officer, will talk about our patent licensing activities, an area very much in our focus.
We will have a break midday for lunch. During lunch, please take some time to check out the demos. We have some great demo people that can quickly get you up to speed on some of our latest offerings. Then, in the afternoon, we will cover our networks business in greater depth, looking at ultra broadband, IP Networks and applications, and services. To meet your needs, we've designed today's program to be very interactive. After each session, we will take your questions. In addition, during lunch, you'll be able to speak to interact directly with today's speakers. We will have a networking-style lunch rather than a sit-down lunch. Finally, after the presentations, we will host a reception. This will give you another opportunity to interact directly with today's speakers. Both the lunch and the reception will be in the room with the demos as marked on the agenda.
Please note that during today's presentations we'll be making forward-looking statements regarding the future business and financial performance of Nokia and its industry. These statements are predictions that involve risk and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external, such as general economic and industry conditions, as well as internal operating factors. We have identified these in more detail in the risk factors section of our 20-F for 2015 in our interim reports, in our Capital Markets Day press release issued today, as well as our other filings with the U.S. Securities and Exchange Commission. Two more things from me before we get started. First, this meeting is being webcast, and archives of each section will be available on our investor relations website.
Second, and this is important for me and my team, after today's presentations you'll receive an email with a link to a web-based survey. Please fill it out. It will only take 10 minutes, and it will help us design future investor events. Now, we have a lot of content for you today, so let's get going. It is my pleasure to introduce President and CEO of Nokia, Rajeev Suri. Rajeev, welcome.
Thank you. Thanks, Matt. Welcome, everybody, and it is great to see you all here in Barcelona. This is our first Capital Markets Day in two years. We last met in London on October 29, 2014, not long after the close of the sale of the Nokia Devices and Services business to Microsoft in April. And since then, the pace of change at Nokia has not slowed. In fact, it has accelerated. Consider some of the things that have happened since that time. We took Nokia Technologies from a loose collection of in-house R&D assets to a focused business. We announced and then, relatively quickly, got approval for and closed the acquisition of Alcatel-Lucent. We launched the OZO virtual reality camera to support the creation of new intellectual property at the heart of an exploding market.
We sold here our former mapping business to a consortium of German car companies for EUR 2.8 billion. We move forward to monetize our patent portfolio, including reaching an arbitration decision and then an enhanced licensing deal with Samsung, as well as agreements with more than 50 other consumer electronics companies. We acquired Withings to accelerate our entry into a fast-growing area of digital health. We reached a low-risk, high-reward deal to license our brand to HMD Global for use on mobile phones. We continue to innovate and develop new products and services to strengthen our sales in the coming years. We did all this while delivering solid results, particularly in the context of current market conditions and during what we have always said would be a transitional year.
The chart on the screen shows our group-level performance for quarters 1 to 3 of this year compared to the same period last year. As I said on our third-quarter earnings call, we expect to deliver a full-year 2016 operating margin of between 7% and 9%, and that with solid execution. We could be above the midpoint of that range. In terms of top line, I know that you're concerned about the declines of recent quarters. It is an issue that I take seriously and that my whole management team takes seriously. While I'll come back to this topic when I discuss our refreshed strategy, it is important to understand that we have been impacted heavily by two things that are short-term in nature.
First, as we have noted previously, Alcatel-Lucent pulled in a massive amount of software license sales to the fourth quarter of 2015 that were initially planned to happen in 2016. The impact of this was hundreds of millions EUR, and it created a meaningful hole in our annual plan that has been difficult to fill. Second, the speed at which we are migrating to a single portfolio in mobile networks has caused some near-term purchasing delays. The primary impact has been on sales of the former Alcatel-Lucent wireless portfolio, which declined by almost 25% in the first three quarters of the year compared to a much more modest decline of 9.4% in the former Nokia wireless portfolio. Now, these two items, when added to current market conditions and during a large and complex integration, have proven to be challenging in the near term.
But we also know that they will not last forever and that there is light at the end of the tunnel. In fact, we see a primary market that is expected to return to growth in 2018, and we believe that we are well positioned to grow faster than this market even while maintaining our typical sharp focus on profitability. So let me be clear. Despite what some might think, Nokia is not Ericsson. They're in crisis. We outperform them in pretty much every area, and in some cases, significantly so. You need to look no further than the third quarter to see the stark differences between the two.
While both companies saw sales declines, not only was our decline less, but we also delivered on the profitability side with a gross margin that was approximately 10 percentage points greater than theirs, and an operating margin that was vastly superior as well. This performance was possible because we manage the company differently. We are more deliberate in our investments, and we have a systematic approach to pursuing growth where we think there is value to be created. We do see areas where we can create new value. Given this, I would like to convey four simple messages over the course of the day. First, that Nokia is well positioned to win in our primary market with communication service providers. Second, that we can target superior returns through focused growth opportunities in attractive adjacencies.
Third, that our disciplined operating model significantly improves the likelihood that we can successfully execute on our plans. Fourth, that based on the above, we can deliver superior financial results that reward our shareholders. To deliver in these areas, we have refreshed the company strategy, which we're calling Rebalancing for Growth. It is all about delivering better results through focused growth while maintaining profitability in our core business. It has four key priorities. One, leading in high-performance end-to-end networks with communication service providers. Two, expanding network sales to select, target, vertical markets. Three, building a strong standalone software business. And four, creating new business and licensing opportunities in the consumer ecosystem. While you'll hear more from the other speakers on our plans in these four areas, let me provide my perspective. Starting with leading in high-performance end-to-end networks with communication service providers.
Our primary goal in this area is to outperform the market from a top-line perspective while also improving profitability. I'm confident that we can deliver on this given the attributes that together are unique to Nokia. Now, these are the scope of our portfolio, our scale in key segments, our innovation capability, and the strength of our customer relationships. Some of our competitors have some of these pieces, but when combined, they create a powerful competitive advantage for us. Consider scope. This diagram shows how we see networks evolving in the future. We call it the Future X architecture. Yes, it looks complex, but it is critically important.
It tells us not just how things will change, but what we need to do at Nokia to meet the future needs of our customers, where we need to strengthen our portfolio and where we can divest, where we should add resources, and where we should take them away. I will not walk you through the architecture in detail, but you will hear more about it consistently over the course of the day. We've also published a book about it. It's called the Future X Network. So if you're interested in a copy, you can use the feedback form that will come around at the end of the meeting to let Matt and their team know, and they'll get you one. You can see eight numbered areas on the slide.
And these are the eight domains that are essential to the network of the future, starting with massive scale access, then to the converged edge cloud and the Smart Network Fabric, through to the core and network management systems, and then spanning cognitive intelligence, security, and new digital value platforms. It is all critical to the networks of the future, no doubt about it. And as we've seen with our five business groups, Nokia covers all of these areas. Mobile Networks enables massive scale access and the converged edge cloud. 4G, 5G, licensed, unlicensed spectrum, small cells, digitization, and virtual telco cloud, self-optimizing capabilities. We are present in essentially all the key technologies in this domain, and we differentiate through our capabilities in comprehensive and innovative services.
Fixed Networks is also a leading access player, spanning copper, fiber, and cable access, and also has assets in the digital value platform area in the form of residential gateways and interesting opportunities in automating the digital home. IP and Optical Networks, it plays across multiple domains, from programmable IP and optical transport networks for the smart fabric to software-defined capabilities for the programmable network operating system, and more. Applications and Analytics picks up much of the rest with cloud and virtualized network functions, security, advanced IoT platforms, network and user analytics, and the critical applications necessary for enabling operators to accelerate the delivery, monetization, and optimization of new services. Then Nokia Technologies, astride it all, licensing our fundamental intellectual property that allows the network and connected devices to function, as well as playing a role with consumer devices and value platforms in digital health and digital media.
It is a remarkably complete picture. Remarkably complete picture. Of course, you could ask, "Why does it matter? And if customers really care?" And the short answer is, yes, they do. Absolutely, they do. There is the ease and comfort that comes with dealing with a single vendor, but it is much more than that. Customers who operate massive networks live in a complex world, they know that it is not enough for all their network elements to work individually. They know that what matters most, and it is the hardest, is to make all those parts work together. And that is what we can do. We can bring together all the key elements of networks to create a seamless whole. We have the software that can link it all together. We have the services to ensure that it works seamlessly. It is a powerful proposition. One more data point.
In our sales pipeline, we look at multi-technology end-to-end deals, which make up a growing proportion of our total pipeline value. In fact, those deals have now reached 15% of our current pipeline. Even in cases where customers decide not to buy all the parts from us, the simple fact that we can provide the full scope of what they need gets us a seat at the table that we did not have before. Now, onto scale. Simply put, we have it. I think all of you know that quite well. While our share varies from area to area, we are in the top three of almost every area in which we compete in the communication service provider market.
We're number 1 in 4G, number 1 in copper access, number 2 in fiber, number 1 in subscriber data management, number 2 in edge routers, and closing the gap to number 3 in core routers, number 3 in all key service segments like network installation, professional services, optimization, and care. The list could go on, and it does go on. I point this out not to boast, but simply to make the point that we are deep in the areas that matter most, and we can afford the investments needed to be competitive while still delivering solid profitability. Then innovation. Those of you who know us know that we have an extraordinary R&D capability. I could talk about it for a long time, but let me make 3 key points. First, we use R&D in a very targeted way. Take 5G.
You'll hear more from Samih about this, but we absolutely aspire to be the leader in 5G. We are now bringing to the market the innovations from nearly 10 years of research at Nokia Bell Labs. Our focus will be on early mover customers in several key markets, unique points of technology differentiation, and end-to-end turnkey services to enable fast rollouts and easy overlay of our competitors' networks. We already are preparing to win in the world of 5G through the best evolutionary path in the industry, with a smooth progression from 4 to 4.5G, and then 4.5G Pro to 4.9G, and finally 5G. Now, in each of these steps, and this is important, speeds will increase, throughput will increase, latency will come down, and the overall efficiency of the network will improve.
From a revenue perspective, it can help us cover at least some of the gap between large 4G rollouts and those for 5G. Second, we ensure that what we research has a clear link to what we sell. Take Nokia Bell Labs, where we have 1,000 scientists and researchers. They're focused on solving big problems. They look 10 or more years into the future, whereas our business groups generally have a three to five-year outlook. But while the work that Nokia Bell Labs does can be esoteric, it is not irrelevant. It is not detached from our business. Far from it. These technologists have played an essential role in making our products market-leading and even market-creating by thinking future and then back and inventing solutions to seemingly impossible problems.
Importantly, these innovations are driven by the future needs of our business and result in industry-defining products that are better and are smarter than other solutions. Take copper. Federico - he may never forgive me for saying this - but fixed access over copper is not exactly seen as the sexiest technology in our sector. But copper is deployed widely, and those who have it, quite rightly, want to make the most of their investment. To help them, Nokia Bell Labs developed a technology called vectoring that redefined what was possible over copper lines. It allows 100 Mbps transmission over 100-year-old infrastructure, right up to the edge of physical limits. But they did not stop there. Nokia Bell Labs has subsequently pioneered a technology called XG-FAST that allows fiber-like speeds over copper, again using vectoring technology.
We just completed a lab test with the National Broadband Network, NBN, in Australia and delivered throughput speeds of 8 Gbps. Earlier trials on XG-FAST were done with British Telecom and Deutsche Telekom, and they all exceeded expectations. Superb technology, but also a clear upgrade path from the commercially available G.fast technology, so a future revenue driver for us. When you add this kind of innovation to the very lean model of our fixed networks business, you have a recipe. A recipe for how to maintain a strong market position and excellent profitability, even in the face of tough competition from China and elsewhere. And I could repeat a similar innovation story for all of our other businesses. Simply put, the combination of Nokia Bell Labs and business group R&D teams, this is a powerful advantage for us.
Third, we are committed to maximizing the value of every euro we spend on R&D. Cost is obviously one factor. It's an important factor. We already have a very strong presence in high-quality but low-cost countries such as India, China, Poland, Hungary, Greece, and several others. That presence continues to grow as the majority of our new hires in R&D are in these locations, further improving our average cost per head. Equally important, however, are the actions that we are taking to constantly improve productivity and efficiency. Take automation, which we have used in one business group to redeploy hundreds of people from testing into higher-value activities over a two-year period. Or take processes where we use common techniques such as Lean and Kaizen, but also deploy some approaches that are unique to Nokia.
For example, we have our own internal methodology for making massive, truly massive, fast shifts of people from one development project to another, not just tens or hundreds of people, but even thousands, complete with fast onboarding and training to ensure an extremely short time to maximum productivity. So I've covered scope, scale, and innovation. So now to customers, where we have deep relationships with almost every major communication service provider in the world. There are only 5 companies among the largest 100 where we do not have a footprint today, and we're actively engaged trying to change that with every single one of them. I would also note that in the vast majority of the top 100 that we do address, we are selling products and services from 2 or more of our business groups.
We have a clear goal to drive that number up, and we've been actively training and organizing our sales force to improve our cross-selling capability and performance. We're also taking significant steps to radically improve our sales effectiveness. Among these steps are massively improving efficiency through the deployment of best-in-class sales tools, including a single CRM from Salesforce.com, and looking at the best-in-class configure, price, quote capabilities. We're actively reducing back-office complexity and redeploying people to the front line with customers. We're expanding resources and improving incentives for hunting for key new opportunities. We're strengthening competence development, particularly related to software and new portfolio items. We're using expanded automation across all sales processes, including marketing, to help fill our sales pipeline and better target our sales resources.
So these and other efforts are being put in place to support improving our top-line execution, which we believe is absolutely critical in this market environment. Of course, the best way to understand what customers think about us is not to hear it from me. It is to hear it from them. As many of you know, we ask them regularly, and we track the results in our customer experience survey. Actually, it's more than a survey. Yes, it gives us clear feedback on our performance in key areas and the potential and strategic fit with them in the future, but it also drives action. So when we see areas where we are short of our goals, we deploy cross-functional teams of experts to put fixes in place and share those activities with the customer in question.
With this closed-loop approach, we have driven improved scores in almost every month of the past three years. Every month of the past three years. It's been a truly remarkable journey. Talking about customers is a good segue to market conditions, where I know there is considerable anxiety. Our short response to those concerns is that we see challenges this year and next in our primary market with communication service providers. But after that, we expect to see a modest rebound resulting in a five-year CAGR of 1.2%. Low growth, for sure, but in such a large market, even modest growth rates can have a large impact. And an estimated EUR 7 billion increase in the overall market size from 2016 to 2021 is certainly not small. This is not to say that we're in denial about current conditions. 2016 has been and will continue to be a challenging year.
And while we think 2017 will be better, we also believe it will be a year of decline, with our forecast showing a dip of 2.2% from 2016 to 2017. But in the medium and long term, we believe that growth must come for two simple reasons. The first is that the gap between demand for network capacity and its supply will become unsustainable. The Nokia Bell Labs team, they did a study that concluded that without further accelerated investment and adoption of alternate business models, we will see significant gaps between demand and supply by 2020. Gaps that are as much as 36% in some parts of the world and about 19% on global average. That's a gap that's waiting to be filled, and I'm absolutely confident that someone is going to fix it. Someone's going to fill it.
That someone could be traditional telcos, new entrants, the big internet companies, governments, or others. Access to connectivity has simply become too important to individuals and institutions alike for networks not to get much, even if not all, of their needed investment. The second reason why we believe modest growth will return is that the networks of today simply cannot meet the performance requirements of the future. Yes, more will be needed, quantity, but so will better. Networks will need to have the reliability to meet the needs of public safety and emergency services. They will need to have the low latency necessary for industrial automation. They will need to be more efficient, more agile, more secure, and many other things. Now, let me focus on just one example: latency. Everyone in the industry talks about it, but it is not always easy to visualize why it is so important.
Let me show this to you in a short video. So in this demonstration here today, we have this camera which is recording the position of this ball on this plate. And then this position is recorded by a mobile edge cloud computing environment that then is intelligently controlling these robots, sending them the commands across the network to balance this ball on the plate. In this first demonstration, you can see on the screen here behind me, we're showing the current latency of what would be a 4G network. It's around 90-100 milliseconds. And on the right-hand side, you'll be able to see this line move as we move the ball on the plate.
So what I'm going to do is move this ball right now, and we can see the oscillations here tracked on this graph and how long it takes for the robots to collaborate with each other to get the information they need to balance the ball on the plate. And then we're going to switch into 5G mode, and we can see on this graph here that we've now gone from around 90 milliseconds to around 3 milliseconds, so much, much lower latency in the network. And I'm going to do exactly the same again, and we can see that we only took one oscillation there to correct the ball. So you can see how the reduction of the latency in the network improves the communication between the machines, which is critical for future networks.
You can see the difference clearly between 4G and 5G, and why, if you were running an automated factory, riding in your self-driving car, or receiving remote healthcare, that one is clearly better than the other. That better is latency of 3 milliseconds or less, which is 30 times lower than today's LTE networks. That is a huge difference, and it will require fundamental changes in network architecture that will, in turn, require additional investment. There is simply no other way that the networks will meet the requirements of the applications of the future. No way. But you know what? We do not need to wait until 5G rollout to address this need. Every next iteration of technology will bring critical improvements in speed and performance.
With 4.9G, which we are targeting to start making available around the end of 2017, latency will be at a level to support many mission-critical applications. Thus, the overall industry investment cycle does not need to wait until fully standardized 5G is ready. To give a bit more color on our expectations from our primary market with communication service providers, let me share a regional view. Start with 2017. We expect that the market will decline by around 2.2% for the year, as I already noted. Within this, we believe that developments will include the start of recovery in Korea, stabilization in Japan, flat spending in North America, and robust growth in India. In China, developments will depend on the timing of FD-LTE rollouts and spectrum licensing.
Europe is expected to see some further decline, and while Middle East and Africa and Latin America should stabilize somewhat compared to 2016, those regions will still be quite challenging given macroeconomic conditions. Over the five-year period through to 2021, we see North America continuing to be robust given capacity demands and high single-digit growth in software and cloud technologies. The deployment of fiber will also accelerate in North America. Europe is expected to remain quite competitive, but our customers there should start to rebound from the 2017 dip as they prepare for 5G. In addition, about half of the global XDSL market will shift to Europe, a very copper-heavy region as operators renew their networks.
Asia-Pacific is expected to return to growth as Japan and Korea accelerate spending on 5G, and developing countries in Asia require upgrades across optical, routing, and fiber as they move toward 5G and higher variants of 4G. Despite a lower trend, China is still expected to invest in capacity expansions across all technologies and early phases of 5G. Macroeconomic environments are expected to provide modest boosts in Latin America, the Middle East, and Africa, while coverage and capacity spending should continue in India. In general, upgrades of both optics and routing in emerging markets will increase as overall demand for connectivity continues to grow. Thus, when you break this market into a business group perspective, the biggest expected decline from 2016 to 2017 is in the mobile market given the sharp slowdown in 4G rollouts.
However, over the five-year period, we expect the Mobile market to improve slightly as 5G, 4.9G, and so on gain momentum. We also see a slight contraction between this year and the end of next in the Fixed Networks market as declines in copper access not fully offset by increases in fiber in other areas. Beyond 2017, the Fixed market is likely to show slight improvement as data capacity is needed for the connected home, for enterprise digitization that takes off, and service providers implement strategies for data offload and to support unlicensed radio for the home. The declines in Fixed and Mobile from 2016 to 2017 will be offset partially by the segments covered by our Applications and Analytics group and emerging businesses like IoT, analytics, security, and cloud. We expect these areas, in aggregate, to grow in the mid to high single digits in the coming areas.
In terms of IP and optical, our view is that the market will remain flat in 2017 compared to 2016 but continue to have a good long-term growth profile given continued traffic growth. Most of this growth is expected to come from companies outside of traditional communication service providers. And as such, this is not included in our primary market view, a topic that I will come back to shortly. The trends in the IP and optical segment are typically that, first, optical capacity is put in, and then that requires an additional round of routing investment. This is what we are seeing largely today with good demand in optical and softer demand in IP. So that ends my comments on our first strategic priority: leading in high-performance end-to-end networks with communication service providers.
The second priority of our strategy is about growth, about expanding sales of networks to select vertical markets and to the giants of the internet, which we call web-scale companies. Now, the time is ripe for just such a move as it is increasingly clear that as the world becomes ever more digital, the kind of massive high-performance networks once used almost exclusively in telecommunications are now needed by other organizations. Think about the giants of the internet, companies like Apple, Facebook, Google, Alibaba, Amazon, and similar companies. The target list in this area is not hundreds of companies, but it is several dozen who need to connect multiple data centers around the world, and some of whom are showing increased interest in mobile access infrastructure to ensure better end-user access to their services.
We expect overall CapEx for web-scale companies to grow at a CAGR of 12.5% between now and 2021. Think about the public sector and the need for governments to upgrade public safety communication systems and enable smart cities, like we are currently doing to enable the critical communication networks in Dubai. We think that the public safety LTE market will grow by 48% between now and 2021. Think about the energy companies that need industrial-strength networks like the private LTE system that we built to help Rio Tinto automate one of the world's largest mines. We expect the private wireless market to grow by 42% between now and 2021. Think about the transportation sector where obsolete backbone infrastructures are moving to IP and optical technologies and those that we are providing for the S-Bahn in Berlin, the Buenos Aires Metro, and others.
We expect this market to provide steady, stable opportunities in the years to come. Think about some of the world's biggest companies that use information technology for competitive advantage. We call them technological extra-large enterprises, Tech XLEs, who need tools such as the software-defined networking capabilities provided by our Nuage business to move applications and infrastructure to the cloud. We believe that the overall market for software-defined networking products and services will grow at 30% or more in the coming years. So there is opportunity for us. I think that is clear. But what about the risk? To be very direct, we see little added risk beyond what we already carry today. We already have much of the technology and logistics capabilities, and what is needed is limited investment in sales and marketing and some additional R&D.
We certainly do not see the massive investment requirements that would result in an OpEx increase next year or that would dilute the value of our net cost savings related to the Alcatel-Lucent transaction. I know that some of you are concerned about this, so I want to make three points perfectly clear. Number one, this is not about enormous new R&D. It is, in most cases, about customizing technology that we already have for new customers. We're not starting from square one. Far from it. Take the Rio Tinto private LTE network that I just mentioned. Yes, there was some extra R&D needed, but not much. Most of it was off-the-shelf equipment just in a new setting. We also have the opportunity to move current R&D resources from declining product areas to those that are growing, limiting the need for incremental spending.
Key point number two, we have no intention of going into every enterprise segment or beyond our core competencies in those enterprises that we do target. Not every enterprise needs what we can provide, which is why we will focus on five segments where demand for the kind of massive, high-performance networks that we provide is growing. Those sectors, they're energy, transportation, the public sector, tech XLEs, and web-scale companies. In each, the demand is already there. We are being pulled in as much as we are pushing. Consistent with this focused approach, we will initially target about 1,000 companies with a further expansion to a total of 4,000 in the medium term. Beyond this, and in fact, even for some of these, we will better leverage partners like Accenture, Dell EMC, IBM, and HP Enterprise.
At every step of the way, we will ensure that we match our investments to our opportunities with the clear intent to further strengthen our long-term business model. Key point number 3, we will use specific insertion points to enter these new segments, and then we'll leverage that access for further opportunities. Just to give one example, we believe that the optical footprint that we are building with web-scale companies will give us an opening to sell additional products, IP routing, services, and so on in the coming years. This market of adjacent opportunities has a very different profile than that of communication service providers, but while much smaller, it is still sizable and growing faster. Starting at about EUR 18 billion in 2016, we expect growth of 13.8% from 2016 to 2017 and a CAGR of 12.8% for the five-year period from 2016 to 2021.
These are certainly appealing growth numbers, no doubt about it. At the same time, no one should expect Nokia to grow at similar rates. For now, in our networks business, we remain mostly 95% a communication service provider-focused company, and given that, we will focus on comparing our growth rates to that market and not yet to these adjacent market opportunities. As we successfully gain meaningful footholds in these new areas, however, we will update our primary market to include them. My goal is that at a capital markets day, say two years from now, we can show you a primary market for Nokia that is both larger and faster growing than the EUR 113 billion, 1.2% five-year CAGR primary market that we focus on today. Now, onto our third strategic priority: building a strong, independent software business.
We plan to move beyond the software business we have today, much of which is attached to our hardware products. That makes it difficult at times to capture the full value of that software. Our long-term ambition is to create a large global software business for Nokia that has a margin profile consistent with large software companies. But our focus is very much on the near term, given that we see significant opportunities to sell software that we have today to our existing customer base. There's plenty of mileage to be gained simply by selling our software assets beyond our mobile customers and into fixed, cable, and non-Nokia mobile networks, and this is absolutely priority number one. We can reach into these new areas because our software is largely network-agnostic.
While our customers tend to buy hardware from multiple vendors, they expect software applications to work for all network types, both in terms of vendor and network technology. Priority number two is selling some of our current software into the new vertical markets that we intend to pursue. For example, Nokia's OSS service assurance solutions can be used across these segments to enable high-performance IT networks and inter-data center connections. So while we might have to strengthen our portfolio in some areas, we will target further investment very carefully with an eye to software assets that can span across telco and IT domains to ensure that we have the right scale. Priority number three is further assessing options to expand into enterprise software and IoT platforms, while our experience here in providing mission-critical, highly reliable services at scale is a powerful differentiator.
For example, we see a potential opportunity to provide enterprise-grade communication and collaboration systems as traditional PBX systems get replaced. Nokia Bell Labs has developed some fairly interesting capabilities in this area, but there is more work to do before we can proceed much further. On the IoT side, there are many areas of interest. I will continue to assess them, including analytics, application development and delivery, security, and monetization. As this is clearly a nascent part of our business, it is premature to provide any kind of market sizing and growth rates beyond just noting that we would only proceed further in this area if it were accretive to our profitability. Onto the final strategic priority: building new businesses and licensing opportunities in the consumer ecosystem.
Monetizing our current intellectual property assets is the absolute top priority in this area, and one of the top priorities for the entire company. To do this, we have an absolutely world-class IP team headed up by Ilkka Rahnasto with the full support of Maria Varsellona, our Chief Legal Officer. This team is stable, it's focused, and it's firing on all cylinders. This is a business that we like for reasons that you know well, and we really run it like a business: a clear pipeline of opportunities, disciplined tracking of those opportunities, expansion plans for targeting new markets, executive sponsors for key deals, and more. We have around 30% of the current smartphone market by value under license, a figure that excludes licensees due to expire before the end of this year.
While that is good progress, we believe that there is more to do over the coming year to go after the other 70%. We plan to renew existing licensees at favorable terms, taking the opportunity to expand agreements as we did with Samsung, and have multiple such efforts in progress, including conversations related to one large renewal already underway. We also plan to add new licensees in the mobile device industry, particularly those based in China, and we're seeing some encouraging, even if early, signals. Beyond China, we still have work to do in Korea and India, just to name two focus areas. As we look at new markets, we already have many licensees in consumer electronics beyond mobile phones for technologies such as video coding and Wi-Fi.
In addition to these areas, we have a lean go-to-market model to tackle new opportunities such as those in audio, broadcast, and automotive. Automotive strikes us as a particularly interesting growth possibility. Consider that most of the 100 million new cars sold annually are expected to have cellular connectivity by 2021, and we believe that this will require the use of Nokia patented technology. Alongside patent licensing, we are pushing forward with brand licensing through our agreement with HMD Global. HMD has committed to spending $ hundreds of millions on sales and marketing over the next three years to support building the Nokia brand and next generation of Nokia-branded smartphones.
While we will get intellectual property and brand licensing payments for each device sold, the growing visibility and strengthening of our brand for consumers will support our expanding activity both in digital health through Withings and as we further develop OZO as a prosumer product. Of course, we recognize that we are relying heavily on patents developed by Nokia's devices and services business and, to a lesser extent, on patents from our networks business. Those patents still have a long life ahead of them, and we also know that constant renewal is necessary, and that is where much of our interest in digital media and digital health comes in, as renewing intellectual property is best done as part of the innovation that comes with working on real products that address real issues. Take our OZO VR camera.
It is a terrific product, no doubt about it, but selling hundreds and even thousands of OZO cameras each year is not going to massively move the needle for a company of our size. But moving into prosumer and then consumer versions could help, but imagine if we could get the unique technology used in OZO licensed into all kinds of other devices. Now, that would really make a difference. OZO is not just the best and only purpose-built virtual reality camera for professional content creators on the market. It also integrates a number of pioneering new technologies that change the game in sound as well as vision. For example, OZO uses eight integrated microphones for capturing 360 by 360 spatial audio, which enables a fully immersive audio experience during VR playback.
At the same time, real-time 3D stitching means that both sound and vision can be broadcast live, allowing a music performance, for example, to be experienced remotely on a new scale. We're also building intellectual property assets related to delivering enhanced virtual reality experiences over tomorrow's networks. There is a lot of potential here, and while these are early days, we see interesting opportunities ahead. There is a similar story for digital health. We think that our acquisition of Withings has put us in the center of an industry that is ripe for disruption. While our initial goal is to scale the existing consumer business using the Nokia brand, we see medium-term opportunities to move into corporate wellness and potentially connected patient care.
Overall, you can be confident that we will continue to actively manage and renew our industry-leading IP portfolio with a relentless focus on the quality of innovations coming from R&D across Nokia's business. We are absolutely committed to ensuring that our patents offer differentiation for Nokia products or further opportunities for monetization. So there you are: the four key areas of our strategy. How we will continue to win in the low-growth but very large market where we compete today. How we will target attractive adjacent markets that have compelling growth and profit potential. How we will drive near-term software sales within our existing and adjacent customers with a longer-term ambition to build a significant standalone software business. And how we will continue to focus on monetizing the intellectual property that we have today as well as renewing that portfolio through active engagement in the digital media and digital health markets.
Before I close, however, I want to touch on one last topic. As I went through our strategy, I pointed out the remarkable competitive advantage created by the scope of our portfolio, our scale in key segments, our innovation capability, and the strength of our customer relationships. But there is something else as well, something that we believe in deeply, and that is core to our culture and to how we operate, and that is operational excellence. Plans are good, but without the ability to execute, they are worth less than the paper on which they are printed. We have seen the perils of poor execution in this industry time and time again, and we are intent on avoiding that path. As a result, we have created what we call the Nokia Business System, or NBS, to formalize the disciplined way that we run the company.
NBS provides a consistent framework for key areas that span across all our business groups: investment optimization, performance management, continuous improvement, and talent management. Mark and Timo will talk more about NBS in their presentations, so I would like to share just two specific examples of how we use it to manage the business. First, as part of continuous improvement, we take best practices in one part of the company, we industrialize them, make it repeatable, and then we efficiently roll them out across the company. For example, we face ongoing price erosion in our sector. Some of that is contractually guaranteed, some comes with new tenders, and some comes from aggressive fight for share. Nothing new there.
What is new is that we are taking the rigorous methodology to track price erosion that we developed several years ago as part of Nokia's centralized pricing system, and we're rolling it out across the former Alcatel-Lucent organization. With this information as a guide, we can adjust various levers to offset that degradation, levers that range from new pricing models to design to cost changes, logistics optimization, procurement savings, and more. And we know that our approach to continuous improvement produces the results. Since 2012, we've seen our rate of savings increase no less than four times each year. Interestingly, as we have deployed this new methodology, the high price erosion that we've come to expect in mobile does not appear to be as high in our other business groups.
The best data we have at this point is for Fixed Networks, and the price erosion there is significantly lower than what we see on the mobile side. The second example is related to performance management. We drive business results using a structured governance process with a high degree of granular visibility into the business. For example, consider how we are managing the integration of Alcatel-Lucent, where we have adopted the model used in the earlier transformation of Nokia Siemens Networks. Rather than mingling the day-to-day operations of the business with integration activities, we have a separate structure in place that focuses on driving defined programs guided by the Integration and Transformation Board. I'm a permanent attendee of these sessions, which are chaired by Marc Rouanne, our Chief Innovation and Operating Officer. We also use the color book methodology that we have deployed successfully in the past.
These books are simply a consolidated granular information source that gives us the visibility necessary to manage costs in a very detailed way. We have books that cover a range of different topics, including headcount, external temporary labor, real estate, and discretionary costs. In addition, these books do two other important things. First, they ensure that our savings activities have a clear link to the P&L, and they're tracked all the way through to their impact on the P&L. Having experienced so-called restructurings before where extensive costs were supposedly removed only to see them reappear elsewhere or leak in the organization, this capability is an essential element of our work. Second, they give us visibility to our progress and confidence that we can achieve our goals.
We can use the degree of implementation methodology much as one might use a sales pipeline, and that's what we do, where initial cost-saving ideas are first identified, they're analyzed, they're planned, and then they're implemented. And I would add, given what I'm seeing so far, I have a high degree of confidence that we can deliver on our EUR 1.2 billion goal, which brings me to our other targets. First, to grow faster than our primary market over the long term. Second, to expand long-term non-IFRS operating margin to 10%-15% with all networks business groups contributing double-digit operating margins. Third, to perform in line with our primary market in 2017. Fourth, to have a 2017 operating margin of 8%-10%. Fifth, to have operating expenses decline in 2017 versus 2016 despite investments in adjacent opportunities.
Finally, as I just noted, we remain committed to and on track to deliver EUR 1.2 billion in cost savings for the full year 2018. This last target covers networks as well as Group Common. I know this is a lot to absorb, but we will have the opportunity to discuss these topics in greater detail over the course of the day. So thank you for your attention, your engagement, and your interest in Nokia. Let me welcome our Chief Innovation and Operating Officer, Marc Rouanne, to the stage. Mark, come on up.
Thank you, Rajeev. Good morning. My name is Marc Rouanne, and I am Nokia's Chief Innovation and Operating Officer. We have made a number of large and also smaller acquisitions and divestments to prepare Nokia for the programmable world. The programmable world is a world where humans will be able to interact and control objects and machines around the world, like the robots you saw on the video, and where automation will augment our capabilities. We even say augment our intelligence. You saw in Rajeev's presentation those eight domains here, which are shown by the blue bullets. What the path shows here is that we have gradually invested in these eight domains. Now, take one of these bullets. For example, bullet one: massive-scale access.
Our vision of massive-scale access has indeed triggered our strategic interest in acquiring Alcatel-Lucent, but also in acquiring Mesaplexx, Eta Devices, or Gainspeed. Now, allow me to be very clear. Delivering synergies and reducing cost is what finances the journey. Through time, we have gained the capability to systematically and deeply deliver synergies and cost reduction. So I'm going to focus on how we deliver these savings. The experience to deliver synergies has been built into this Nokia business system practice that you see here. This is the framework of our execution, and actually, it combines the best practices from both Nokia and Alu. At the center, you see a powerful integration capability and a new and unique continuous improvement process, also called continuous transformation. At the right, because Nokia is a knowledge and talent company, you see our talent management process.
At the left, our investment optimization process. Timo and I, we will cover these four blocks now, and in my presentation, you will see a banner at the top of the slides that will help you navigate. I'm going to address two parts. The first part I'm going to address is how we execute, and the second part is how we select where we invest. When I talk about investment, I will talk about investment for the customers and for the market, and I will talk about customers for Nokia, inbound customers for digitalizing Nokia. Let me start at the center now with integration and attached synergies. Often we are asked, and you are asking us, what makes us perform successfully? Why? I've gathered for you six reasons for our success. Six reasons, six bullets.
First bullet: we have the right tools, such as color books, and I'll come back to that. We have transformation programs, like our SMART program you'll hear about today. We have a tracking system based on degree of implementation of P&L impact. 2: second bullet, we have learned from mistakes. We have learned the need to have ultra-fast roadmap decisions, like Sami has done in mobile. We have learned the need to have leader selection at day one. We have learned the need of cascading synergies targets very deep down into the organization, several levels of management down into the organization. And we have learned the need for a very granular tracking of our synergy. Third, we run integration and transformation in parallel.
Actually, we select our leaders for their passion for transformation, and as a result, our team has the ability to focus on P&L impact and, in parallel, to define the levers for long-term significant impact. For example, I'll give you a few examples of parallelization. We run in parallel restructuring and insourcing. We run in parallel headcount reduction and job rotation. We run in parallel site defragmentation and site identity creation, which is investment in our sites, and there are many, many others. Fourth reason for success: we engage customers early on, and we win through our quality mindset and our Six Sigma DNA that we inherited when we acquired Motorola. Five: we embrace the culture of the companies we acquire and the talents and industrialize the best practices. As an example, we are continuing with Alcatel-Lucent Bell Labs expertise to create tenfold performance gains through innovation.
We have embraced that. And six: we have an experienced team of executives that have led successful integration before, and I'm proud, and I think you know that, for a very structured and disciplined approach. So this is my proud moment now. As a result of the integration of Alcatel-Lucent, I would like to proudly highlight that the integration is now done, and we are fully operational. Well, I think it's quite an amazing development when you think that day one was only 10 months ago. So these six bullets that are the keys to our success, they sound simple, but they are very hard to replicate. Actually, you need to build such a systematic approach. So I said we have the tools. Let me zoom in and explain. On the tool side, it starts with business governance.
The continuous improvement framework is where we decide synergy and integration targets at the executive level, and then these synergy targets are cascaded systematically by all leaders in the organization, across business groups, and across regions. So to track the progress within all the units and continuously launch new initiatives in parallel, every month we run systematically the reviews that you see on the left, which are an integration and transformation board, a location strategy board, a lab council, and a quality board. On the right, you see the color book system. You see that this execution of synergy is run via what we call transformation programs, and the progress is tracked against P&L metrics defined in the color book system. As I said, P&L metrics.
So below, I have picked two examples among many of the past achievements, which can be very different, actually, but they all impact P&L: a 20% year-on-year decrease of new customer defect from 2012 to 2015, or a year-to-date substantial positive impact on our ultra-broadband networks bottom line through the pricing, analytics, and control mechanisms. So as a result, we systematically increase operational efficiency for each P&L line. So let me take another example here. Let me pick the third line, the sales efficiency initiative, where we impact net sales and gross margins. So this is a global software sales and pricing program that we have deployed with 1,000 sales experts that covers analytic-based sales, and again, that increases our margins. One example among many. Another set of P&L impacting transformation programs are these six global programs shown here.
Again, they all come from proving best practices from our SMART program of Nokia or our Alcatel-Lucent shift plan. During the last quarter, we started expanding across Nokia throughout all our units these six programs. Let me walk through each of these and share some details. The first one, which is called regional service profitability improvement, uses Lean methodology, again, inherited from our Motorola acquisition, to perform deep-dive investigations by our local teams. RSPI focuses on profitability. The second one, called total cost of ownership, focuses on all the products across Alu and Nokia and focuses on all the best practices there. TCO is a very thorough process that covers OPEX, FPO, COGS. Our current target is to reduce the TCO in line with companies' revenues.
In the domain of the supply chain and procurement, I introduce systematically automation and robotics, again, to reduce FPO, variable costs, and logistic costs. In the service business, you will see with Igor later today that our service engineers introduce what we call extreme automation and centralization, and in parallel, at the same time, execute on the first one, the regional and service profitability improvement program. Actually, Igor will be talking about thousands of service robots to reduce our costs. Lab virtualization, it's another key program to reduce R&D costs. You can think of it as flying our own jets, where we apply digitalization to our internal R&D capability. Now, remember that we have 40,000 R&D engineers, 35,000 service engineers, so we apply it at scale. So as a result of applying those technologies, we create economies of scale, reduce development costs, and increase our agility.
Our target here is to continue with our 10%-20% yearly increase of R&D efficiency across the company. The last one, through our site strategy, we have become a true global company, gathering all those competences with very diverse talents that creates a lot of agility and a lot of new thinking. Actually, we think diversity has become a key differentiator for Nokia, much better than our competitors. Now, in parallel, the fast reduction of our site footprints delivers the planned synergies. Remember, I talked about this parallel, capability to transform and do the integration. Our target here is to reduce by 30% our site footprint. Already, as you can see, we're on track with very solid and systematic plans to achieve the target of EUR 1.2 billion net cost savings by the end of 2018. Again, our approach is deep and systematic.
Now, what are the levers of our cost-saving programs? As you see on the left, headcount is a very large lever for cost savings. You also see that reducing subcontracting in direct spend, reducing hardware costs, are also very important levers. Now, if you look on the right, the organization split, it is clear that the savings come mostly from corporate functions, where we had a lot of overlapping, and the mobile networks business group. Now, we said, if you remember, that we would target operating cost synergies in a wide range of areas. Let me list them again for you: real estate reduction, procurement gains, headcount reductions, manufacturing cost reductions, supply chain cost reductions, discretionary spend reductions, reducing overlapping products, removing overlapping products, removing overlapping services, and removing overlapping functions.
Now, the savings that you see here are expected to be achieved evenly during 2016, 2017, 2018, and Timo will show you more details. Now, business is all about people, all the more in Nokia, which is a knowledge and technology company. So here are some of the transformation initiatives that we deploy across the company. First, to succeed in our business, we look for exceptional talents and deep engagement. It's a very strong focus of ours. We have developed a transparent and very energizing process for our people in order to allow our best talent to quickly rotate to strategic areas. Our employer of choice program defines the expertise of each of our sites across the world and thus provides a framework for our leaders for job rotation, for knowledge and competence development. So let me give you a little story about the impact of such an approach.
In one of our very large sites in 2012, we used to have an embarrassing 17% attrition. This is a city where there are 100,000 students and young professionals, and those students and young professionals used to see Nokia as a training camp, and then we were moving on. So we decided a few years back to launch our employer of choice program, and it divided attrition by 3, a massive turnaround, not only for cost but for knowledge, and since the site has been selected 3 times in a row as the national employer of choice. That's where people want to be. Now, just imagine when we roll out this employer of choice program across all the sites of Nokia around the world. So I've now explained the systematic and deep nature of our plans to execute on integration, deliver synergies, and reduce costs.
So let me move to the second part. As you see, I'm tracking with the banner on the top. So let me go back to our journey and this time look at it from the innovation and technology angle. Why have we selected these eight bullets, and how do we invest in regards to these bullets? So I'm on the innovation part. So Nokia Future X network's vision, you heard it, is the result of Bell Labs research on the impact of six megatrends that you see here. These six megatrends shape everything we plan at Nokia in our journey towards this programmable world. So let me talk about it. Let's start, for example, on the left with network compute and storage. At Nokia, we believe in delivering near infinite capacity, near infinite capacity, and virtually zero latency. Next, augmented intelligence.
This is a true revolution that brings human assistance and task automation at network scale. Here, we bring the leadership of Bell Labs in the field of augmented intelligence. Next, Internet of Things. Internet of Things will call for the underlying connectivity for a trillion things with Universal Adaptive Core, programmable network operating systems, and protected by Dynamic Data Security. Those three trends drive our investment into Nokia IoT components. The next one is human and machine interaction that requires next-generation interfaces and devices that are enabled by very low latency. You saw it in the video, right, with the robots. Our OZO camera or our Withings Digital Health offer are very good examples where we already sell products, where such human interaction can be experimented. Now, all of this might sound theoretical, so I will explain how we select investment and how we execute.
So let me come back to the network schematic and explain what it means in practice. So again, think of this schematic of our future architecture defined by the Bell Labs. All our BG, as you've seen, are mapped into this architecture, which gives an extraordinary force to our offer, where we have an end-to-end integrated capability and portfolio. And let me tell you why this matters. Take bullet one: converge massive-scale access, which combines fixed and wireless. Now, you remember the Alu acquisition, which made Nokia fixed and wireless one company. Now you see the driver, right? Latencies, reliability, coverage, and scalable capacity are the requirements for Industry 4.0, connecting those factories and those robots, and for virtual reality at scale. My point here is that in the future, fixed and wireless complement each other very well.
Bullet number two: converge core, converge edge clouds, brings distributed data centers close to industrial physical location, again, for the same reason that you saw in the robot, making machine interact. It delivers the virtualization while boosting the latencies. You heard in the demo that Rajeev showed that the data centers were local. They were close enough so that the latency would be small, within 50 km. Actually, this is my second point here. Distributing data centers is the only way, only way, to bring the right latency needed by mission-critical networks or needed by industries using the cloud to control their machines. That's the only way. Bullet number three: smart network fabric, which combines optics and IT to create the next generation of flexible networks, where you have physical and virtualized transport components that are controlled by SDN. What is the conclusion of that?
The conclusion is that network vendors of the future need IP, optics, and SDN. Network vendors of the future need IP, optics, and SDN. Again, a strong trigger for us to acquire Alcatel-Lucent. Bullet number four: universal adaptive core. Provides a converged core for multiple access technologies. So let's be 5G, LTE, Wi-Fi, fixed access, multifire cable, and so forth. Again, it matters to address the needs of users who want seamless access. Each of us wants to be connected wherever we are. Number six: Augmented Cognition Systems. These are the new capabilities that are using cognitive systems based on big data, based on analytics, and machine learning. These are the needs that make IoT and Industry 4.0 so hot. Now, the fact is that only a few large companies in the world have the research depth to address augmented intelligence and cognition systems. This is hard science.
At Nokia, this capability is in the Bell Labs, and the development is in our application and analytics BG that Bhaskar is leading. Bullet number 7: digital value platform is where we expect to see new business models emerge and develop. Now, more to see with Brad later when Withings and Nokia OZO are shown as examples, as developed by tech, these new types of business models. Dynamic data security, number 8. It's based on digital trust, very important for all of us, and automated security, very important, automated security. It enables end-to-end security, starting with the cloud, cloud security, and then network security, and endpoint or device security. Now, for Nokia, we see it not only as a technology play, but we also see it as a brand play for Nokia because Nokia is a brand that carries trust.
And again, that's a differentiator with some of our competitors. Now, in a high-tech company like Nokia, it is fundamental to have a systematic and deep process to select and master innovation investments. So the process we apply at Nokia here, you see on the left, is to invest on the right time to capture the maximum return on investment, and then to cut investment fast, to monetize the long tail, again. Again, we have the tools, the transformation tools, to shift this investment fast. It does not happen by miracle. So the point is to have those techniques. As another business rule, we have integrated a very successful Alcatel-Lucent practice, where we seek to find the right business insertion points for our innovation. This is another fundamental practice that we have absorbed.
Now, you see on the right the result of our selections for 2017 and how this shapes our investment across the eight domains. So I've covered our cost saving. I've covered our external investment practices for our market and customers. Now, let me switch to the last part of what I wanted to share with you, how we use digitalization to transform Nokia inside Nokia. So Nokia uses its digital capability first to focus on top-line growth and disruption. How do we do that? First, we use cross-selling as a capability to use our unique end-to-end portfolio. Just to give you an idea of this cross-selling and end-to-end sales, the share costs of our cross-selling deals has already achieved 15% of the sales pipeline, and the share is increasing. So a strong driver.
Another example of our progress to digitalizing Nokia is the employment of that single cloud-based customer relationship management solution that Rajeev mentioned, where we aim at automating sales. Now, the cherry on the cake here is that we are piloting augmented intelligence software from Bell Labs into our Salesforce-based CRM. Let me say it again. We're piloting augmented intelligence into Salesforce, so the Bell Labs inside Salesforce. Pretty cool stuff. On the innovation side, we plan to experiment with digital business ecosystems that you see on the right and what we call multi-sided business-to-business digital marketplace platforms. At Nokia, we have 32,000 suppliers, so it's a very interesting place to be.
Because we are a knowledge and technology company, we aspire to leverage the dynamics of this digital platform with our suppliers and partners to access new skills and talents, improve return on R&D, sharing investment, accelerate innovation, test adjustment markets with our partners and suppliers, and develop Nokia branding. In other words, we want to use what is on the right to create some accelerating effect on our top line. The second one, where we digitalize and impact Nokia, is focusing on improvements of our bottom line, so more initiatives to strengthen our bottom line.
So we're launching a number of innovative developments that will strongly impact our bottom line over time, which is digital supply chain and delivery, cloud-based tools throughout the operations, everything, including finance, including operations, delivery, and so forth, industrial IoT and robotics for our factories and hubs, and for those that have the chance to go to our Oulu or Chennai factory, you'll be impressed with modern IoT, artificial intelligence, robots, automation in service delivery—you'll see more today about that—use of common software foundations—you'll see more with Bhaskar today—DevOps and automated sales. So another example, for example, that I'll give you on the first bullet: digital supply chain and delivery. Now, we're currently creating what we call our own manufacturing 4.0 operation based on augmented cognition systems. Again, we're applying artificial intelligence in our own factories.
As of 2016, we increased our production automation from 40% to 60%, giant step, moving Nokia to the top 10 in Gartner's high-tech operations listing, outperforming our competitors in the ranking. We're also using Bell Labs in order to enhance the way we develop inside Nokia, and we are putting augmented intelligence inside our operations. For example, Bell Labs has developed an assisted thinking tool, which dramatically enhances the ability to find and explore data, disrupting completely conventional search through augmented intelligence. Now, we're a bit selfish, so we applied that to ourselves, and we're testing this tool inside Nokia, right? And our employees are testing this assisted intelligence - that's quite fantastic - to better communicate, collaborate, network, and co-create. And we have already applied it in a number of techniques, for example, quality, and we start seeing an increase of productivity there.
So let me summarize with three takeaways. The first one: integration has been a success. We're very proud of that, and we have this deep and systematic business system to deliver our cost saving of EUR 1.2 billion. The second one is that we are seeing the business benefits of our end-to-end portfolio to address those future megatrends. In particular, we've combined fixed and wireless access and combined optics and IP. And last, we use our own technology and knowledge to digitalize ourselves. And as a result, we expect to become more and more cost-competitive and also to have the capacity to finance those new and focused opportunities for growth that Rajeev showed you. Thank you. And with this, let me introduce Timo, our CFO. Timo. Thank you, Marc. I don't need that, I think. Okay. Thank you, Marc, and good morning to everybody also on my behalf.
As most of you know, I'm Timo Ihamuotila, CFO of Nokia, and it's great to see so many familiar faces in the room today, two years after our last Capital Markets Day. Now, when we last hosted this event, we were actually in the middle of transformation from device and services business to a market leader in mobile broadband infrastructure and services. The acquisition of Alcatel-Lucent has made us a true end-to-end player and has diversified our portfolio further into fixed access, IP routing, optical, and more. Let me be absolutely clear on one thing. Throughout these transformations, our steadfast focus on creating long-term shareholder value has remained unchanged. I intend to spend most of my time today focusing on three topics. First, I'll continue the discussion on the Nokia business system.
Second, I'll discuss our capital structure and provide more color on major sources and uses of our cash. Third, I will walk you through our guidance. Let's start with the Nokia business system. Mark already explained part of this. The two areas I will cover in more detail are investment optimization and performance management, the two items which are highlighted on this slide. First, investment optimization. We optimize our investments through two key processes: our strategy and financial planning process and our end-to-end M&A process. We manage an integrated strategy and financial planning process that results in three key outputs: capital allocation, business strategies, and related financial plans. These drive our decision-making and execution. Our M&A process consists of M&A target funnel management, actual M&A execution, and thorough business case follow-up.
Now, all of our M&A cases are aligned with our business development and get integrated into our strategy: annual plans and long-range plans with carefully set KPIs and targets to ensure on-track execution. To ensure good allocation of capital, we have a very methodological approach to assess value creation potential, for example, make or buy, by reviewing opportunities through three sets of lenses. First, we look at market attractiveness, size growth, and maturity of the market, as well as industry profitability and competitive environment. Second, we assess the strategic fit of the opportunity. We evaluate the synergies with existing businesses, including sales channels and technologies, along with our market share and competitive advantages. And third, and most important, we evaluate the return on investment, which of course is our number one criteria.
Our focus in assessing return on investment is primarily on top line and margin expansion potential on one hand, and then on the risk side on the other. We are very prudent and disciplined when it comes to managing operating expenses and prioritizing investments. The structured evaluation of our existing business and new opportunities drive our resource allocation, and once the decisions have been made, we run a monthly performance management process to follow up our progress. This brings me to the second major Nokia business system element: performance management. So first, we turn our strategic and financial goals into concrete actions and projects that are cascaded throughout the organization, as Mark was discussing. We then translate these into a performance indicator framework as well as strategic scorecards in order to ensure that all of our efforts are geared towards long-term value creation.
Finally, we run rigorous monthly performance reviews where we monitor the realization of our annual plans and related execution milestones, and more importantly, agree on prompt contingency measures if we deviate from our plans. I really can't highlight enough the importance of these monthly reviews, which were needed to enable us to launch prompt corrective actions. For example, looking back in 2015, when our performance during Q1 was definitely not where it should have been, this framework really allowed us to get quickly back on track and then actually deliver a solid 2015 result in our networks business. Moving to our capital structure. When we look into next year and beyond, there are clearly two priority areas for our cash: investments in our operations on one hand and shareholder returns on the other.
So starting with our investment into our future business, as Mark already showed in his presentation, while we are heavily cutting R&D spend in selected areas to deliver on our EUR 1.2 billion cost savings target, we will certainly accelerate investments in areas where we see greatest opportunity for shareholder value creation. Regarding our ongoing restructuring and transformation, we are well on track to deliver on the EUR 1.2 billion cost savings target for full year 2018 compared to the combined company's cost base in 2015. Today, we are providing more details of the timing of cash flows related to our cost savings programs as well as network equipment swaps, which I will cover in a few minutes. Moving then to shareholder distributions.
As we have continued to renew our business portfolio by divesting non-core assets and acquiring new businesses to strengthen Nokia's strategy, we have also been actively distributing cash to shareholders. Since 2014, Nokia has distributed over EUR 4.5 billion either through dividends or via share repurchases. As I've emphasized consistently, the annual dividend continues to be our principal method of distributing earnings to shareholders. For 2016, Nokia targets to propose a dividend of EUR 0.17 per share. Long term, we target to deliver an earnings-based growing dividend. Over time, we target to deliver approximately 40%-70% of our non-IFRS EPS as dividends, taking into account our cash position and expected future cash flow generation. Whenever we have significant excess cash, for instance, as a result of divestments or other extraordinary transactions, we would consider also share buybacks as an option.
Next, on our planned share repurchases, we plan to proceed with the EUR 1 billion share repurchases starting after this Capital Markets Day as soon as possible and continuing until the end of 2017. Continuing then with our estimates related to cash for next year. The table here gives you a good overview of our planned sources and uses of cash in 2017. Starting with the sources of cash, we expect to begin 2017 with approximately EUR 5 billion of net cash and approximately EUR 4 billion of debt. Assuming that more than 90% of our non-IFRS EBITDA in 2017 turns into cash within the year, and this excluding restructuring and networks equipment swaps, we expect our operations to generate roughly EUR 2.5 billion-EUR 3 billion of cash in the full year of 2017.
Note that while our cash conversion can fluctuate from year to year, we are naturally targeting close to 100% cash conversion over time. Looking at the top part of this slide, we cannot give any estimates on possible divestments or financing transactions clearly, so those boxes have just a number sign in them. Moving then to uses of our cash. We expect our restructuring-related cash outflows, including the planned network equipment swap outs, to total approximately EUR 1 billion in full year 2017, consisting of approximately EUR 700 million related to restructuring and approximately EUR 300 million related to swaps. We expect our CAPEX, financial income and expenses, and tax-related cash outflows next year to be in line with 2016, resulting in approximately EUR 1.1 billion of cash outflows in total.
As earlier mentioned, our plans regarding shareholder distributions are pretty clear for 2017, the planned dividend for 2016 being approximately EUR 1 billion and the EUR 1 billion of share buybacks to be completed by the end of 2017. Now, taking all this into consideration and assuming that all the number signs on the slide would be zero at the end of 2017, Nokia would end up approximately with EUR 7 billion-EUR 8 billion of total cash and other liquid assets. I already discussed our priorities for cash going forward. Over the past year, we have been busy with implementing our EUR 7 billion capital structure optimization program. This program is well underway with approximately EUR 5.1 billion of deleveraging and shareholder distributions completed thus far and approximately EUR 2 billion to go.
Now that I've explained our thinking around cash and capital allocation, I'd like to spend the next few minutes on discussing some of our balance sheet-related targets. As we indicated previously, achieving an investment-grade rating is one of the key targets for Nokia. While we feel that Nokia's current balance sheet is more than enough to meet investment-grade requirements, restructuring items are expected to weigh on our cash flow. Thus, factoring in the working capital-related cash outflows in Q1 of this year as well as expected cash outflows related to restructuring, we expect Nokia's free cash flow for 2016 to be clearly negative, then to be slightly positive in 2017, and clearly positive in 2018.
Second, we feel that maintaining a total cash and other liquid assets at around 30% of net sales with a positive net cash balance should be a sufficient target for cash for Nokia over time. This target implies that we can manage our business over time with lower total cash levels, as we expect to see the benefit of our diversified product portfolio and customer base following our acquisition of Alcatel-Lucent. Moving next to further discussion on our EUR 1.2 billion cost savings target to be achieved in the full year of 2018. We expect the net savings to materialize at a relatively steady pace: approximately EUR 400 million coming through already this year, approximately EUR 250 million being reflected in our OpEx, and about EUR 150 million in our cost of sales.
The cumulative net sales are expected to reach EUR 800 million in the full year 2017, with approximately EUR 450 million of savings coming from OPEX and approximately EUR 350 million cost of sales. Finally, we expect to achieve the total EUR 1.2 billion of net savings in full year 2018, with EUR 800 million of savings coming from OPEX and remaining EUR 400 million from cost of sales. While we plan to book most charges related to the EUR 1.2 billion cost savings target over the course of 2016 and 2017, the associated cash flows will spread over a much longer period of time. We expect the overall restructuring-related cash outflows to total approximately EUR 2.15 billion, including the remaining balances of the expected restructuring cash outflows related to the previous Nokia and Alcatel-Lucent programs.
We expect EUR 1.7 billion of this balance to be recorded by the year-end of 2018, while the remaining EUR 450 million of expected cash outflows will have a longer tail. As we explained in our press release this morning, we are now guiding for higher levels of restructuring and associated charges and cash outflows, primarily related to our plans to mitigate the more challenging market environment with additional transformation initiatives. Following the rationalization of our combined networks equipment portfolio, we are now targeting approximately EUR 900 million cash outflow relating to equipment swaps in total. We expect approximately EUR 300 million of the swaps to be recorded in 2016, approximately EUR 300 million in 2017, and approximately EUR 300 million in 2018. The swaps will be accounted for as a transaction-related cost and therefore will not be reflected in our non-IFRS P&L but will negatively impact the cost of sales line in our reported P&L.
Continuing then with our guidance. Starting with taxes, as you know, we have guided our non-IFRS tax rate to be above 40% this year, which is significantly higher than what we had in 2015 when we ran our business principally through Finland, where the corporate tax rate is 20%. We have used this past year for planning to be able to move ahead with the implementation of a more optimal tax structure for the combined group now that we have reached full ownership of Alcatel-Lucent. Consequently, we are confident that we'll be able to reach a significantly lower non-IFRS tax rate between 30% and 35% already in 2017 and 2018. We expect our non-IFRS tax rate in full year 2017 to be at the higher end of this range, while we expect to achieve non-IFRS tax rate closer to the lower end of this range full year 2018.
Longer term, after having the new tax structure fully implemented, we target a non-IFRS P&L tax rate of around 30%, so please use these tax rates for your modeling. Due to the EUR 5.1 billion of recognized deferred tax assets on Nokia's balance sheet, we have been able to maintain our guidance for cash taxes at approximately EUR 400 million in full year 2017 and going forward until the deferred tax assets have been fully utilized. Moving next to our guidance on financial income and expenses in full year 2017, which we expect to be approximately EUR 300 million. It's good to note that approximately one-third of our financial income and expenses are non-cash accounting charges, mainly related to interest costs on defined benefit pensions. Consequently, we expect cash outflows related to financial income and expenses to be approximately EUR 200 million in full year 2017. Then discussing our current debt profile.
In accordance with our EUR 7 billion capital structure optimization program, we reduced interest-bearing liabilities for the combined company by EUR 2 billion already at the start of this year. All of our borrowings are now senior, unsecured, and have no financial covenants. Over time, we expect to lower Nokia's interest expenses further from the current level. Regarding capital expenditure for next year, as I mentioned earlier, we expect this to be approximately EUR 500 million in 2017, being attributable mainly to CAPEX by Nokia's networks business. And finally, on our guidance for Nokia's networks business. As Rajeev mentioned in his presentation, we expect the primary addressable market for our networks business to decline in the low single digits in 2017, and we expect the net sales for Nokia's networks business to decline in line with this market.
We target the long-term non-IFRS operating margin for Nokia's networks business to be between 10% and 15%, with all networks business groups contributing double-digit long-term operating margin. We expect to land around the midpoint of this range if the market environment and our execution are both in line with our expectations. The higher end of the long-term operating margin guidance range should be achievable if both our execution and the market environment are better than our current expectations. Similarly, we are likely to land towards the lower end of the range if both the market and our expectation turn out worse than we currently expect. In full year 2017, we expect the non-IFRS operating margin for Nokia's networks business to be in the range of 8%-10%.
Lastly, I would like to conclude my presentation by capturing some of the key messages from the presentations that you've heard thus far today. So first, while the market is challenging and the short-term industry dynamics are not rosy, our strong operational capabilities enable us to manage through these market headwinds. Our networks business has an end-to-end market-leading diversified portfolio, and it continues to optimize its cost base. Nokia Technologies has an industry-leading patent portfolio and is well positioned to capitalize on it. Second, taking a long-term perspective, we are confident that we have assets needed to truly transform our networks business and build an independent software business. Within Nokia Technologies, both licensing and products have tremendous long-term opportunities. And finally, and perhaps most importantly, we continue to manage Nokia with strong governance processes.
This ensures we are on top of the market dynamics and that we can make the right decisions in order to maximize our financial performance and long-term shareholder value. With that, I'll hand over to Matt for Q&A, I think. Thank you, Timo.
Thanks.
So we're running a little bit behind our agenda, so what we will do for this is we will welcome Rajeev, welcome Mark back to the stage. What we will do is extend this Q&A session, shorten the break, and we'll take questions for Rajeev, Mark, and Timo till around 11:10 or 11:15. Let's take the first question from where's the paddles? Let's go with two.
Thanks for taking my question. It's Achal from Credit Suisse. Rajeev, can you talk more about the philosophy behind the EUR 1.2 billion cost savings number? I think if we go back six months, I think the market expectation was for about 3%, 3.5% CAGR growth. Now it's 1%. And then obviously, you're talking about 2017 to be down, but we're still retaining that EUR 1.2 billion savings number. I'm just curious, are you targeting internally more than that, and some of that will be reinvested in newer growth areas, or what's going behind the scenes? Any color on that? Thank you.
Thanks for the questions. We've said the EUR 1.2 billion is net savings, and there is a bit of reinvestment. Again, we think many of these areas, as I commented, are incremental reinvestments like public safety. You already have LTE. We are the disruptors, so it's incremental, maybe some channel investments and so on. But we think the window of opportunity is now to reinvest in some of these areas as well. But despite that, we believe the long-term operating margin guidance is something that we stick to, as well as the fact that we can achieve these cost savings at the net level despite the reinvestments. On the market, we are being disciplined also from an investment standpoint to look at primary markets separately as distinct from adjacencies. Now, let's be clear. We will get traction in the adjacencies during 2017. Public safety is starting to happen now.
It's a sizable category. It's going to be EUR 6 billion sizable category by 2021. And so also web scale for us from an IP routing standpoint and optical. But we want to be disciplined when we invest. We want to look at both the primary market in terms of cutting legacy and reinvesting in 5G and so on, and the adjacencies separately, because then we can be disciplined about the investment plans in both.
Lexi.
Mike Four.
Hi. A question maybe for Timo and Rajeev. When you think about software and some of these new verticals, and you think about your long-term 10%-15% margin guidance, I mean, software should be a more profitable business structurally than you currently have, both from a gross and an operating margin perspective. When you look at your long-term targets, do you think Nokia can move to significantly higher levels of structural profitability, and indeed, will this give you more visibility in your business because it would be recurring revenue licensed business? So maybe you could talk about the dynamics of the visibility you would see in 2-3 years when you get these independent software and vertical businesses going.
Right. I think most of these opportunities are creative, and of course, they are structurally more attractive. I mean, software is a fragmented industry. The characteristics are fairly high growth. It isn't a dogfight. It's not that sort of price erosion that we see. It's sticky, and because of the as-a-service type revenue streams, it has the potential to have recurring revenue streams. For us, the opportunity is first to penetrate the mobile networks that we have, because we haven't penetrated that fully, then move to fixed and cable before we go outside, as we said. So from a characteristics standpoint, it is a structurally more attractive market for the long term, attracting better multiples and so on. But still, I will say that we have been prudent in our assumption on when that standalone software business will take hold, when it will become a large business for us.
You'll hear from Baskar that we're on the right track from a dimensioning a Salesforce point of view of driving monolithic software platforms to more common software platforms. There's a cost equation. There's a pricing equation. And of course, long term, this business should attract higher gross margins, just fundamentally, and that's why we're interested in it. Still, 10%-15% in operating margin guidance, as we said.
Yeah. Yeah. So maybe if you look at the dynamics of that 10%-15% overall, so clearly there are many elements which impact part of the OpEx on the net basis will flow right through into that equation. We also said that we will need slightly healthier market dynamics to really drive higher gross margin. And of course, at the moment, a lot of our initiatives in the cost of goods sold side of the cost equation have enabled us to run the networks business with fairly steady gross margin in a market environment which is probably, at least during my time in this business, the toughest we've seen. So in that sense, we will need a little bit of market tailwind as well to get there and a little bit more operating leverage.
Paddle three.
Yeah. Hi. Sandeep Deshpande at J.P. Morgan. Just actually following up on the software question. Does the software business that you are embarking on eat into your hardware business? Because you know NFV, etc., is a software business but is going to potentially impact your hardware revenues. That's my first short question. And the second one is regarding, Timo, regarding the margin. You've got EUR 400 million of cost cuts coming through next year, but if you look at the consensus and what you're indicating in terms of the midpoint of your margin guidance for next year, there's maybe about EUR 120 million incremental EBIT euros coming through. So what is the delta between that EUR 400 million of cost cuts and much lower improvement in the absolute EBIT that we're seeing?
So first, on the cloud solution, we have a very compelling end-to-end cloud solution, right? So we've got software-defined networking. We've got the whole IP routing. We've got all elements that can virtualize NFV. We've got orchestration engine, CloudBand. We've got Nuage and its equivalent in the service provider space. So very strong. And of course, we have the SI, systems integration, to wrap it all together. So what will happen when virtualization takes hold? Yes, it is true that the hardware revenues will slip. That will reduce. But it is also true that some of this will be replaced by more software revenues like orchestration, like SDN, and so on. So hardware will be replaced by some software. And then the second is there'll be more systems integration because a lot of the tier two operators will not want to put this all together on their own.
So they'll say, "You know what? You do the SI. You be the domain partner." So we think that the loss of hardware will be somewhat offset by SI as well as new elements of software. And then when it comes to routing, we will see when Bhaskar presents that for a part of the application use cases, that virtualization isn't necessary, but for a lot of the other stuff, you still want to be in the heavy silicon-driven IP router.
Yeah. And I mean, the guidance question, basically, you have EUR 200 million coming from OpEx, so that's about a point. So if you look at this year's guidance, which is 7%-9%, going to 8%-10%, so that should sort of kind of bridge that gap. And then of course, we would like to see a market where even if we are expecting slightly lower top-line in networks business where we can fight the price erosion, if that would be the case and we would be able to bank majority of the EUR 150 million, then would be closer to the higher end of the range. So that's how the equation works, but we really don't know how the top-line exactly is going to develop and how the margin is going to be driven by the possible price erosion.
Four.
Hi. Thank you. It's Stuart Jeffrey from Natixis. I had a question on a margin target of 10%-15% long term. I don't remember anyone outside of routing ever getting close to 15% on a prolonged basis. I know you're doing good stuff internally, but typically what happens is that your competitors behave irrationally, give away hardware cheaper, bundle software. So could you talk a little bit about not the things that are under your control, but whether you think the market's becoming more rational going forward and why we don't get your competitors behaving irrationally and driving margins and prices down?
So on the pricing environment, first of all, as I commented, having this stronger end-to-end business provides us a potential to, in some cases, also get premium simply because we have a better end-to-end offering and better end-to-end architecture that we can work with customers on. Second, it also hedges the bet somewhat because it's really in mobile that we've seen stronger price erosion than some of the other businesses I spoke about. So we're already looking at fixed. We have measurements there that give us a lot of relief, and then we're looking at some of the other markets as we'll drive that. Now, we will be in a centralized pricing environment, so from our point of view, the discipline is only going to strengthen because we will apply that discipline. We're already doing it across the entire company, across the entire portfolio.
Then by getting into some of these more sticky businesses, software and so on, you create that stickiness that it's kind of hard to be replaced or swapped out. Now, do I see an easing of the pricing environment specifically in mobile long term? I'd say a couple of things. The competitive intensity has not increased or decreased. It's been kind of neutral since the last time we spoke about this increasing, which was in Q1 2015. And then I think when you go back to history, and that's the best way to sort of see what the indicators might be, when we acquired Motorola, when Ericsson acquired Nortel, and so on, we saw a period of stability between 2012 and 2015, maybe even 2011, second half to 2015, on the back of consolidation.
So one can expect the fact that 90% of the mobile market is held by the top three players, that customers understand that they're conservative buyers. As you know, they understand that people need to spend in R&D. They need to be in business for the long term, and so on. So that would suggest that long term, maybe some easing will take place.
Back to two.
Thanks. Gareth Jenkins in UBS. Two questions, if I could. Can you give us some concrete examples of the convergence that you've seen in terms of the 15% overlap or cross-selling that you've seen? So give us some examples of which products you're seeing that in and whether purchasing decisions still remain quite separate between product areas. At least that seems to be the case. Second question is just on China. You signed an MOU, I think, in 2015 with Huaxin. Have you got any update in terms of that, or when can we expect one? Thank you.
So first, on the 15% pipeline, and we're seeing that grow, we are going to drive cross-selling as a real metric for each of our salespeople, so the account teams in the company, from next year. We're also going to break the bucket of budget and targets in the different four constituent business groups. So a customer team had to hit his targets or her targets will have to sort of achieve all of them, and we'll give incentives and kickers for more accretive businesses, software, IP routing, and so on. But I'll give you a few examples. I think the British Telecom deal in fixed that we got, we've become far more important British Telecom given that we were strong in everything everywhere. They acquired EE, and we were strong there on the mobile side, including public safety. That's one example.
I would say that we have seen examples in optical in Asia-Pacific in particular, both with IP and optical being a portfolio, but also the fact that we had a strong channel for that particular customer in Nokia. We're seeing traction in India for our fixed business. We've won a deal or two that already suggests that it's materializing. We see opportunities in Japan, Korea, and other parts of India in fixed, as well as IP routing and optical where Nokia had strong customer relationships, then Alcatel-Lucent and many of those customers. So this is starting to materialize. We will formalize this as a real metric in our customer operations sales organization. And then, of course, the 15% is something that we track, and we also track the penetration of how many of these deals are more than two business groups, three, four, and so on.
We have a multi-BG approach to, for instance, cloud because cloud is going to come from all parts of our business. So to bring it all together, one customer, we'll have to make sure that collaboration takes place well across all four business groups. Mark, you have anything to add to that?
Yeah. So this is the short term. On the medium term, we see a lot of discussions and traction on customers that are looking at access as one, where they say, "What is the most efficient way to bring the access, fixed, cable, copper, optics, but also wireless in the same environment?" So Federico will talk about that. We drive this through our fixed access capabilities. We see the same in optics and IP where there is a lot of requirements to see how the technology blend together. So in a lot of the stacks you see, the engagement of our customers is really to ask, "Okay, how can I combine? How can I leverage?
Very awesome.
Three.
Sorry to be, yeah.
Yeah. So on the China case, so first of all, it's very important to note that we have an interim operations agreement in place with Huaxin or ASB so that we can already operate in China as one company now. So these negotiations are not having an impact on our operational execution. It's fair to say that the discussions have taken a little longer than maybe we would have liked. And there are things here because you remember I've said earlier, or we've said earlier, that we agreed that we will not grandfather the old operational model from ASB. So for example, ASB. Sorry, from ASB. So for example, the manufacturing model which has been in place there is not in line with what we would like to see happen. It's not kind of like in the same level from efficiency and so forth.
We are working diligently through those issues, and I hope we'll have an outcome soon. As I said, it's really not impacting our operational execution in China at the moment.
Sorry. Now three.
Hi. It's Janardan from Liberum. You have executed a very successful transformation at Nokia Siemens Networks four years ago with many of these aspects of the Nokia business system having helped you through that. In the last two or three quarters, in your experience at Alcatel-Lucent, has it been a lot different? I mean, what has become more challenging given your initial expectations of this transformation? And can you just contrast the two, and is this going to be a more time-taking, more difficult process than that in order to achieve the results? Second question, if I may, is the growth rates that you're saying are 1% in your addressable markets, and I agree that there are adjacencies which could accelerate that, etc.
But is that a satisfactory market growth for you in the longer term, or are you likely to continue to augment that to reasonably big acquisitions going forward in order to make this a faster-growing company than what your market is permitting?
Yeah. So on the first question, remember that the two companies were coming out of successful transformation, shift, and NSN transformation. So the DNA was there. Now, it's true that the execution model in Nokia was more structured with more tools. So what we have seen is that, and you've seen it in the rhythm at which we deliver the synergies, we have seen that there would be kind of a couple of stages. The first one was the integration that worked very well. The second one is to really expand all those techniques into all of our product lines and business groups. And that's what we started last quarter. But it's fully baked in. This two-stage is fully baked in the speed at which we're delivering. And we've been very happy with the easiness with which our tools and capabilities can be rolled out. They are easy to grasp.
They are easy to master, and that's what we see now. So compared to the NSN, it's much easier if you see because we had to invent the practices and test them. Now it's just when we decide it's the right time, it just goes.
On the market, the 1% cake of market. Now, I will note that we are getting traction in some of the adjacencies already now. I mean, public safety as well as IP for optics for web scales. We have traction with a few web scales already. We are in business with a few web scales. But on the primary market, on the 1% cake of now, if some of the things I said materialize, i.e., there is this gap between demand and supply, and operators and others will have to invest to meet that unmet demand, as well as if some of the low-latency requirements already come into force. You don't have to wait for 5G for low-latency mission-critical applications. We can do 7 milliseconds with 4.9G. We can get close to 10 milliseconds with 4.5G Pro. We do 3 milliseconds with 5G.
Today, it is 90-100 milliseconds in network. So there clearly are a number of applications, Industry 4.0 and so on, that will start to take hold, network slicing. So if some of those things happen, of course, the market could be a little better. But our best understanding based on our business intelligence, we have a Dell'Oro-like, real solid business intelligence in the company to analyze markets. On our own situation, of course, we would look at bolt-on acquisitions. Software is an interesting area for us. IoT is an interesting area. Other elements of our diversification are interesting where we would have to probably expand the portfolio somewhat to get a best-of-suite. Of course, we want to grow faster than the primary market. The primary market gives us a consideration, but we want to grow faster.
Even next year, as I said in my earnings call, we see some puts and takes. So if China FDD-LTE happens sooner, that could be an upside to the market. If Red Compartida project in Mexico takes hold, it's a very large wholesale project. That could be an upside to the market. If India starts to accelerate LT on the back of Reliance Geo as well as a new Spectrum award, that could be an upside. If Japan starts to move towards higher bandwidth such as narrowband IoT as well as moving towards 4.9G, that could be an upside. If the US goes into public safety quicker, that could be an upside, but also the 600 MHz award that we are seeing from the broadcast side. But we take a very prudent view of the market, both short and long term.
It could be likely that there are some things that can drive the market to be higher, but our ambition is absolutely 100% to grow faster than the market in the long term.
Let's go back to two, and let's keep it to one question, please. Short amount of time left.
Thank you. Simon Leopold with Raymond James. Just wonder if you could give us a little bit more thought on what's changed from a geographic perspective and whether or not, in terms of your outlook, if there's any implications from the results of the U.S. elections in terms of potential for trade wars or interest rates, how that's factored into your thinking.
Yeah. I'd just say it's a little bit early to call. The pro is that it could be pro-infrastructure spending, particularly in the U.S. We know that there could be a few negatives, I mean, trade issues, but also other impact in terms of consolidation in the marketplace where views have been expressed pretty solidly. But I'd say all things considered, we have to wait a little bit more for policy statements before we can start to understand what the impact will be.
Let's go with three.
Yeah. Hi. It's Rob Sanders at Deutsche Bank. Just one question on 5G. Are you actually convinced that 5G is a larger spending outlay than 4G? I'm thinking here that 5G will be more like islands in a sea of 4G. Obviously, you'll have shorter propagation, though. So how are you thinking about 5G for a given operator in terms of how much they spend versus 4G? Thanks.
Yeah. Let me start, and Mark, you can add. We see 5G as a fantastic opportunity because, again, it's going to come when it comes, it'll be quicker uptake as we saw with 4G, and it will coexist with 4G and 5G will coexist for a very long time. You will need the coverage, the high capacity that 4G does with the lower band spectrum, 900, 700, 800, and so on. And then this is typically higher band spectrum, 3.5, 28 gig, 56, 84, and so on. So you need the matching of the two. So think about 5G as this ultimate small cells networks on steroids, sort of a local area network, if you like, in cities first and then expanding into other geographies. But it will last for a very long time. So it is the next big opportunity for us.
Typically, every cycle of 4 or 5 and so on lasts for 8-10 years before it peaks. So we're looking forward to that. And I think for us, the opportunity is to both have an overlay network on competitor networks as well as a non-standalone network that works well with the installed base of 4G. So it will be a large, meaningful spend opportunity because networks, absolutely, given the latency requirements and so on, will have to be a lot more denser than today. And densification has not even just begun. It's just the only thing we've seen is small cells is becoming a bright spot. It really is growing. As we said back in 2012, I'd said it'll happen in the second half of 2016. We're seeing that happen, but nowhere close to the amount of densification that we will have to see in the marketplace.
Yeah. So 5G, as you said, are pockets, but you also need to look at 5G as doing refarming and digesting the previous technologies at the same time that 5G will be necessary for those pockets of latency and very high speed and different carrier aggregation, refarming, and a lot of spectrum. The spectrum that is coming with 5G is much bigger than before. You will see all this that we've seen in 4G. A lot of the volume the 4G was coming from, the refarming, the carrier aggregation, right? So that's going to have a big impact as well.
Last question, Ilkka in the front.
Yeah. Thank you. Vincent Maulay from Oddo. A question on SWAP. And actually, what is the stickiness of the former Alcatel-Lucent wireless footprint? Are you able to have saved roughly 80%-90% of the former footprint? And what about the catch-up? Because we have seen some wait and see from Alcatel-Lucent wireless clients in 2016. And looking at the 2017 guidance, it doesn't seem to have any material impact of catch-up. So do you have to expect more pushback at the end of 2017, 2018?
So the migration has, we're in execution mode on migration with all of the customers where we have the overlap. It has been sticky. We have kept the footprint in most of the customers that there is that overlap. As we said, recapping 7 large customers, 20-some overall, it has been sticky. We've held onto the footprint. There might have been small footprint changes in provinces in China, but still, overall market share, we held because Nokia got then a stronger presence in its own provinces and so on. This migration will take, depending upon project to project, it will take about two and a half years. So it's starting now. Some projects will finish at the end of 2018, some before that. And yeah. So it's sticky. It's in progress. And then on the catch-up revenue, well, that headwind is going to go away. That headwind was real.
It was there. And some of that is going to come back in due course once our baseband equipment is available to them and the migration begins in earnest. So it's one of those things that could be an opportunity of a positive kind.
Thank you all for your great questions. Before we head to break, let me turn it back to Rajeev very quickly.
Yes. I wanted to take a moment to introduce our new CFO once my friend Timo leaves at the end of this year, sorry, February. But Kristian will move into the role on 1st of January 2017. Kristian has been with the company for many, many years, 17 years, I think, since 1999. And Timo and Kristian have worked together for many of those years. He's got strong expertise in every area of finance, including treasury, corporate controller, understanding the networks business as well as IP. So I wanted to take the opportunity to invite him up here, and he'll just say a few words and introduce himself. Kristian.
Thank you, Rajeev, for those kind words. Hello, everybody. It's great to see you all here at CMD today. It's actually great to be back at CMD. I've worked with some of you in the past. I look forward to working with all of you in the future. I hope to build a strong relationship with the investor community by prioritizing straightforward communications and active engagement with all of you. One critical aspect of my future role as CFO is to be the advocate of investors within the leadership team at Nokia and also within the boardroom. I know from the past that dialogue with investors will provide perspective and insight that will be valuable. I've been with Nokia since 1999, and I care deeply about this company. It is thus a privilege to take on the role of CFO on the 1st of January.
I'm committed to helping Rajeev and team manage the company with focus for the long term while also delivering on the short-term commitments. Both of these, in my view, are critical for us to achieve the end goal, which is to create and deliver shareholder value. So thanks for your attention. Again, look forward to engaging with all of you over time, on the road, at the conferences, together with the hardworking IR team. Back to you, Matt.
Thanks, Kristian. It's great that you're here with us today. I'm sure the investors appreciate it. Now we'll head to our break, and we'll start the technology section here back promptly at 11:30 A.M.
Thank you. Okay, welcome back from the break. I'll give everyone a few seconds to settle. Okay, great. So welcome back from the break. Now it's my pleasure to kick off the Nokia Technologies section, starting with Brad Rodrigues, Interim President of Nokia Technologies. Welcome, Brad.
Thanks, Matt. Good morning, everybody. So as you heard earlier this morning, a key part of Nokia's strategy is to build businesses in the consumer ecosystem. That's where Nokia Technologies fits in, building these businesses and helping build the Nokia brand. If you go back two years to the last Capital Markets Day, Nokia Technologies was just formed. It was a patent licensing business, a successful one, and it was an advanced R&D team with audio, video, sensor connectivity expertise. So we set out to build businesses that would leverage those assets and those capabilities. So fast forward two years to today, and the progress has been pretty dramatic. We have a portfolio of four fast-growing businesses in multi-billion-EUR consumer-oriented markets, businesses that leverage our assets and fulfill our brand promise, enabling the human possibilities of technology.
Digital media, where we're pioneering new VR technologies, including the launch of OZO, our professional VR camera. Digital health, where we accelerated our market entry efforts through our acquisition of Withings earlier this year. Brand licensing, where we have an outstanding partner in HMD, where we're bringing the Nokia brand back to smartphones. And patent licensing, which we're continuing to expand rapidly. So it's a great portfolio of businesses, and we're certainly going to invest for growth, but we're going to invest in a disciplined way, ensuring our investment stays aligned with adoption and growth, and we'll continue to calibrate it as such. So I'm going to go through the first three businesses, and then I'm going to turn it over to Maria Varsellona to go through the patent business. Let's take a step back first and look at the overall tech business. We have strong leadership positions.
We have a world-class patent portfolio. We have the leading professional VR camera. We have a leading portfolio of consumer digital health products. Innovation is at our core. That's who we are. Last year, we filed 1,700 patent applications. That's on top of a portfolio of over 30,000 patent families, the result of two decades of R&D investment totaling over EUR 115 billion. We monetized that investment and that patent portfolio through patent licensing with over 100 licensees. We've made a lot of progress. We're proud of that. But what excites us is that we've created a really strong foundation for future growth. So now we're heading into that next stage, scaling these businesses and re-energizing the brand, a brand that's already one of the most recognized in the world, over 95% global brand awareness. It's amazing.
So as we do that, there's one word that's our North Star, and it represents, I think, what Nokia is better than any other. It's a simple word: human. It's in our brand. It's in our products. It's in our mission. Nokia exists to expand the human possibilities of technology. And within Nokia Technologies, what we do every day becomes the most tangible expression of that purpose. We design, we engineer, we market products that humans use, products designed in a uniquely human-centric way. Take OZO. 8 eyes, 8 ears, captures the sights and sounds around it just as a human would and can replicate that experience. Smart thermometer. Doesn't require contact, so you can check your child's fever without needing to wake them up. Smart watch. Steel HR, which I think is obviously a phenomenal watch. It's beautiful. Tracks activity. Tracks heart rate.
And you only need to charge it once a month, unlike most other smartwatches. Smart scale. Tracks weight. Tracks body composition. Also tracks the health of your heart through a metric called pulse wave velocity that measures your arterial stiffness. A bedside sleep monitor. Tracks your sleep. It also helps you get to sleep and it knows just when to wake you up. It's these products and the innovation they represent that's helping define the Nokia brand for consumers today. And there's also an important thread that runs through them, and that's data and connectivity, two areas, of course, that Nokia has excelled in for decades. It's true for VR. Take OZO. 1.5 Gbps is how much data it generates. That's this generation. To look forward to the next generation, it'll be 4-5 times that.
Delivering high-quality virtual reality depends on high bandwidth and low latency, two capabilities, of course, that Nokia knows well. And certainly, on the road to 5G and 5G itself, those will make a huge difference to the adoption of high-quality VR. It's true for digital health as well. Always-on, connected devices that share information with the cloud using as little power as possible. And it's where the analytics on that data can generate insights that improve health. So there's a strong symbiotic relationship, if you will, between Nokia's network capabilities and our consumer products. The better the network, the better the performance of our products, and in turn, the more data they generate across the network. Together, these products and businesses create an engine for growth and innovation. So let's take a closer look at each business.
Look at digital media, pioneering virtual reality to transport people to places, events, and experiences like never before. So you imagine sitting courtside, your favorite team watching your favorite band from the front row, or climbing Everest. For those of you who've had a chance to watch a game courtside or on the sidelines, you'll know it's just an absolutely dramatically different experience. You feel like you're in the game. It's that emotion of being there. There are very few people who have that opportunity to experience that. It's just a small slice. Virtual reality has the potential to democratize that, in a sense, and let all of us have that experience on a regular basis. It's not quite there yet. It's close, but it's going to get there extremely quickly.
So we're focused on those amazing immersive video experiences, and they fully leverage our deep audio and video expertise. So on the market side, VR market estimates vary significantly, between $25 billion-$65 billion over the next five years. But most analysts expect the market to be quite large in the next five to 10 years. And what's certainly clear is that we're very early on, and we've gotten in at an extremely early stage. That gives us a chance for our technologies to become part of the fabric of the VR ecosystem. So we have opportunities in products, but we also have opportunities in technology licensing, and that could really be where the most profitable elements of our initiatives become. Starting point is OZO, right? Eight cameras, eight microphones, fully integrated. So take a comparison to what other solutions you might have out there.
You'd have a rig of traditional cameras, each with their own memory card, their own battery, and you've got to pull that all together. With OZO, that's all integrated into one, one memory output, one battery, fully immersive 3D audio and video. There's plenty of 2D, 360, and you can go through it on YouTube, your iPhone, whatever it might be. This is fully immersive 3D. Huge difference. Easy stitching. So you don't need to take this big photograph, and then you go off and you stitch it together later. It can be stitched immediately in camera. And what that means is that a director can actually watch what he or she is shooting as they shoot it. It also creates the opportunity for live broadcast in VR. We're still the only camera that can do professional-level VR 3D live broadcasting.
Also being early has created an opportunity to get market feedback early on. We've now been in the market for almost a year, including a beta version of OZO. And as a result, we're working with content creators to inform what's the next best generation of the next best product within the OZO lineup, and also how can we improve OZO itself. We get their immediate, direct feedback. And because it's a connected product, we can make updates via software and other. So OZO's a starting point, but we have a role that extends throughout the value chain. Software solutions, our OZO Creator Remote Preview solutions that help with stitching and editing. OZO Live, the real-time broadcasting of 3D. OZO Player SDK, software developer kit that companies can integrate into their mobile apps to deliver phenomenal 3D VR into those mobile experiences. And we realize we can't do it alone.
So we've partnered with many people, many companies throughout the ecosystem. Elemental Technologies, The Foundry, Akamai. Companies have enabled us to deliver high-quality VR within existing production workflows, which is a key to driving high adoption. And maybe that's why adoption has been absolutely remarkable. So Euro 2016, Wimbledon, NBA playoffs, Champions League final. Time and time again, you'll see OZO there. We also have partnerships now with major studios, Disney, Universal Music Group, Sony Pictures, which just announced yesterday. And they're using the full suite of these solutions. So they're using OZO. They're also using OZO Live for their Sony Pictures events, and they're incorporating the OZO Player SDK into their mobile app. And then China, where we've launched recently, and we also have a partnership with one of the leaders there, LeVR, which is a division of LeEco.
And we see China as one of the biggest drivers of VR in the market, a tremendous amount of investment going into that market. So the starting point is OZO, if you look at the overall growth plan and the related solutions for professional VR content creation. But we see the opportunity, as I said, to go further than that. And technology licensing, we think, could be one of the most profitable avenues for us longer term. We also have the optionality, the potential to go further within the product ecosystem, so prosumer, consumer down the road. Let's talk about digital health for a minute. We believe in the possibility of inspiring individuals here to take control of their own health. And it also goes beyond individuals. You look at health systems. They're looking at larger population ways to reduce costs, improve outcomes.
Our devices already are used broadly for medical research. We believe that our devices and others like them have the potential to bend the trajectory, if you will, of costs and health outcomes. Huge opportunity. Obviously, it's relevant to every human on the planet, large, fast-growing market. We'll continue to evaluate exactly which areas of the market we want to be focused on. We're focused on areas, though, that have the strongest growth. So fitness trackers, smartwatches, whatever it might be, yeah, those are good. Where we're focused are areas that are more health-oriented, so connected health devices, including scales, blood pressure monitors, things like that, where we see phenomenal growth going forward. We're also looking at ways to leverage those devices into other services, so remote patient monitoring is one example. You look at the portfolio that we have now through Withings. Beautiful, intuitive.
They fit into everyday life. I've actually myself used Withings products for over five years, so dating well back to before the acquisition. Love the products. It's just a great line of easy-to-use health products. And they're powerful. Span the spectrum from regulated to non-regulated. They go far beyond tracking steps. It's about taking control of health for you, but also your family, right? We think that's important. A lot of other companies will target just the individual through a fitness-oriented approach. And we're thinking much more broadly about your own health, but also about your kids' health and maybe your parents' health. So we're in the process right now of transitioning to the Nokia brand, and we're trying to do that in a very thoughtful way. So we've done consumer research against it. We're also being careful to manage costs.
So you'll see the first phase of that transition in Q4, Withings part of Nokia, and then the full transition over the course of next year. But products are just the starting point. The goal is to help consumers address key conditions, so obesity, diabetes, hypertension, by building full solutions around those devices. The devices form the core of that, but through applications, analytics, content, services on top, we can create full solutions. And as we've done that, it also creates opportunities to move beyond the direct consumer space into areas, like I said, remote patient monitoring or elder care or corporate wellness. And again, this is an area where we feel like, obviously, we can't do it alone. We have to be working with a full ecosystem of partners. We're working with leading healthcare companies already.
We're working with IBM Watson on elder care to make elder care more human. We're doing remote patient care trials with HUS Helsinki University Hospital, with Duke University Health System, with Cleveland Clinic. So here, if you look how we'll create value over the next several years, it starts with growth in the device portfolio, new geographies, new accounts, new channels. And there's significant growth here, even within the watch segment alone. There's significant growth to be had. But again, we think the true potential lies beyond just hardware, right? Full solutions and taking advantage of some of the Nokia capabilities, both on the brand side and also the full power of a global presence. And then, as I said, we want to be also able to enter into new markets, get elder care, remote patient monitoring, other initiatives. And then brand licensing.
It's the goal here to leverage the Nokia brand to create value for Nokia, for consumers, and for our licensees. Focus on the mobile phone market, huge market, EUR 300 billion in 2016, 40% of the entire consumer electronics market. And of course, it's an area where our brand is extremely relevant, 95% global brand awareness, like I mentioned, known for trust, reliability, ease of use. You look at India, second-largest mobile phone market next year is the expectation. Nokia is the number one most trusted brand in mobile phones, still above Apple, above Samsung. So we think there's an important role for us to play within this market, and we think the right way to do it is through a licensing approach, low risk, low investment, high margin.
In May, as you know, we announced the agreement with HMD, where HMD will develop, market, and sell phones with support from Foxconn, including some of the acquisition of the Nokia feature phone business from Microsoft and oversight, of course, from Nokia. Ten-year agreement, over EUR 500 million minimum marketing investment. The response on this has been absolutely phenomenal. We still have a lot of consumers coming back to us via our social channels, via website, absolutely phenomenal consumer response and phenomenal response from retailers as HMD has started to talk to the market about it. In fact, they've recently actually raised their own internal forecast just based on how strong that response has been. We're excited about it. That's three of Nokia Technologies' four businesses, and each one of them has IP at the heart of it.
Certainly, IP is a component of our brand licensing model here and what we're providing within the HMD deal. It's part of the digital health business. It's part of the digital media business. So with that, let me hand it over to Maria Varsellona, who's overseeing our IP initiatives. Thank you, Brad.
Good morning. Even though I am a lawyer today, I have a very good story to tell. As you all know, Nokia has long been a leader in the creation of valuable intellectual property. For more than 20 years, we have defined many of the fundamental technologies used in virtually all mobile devices. Throughout that time, we have taken a leadership role in standard setting in our industry. As a result, we own a leading share of all the essential patents for GSM, for 3G radio, and 4G LTE technologies. These, together with others for Wi-Fi and video standards, form the core of the Nokia Technologies patent portfolio. With the acquisition of the 50% share from Siemens in NSN and the combination with Alcatel-Lucent, we have added the result of their sustained innovation, including that of Nokia Bell Labs. And now, Nokia controls three valuable intellectual property portfolios.
They span more than 30,000 patent families, which comprise more than 90,000 individual patents. Other companies only talk of the individual patents, so please notice this number, 90,000 individual patents built on combined R&D investment of more than EUR 115 billion over the last two decades. Following the completion of the Alcatel-Lucent transaction, we are already evaluating our collective assets and taking some early actions to optimize the size of our overall portfolio. The majority of our licensing activities to date have been built on the Nokia Technologies patent portfolio only, which today is around 9,900 patent families. Given our success just with that part, we don't believe that we need a patent portfolio that is three times that size, with all the associated management time and cost that it implies.
So we are looking at which patent families give us the best opportunity for licensing and which help differentiate or defend our own products. We are also looking at those which may offer the chance to realize value through divestments or save cost by abandoning them. As a result, we expect that our overall number of patents will actually decrease over time. That said, we will continue to refresh our portfolios based on the R&D activities across all of Nokia's business and the Bell Labs in particular. As an example, in 2015, we filed patent applications on approximately 1,700 new inventions, with that momentum still continuing in 2016. Continuing our focus on communication standards, we also expect to take a very leading position in 5G. If you look at the contributions made in 5G standards, we have the biggest contribution of all the companies around the world.
Having covered our activities to optimize the portfolio, let's look at how we are running and expanding our patent licensing. As I have said, our existing business is built largely on licensing of standard essential patents for the Nokia Technologies portfolio to mobile device makers. This is a very strong business that has further potential for growth. Excluding the agreements that we are expecting will renew to the end of this year, we will have a run rate of about EUR 800 million. These revenues have grown significantly over the past four years and, of course, will continue to grow. To put that in context and excluding those licenses that are due to renew by the end of this year, our licenses represent around 30% of the total smartphone market by value. As you all know, agreeing licenses is a very lengthy process.
It involves a great deal of effort, including many meetings between the parties on different fronts, such as technical and commercial. Once agreed, a license then tends to be enforced for several years, during which, of course, the fortune of the licensees can change. And if you think about our existing licenses, many of them were agreed when Nokia was still in the mobile phone business. And so they included an element of cross-licensing of the other parties' patents for that business, often resulting in a lower net royalty payable to Nokia. Since the sale of our device and service business to Microsoft in 2014, the cross-licensing element has typically not been needed any longer. Notable among new licenses since 2014 has been our agreement with LG, which was announced already in 2015, with the value to be settled by independent arbitration that is expected to conclude next year.
While our earlier licensing activities were focused on the Nokia Technologies portfolio, as I said, we now have a broader asset base to leverage with the addition of the Nokia Networks and the Alcatel-Lucent portfolio. An example of this is the expansion of our existing agreement with Samsung, which we announced this year in July. The mobile phone market has a relatively small number of very large players and then a very long tail of many small ones with many new entrants. While our focus to date has been on the established larger volume companies, our licensing team is working hard to grow coverage among the other players and mainly in China. China is a market where we have some work to do. At present, though, we have no major Chinese vendor under license, and we are seeing some good encouraging signs.
We believe that both manufacturers and governments are increasingly seeing the need for an IP regime to enable innovators, including Chinese companies, to effectively protect their IP innovation in China and abroad. Finally, on mobile devices, we are in ongoing discussions with Apple. It has been publicly reported that our current agreement expires by the end of this year. Our current agreement was made in 2011 when we, at the time, had a bigger business. We had a business in mobile phones, and therefore, there was an element of cross-license. By the way, we didn't have in our portfolio the Alcatel-Lucent and the Nokia Networks patents. Therefore, we are all for a positive outcome. We're also looking at an expansion beyond the mobile handsets.
Many industries have recognized that the future of their product will be to include connectivity using many of the same core radio technologies which enable mobile phones. This creates, of course, for us a new licensing opportunity. As part of this effort, we have developed licensing programs both for the automotive and the consumer electronics markets. In consumer electronics, beyond wireless connectivity, we see opportunities for video coding technologies, where we hold a relevant portfolio of patents. Since establishing our licensing program for these, we have already signed up more than 50 licensees. While in automotive, expectations are that more than half of the approximately 100 million new cars sold annually around the world will have connectivity in the next 5 years. Therefore, we have developed a licensing program to address this, and we are in the early discussion stage with a number of industry players.
In particular, we are contemplating a reasonable fixed license fee per car, and we believe that the opportunity could grow in significance as connectivity becomes widely adopted in vehicles. So in conclusion, we believe that we have a strong set of assets, a world-class team to manage them, and we are expanding our licensing programs to grow the revenue. This is all exciting. So thank you very much, and with this, I will call Brad for conclusions.
All right. Thanks, Maria. So let me just quickly summarize by going over our overall operating model. So we've got a couple of components. First is innovation, which is a combination of our existing IP plus our substantial R&D teams to continue to build new IP. Alongside that, we've got our Nokia brand. Together, those enable significant licensing opportunities: patent licensing, technology licensing, brand licensing. They also create the optionality, the potential for significant new product businesses. And together, a combination of those helps build the brand and deliver new IP. So we've got three goals overall. One is to drive highly profitable revenue for Nokia. Second is to create valuable future IP. And then third, to elevate the brand. Certainly serves Nokia Technologies, but it also serves all of Nokia. So let's look at the roadmap. You look at 2016.
We accomplished a lot: OZO VR camera launch with its acquisition, HMD agreement, and patent growth through the Samsung license agreement extension. A lot more to come. So you look into 2017, extending our VR leadership, transitioning to the Nokia brand and digital health, the launch of Nokia-branded mobile phones, continuing to expand our patent business, as Maria discussed. And then in 2018, that's when we start to think you'll see some proceeds from some of our long-term investments. So VR technology licensing, new markets that we talked about in digital health, and possibly other new businesses. And alongside that, we'll continue to expand and diversify our patent portfolio. All of this together for Nokia Technologies is aimed at driving growth and innovation for Nokia and ultimately enabling the human possibilities of technology. So thank you.
At this point, I'll turn it over to you, and happy to answer any questions you may have. Great. So now we'll take questions for Brad and Maria. Start with one. Oh, it's a child again.
Thanks. It's Ajal from Credit Suisse. Maybe one question on the patent licensing specifically. If you go back to the Samsung arbitration, I think it took about more than 2 years to come to a final conclusion on that one. Our understanding was that once that settlement is in place, you've got the framework, and that would be used for future arbitrations or negotiations. It just seems that most of the new negotiations are also taking as long as what we actually saw with Samsung. Is there a process in place which allows you to get to these negotiations faster than what we saw with Samsung going forward?
Of course. As I mentioned, each negotiation takes time and patience, and it depends on two parties negotiating. We could not impose a standard to other licensees. This doesn't mean that that standard doesn't represent a strong precedent. So we believe that we have a very strong case. We don't give guidance for the years to come, but we are very positive of the opportunities ahead of us.
Let's go with three.
Yeah. Thanks. It's Kai at Bank of America. I had a quick question on the patent cliff on the standard essential patents. So my understanding is, well, the 4G patents, I think the duration is something like 15-20 years. So I think that would suggest a sort of patent cliff-like expiry next decade or maybe in the early 2020s. Is that the right way to think about that aspect of your portfolio? Because it's quite important in terms of how we should value it. Thank you.
I think we have to look at the fact that we are continuously renewing our patent portfolio. As I mentioned earlier, if you look at the 5G standards, we are the biggest contributor in 2016 to the 5G standards. We continue to invest, and we continue to grow our patent portfolio. I said we have a very big patent portfolio at the moment, and we are looking at rationalizing it. This doesn't mean that we will not continue to file patents. In 2015, we filed 1,700 patent applications. This shows that we maintain our portfolio always relevant.
That's two.
Hi. Sandeep Deshpande at JPMorgan. Just actually a question on the phone licensing that you're doing. You're talking about 30% of the addressable market has been already addressed by you in terms of revenue, and you've named some of the companies who are your licensees. You're talking about opportunities in China. Huawei is a licensee which is now a top three smartphone vendor in the world. I'm not sure whether they are actually a paying smartphone licensee because we've seen they have filed a suit against one of your customers in the U.S. because they are saying that that customer is infringing on their patent. So clearly, either their license pact with you has expired or you're in negotiations with them. So can you please help us understand, particularly with regards to Huawei?
And then, of course, the rest of the Chinese you're probably negotiating with, but Huawei is probably the most important of the Chinese vendors.
Thank you very much for your question, which shows that you know very well the details. Actually, the Huawei license agreement has expired. That's why we can say that in this moment, we are not licensing any of the Chinese players, but we are in conversations with the licensees and the government to start doing so. And as I said, we have work to do, but we are starting to see encouraging signs.
They're not in that 30%.
No.
Next question, please. Number 1.
Thanks, Gareth here . Thanks from UBS. Two quick questions. One, on the Chinese handset vendor market, it seems like handset vendors come and go in China quite regularly. Last year, Xiaomi, Meizu. This year, Oppo, Vivo. How do you prioritize which handset vendors you target in that sort of environment? And then secondly, on HMD, is this going to be per handset, as in a dollar amount that you get per handset, or is this a percentage of ASP? Thank you.
I take the licensing, and you take the HMD. So basically, your question is, how do we prioritize? We run the patent business as any other business. As I said, there are a very small number of very big players, and of course, that is our priority. So right now, you know that the license agreement with Apple is about to expire, and that's our biggest priority, our biggest focus. This doesn't mean that we don't have a business with many people working also on the tail end. In China, we have a number of our team members led by Ilkka Rahnasto working with all the relevant players. So the priority for the top team is the biggest players, but this doesn't mean that we want to leave on the table all the others.
We run it exactly like a business, with business reviews, with Rajeev Suri every month, and this is how we will continue to do.
On HMD, certainly can't get into the details, but it's based on a royalty percentage.
Oh, there is one more question. Yes?
Yes, Artem Beletski from SEB. Question regarding this kind of progress moving from this fixed-term type of agreements towards volume and revenue-based deals. How far you have gone on that front, and how much should be done?
Are you talking about patent licensing?
Yes. Yep.
Each license depends on the context in which it's negotiated, and we cannot really give details of the agreements. If you look at the automotive sector, that's a new approach that we have taken there because we don't look at a percentage of the cost of the car, but we have decided to go with a fixed fee of some EUR per car.
There may be just a follow-up. What comes to handset business, so you had to do this cross-licensing in the past, now situation is different. Has there been this kind of major transition towards volume-based and revenue-based pricing?
I cannot really give too many details of pending negotiations, so I would prefer to leave it as is. We continue to license our patent portfolio on the basis of percentage rates on the cost of the phones.
Well, great. Thank you for your questions. So now it's time for lunch, and please also check out the demos. We'll start the network section back in this room promptly at 1:30 P.M. Thank you, Brad. Thank you. Okay, welcome back from lunch. Hope you enjoyed it. As we gather back from lunch, I want to thank the event team for all of their hard work. Thanks to them, we have a really nice environment for today's presentations. Which brings me to our next section for today, Nokia's Networks Business, starting with Ultra Broadband. To lead it off, please welcome to the stage Samih Elhage, President of Mobile Networks. Thank you. Hello everyone, and good afternoon.
My name is Samih Elhage, I am President of Mobile Networks, and today I'm going to talk about how we will manage this dynamic business to achieve our revenue and profitability objectives while contributing to our cost-saving commitments. First, let me set the scene about Mobile Networks. Our primary addressable market of communication service providers is approximately EUR 64 billion. In this market, we serve 28 of the top leading operators worldwide, and we are number one in 4G radio, LTE, and a key software area such as subscriber data management, and in IMS and VoLTE, where we are number one in subscriber numbers worldwide. We are also in a strong position in the fast-growing small cells market, and technological leadership is confirmed by industry analysts, specifically Gartner and ABI. Services which account for 45% of our business are strategically for us. We offer both product-attached services and the services-led solutions.
My colleague Igor Leprince will talk more about that later today. We have an innovation powerhouse with 23,000 people in R&D and a 25,000-strong services organization, including project delivery and managed operations. Let us have a look at the Future X network, which was described earlier today, and what does it mean to Mobile Networks? Here you can see where Mobile Networks contribute in blue. First, radio access. We are strongly positioned to help operators in their journey to 5G through our existing and upcoming multiple waves in 4G. We are driving innovation in radio, including concepts such as Cloud RAN and self-organizing networks, and we are working with operators to ensure the lowest total cost of ownership of the life cycle of their installed equipment. Secondly, core.
This software that we use to run the network is becoming virtualized, so operators can reduce latency, optimize their infrastructure using industry-standard data centers. The main advantage is that operators can create dynamically and with full agility new services to fit the new customer behavior and the new market opportunities. Our advanced mobile network solution business includes solutions for and beyond operators, leveraging our small cell, core, microwave, and the services portfolio. Each of Nokia's business groups has a group-specific focus on a service offering. Mobile Networks additionally host certain services, including managed services on behalf of Nokia overall. We have a strong professional services business, which includes areas of growing importance such as system integration, and we are innovating as much in services as in products.
As we needed to innovate in both services and products because the mobile network landscape is changing, and we needed to be ready to seize these opportunities. According to Nokia Bell Labs, per capita bandwidth will continue to grow through 2020, driven by consumer demand for mobile connectivity and, more specifically, video, where 80% of the data traffic will come from. Virtual reality as well, and by 2025, we see a 15-fold increase in bandwidth from today. In addition, we expect between 50-100 billion of things that will be connected by 2020. There is an ongoing shift from investment in network coverage to network density, while OTT players stress the operators' networks, eroding margins and threatening traditional business models. Cloud architecture is well-accelerating and is a prerequisite for 5G.
At the same time, there is a demand for everything as a service, and this service from the cloud for low latency and high availability connectivity. All this could drive 35%-40% of core network capacity to the cloud by 2020. Lastly, regulators are opening up new spectrum bands, creating new opportunities for the communication service providers, and establishing the conditions for new business models enabled by new entrants. In mobile networks, we are very focused, and we are very well-positioned to take advantage of all these trends. Our strategy for the communication service provider segment is to strengthen Nokia leadership, positioning first through radio innovation to lead specifically in LTE and to create a path to 5G. We will also make the use of licensed and unlicensed spectrum, and we will drive core network evolution with our cloud core portfolio and system integration and transformation services.
At the same time, we'll expand from the CSP segment into adjacent verticals. In the public sector market, we will build on our strengths in public safety and transportation sector and leverage our LTE solution services and the Nokia brand. For web scale, we will use our product portfolio and turnkey solutions. We will also create a strategic partnership and innovative commercial models tailored particularly to this segment. In the tech XL enterprise segment, we intend to disrupt with the carrier-grade solutions, with the wireless connectivity solutions, private LTE solutions, and microwave connectivity solutions. Leading in connectivity for IoT will see us engaging with the CSP segments and customers to evolve their networks, leveraging LTE and the cloud core evolution, and selectively we'll work with verticals like automotive to stimulate LTE network upgrades, creating new revenue opportunities for us.
Finally, we aim to strategically differentiate with a powerful services strategy, and you will hear more about that from Igor later. I would like to start with the CSP segment and with 5G, which is one of the greatest opportunities for Nokia today. 5G will create new possibilities. 5G will create new business models. 5G will create new opportunities for us. Our aim is to lead in 5G. Our aim is to lead in 5G. Our aim is to lead in 5G. For instance, very low latency can enable critical machines. Very high capacity can enable virtual reality streaming, and massive connectivity enables a huge number of devices to be connected simultaneously. We think 5G will be deployed in islands as an overlay to 4G, and we believe and our plan is to lead in 5G through a three-prong approach.
First, we needed to build on our market leadership in LTE. Second, we are focusing on early adopter markets such as the US, Korea, and Japan, and strengthening our position in megacities. The third, we needed to extend in IoT. Underpinning our strategic objectives are our strengths in radio and core. Let me start with radio. Our forecasts indicate that many operators, to cope with the increased demands for capacity and enhanced user experience, must evolve their networks in at least two ways before 5G technology becomes realities in the '20s. To respond to this and to help operators secure new revenues, we have a portfolio and a commercial strategy that enable us to monetize our LTE footprint and our investment through investment wave with macro site expansions and small cell densifications. 4.5G Pro will deliver 10 times the speed of initial 4G networks.
This will allow operators to leverage diverse licensed and unlicensed spectrum. 4.9G, meanwhile, will increase capacity and speed still further, allow additional carriers to be aggregated, and will extend radio to massive and multi-user MIMO and 3D Beamforming. In addition, it will allow us to achieve latency below 10 milliseconds. 4.5G Pro is commercially available this quarter. 4.9G follows late next year. We have evolved the architecture with 5G radio platform AirScale that we announced earlier this year, and which is undergoing end-to-end trials this year and next year. We'll see our first pre-standardized 5G solutions in the U.S., Korea, and Japan. Operators are keen to trial elements of 5G right now using specific use cases, and in 2018, we'll see the first full mobility end-to-end trials, and which will be showcased in Korea around 2018 for the Korea Olympics.
Total cost of ownership will drive a new hardware investment as well in order to reduce a site footprint, power consumption as per replacing several single-band remote radio heads with one multi-band remote radio head. But another thing which is very important in 5G is that 5G is more than radio. 5G is more than radio. 5G is more than radio. 5G also requires the network setup to change, and the biggest change is to a distributed cloud architecture. The new cloud infrastructure is enabled by virtualization and will help operators with solution-led software capabilities to address their service agility, cost challenges, and to generate new revenues. From virtualization, we move to stateless machine, radically simplified architecture, and the shared data layer which makes data available across all applications. At the same time, this enables the new virtual network functions and open APIs.
Later, we see core networks developed specifically for cloud functionality, and network slicing gives operators the ability to optimize the network for different features. Finally, we see self-organizing networks with their networks running on their own. Yes, it is to a certain extent today, but it will be a characteristic of the 5G programmable core. Cloud programmable core requires business process and reengineering as well as IT and a telco-specific integration. This will drive demand for service integration and transformation services. Now, let us talk about the second pillar of mobile network strategy, which is about to extend into attractive adjacencies. The first of these adjacencies is the public sector, which we break down into public safety and public sector transport. Public safety is perhaps the most significant of all adjacencies for mobile networks.
Here, we aim to replace legacy standard technology with LTE and to build on our existing relationships. In public sector transport, we will build on our LTE leadership and expand mission-critical railway solutions and new solutions for air-to-ground communications. We also see opportunities to work with web-scale companies like Amazon and Google and alternative service providers. We will offer leading-edge product and turnkey solutions. For technological extra-large enterprises, we intend to develop and disrupt with a carrier-grade offering and enterprise wireless connectivity solutions, private LTE, and microwave solutions. Finally, connectivity for IoT will be a great driver for network investment in the future. Existing CSP networks must evolve over IoT because they need always-on, have a low latency, and ubiquitous connectivity utilizing the cloud. We have a particular strength in certain verticals, specifically such as automotive and public sector, and we will prioritize these verticals.
I would like now to look at how our strategy will evolve in the context of the market. First, let us look at our primary market, which is experiencing a CAGR of 0.4% of the next five years. However, when you look at the market projections for our industry, bear in mind within this market, we believe they will continue to capture the areas of growth in this market such as FD-LTE, small cells, IMS, voice-over LTE, cloud-based offering, professional services, and so on. But at the same time, we have to manage our declining businesses like 2G and 3G for profitability. Let us look at the attractive adjacencies.
While the majority of the revenue will come from the CSPs in the near term, we estimate the selected attractive adjacencies will experience more than 20% growth to help offset expected decline in our primary market and to create new revenue opportunities for us. An example you've heard, Rajeev, about this morning, the public safety vertical will be experiencing close to 48% growth over the next five years. This selective choice of segment and verticals means we can smartly leverage our technology leadership and make a focused and intelligent extension using our platform approach to the solution offering to capture new growth opportunities. In summary, by building on our many leadership positions in our primary markets, we can strengthen our base. By making intelligent, disciplined expansion opportunities in the attractive adjacencies, we can stabilize and even grow our revenues. Our long-term business models have two clear objectives.
The first objective is to grow net sales faster than our primary market. The second objective is to expand our operating margins to double-digit by building leadership in newer technologies, finding new customers for our existing portfolio, carefully managing our mature businesses, and executing on our continuous transformation. At the same time, we'll deliver on our commitments to Nokia's cost-saving targets. Our intention to use the discipline and rigor that you have come to expect of us from our successful transformation in making our contribution to the EUR 1.2 billion Nokia savings targets. First, we will continue to optimize our industry-leading governance and operating model. This operating model is focused on process improvement, and we use proven quality methodologies to deliver measurable financial impact directly linked to the P&L. Our operating model is effective because it is deeply rooted in the organization with clear financial and operational KPIs.
Second, we have streamlined overlaps for the Alcatel-Lucent acquisitions. There, our achievements are great. In less than six months, we integrated 17,000 people in directly overlapping portfolio and services areas. At the same time, we designed and communicated our converged portfolio after alignment in a period of six months after alignment with the customers. By contrast, for those that you remember, in Nokia Siemens Networks, it took us more than two years. Overall, we are on track to meet our cost-saving targets, and we have done this without losing our customer focus, without losing our customer focus. Third, it is to proceed with our continuous transformation approach because we are evolving from transformation to continuous transformation. Our continuous transformation program has the umbrella name of Smarter, as you've heard already today, but it is deeply rooted, deeply, deeply rooted in mobile networks where most of the impact currently occurs.
The program continually evolves to achieve further improvement in our cost structure and operating model. Smarter, the way we run this, is a trusted, effective approach to manage large, complex programs delivering value directly linked to the P&L. Smarter streams programs cover products, services, operations, commercial areas, everything we do and touch in the business. These are focused on Mobile Networks as well as the regional level with our regional and services profitability improvement approach. The aim is to boost the gross margin, cut OPEX, or act as an enabler for process improvement across all areas of the business. Bringing that together, I would like to look forward and summarize how we see Mobile Networks winning in the next few years. As we look at the timeline, our 2016 commitments are quite clear.
We have stepped already from portfolio conversions to the portfolio improvement in radio, services, core, and we are on track to meet our targeted savings. At the same time, we have identified targeted verticals which will give us the opportunity to grow revenues to offset the predicted decline in our primary markets. In 2017, we'll capitalize on the 4.5G as well as launch 4.9G and help drive LTE investment and further evolve our cloud offering aiming to build leadership in 5G. In addition, we will execute on our plan to extend selectively into attractive adjacencies and will accelerate our transformation in services. In 2018, we will continue to strengthen our products, services, and solutions for the primary markets. We will see the first sales in 5G. We will establish leadership of proof points in targeted verticals, and we expect the completion of our cost target savings.
In conclusion, for those that were with us at the last CMD, Nokia Networks then had completed a comprehensive and hugely successful transformation. Now, mobile networks are on a journey to further improve our operating model and transformation engine. This will enable us to strengthen our leadership in our primary market and will drive a focused expansion into attractive adjacencies. Additionally, we intend to generate new sources of revenues and to improve our operating margins in our underlying business. Thank you. And now, I would like to introduce my colleague, Federico Guillén, President of Fixed Networks. Federico.
Good afternoon to everybody. My name is Federico Guillén, and I am in charge of Fixed Networks in a mobile world. Let me try to convince you that Fixed Networks is not only sexy, including copper, Rajeev, but also cool. I believe it. It's a very cool business. Let me show you what we are doing and what we are going to do. Basically, what Rajeev told you about our long-term corporate vision is also applicable for Fixed. We are creating value through that growth strategy, although what we are doing over the last 3-4 years is to prove to the market that it is possible to have double-digit operating margin in this business.
The discussion two or three years ago was if Fixed made sense, and the discussion today is not only that, of course, it makes sense, it's the differentiator of many of the converged operators that are providing services worldwide. So let me show you how Fixed Network adds value. You have seen the Nokia Bell Labs Future X chart, and of course, Fixed Network is part of that strategy, reshaping the six megatrends that we have there. So where do we fit in the first megatrend, which is the ubiquitous network connectivity? So what we do is we bring ultra-broadband at massive scale to everybody, not only to communication service providers but also to web-scale players, to energy providers, to governments, even to enterprise. We do that in a very, very simple way. We do that with copper, fiber, and now also with coax.
Our portfolio is relatively simple, and as you will see later, it's very, very homogeneous among the technologies. So we constantly innovate, and that is key. Innovation is our raw material. That is absolutely the key in order to be first in the market. In terms of SDN, we have a very pragmatic approach, and we apply SDN to the parts of the access network that facilitate the deployment and that brings CapEx and OpEx down case by case. But Fixed is not just about connectivity. In this chart, you also see that it's about home. We have an opportunity there. The homes are getting more and more digitalized, and we have an asset. We have all the residential gateways, the ONTs, and the smart home solution that is already in the home of our customer's customer.
So that brings us an opportunity to increase the ARPU of our communication service provider. So while Future X is the long-term vision, we need to look at the business of today, of course, and that's what I'm going to share with you in the next slides, where we will also see a lot of Xs. But first, let me give you a flavor of where we are in Fixed. So there is no doubt that Fixed Networks is strong in Nokia, and we have worked very hard in the last year to make that happen. And this is based on three pillars: innovation, cost improvement and operational efficiency, and of course, quality. When you have millions of devices in the field, quality is a must. When you.
are in such a competitive market you have to innovate and be first in the marketplace, and when you are competing with mainly Chinese players you have to be ultra efficient in the operations, and obviously you have to constantly improve year after year your products with the aim to provide to your customers a best cost per megabit per second year after year. So some key numbers in terms of market share: one differentiator, we are the only vendor in fixed that is present in all the regions in the world, nobody can say that, and that gives us a tremendous advantage.
We are number 1 in copper, by far; we are number 2 in fiber, excluding China, and let me explain this: we are number 2 excluding China because we don't trade revenues for margin, and in China, as you can imagine, there is a little bit of a difficult pressure on prices. So basically we have the volumes of China, but we don't want to trade margins. So... and then we are number 2 in services which is kind of our secret sauce to win many deals. We have been first in innovation in all the technologies that you can imagine in copper, fiber, and coax, even in coax. So... so we were first in vectoring, we were first in G.fast, in B-Plus, and in fiber, in Universal, NG-PON, in XGS-PON, and coming next, XG-FAST, and XG-CABLE.
XG-CABLE we demonstrated before even we acquired Gainspeed, which is very important, because in June we announced we were going to... to acquire a company called Gainspeed that have a... a technology that allow us an insertion point into the cable space. In August we signed the contract, and in September at SCTE we were able already to announce a unified portfolio between the solutions that we have in Nokia and the solutions that were coming from Gainspeed, which is very important, and that is thanks to the Nokia business system, in part. So... which is the size of our market? Well the primary market is around EUR 8.7 billion, and this is a... a market where we are leaders, so growing in that market is difficult, but let me explain to you how we are going to... to still squeeze it a little bit.
We are taking the first step each year, and more to come. Now, which are the market drivers? There are two: one, of course, is the continuous seeking of more capacity, but the other, in the left-hand side of the chart, is the coverage, and we tend to forget that. It is as important to give higher speeds to a few people as giving enough speed to many people. So what happened some years ago is that the operators were confronted with this question: what should I do? Should I go for higher speed but then I know that it's going to take years before I'm able to provide gigabit per second to a decent amount of percentage of the population, or should I concentrate on providing more speed to the major amount of people possible?
The problem was that technology was not allowing that, and then we came with Vectoring. With Vectoring all of a sudden we reach the capacity of copper close to the Shannon limit, and we are providing today fiber-like speeds in copper, complementing the fiber to the home deployments, and that's the key. There is no religion; you have to deploy whatever is more economically viable for you. So combination of technologies is what is bringing success to the different operators in the world. And then, of course, at the same time we have to provide as much capacity as possible, and maybe we are exaggerating a little bit with 100 gigabit per second in the future, but believe me, I have seen a lot of times 10 gig 10 years ago, nobody was believing that, and today...
Today we have already delivered networks that provide 10 gigabit per second to one single home, in SKB. So it's not unthinkable. And then remember one thing: 47% of the households worldwide have no connectivity, 47%, and only 7% of the houses have more than 10 megabits per second. So when we talk about gigabit per second, yeah sure that's important, but it's even more important to provide 100 megabits per second to more people, so the opportunity is there. Now, so how are we... how are we doing that in terms of portfolio? Well, it's very simple: we call it fiber to the most economical point, or fiber to the dollar.
So what we do, as you can see in the slide, is fiber to every single part of the network, to the node, to the curb, to the distribution point, to the building, of course to the home, and recently since we acquired Gainspeed to the amplifier, because the cable operators have exactly the same problem as the telcos. They have a very nice service on broadband, but they have a problem: they have too many subscribers per amplifier, thousands, which means that when they are very successful the peak speed is still okay, but the sustained speed could be a problem. Therefore what they are doing, and they are doing that before even the virtual CCAP was put on the market, they are starting to do some fiber to the home deployments in order to be prepared to compete in the future.
So the combination of that with the fiber bringing the fiber deeper into the network and closer to the end user will give them the opportunity to compete with the same type of services as the telcos. So, we have some recent examples of mixing technologies in the marketplace, for example NBN, who is deploying fiber to the home together with vectoring, and now announcing XG-FAST. We have Chorus with fiber to the home and vectoring fiber to the node. BT Openreach, they just announced they are going to deploy a network of 300 Mbps at 300 m from the home, and that is with XG-FAST, Deutsche Telekom and others. So fiber to the door, fiber to the most economical point. So we support every model: single fiber to the node, single fiber to the home, and everything in between.
So in fiber what we are doing is putting in place technologies that allow the operator to reuse the major asset they have, which is the fiber and the splitters. So whatever technology we bring new into the market is thought and is required to work in the existing passive network. For example we are bringing now NG-PON2, Next Generation PON, which is 10 gigabit multiplied by four lambdas, on top in overlay with the current existing G-PON technology. So innovation as I said is in our DNA, and in the coax space the virtual CCAP, the virtual nodes, the remote nodes that we are bringing into the cable space will produce exactly the same effect. Now in terms of speeds, on fiber-like speeds on copper is also...
is something very important, because sometimes it's not just a matter of economics; sometimes you cannot enter the home, and this is something that we are learning with many of our customers. Sometimes the end user don't allow you to plug the fiber, and then you need 1 Gbps on copper in order not to touch that cable. We recently demonstrated with XG-FAST the speeds of 8 Gbps in Australia, in NBN, and with Deutsche Telekom and with British Telecom, always exceeding the expectations of our customers, and that's the secret sauce of that is our Bell Labs innovation; our vectoring technology is the best in the marketplace. Now, I have not talked yet about wireless, and wireless is coming in 5G, also to this space, so... and it's coming sooner than we expect. So...
5G is going to deliver 100 megabit plus, and more importantly it's going to deliver it with low latency, which is going to open a new... horizon of opportunities in terms of services. A lot of new opportunities that many people are going to think: "Okay fine so this is... this is it for fixed," but we have that question every time, with every new mobile technology 2G, 3G, 4G, and now 5G. Yeah, do we still need fixed? Yes, we do need fixed. I will explain to you. Why? Because what happens is that at the beginning of the mobile networks we had hundreds of base stations, then we had thousands, now we're going to talk about tens of thousands, and those base stations that are going to provide those...
Those hundreds of megabits per second services need a fiber, they need a fiber, because otherwise it's impossible. You need something that is capable of supporting all the traffic that the new applications are going to demand, so it's not one or the other, it's the two, and more important it's like a catalyzer, the higher the service you provide in wireless, the higher the need is for fixed, and remember 7% of the houses have more than 10 Mbps, so it's a perfect complement. Now, how do we address this converged communications in service providers? There are three major areas, and they're very simple: the first one is transport, I already talked about that. The second one is hybrid access. One of the things that we are seeing as a requirement is that a...
A box that is capable of backhauling on DSL or fiber and LTE is really important, because at the same time you can have peaks of higher speed, or you facilitate the installation, because you can send the box, then you install it on wireless, and then when the fiber comes you have the service. So that allows you to maintain the customer, which is something really important when you lose the customer; you have to spend a lot of money to recover it. And then the third one, which I believe is the first application that is going to come with 5G, is fixed wireless. Fixed wireless is something that is going to really be important, because as I said I believe in fiber to the most economical point, and sometimes that most economical point is going to be wireless.
So sometimes it's going to be fiber, sometimes it's going to be copper, sometimes coax, and sometimes it's going to be wireless. That's why I decided that my portfolio was wrong, and I changed this chart, and I included something that is called fiber to the antenna, which is complementing and completing the whole portfolio. Now, let's look at a little bit about technology. So, which is our foundation?
Our foundation is based on three major areas, which is the solutions that we have in the three technologies that I described, which is XG-FAST, and vectoring, with our own ASIC that gives us the advantage in the marketplace, then the PON platform that is having an evolution path that allows to work simultaneously on G-PON, point-to-point fiber, and 10 gig PON, and of course the unified cable access solution, which is a combination of the Nokia solutions on EPON for cable operators, plus the Gainspeed assets that are bringing the virtual converged cable access platform, which is no more than a remote, closer to the end user providing DOCSIS 3.1 technology.
On technology we keep on innovating, we are already talking on the next wave of innovation, because remember we want to be first in the market, so when we are starting to deploy G.fast we are already showing XG-FAST, when we are starting to deploy DOCSIS 3.0 we are already showing XG-CABLE, and when we are deploying G-PON we are starting to show XGS-PON, which is at between 25 and 40 gigabit per second, we are defining that standard, and all that with a virtualized and software-defined network that is involving everything. Now, services: this is a really important differentiator that we have at Nokia.
If you think about that with the combination of Alcatel-Lucent and Siemens, we have 70% of this toll based on PSTN, and this is something that over the years there have been a lot of discussions if the PSTN switches were going to be replaced, but the moment never came, never came for one reason: it was a good business case but the return on the investment was too long, too far in time. Now is the time because the number of millions of lines in the world have reduced to half in the last 10 years, and now a lot of operators are starting to seriously consolidate the switches, and replace the service into a broadband network, which imply that they have to...
contract that service, and we have the tools and the processes, and on top they have to accelerate the evolution of their broadband network. So it's a good moment for that. So, our strategy is very simple: it can be summarized here, so we need to maintain the leadership where we are in the primary market, we are the leaders and we want to keep on being the leaders, we want to grow in adjacent markets, and those are three, the main one being cable, and we made an investment on cable that we have to return, on enterprise and verticals with some opportunities that I will describe later, and of course on digital home. And all that with a best-in-class operational efficiency, maintaining our double digit operating margin, which is what we achieved some years ago, and is the key of our success. Now...
If we look at the two markets: the primary market and the adjacent market. On the primary market, which is our goal, our goal is to be number two worldwide in fiber, and you will say: "Yes but you said that you don't trade revenues for margin," yes I don't, but how am I going to get it? Because now we have an insertion point on 10 gig PON, and we are first, so we have the opportunity to gain market share by being first in 10 gig PON. Additionally we have the Nokia business system, which can help us to go with a lower cost, so that's my ambition: to be number two, including China in the world. Of course maintain our copper solution, our copper position as number one, and in services lead the PSDN transformation, that's to me really important. So...
In the adjacent markets... we have three, but the first one is the important one, which is cable. As I said before, we discovered that if we wanted to be... we realized that if we wanted to be number one in fixed we could not address the cable market. Cable operators used to be television broadcasters, not anymore, they are broadband providers today, and at Nokia we are already present in those operators, we are providing IP and optical gear, we are providing applications, and we are providing even E-PON solutions, but we want to grow, and growing there means going into DOCSIS, and DOCSIS is the reason why we acquire Gainspeed. So this is our main bet, and all of a sudden we will add into...
into our normal primary market in three years from now, a market which is in the range of EUR 3 billion as you will see later today. Then there are two other opportunities, which is in enterprise. We are seeing that today what is happening is that many enterprises are replacing all the cables, the Cat5 cables, in order to provide one gigabit to the desk, so what we are doing is using the same equipment that we sell for G-PON, into the enterprise, and we are starting to have a lot of success there because the cable, the fiber is much cheaper than the cable, the maintenance is better, and it's future-proof, because today you can provide one gig without any effort, and tomorrow you will be able to provide 10 gig, in the same cable. So we are starting to be really successful there.
The difference in cost with a cable and a fiber solution is 50%, so that's a very good argument in that market. So little by little we are seeing that going, and then of course digital home. The home is the major problem that we are seeing, now that we go with hundreds of megabits per second into the ONT, or the termination of the fiber, the problem is the Wi-Fi. So we are working actively in the home to provide more services with IoT in the home, and better coverage, better connectivity inside the home. Now, how this translates into numbers? Well it's very clear: the market is minus 1.5, the primary market is minus 1.5 Giga. Now...
Of course, what we are going to do, what we are doing, is adapting our cost structure within Fixed Networks to that market, no question. Now, my objective now is to shape the market again, and prove it wrong. Okay, let's see if it happens or not, I will be adapted in cost to this case, and then we will, when the leader grows what happens is that the market grows, and we are showing that year after year. So the prediction, just for you to know, four years ago was a -5% CAGR in fixed, and year after year we're growing, so we're gaining market share but not so much. So in the adjacent markets what we see is the opportunity to go into a place which is 11.8% CAGR, so we want to be there. Again, very important: the real market today is cable, the...
The market on the digital home, and on the enterprise is to be assessed, it's a very, very new market, so we are all discovering how it works, I believe there is an opportunity there, and the cost in R&D is just an increment of what we have, we are reusing exactly the same things that we do for the primary market. So, summarizing: the primary market maintaining our position with our cost structure, double-digit operating profit, plus addressing attractive adjacencies with a little increment in spending in R&D, to give us a long-term operating margin maintaining the double-digit, and grow faster than the primary market, and convert the primary market in something bigger, that's as simple as that. So, of course Fixed Networks is contributing with the first share of...
of the EUR 1.2 billion cost saving target, and we are adopting, as I said before, the Nokia business system, which is proving really... really important for us. We have a best-in-class cost structure in the industry. We will... we will maintain it there, and... and... and our ratios will be... will be at par with the competitiveness of the market that we are in, as you know. So looking forward... 2016... is a year that has been very special. It's the fourth year in which we are showing growth. It's a year in which we have seen waves of investment from our customers that are significant, and at the same time we are starting to deploy the first generation of the new technologies. We're starting to see opportunities and deployments in the next cable and fiber deployments, and we are preparing with trials in coax. In 2017...
It's going to be difficult year-on-year, because of the fact that 2016 was so strong in the revenues, but in margins we will maintain the pace. We will start having the first customers in cable after the acquisition on Gainspeed. The trials we will convert into the first sales, in order to allow us to grow in 2018. An important thing is that 2018 is not just growth; it's profitable growth. We have established the base of the double-digit operating margins some time ago. We will keep it there, and then we grow from there. So with that said, that's the finish of the end of my presentation. Just a couple of things: Fixed Networks is back, and is here to stay. So I'm ready for Q&A together with Sami.
Okay, so now we'll take Q&A with Samih and Federico, and if you have a lot of questions, what I will do is I will let this bleed in a little bit into the break, and maybe have the break be just 20 minutes. So where should we start? Start there with number one. Thanks, Sam Zarkomez, Nordea Markets. Can you talk about the swap plan related to Alcatel-Lucent base stations? Where are you today? What will happen next? Can you also discuss some of the risk factors, be they commercial or technical? Thanks. So... as you know, as we put the portfolio together, so we had to do specific migration plans with our top seven customers, as well as... as Rajeev mentioned, additional 14 smaller customers. So...
The way we look at the swaps is really this is completely aligned with the customers, on the timeline, and as well on the commercial side, because when we swap we don't swap for the sake of swapping, with the objective to replace whatever they have from capability perspective, and then we put the new infrastructure with the opportunity to leverage the additional capability feature functionality to generate a new revenue for us as we are moving forward. So the plans are moving very well, it's really it's the... from we are in execution, so we started an execution now in China, we are progressing very well as well, now as we're moving into the U.S. specifically with the top three accounts, is the... now we are in the execution phase, because we are going through the lab standardization and back-office...
back-office integrations, and this really will start to happen as we are moving into 2017. So I'm sorry, what was the second? The risk. So the risk usually in these things is you know, execution, and specifically how we can to fit within the current cost that we set to ourselves into the business case. And as you know this is part of our operating model, so we identify these risks, and then we manage these risks in a very tight approach with our customers in full transparency, and then our operating model will drive if we are going out of cost the team will put the recovery plan to optimize our cost. So this really how we do that, it's similar to what we have heard all along the day about our operational excellence will be implemented as well on the swap activities. Three. Thanks, it's Kai Korschelt, Bank of America .
Two years ago one of your largest customers in the U.S. you know went through a media acquisition that disrupted CapEx for I think two or three quarters, looks like that's sort of repeating. Are there any indications that you have that... that there might be any disruption on the CapEx spend, or is it different compared to two years ago? Thank you. So when we look at the question is related to the U.S. specifically, I'm sorry, yeah. So we look at the U.S. market as more stable from a CapEx perspective. Yes in some...
You know, there are some instances that during a particular investment cycle of an operator where some of the customer they do a pause in their investments, an example of that probably you are referring to is Sprint, where they made a pause in their investments, but we do not see this really it's spreading across the different operators in the same way. Hence it's a question of time some of these customers when they do a pause to come back again, but overall we see the market is stable. Yes, sorry, I was just referring to the AT&T media acquisition, I think there were some delays or disruption on the CapEx. Yeah, I don't think there will be an impact on us at all, we look at this as a strategic direction that they are taking to diversify their business and their revenue outlook, probably. Thank you.
Thank you for the clarification. Gareth, yep, sure. Thanks, Gareth. Rangan, UBS, two questions if I could. One is just, I know we probably said this with 3G and then 4G, but as speeds increase on 5G do you think that it becomes a competitor to... you know, does one of your business units compete with the other one more directly, given you know we're talking about 10 gigabit speeds? Can I take that one? Yeah, please go ahead. So it's what I said before. It's about capacity, and it's about coverage, and in the capacity side it's about peak speeds, and it's about sustained speeds. So you cannot give it all. If you want to give it all to everybody it's going to take tens of years, and a lot of money. So what...
What happens is that with 5G we have the perfect complement to accelerate the coverage at a decent speed with sustained speeds, and peak speeds, but all of that complements, so it's not one or the other, it's going to be whatever is better for every single case, and we will see that happening. What we will see is that our customers will keep on asking us what should I do, up to which point I put the fiber, because even in 5G you will have to have fiber, fiber to the small cell or to the antenna as I call it in the presentation, and then we do the economics, and the economics will show which is the percentage of each of the technologies that you have to deploy in order to provide the service that you want.
Second question is just: the operators sound like they're keeping their CapEx budgets for 5G broadly unchanged, so just swapping 4G spend with 5G. Given site acquisition costs should go lower with the reuse of towers, does that mean we should see more electronic spend, more software spend for equipment vendors generally, or is there something else that's going to be spent on? Thank you. So as Rajeev mentioned this morning, the question of you know continuous increase on demand for capacity you know will only come into forcing the operators to upgrade their network to cope with the demand. So and we believe this is doesn't have to wait, the operator they do not have to wait for 5G, the demand will happen you know between now and 5G. So because that's why exactly our strategy is calling for 4.5G Pro as well as a 4.9G.
Hence we believe investment has to occur today in, you know, and tomorrow in infrastructure as well in software capabilities, and specifically in the software not only to upgrade, you know, the if you like the access network or the mobile broadband infrastructure, but as well the core, you know, through to the cloud. Two. Jarden. Yeah, hi, Janardan Menon from Liberum. Two questions, one on mobile. In your initial discussions with the Japanese and Korean operators, what's the sense that you're getting in terms of how they will go about their 5G deployment? Like when you go to 3G and 4G it was quite intense, dense networks, you know, in quite a short span of time.
Is 5G going to be just a few stadiums and things like that here and there, or will it be a much more broader deployment once they start getting underway? On the... on the fixed network side, while operators like BT are putting in a lot of enhancements to their copper networks using your equipment, there's a lot of pressure from a government sort of industry point that they are underinvesting in fiber, and there's pressure on them to try and increase that fiber deployment on people like Openreach for instance. If Openreach for instance were to go from copper to fiber or shift quite... quite a bit to more fiber deployment using your equipment, what's the impact on your revenue and margin? Do you make more money on... on vectoring and G.fast versus PON, or is it pretty much a wash for you whatever they do?
So I will start with the 5G and... yep. First, as you know, the view we have on how 5G will be deployed is in islands, and this is why it is in islands. Because depending where you are in the countries you may have a different spectrum, and dependent on the particular user's spectrum you will drive the necessary use cases to augment the offering that the operators are looking for. Because if you have a spectrum and below 1 GHz it's completely different if you are working at 28 GHz or you are working at 60 GHz. Hence its spectrum will allow you to use different use cases and a different offering across the board. So this really it's an example of that, if you are working at the 60 GHz spectrum you can build a 5G fully automated you know manufacturing facility.
So if you are working at a 3.5 or below 1 gig you can build completely very low latency infrastructure to give you full autonomous driving, so you can see the full spectrum. Now as it... as it relates to Korea, it's really they are at the same time looking to identify these new opportunities across the board, but the initial opportunity they are looking to leverage as I mentioned earlier the 2018 Olympics to be a showcase for what I call extreme mobility. Now what does it mean extreme mobility? To what extent you can provide you know virtual reality streaming capability, in addition to the basic mobility of you know how you can provide the more sophisticated you know video monitoring capabilities, and so on, these kind of capabilities they are looking for. So some of the other customers as you know in the... in the U.S.
They are looking for a 28 GHz or for a fixed wireless access exactly as Federico mentioned to complement the infrastructure to support broadband to the home. Okay so on BT. First of all I doubt that they are going now to change into fiber, why? Because if you look at the fiber deployments worldwide there are very few countries where you do only fiber, one of them is China, but the reasons are not economic. So it's okay. So in any other place in the world what they do is they do the numbers. If somebody is going to put the money to do that fiber deployment yes, maybe, but nobody is going to put that money. So then you have to optimize the investment.
So the difference between investing full speed fiber to the home, and investing first a combination of fiber to the home and fiber to the node is the following: you need 7 years in a certain region to recover the money that you invest on fiber to the home, 7 years more or less average, depending on of course it depends on a lot of things, if you have to bury or it's aerial or, but the study shows 7 years to reach break even in cash. With fiber to the node you have 2 years to recover, in 2 years you start making money, and then that money you reinvest into fiber to the home, selectively. That's what the operators like NBN, like British Telecom, like most of the Europeans even AT&T are doing. They...
They believe that it is more important to provide fast coverage with enough speed and 300 Mbps. Believe me, sustained 300 Mbps is better than peak 1 Gbps, and then recover and then reinvest that money into fiber to the home in the future. So that's what I believe is going to happen and that's what's happening in many places. Let's take Simone. Thank you, Simon Leopold with Raymond James. I've got two related questions on the adjacencies in fixed networks. The first part is that it looks like a substantial amount of the growth comes from products that are not the CCAP, not the Gainspeed products, so if you could elaborate as to what the big growth driver is that's not CCAP, and then within the...
The CCAP opportunity that you get with Gainspeed, you'll have to displace three incumbents today. How do you displace the guys who are already in that market? Okay, so first of all, the cable operators are facing exactly the same problem as the telcos, and that's why I'm talking with them for the last three years on how to deploy fiber to the home. The problem is money, it's again exactly the same problem why I believe BT is not going to go to full fiber to the home. All of them tell me if I could I would put fiber to the home with...
With EPON in this case, they use EPON with a technology that we put on the market that is called DPoE, DOCSIS provisioning over EPON which allow them to use the fiber technology and manage that as if it was a DOCSIS product. That's perfect. Now why don't they grow more? It's 10% more or less of what they invest, and it's not growing more, why? Because it's very expensive. So what they are doing now is going one step in between, which is instead of investing in the big central office going remote, because with DOCSIS 3.1 they have to replace in the amplifier, and once they have to go into the amplifiers we see they are the insertion point. If they have to go there anyhow why don't they put a technology that allow them to evolve into symmetrical gigabit per second service.
So I read an article right after we acquired Gainspeed with the question: why Cisco allowed Nokia to acquire Gainspeed? And I think that the question answered your question. And by the way I forgot... I forgot, I... I didn't mean not to answer your question before. It doesn't matter if it's copper or fiber, for us in the copper space we don't sell the... the CPE, the residential gateway, in the fiber space we do, so in terms of revenues for us it's the same. That's why we have more credibility with our customers because it doesn't matter. Alexey you have a question there? Over to Richard. Thanks very much Richard Kramer from Arete. Simone you mentioned... since you mentioned it three times I thought I'd ask you what you meant by it, that you're going to lead in 5G and that it's more than mobile.
Does that mean when you're looking out in 2020 the mix of business is going to shift from radio to core to what you're selling to your customers, and also when you put up your adjacencies going from EUR 2 billion to EUR 6 billion and you mentioned new business models with some of the web-scale guys, can we get a little more clarity on that? It's kind of inconceivable that one of the web-scale guys would dive into mobile and there would be just EUR 4 billion of incremental spending from one of them to do any sort... anything meaningful in mobile. So can you sort of put some meat on the bones of that, and what you meant by what does leadership in 5G mean in practical terms? Yeah, let me start with that.
Actually, first, we are leader today in 4G and LTE, so what I mean by that is really we needed to be number one in market share in the world. This is really very simple and clear. Second, what does it mean beyond radio? Because when you look at 5G, it's not the same way you look at it as in 4G. Just you needed to evolve the mobile broadband infrastructure to provide you some more capacity to the end users.
We are looking at 5G completely new construct, from end to end perspective, going from the access, going to the cloud edge, going to the cloud core with all the management that comes around, because the requirements of 5G are completely different and the application and the use cases in 5G are completely different because you are now not connecting only people but connecting people and things at a dimension which is significantly bigger than we are experiencing in 4G or in 3G. So hence this is really this construct has to be defined in a complete way and hence we look at it as it's beyond radio. So this is the first part to your question. The second part is about the adjacencies.
So I said this really in the near term the majority of our revenue will come in from the primary markets, but however we identify these adjacencies and will be very selective and focused how we want to go about them. There are areas of a clear if you like line of sight to potential opportunities, an example is public safety, because public safety it's really we are looking at disrupting this particular market. Why? Because the infrastructure today is a legacy, can enable only legacy services, you know the world is evolving, these standards are available and we are the lead actually in disrupting this market with LTE solution offering, not only radio because you still need the core capability, you need it the handset and hence we work with partners to do that.
So hence we will be focusing one of the key things for me is to go after you know the public safety, and this is really it's a very, very big opportunity for overall Nokia. Now as it relates to the web-scale, as I mentioned the spectrum will dictate how these web-scale players you know will, would like to play. Now to what extent we are engaging? Yes. Do we have a view how they can leverage this technology? Yes. Do we have a clarity how much this will create as a big business opportunity for us at this point in time? No. But are we really engaged to understand and to be better positioned to play with the web-scale? Absolutely yes, because we believe yes we can use the technology that we have and specifically taking a platform approach and with the...
with services, but we need it to fit within their business model. So hence the way we look at it that this market will create a new requirements, we needed to understand these requirements and we needed to intercept these requirements with the leading solution of product and services. Make sense? Okay so thank you for your questions and we'll now take another short break. We'll start the IP Networks and Applications part of the day back in this room at 3:00 P.M. Thank you. Thank you. Thank you. I'm going to kick it off. Welcome back from the break. Now it's my pleasure to kick off the IP Networks and Applications session. Everyone in this room will benefit. Please welcome Basil Alwan, President of IP Optical Networks. Thank you. Thanks, Pam. Appreciate it. Good afternoon.
We set this up perfectly because I flew in yesterday from California, and this is about the time I start to get really tired, so this is perfect. So I'll do my best, though. I think I want to open up just by talking a little bit about the situation IP/Optical Networks is in right now, the industry. It's a little bit of a different cycle because it's a bit of a slightly different business, obviously highly related, but we're going through what I would consider to be a period of pretty meaningful change. And in my time doing this, which on the carrier side started back when with the founding of Timetra and the building of the IP business, this is really the second time that I've seen this amount of real change.
I think in the history of routing and switching, there's only been a couple of these kinds of times. Obviously, when we started our project to start the routing business, it was around the change from IP for internet service only to multi-service. That was the big change that occurred that brought Alcatel-Lucent, now Nokia, into the IP business. Now we're going through another one of those kinds of periods because of cloud. Cloud is really having a fairly big impact on architecture, on the players, on the network itself, the global BGP network. It's a pretty interesting time. Whenever things are changing that much, as much as they are right now, there's a couple of anchors that really matter. Anchor number 1 is customer touch, intimacy with the customer. You can track the change with the customer.
So you know what they're trying to do. You know the problem they're trying to solve. You have awareness. And the second thing is really deep, deep technology. Because when you're in a period of flux, you have to be able to potentially come up with new solutions. So it's one of those two. You have to have both. If you're a startup, you definitely don't have the big customer engagement. You're working on that. But what you do have in a period of change is an opportunity to bring new technology at the right time, outflank the big companies, and try to take share. So that's always the game. And I'm happy to be here at Nokia because we have really strengthened our customer touch, I would say, especially on the mobile side. We have even more customer intimacy, more customer touch than we've had in the past.
We still have that really deep technology capability. I'm going to talk about it through this presentation. We have, of course, risk. There's always risk when there's changing markets, but we have opportunity. That's what I'll talk about today. We show this picture in each of our presentations because it's kind of our top-level architecture. I consider it to be important for two reasons. One is customers, as Rajeev correctly said, really care that you have a bigger picture of what's going on with their network. It helps you relate to them. It helps you talk with them about what their challenges are. And it's not just being able to sell, but it's also co-creation, the ability to work with customers, figure out what their challenges are in advance, do something about it, innovate, create some new solutions.
Great example of this is video, where video is really driving a lot of network bandwidth and a lot of network architectures right now. And the impact of unicast video coming from broadcast and multicast to unicast is massive. The impact of Cloud DVR is massive. And we're involved in that business. We understand it. Another example is VR. VR is an interesting one because Brad mentioned the amount of sheer bandwidth that VR creates, especially for live streaming. There's another issue this kind of interesting people haven't thought about. If you're at a venue and you're watching a VR stream, or you want to watch a VR stream, today, the way the network works is all that traffic has to come back to some gateway. It's pretty far up in the network, and then it has to be hairpinned back down to that venue.
It's because the edge of the network, the gateway, is sitting somewhere in some central office. So in the future, we can't do that. If you want to have the VR experience, if you want to sit in a stadium and you want to watch a race and then put on a VR headset and be in the car, which I think is going to happen here, then the service providers are going to have to figure out how to move the gateway. The gateway right now is very static. It's another case where being across this entire network architecture gives us opportunities to do interesting things and think about the problems that are coming. So just to remind you, IP Optical is about a $28 billion market. A couple of things I would note on this slide.
First, we're one of only three players that have greater than 15% of this entire market, IP Optical. It's us, Huawei, and Cisco. Make a few comments about our position in IP and optics. How many of you here use the internet? Okay, so there's a few back there that have not used it yet. It's very cool. You got to try. It's really cool. I just started last week. So you may not know this, but at this point, given our deployment in routed networks, if you use the internet at any time, the chances of you hitting one of our routers anywhere you are on the planet is nearly 100%. And I say that, you say, "Well, okay, why do you say that?" Well, because if you do a trace route, you'll know you hit at least 5-10 hops to any place you go.
We have 20%-30% of installed base of IP routing. A really important part about that is, recently, last 5 years, we really become trusted as core routing. Core routing is really when it's really the fundamental backbone of the internet, of course. So we're in every transaction that's going on the internet, which is quite interesting. We're number two in edge routers. We're from time to time number two in routing overall. Optical is another business that's related. I'll talk a little bit more about that, where we have a very big presence. But it continues to be a pretty fragmented market. But we're the number three player globally, and we stabilized our position. For those of you that track optical, our business traditionally was SONET SDH, which is counted inside of optical.
We also had a WDM piece of our business, but it was a smaller piece of our business. SONET SDH has come down dramatically. By the end of 2017, SONET SDH will not be gone, but it'll be largely dissipated. The remaining market is all WDM. Our business in WDM has been a technology leader forever. We invented Coherent. Coherent is what's changing, has changed the optical infrastructure forever. But we didn't have as big a position, and we're growing that now. So we're number 3. We're stabilized. That business is coming back for us, which is really excellent. It's been a bit of a trek. Many of you may have asked the question when Nokia bought Alcatel-Lucent as to whether we would stay in optical.
This is a question I got quite a few times, both from inside but from outside as well, actually also at Alcatel-Lucent. Because the optical business is a tough business. Alcatel-Lucent had very deep technology roots, but of course, it was a bleeding business at one point. So my position has been and remains that these two businesses are getting increasingly related and that they have to be thought of more and more as one business. They're not one business literally, but they're related. Let me give you a little more color on that. In fact, for years at Alcatel-Lucent, I was asked to take the optical business, and I refused because I really wanted to stay focused on IP. And focus is super important when you're trying to grow in a market. At one point, I decided it was the right time.
The reason I decided it was the right time is because customers started to ask the right questions. Specifically, what's happened over time is that the optical layer of the network, as you may know, used to be the multiplexing layer. It used to be the layer upon which all of the networks rested. So if you had one set of fibers, you'd build an optical infrastructure, and then you'd put your frame relay ATM business services network on that network, and you'd multiplex it with the optical layer. You'd have your narrowband switching network with SONET SDH multiplexed on the same layer. You'd have your IP internet network on the same layer. You'd have five or 10 different networks potentially running on that optical layer. So the optical layer was the big multiplexer. Well, over time, what's happened? Everything's running on IP now.
Voice has become voice on narrowband. It's become voice over IP. Video's becoming video on demand and unicast. Business services used to be frame ATM. Now business services are IP VPNs and MPLS and Ethernet pseudo wires. So everything moved up on top of the IP infrastructure. What's left is an optical infrastructure that just interconnects routers. I shouldn't say just because it's a pretty big job. But really, that's what's happened. So then the optical infrastructure becomes really a part of the IP infrastructure in a way and can be optimized with the IP infrastructure. So that's, in fact, what's happened. We're starting to optimize the two together. The optical layer has also become more switchable. It's become dedicated to IP. And so over time, it's become more related.
This slide kind of shares some service providers that have worked with us and have done RFPs that have highly related IP optical in them. One of them on here I'm not going to comment precisely on which one. Actually, it's because it's not necessarily public, but the way in which they did their business. But basically, it was a very large service provider across Asia. And they basically bid IP and optical together for all their properties. And they only bid us, Huawei, and NEC. No Cisco, no Juniper, no Ciena, no Infinera. Cisco, Juniper, Infinera, and Ciena all had a tuck under NEC and compete with us and Huawei. And the business largely got split between us and Huawei. There was a little bit to NEC. So there's things like this happening. So this is getting real.
Now, I've said in the past, this is not a litmus test. It's not you have to be in both. It's just a little bit of a tailwind for us, and I think it'll grow over time. And it's a headwind if you don't have both assets. And I think it'll stiffen over time. And I think that's what this looks like. So the IP optical market, primary market outlook, our primary market is growing at 1.3%. But I would say this is changing quite a bit because the IP optical market also has a fairly meaningful component now that's moving into web-scale. And that's not captured here. This is CSPs only. So I'll kind of elucidate that in the next few slides. First of all, bandwidth is still growing. And it's growing pretty aggressively. So we see 40% peak traffic growth. And this came from Mason.
But we basically look at this as well. We talk to all of our customers, and I can kind of verify that we still see steady growth in terms of bandwidth. And so that seems to be unstoppable for this foreseeable future because of video because we're subsuming video right now. And the biggest thing that's driving this, frankly, is the shift to unicast and Cloud DVR because that is really driving a tremendous amount of that. And we're just at the early stages of that. Well, over-the-top video has always been a unicast affair with caching. Main pay TV has not been. And you saw AT&T announce that they're going to take the DirecTV asset, ultimately create a product that's going to be over-the-top and out of region. Hence, they bought the content play as well. So we see that whole business shifting to over-the-top technology, IP technology, Cloud DVR.
It's going to drive a tremendous amount of bandwidth. So we see that continuing. Our cost reductions, of course, with that 40% growth in traffic, our cost reductions come down pretty aggressively while they kind of even that out. And that's been our history is we've kind of brought costs down as bit requirements have gone up. The other thing that's going on, though, is a fairly interesting change in traffic handoff. And this slide here kind of depicts it. Originally, the service providers had the entire IP network. And if you were a content owner, you would connect to AT&T. You'd connect to one of the service providers. And you might run your own in your data center, you might run your own network, but largely, you didn't run a national or a global network. That's changing.
The big platform players, the web scale operators, are building, as many of you know, fairly big-scale networks at this point. They're making build versus buy decisions. Where does it make sense for me to buy from level 3? Where does it make sense for me to build? That's creating a fairly big market for us in web scales. So in this business, maybe more than some of the others, there's a shift going on that we have to pay attention to. I'll talk a little bit more about that shift. We've done really well there, by the way, in these web scale operators and optical. So we have a very big optical infrastructure now in several of the major web scale vendors. It's growing really nicely. The reason we have that is our optical business, we really lead.
I mentioned a while ago we invented Coherent. When you look at optical around the world, we're among the leaders, if not at any moment in time, the leader in how many bits you can stick on a single fiber. If you're a web-scale guy and you don't own your own fiber and you're buying an RTU or RTUs or you're buying a fiber, what you care about is jamming as many bits on that fiber as you possibly can. So if we can do a bit more than our competitors, do a bit more better reach, a better reach performance trade-off, which we do, we get that business. So we've done extremely well with optical. We also happen to show up in the web-scale customers just about the time that they were starting to build their optical networks.
This was well after they built their IP networks. Their IP networks, they started building long, long ago. And so they haven't commented. The web-scale guys haven't commented on IP. So that's our next project, is to break into the web-scale guys with IP. And as you imagine, this is what we've done in every market we've attacked. We've found the right transition moment, and we've gone after it. And this will be no different. We have a nice position in the business. We're already talking to these customers. We have great technology. So we're on the ground there. I want to make a few comments about the recent IP market tribulations because many of you have asked me about it. I know it's interesting. It's a point of interest at this moment. This is not a. This is a conceptual slide.
So you can't put this in your models. But it's basically meant to show two points. Number one, IP and optical are actually kind of interesting today. Right now, optical is growing a bit faster than IP. And people ask the question, "Why would that be? Does that make any sense?" And the answer is it does make sense because what happens in optical is every generation that we hit and right now we're in the 100-gig generation, they have to make a big investment in new line equipment, bring up a new fiber, what they call a new rail, and they start adding transponders on that rail. So every time they do that, there's a big investment. When they move their backbones from 10-gig, 40-gig to 100-gig, there's a big investment cycle. IP, on the other hand, is just kind of smoothly growing as capacity demands require it.
Because the optical infrastructure, when it moves to 100, does not mean that the IP infrastructure has to move to 100-gig because it can take 10-gig inputs. It can take 100-gig inputs. So what happens is you have these kind of big steps in optical, and then it smooths out a little bit, and then another big step. Right now, we're doing the 100-gig step in the backbone. We've largely done that at a lot of the major service providers. We're starting to do the 100-gig step in metro right now in optical. So optical is pretty healthy in that regard. IP is generally smooth, and it fills with capacity. Right now, though, the last few quarters, both our competitors, Cisco, Juniper, and us, we've all noticed some weakness in the IP space.
People have asked, "Is there something structural going on?" I guess the answer would be bandwidth is strong. I don't see right now a wholly new competitive environment. Competitive intensity seems about similar to me. And I'm sure there'll be some questions about that. But I think that's how it looks at the moment. So I chalk this up to CapEx hesitance right now. And I think that's what's going on here. And our expectation is that that will resume at the growth that we showed earlier and a bit better because of the web-scale players and the other players outside of our core CSPs. So that's kind of our view on what's happening with routing. So let me talk about just a few big transitions going on in our market. And before I do that, I just want to comment on our roots.
We really, as I mentioned, when it comes to periods of change, it's about core technology in touch with the customer. And core technology has always been a very key part of what we do. So we're not a player that's a system integrator. And there are players out there that take various third-party silicon, stick it in a box, try to get some networking stacks, put it together, sell something. We tend to write well, we tend. We write all our own protocols for a reason. We build some of our silicon. We use third-party silicon. We do both. But we think it's important, and we think it'll continue to be important, by the way, to build silicon.
And the reason is that the Broadcoms of the world and others, Avago, now just Avago maybe, really care about volume, but they don't necessarily stay attentive when it comes to lower-volume markets, lower volume in chip terms, which is really big volume. So while they're in and out of this market from time to time, we have to be really careful because our customers expect us to deliver generation after generation of technology. And it has to be focused on their problems. So our view is that core, we need to stay in the chip business and augment it. So right now, if you look at our routing platforms, we have routing platforms that run our own silicon. And we have another generation of silicon coming. But we run on Broadcom. We run on PMC, which came from Wintegra. We run on Intel.
So we run on a tremendous number of platforms, but we're focused on that. Same way, by the way, on optical. We build our own DSPs. And we get some real strong advantages from that. Some of our latest wins have been around an encoding we do, 8-QAM, which gives a really nice reach versus performance metric. And we won a lot of networks with that, especially the web-scale guys. So this investment is big. Also, software, obviously, critical to us. Nuage is a great example of this. I mentioned a minute ago that it's important in these periods of change to have the core technology. Some people ask us, "How did we get so quickly into the SDN space without an acquisition?" Our competitors all did acquisitions. We did this internally. How did we do that?
The reason we did that is because when we look at SDN, SDN for us is fairly basic technology, let's be honest, separating control from forwarding, blah, blah, blah, open flow. We've done that for years. So what did we do? We took our core operating system, we put it inside of an internal startup, gave them the start they needed, and let them run. And they've done an incredible job, Nuage, of building a product. So we'll talk a little bit about that in a minute, a little bit more about that. I want to comment on NFV because some people have a voice of concern that NFV is and I heard it here earlier in a question that NFV is one of the things that is affecting our business.
I would say, first of all, I don't think NFV is affecting any of these businesses yet, certainly not when I say not affecting. It's real. We're starting to deploy it. But if you look at the numbers, it's not really coming into the numbers in a big way or even meaningfully yet. I also would say, as we said from the start, that NFV is both a risk and an opportunity for us because, on the one hand, NFV will be used extensively for certain gateways, particularly the mobile gateway, where pretty much all of our RFPs from here on out on mobile gateway, EPC, security gateway, EPDG, which is for Wi-Fi calling, those things are all going to virtualized versions. And they used to be running on routers. So that's actually a business going to make the transition.
But wherever you have a very large data path, if you're carrying big, high-def video, if you're carrying huge enterprise services, you're not going to go to an Intel architecture for forwarding because it's too expensive. The difference in performance efficiency is too, too much. So what we said all along, we said all along is that this was going to be not one or the other, but both. And that's exactly what's happening. I will say this about NFV, though. We do have some pretty interesting deployments. Telefónica announced that they're using our MSE, our enterprise gateway. It's a virtualized version. They've rolled it out. That's real, virtual route reflector. In the past, if you wanted to build a route reflector for BGP, you'd have to buy routers. Now you can buy an Intel server. You can take our code.
We have customers that are rolling out lots of these. As in, one of our customers could put 60 route reflectors in. That would have been 60 routers potentially bought from us or a competitor. Instead, it's 60 licenses from us on our software. So this is happening. But again, what is a route reflector? It's a pure control element. It's not moving any traffic. So there's no particular reason why you need the heavy silicon required to move a big data flow. So that's exactly what's happening is those types of applications are moving. The other ones are not. Okay, a few slides on how we see the network evolving. Gateways are critically important to us. I just mentioned about the EPC and what's happening with it.
We said all along that this was going to be not one or the other, but both, not virtualized, not PNFs or physical network functions, not virtual network functions, but both. And our story to the customers were, since it's a price-performance trade-off, whether to use a VNF or a PNF, the only right answer from a vendor is to say, "Here's two versions. Here's a virtual 7750 router. Here's a physical virtual 7750 router. Here's the characteristics of the virtual one that you can spin up on any server you want. And here's the characteristics of the physical one. You decide where to use it. And by the way, they're operationally identical." We're the only guys that have done this, by the way.
Interestingly, we're the only guys that have taken the same exact code base so that when you use it as a customer, you're literally using the same release of the protocols. So you actually can deploy this, and it's operationally identical, except for, of course, the virtual one has the orchestration layers around it. It's more complex in that regard. But these are very, very similar. So we've done that, and customers have responded to that. They like that because we don't force them to make a choice upfront. Do you want physical? Do you want virtual? No, it's buy whichever you want. In fact, for starters, take the virtual one because you can spin it up. You can just start using it and testing it. Then you can buy the one that makes more sense.
There's one particular example here I'd like to comment on, which Federico mentioned earlier, which was about hybrid access. Hybrid access is a great example of that chart, that big chart that Rajeev showed up front and how we can work together. Hybrid access means you take a fixed access line, either DSL or PON. You bring that into an access device of Federico's. But you know those things come ultimately into a BRAS or a BNG, a broadband network gateway, a gateway. Then you take a mobile connection and GTP tunnel to an EPC. Then you have to build a piece of CPU that puts them together. And on the other end, build a gateway that takes those two and puts them together. You have to manage the services one.
So there we have the Mobile Networks team, the Fixed Networks team, and us cooperating to put one service together. Now, if you don't have those three elements, you're going to be working across different companies trying to figure out how to do that. And it's not easy even in one company to do it, to be honest. That's a great example of where this really comes to play. And this is a real application. As Federico said, whether it's for redundancy or whether it's for bursting, customers, particularly in Europe right now, are wanting that hybrid access capability. And we're seeing more and more of it. Software-defined networks, I'll make a quick comment on this. We have invested in software-defined networks top to bottom, in SD-WAN, in data center SDN, and in carrier SDN. We did it early. We've been going at this. I would say it this way.
Some people have asked me about where is Nuage at this point. Many of you know it's a very exciting project. It has a very good engagement with customers, many customers that we haven't had in the past, big banks, enterprise customers that traditionally have been where VMware and Cisco live. And so I would say this about Nuage: what we've successfully done, which probably 1 out of 10 startups can actually say they've achieved, is we got the idea right, we got the product right, and we've gotten the first set of customers, and they're big customers, and they matter. So we're in the right place on SDN. Great example, BT, we just announced. BT for SD-WAN is one of the three or four customers you want globally because they're incumbent and massive in business services. And SD-WAN is the evolution of business services.
So we're really thrilled about that. We also have TELUS. We didn't put that up here, MyRepublic. MyRepublic is a really interesting case. If you're interested in seeing what SDN really is, SD-WAN really is, go to the MyRepublic website. It's an operator, Australia, New Zealand, Indonesia, and Singapore. And they're a challenger that's going after business services without having their own infrastructure. And they're using SD-WAN to do it. And that's the future. So we're going to see a big transition in business services. It's going to happen around SD-WAN. Data center SDN, we're also doing well. Bloomberg's another win up here that we haven't put on the slide. So there's a fair number of wins.
The next step for Nuage, if you're a startup and you're lucky enough to get to the first stage, which is to have real customers, have a product that's approximately right, and kind of get the excitement going around the product and initial revenues, the next step is scaling it. That's the next few years of effort in the Nuage project. I'm pretty excited that we have that opportunity. Okay, so adjacencies. For us, adjacencies are really critical. I like to think of us not as a builder for CSPs, but a builder of, let's say, high-scale mission-critical networks, large multi-tenant networks. We're going to stay focused on that no matter what customer set we're talking about. That's exactly what we've been doing. We see these adjacent markets as a very good opportunity for us, but not one that's theoretical.
10% of my business now, roughly, is in these markets already. So we're already participating in a meaningful way. That includes, by the way, that 10% number includes the web scale guys. But it also includes a lot of really interesting power companies, transportation companies. I personally went and was very involved in a recent deal that we did around a utility that was moving from Juniper to us. And in this particular case, they wanted IP Optical. By the way, in this market, IP Optical is even more interesting because these customers, they like a system solution. They want a partner. They want someone that's not, their network is not their business. Their business, in this case, is utilities. They're counting on us to be more than just a box component provider. They want us to do more than that for them.
So we actually won this customer to become a really nice customer of ours. And from there, we actually have done a deal with AT&T that you might have heard of, where we're taking private LTE spectrum. Here's another example where MN and ION are working really well together. They're taking private LTE spectrum, and we're offering it to utilities so they can have their own LTE spectrum. And we're building a special router and a special base station so that they can run that. And AT&T is contributing to the spectrum. So they're selling the spectrum. We're selling the gear. Put a project around it. And we've got a tremendous number of utility companies interested in that. So there's a lot of stuff going on here. There's way more than I could say in this presentation.
I'm a little bit over time at this point, so I'll wrap this up. There's a lot of excitement in this. It's not theoretical. It's real. There's a lot of really interesting stuff going on in that space. If you take both of these together, we see a goal of growing faster than our primary market. My view is we should grow faster than the combined market, the primary and adjacencies over time. We've done that traditionally. There's no reason why we shouldn't be able to continue to do that. We have, obviously, challenges in the CSP market, our primary market right now, which is a little bit interesting. That's a perturbation that we think we can manage through. Long-term, obviously, expand to double digits, which is, for us, commentary on a couple of things going on in our numbers.
Number one, the so-called SDH reduction in optical. And also, we've terminated our Juniper resale program, as you might imagine, surprisingly. Surprisingly, we're not doing that anymore. So those numbers are going to come off by the end of 2017. We'll be done with all of that, and we'll be back to kind of growing our business as we normally do. Obviously, we have a role, not a huge role, but an important role in the EUR 1.2 billion target. And that's around Packet Core because we put two product lines together. And of course, we've had to do the work to make the choices, work with the customers like Samsung did in a much smaller way, obviously, but an important way because the Packet Core is critically important to our customers.
We've done this work, and I think we're well ahead of schedule here, both on the synergies but also on managing customers through this transition. I'm pretty happy with that because it wasn't an easy project. But I think we're making good progress. And I'm very, very, very, by the way, bullish on Packet Core. I think Packet Core, for us, is going to end up being a very big deal because we're one of the only houses that has real IP routing and real mobile. And so we come to the customer with all the intimacy and all the depth of experience to do it. So summarizing, big change in the market right now, a lot of things moving, two things that are super important, deep engagement with our customers and a deep technology ability to innovate. And I think we have both.
So I think 2017, 2018 will be pretty exciting for us. I think there's going to be a lot of really interesting product announcements to share with you guys as we go. And I look forward to it. Thank you for your time. I want to introduce Bhaskar Gorti, who runs applications and analytics. Bhaskar, over to you.
Thank you, Basil. First of all, I really want to congratulate all of you. You're sitting in here for 6+ hours. I'm amazed by your absorption index. I'm going to try to entertain you for the next 20 minutes about something called software, why that is important for us, and why it is important in the networked world. You heard Rajeev today talk about building a software business as one of our key strategic pillars for the company moving forward. But in the programmable world, we need software to orchestrate all these connections you heard through the day that are made, whether fixed or mobile or IP or optics. How do you bring analytics and meaning to all these connections? And then how do you automate the actions to create simplicity and efficiency?
So to do that, it is absolutely important for us in Nokia to be a strong, credible, profitable player in the software market. Now, I'm going to share with you what we are trying to do, and especially a little bit of a divergence from the prior speakers. I'm not going to talk a lot about the long-term strategy of what we are doing. I'm going to be grounded in what we are doing today in 2016 and what we're doing in 2017. And you heard from Rajeev and Mark some of the trends that are going on, and I'll try to bring that together. Now, many of you have been covering Nokia and the telecom infrastructure for a very long time. So first, I want to just maybe point out certain differences.
My business group, just like you heard from Brad and Maria earlier in Nokia Technologies, we are a little different from Nokia's network businesses. Why? One, I'm in a business that is extremely fragmented. If you heard my three predecessors talk about 20%, 30%, 40% market share and having two, three, four players is normal in those segments. At best, in any of the segments in which we play in, a 10%-12% or at most 15% is considered huge. Second, we are a pure software business group. We don't carry inventories. We don't have supply chain problems. We don't sell units. So we primarily sell software licenses. The third thing that's different for us is when a customer evaluates what we bring to the table, they expect it to be multi-vendor, multi-network, and multi-protocol.
So they want to make sure whatever we bring not only works with Nokia networking equipment but also with anybody else's equipment. If we don't do that, we are not a viable software player in this space. And the last thing that's different for us is the buyers who make decisions for our business group are different and go beyond just the chief technology officers. We have to engage with the chief marketing officer. We have to engage with the CIOs. We have to engage with customer care and CFO. So these are some of the things that are different. I know some of you, over the breaks, I had a conversation to catch up with you from the past. You had some questions. But these are some of the dynamics that are different in the applications business. So now, Rajeev discussed this morning and Mark, the six trends.
Few of those things actually apply a lot more to my business group. Before I do that, I think I want to play a video.
4 mega trends affect the way we build, connect, and use networks. The first mega trend, the move to the cloud. Instead of using physical devices to deploy services and features, the cloud uses software. This move changes the way we purchase music, view movies, and run networks. Cloud technologies reduce costs, improve efficiency, and give scale. The second mega trend, augmented intelligence. Through human assistance and task automation, our systems will make more decisions and perform more analysis for us. This will allow us to focus on higher-return tasks. The third trend, the Internet of Things. More than a trillion sensors connected to the internet will drive huge benefits for both individuals and businesses. This changes the way we manage our health, homes, and governments. The fourth trend, security. As we connect more things, collect more data, and monetize that data, security becomes increasingly important.
For digital value platforms like Airbnb, Uber, and Bitcoin to thrive, security must be the foundation. What do these trends have in common? They all rely on software innovation to create new markets and reinvent old ones, like business support systems, also known as BSS, operational support systems called OSS, and service delivery platforms called SDP. BSS play an important role in monetizing services. You interact with BSS solutions every day when you order a new service or inquire about a billing issue. Service providers are taking advantage of augmented intelligence, cloud, security, and IoT advances to modernize their BSS systems. The advances are helping them improve customer experiences and monetize new services faster. Similarly, service providers are taking advantage of software developments to create leaner operating models.
New cloud-friendly OSS systems with augmented intelligence allow service providers to set up services in minutes versus months, manage larger networks and more services with fewer staff through automation, and even predict issues before they happen. SDPs combine components like service creation, session control, security, and protocols to provision new services like IoT. Forward-leaning companies understand the importance of SDP. They are hiring chief platform officers to drive digital transformation. They chart the course for using technologies like unified communications, security, data analytics, and cloud-based functionality to improve processes, collaboration, and profitability. And that's really what it's all about, using technology to improve the way we operate. Software innovation in cloud, augmented intelligence, Internet of Things, and security technology is making this possible.
The whole reason I wanted to play that video was to put a context because some of you and many of you have heard these industry terms, BSS and OSS and service delivery, and say, "What is different? What are we doing different?" There is an insertion point. There is a transition that's going on in the market today in our communication service providers, that they are looking at how they modernize these systems, whether they go through a customer journey, whether they go through service orchestration and service lifecycle. These are the changes that are going on. This is the current portfolio that the Applications and Analytics business in Nokia has. Many of these customers are customers of ours from our network businesses. Here is, again, a leverage for us to cross-sell and upsell.
You see that we have production wins and installations at scale at many of the tier-one operators in the world. That also, you've seen a few number ones from my peers. So here are some of the ones that are relevant to the applications business. We are number one in device management. We are number one in SON. Our customer experience management portfolio today in Nokia is very unique. Alcatel-Lucent had a very strong fixed customer experience portfolio. Nokia has had a very strong mobile customer experience portfolio. And now, when we bring those two together, we have one of the largest in-production fixed mobile customer experience solutions in the market. In terms of our OSS leadership in analytics and assurance, CloudBand, those of you who have been tracking Alcatel-Lucent, is now the orchestration and management platform for Nokia.
That, combined with what Basil said about Nuage and SDN, gives a great foundation for us to innovate in the market. Our IMPACT IoT platform has been getting some early wins in the market and acknowledgments. Now, let me quickly move to what are the drivers in the market. So the worlds are colliding. Now, you heard earlier we talk about software business at scale. What do we mean by that? Today, not just us, and it's not unique to Nokia, it's the same with Ericsson and Huawei. We're trying to transition from being a network-attached software sale because when a customer comes and looks at us for our customer experience or analytics or security, they want it to work across all these three and other vendors also. So that's a very important part of it.
Now, this world is colliding with the pure software players who are coming from Netcracker or Amdocs. They don't have a network. They don't chase, as I joke about, they don't chase a radio sale. So they don't finish the radio sale and then come back and say, "Now, since you bought my radio, do you want a little bit of that too, maybe for free?" They don't do that. So they are going in and selling as independent software that can support an Ericsson, Huawei, or a Nokia infrastructure. And then, now, they are getting attacked along with us with some of the newer players who are coming up with open-source, web-scale, do-it-yourself, and SaaS models. So this is what's happening in the market today in the applications and analytics business.
And now, so this, as you heard the term today, again and again from others, that this is a major disruption. Nokia has a unique opportunity to reposition ourselves in this market. Now, why? Why we believe we can do that? First thing, while the pure software players—I have spent all my career in the software business—while they come from agility and speed, what they truly lack is providing carrier-grade, at scale, hundreds of millions, 24 by 7, five nines availability solutions. That's what they lack. Now, we take that and ours and then combine that with the innovations that you heard from Mark today and others of what we can bring from Bell Labs. We have a unique opportunity to create a new position in the market in building our business. Now, all that's great. All of you will say, "Okay, Pascal, that's great, but super.
You showed us a pot of gold. How quickly are we going to get there? How do we get there from here? How do we move from being a network-attached software sale to being a software business?" It's very simple. It's very, very simple. It only requires us to do three things. We need to build a software sales organization. We have to strengthen and expand and modernize our portfolio across the entire suite. And then we have to diversify the markets beyond where we are and the business models. And I'll briefly, quickly touch on these three now. What do I mean by evolving our operations? It's go-to-market. We are in the process of building and training and dimensioning a sales organization that exclusively focuses only on selling software.
You heard Rajeev say earlier today that as we are moving, somebody cannot retire their quota by selling another business group. They have to sell each one of the business group solutions. So that's a very important thing. We already now have a team of a little over 400 people. We have given them the right quotas. We have trained them. So we have now started the go-to-market transformation. The second thing that we have to do, which I'm very excited that I came from the former ALU side, especially in the software, when we see what Nokia has done with services and services transformation, this is where we believe strongly that we have to dramatically improve where we are, whether it's our efficiency or attach rate.
Then I want to talk about the foundational thing which we started in Alcatel last year, and now it's ongoing, is our R&D transformation. If you heard Basil talk about the routing OS that they have, it's the same OS that runs across all kinds of platforms. That's the direction we are moving towards. We have been starting rewriting a common software foundation on which all Nokia's applications will run on. What does that do? One, it helps our customers dramatically reduce their OpEx to use more of our products. They all look the same. They feel the same. So the OpEx is low. Two, it helps us deliver those products to our customers in a much more efficient and effective way because it looks and feels and is built on the same infrastructure. Number three, as you heard, it'll help us improve our gross margin and our profitability.
And more importantly, the fourth thing is it increases our R&D velocity to bring more innovation faster. And in fact, some of the early things that we are seeing, it'll reduce our middleware cost by 60%. So that is what we're doing in terms of evolving our operations and organization. Next slide. Now, you have seen this. If you haven't seen this slide so far today, please raise your hand. No, you have. Okay. Let me tell you what I have to do with this slide. I'll straight away jump to the next one. Where we focus on from the application is we take the handover from Basil in the programmable network OS, starting with management and orchestration in the cloud NFV, into device management, into the IMPACT IoT platforms, into the digital platforms, while all along looking at endpoint security, network security, and service security.
So that's how we play in this picture of Nokia's future architecture in terms of end-to-end. Very quickly, primary market, communication service providers. Today, my current business is almost 95%-96% coming out of mobile operators. I've got to start diversifying because if they sneeze, I'm in the emergency room. So I need to diversify. I've got to look first beyond the mobile operators just that we have. I think Rajeev mentioned this earlier, our ability to go and sell our software to every network customer of ours, be they mobile, be they fixed, or optics or routing, we need to go and sell to that. That's our first degree of diversification. And I think that'll keep us busy for quite some time. The second is how do we move towards over-the-top players who are providing different services and enterprises and a key set of verticals that you heard.
Primary focus 2016, 2017 is when we talk diversification, it's diversification in the CSP market. Next slide. Now, that market is EUR 12 billion today, going to EUR 16 billion, 6.5% CAGR. We like that. And then when we add to it some of the emerging businesses of cloud, analytics, security, and IoT that are addressable by us, I'm not talking about the generic cloud market or the generic analytics or security market. This is where it is relevant for us in the CSP market to address these segments. We are talking about adding another EUR 6 billion-EUR 13 billion at a 15% CAGR. So when we add all of that together through discipline, expansion, and diversification, our primary market and adjacencies give us enough room to execute. Our primary goal is to grow at primary market rate. That's what we are targeting ourselves in the three to five years.
How do we grow at the primary market rate in our long-range planning? Then expand to double digits in terms of operating profit. I think we feel pretty good that we are taking the right steps to get us to double-digit OP next year. Now, how are we going to do that? Again, you have seen this slide many times because it's extremely relevant for us. Now, unlike Sami and mobile, where there was a lot of rationalization of portfolio and things, we had very little of that. So we had very little of two things identical coming from either former Nokia or former ALU that we had to retire. But we have long ways to go in adapting the pricing war room, as an example, is a key thing that we look at. How do we go at our services attach rate?
So there are certain things of the Nokia business system that are foundational to our delivery and our execution towards the EUR 1.2 billion that's there. The second thing that's extremely important for us to deliver, which I even said, our middleware costs, is our common software foundation. That's going to definitely help us drive towards that. So looking forward, now, this is not going to happen overnight. To go after that large market with 6.5% growth rate or an adjacent market at 15.8% market, we have to do this in a disciplined and in a creative way. We are profitable today, and we want to continue this journey being profitable all along. So we have our strategy in place. We have enabled our sales force. Starting next year, you will start seeing more and more common software elements delivered.
We will be streamlining our services offering and then moving into 2018, having a software suite across broad product lines and improving our service and attach rates. So this is a challenge that we have to execute. We strongly believe that we have the right strategy, the right raw material, and the right talent to execute on this. And we'll keep you posted as we make progress. So with that, I think I am done. Matt? Thanks, Pascal. Basil, welcome back on stage. Okay, let's get ready to take questions for Basil and Pascal. Let's start with number two. Sandeep?
Yeah, hi. Sandeep Deshpande, J.P. Morgan. Firstly, for you, Pascal, I mean, I'm a financial analyst, so I mean, I'm looking at market caps. I mean, you look at Amdocs market cap is $8.5 billion. I mean, clearly, that is not being valued from your business at Nokia. So how does one get that profit pool to come through in your business that you can contribute significantly to Nokia's valuation? Because the value from these software businesses needs to get reflected in Nokia's market cap as such, really. That's my first question. And one more to you, Basil. On the IP router space, you did a good job in the IP core. And I mean, you got some slots there last year or a couple of years ago. And how's that going in terms of continuing penetration in that market?
Or has that stalled, or has that focus moved to the web-scale players? That's what I'm trying to understand.
Yeah. So Sandeep, I think how can we start contributing to the valuation of the company from a software point, as you said, what Amdocs valuation is? And during the break, we talked about a few others. I think it's going to be, there's no magic to it. It's just consistently our business group has to consistently deliver quarter-on-quarter growth in line with the primary market that we are in and at the market profitability of what we said, double digits. I think if we continuously do that and back that up with our growth in pipeline, delivery of products, I think that's when I'm hoping you all will start appreciating that in the valuation.
Yeah, and the core. So we were really thrilled with our progress in the core. That was a market, by the way, that it's really interesting. If you think about technology and switching and routing, the simplest device to build is a switch. And there's a big market there, data center switch, blah, blah, blah. Take a Broadcom chip, do some stuff, and you've got a switch. I mean, it's not quite that easy, but then access aggregation per carriers is a little more complex because you have to introduce MPLS, and you have to get it right, and you have to get into some better redundancy models. Then from there, edge and core. And edge is more complex in one dimension. It's got more heavy lifting and services. So edge is the first place we went.
But core is a very important part of it; it's the backbone of the global internet. It's BGP. It's the real BGP. It's the one that has to stay up or the internet doesn't work. It's the one that if it misbehaves, so breaking into that actually has been a serious [challenge]; it really has taken us 5-7 years to get enough trust where the search providers would actually put us into that place in the first place. So we're really proud of the software component of that, by the way, because they have well-behaving BGP. What the search providers want to see, they want to see that when a bad thing happens on the internet and there's route flapping or there's some real big issue going on, what do you do? Do you fall over, or do you actually stay up?
You take an off-the-shelf BGP, stick it on a Broadcom chip, that thing will be gone in no time. So there's a tremendous amount of effort that goes into what happens in all the bad conditions to get there. Now, we made it. We made it with edge routing. And now in core routing, we're getting close to 10%, right, from zero. And we did that pretty rapidly. We doubled share 2014-2015. In trailing 12 months, we've grown share again. The other piece of the core market, though, is extreme performance. And we're making an interesting bet that you guys will learn about in the upcoming year or so, not to box it in too much, about where we're going on that. I forecast that we'll continue to grow there because as long as we have those two elements, we're going to be serious.
At this point, we're trusted. We just brought up NTT, NTT NER, the project we announced to win that's live now. We have some of the biggest IP networks that are purely us at this point in the BGP backbone.
Let's go with that, Charles.
Thanks. It's Achal Sultania from Credit Suisse. Maybe a question for Bhaskar. I think going back to because this was a business which was kind of inherited from Alcatel and going back to the Alcatel shift plan two years back, I think this has always been considered to be the fastest-growing business. But I think we've kept I think 2015, it didn't grow. 2016, again, it's going to be a challenging year for application and analytics. Can you explain what is exactly what are still the challenges that we have in this business? How much of the business you do is recurring versus how much is discretionary spend from operators, which is coming under pressure? Just trying to get a sense of that.
Yeah. So if you look at our business today, about a third of that is recurring of our business. That is annual recurring that happens, whether it's in terms of CARE or SaaS. So it's a third of our business today. And your question was, what are the things that need to be done? And I think, as I described, some of the foundational things that we are rewriting, some of the software, so that's a key part of it. And then the focus is on our go-to-market and sales. In the past, in former Alcatel-Lucent, we had a very limited, I would say, mobile footprint in North America and in China and a few others. And that's the only place where we went and sold these assets after the radio sale was done.
I think now, first, we have a much broader network footprint to go and sell to. Two, our ability to go and sell on optics, to go sell on fixed, is there. So when we do those two, we are increasing our own internal addressable market quite a lot. And then that, combined with a dedicated sales force compensated on individual product groups, I think that's what is required to execute. There is no turn-on, turn-off switch here. Software sales do have a sales cycle of 6-9 months. Bookings to revenue takes 6-9 months. So these are the things we have to do now, today, which we already have started.
Gareth?
Two questions, if I could. Sorry to pin you down, Basil, on this one. But you said, I think, originally that you'd target the same market share in core as edge. And I think you're about 7% in core.
Wow, you remembered that. Holy cow. I didn't count on that. You took notes.
It's ingrained on my memory. You're about 7%, I think, today.
7.8.
Thank you.
Trailing 12 months.
6.3 last.
But who's counting?
6.3 last quarter, I think. So what timetable to get there? And what are maybe the blocking factors to do that?
Yeah. By the way, I think that's still very achievable. I think we're going to have to go through another technology round because, again, there's two parts to this. One is having the trusted BGP, blah, blah, blah. By the way, on that note, we're known as the best. And I know everybody might say that but talk to some service providers about stability and their ability. We had a web-scale operator recently testing our box. And they have a set of tests that they largely have knocked over every platform in the industry. And they've tested us now for months and months, and they have been unable to find a single issue. And by the way, that's not accidental. Sri Reddy, who's here right now, has built a test automation suite over years that I think is a serious competitive advantage for us.
There's two things that we do differently on that note, by the way. One is test automation. We're saying ours is better. It's the best in the industry. Engineers that have been in and out of our environment even tell us that, that it's world-class night and day. But the other thing is that we really focus on one code base. And our competitors don't have that luxury because they've made choices to branch off and do different things. And now they're basically trying to fix bugs in this release, that this not in this release. Ask a service provider about iOS and how many different bugs they have to fix in the various branches of iOS. So that part's a super great asset for us, and it gives me confidence. The second part is you have to have leading density power. And that's generational with silicon.
We're making, as you might imagine, a big bet on next-generation silicon. I can't tell you more about this right now, but I don't think I'm releasing anything secret to say after doing FP1, FP2, and FP3, there might be something coming next. I'm not going to announce the name of it. It's FP-something, but I'm not going to tell you. So I would say it's going to take another. We're going to continue to do that. I'm confident that we're going to come out. We're going to do well there. And I still stick by the idea that we should get to that. I think we'll be able to.
Let's go with Rob.
That'll include web-scale players.
Yeah. Basil, a question for Basil here. Just on the web-scale effort. Hey, Basil.
there you go.
Yeah. So it's Robert Deutsch, yeah?
Hey, Rob.
Just a question on the web-scale effort that you're doing in optics and routing. How many of the top 10 guys are you supplying in optics? And the same question for routing. And then related to that, don't you think that margins are much more compressed when you supply to the web-scale guys? I mean, that's what we've seen with other players where, yeah, you get volume, but you basically make no money.
If you're selling a low barrier-to-entry product to web-scale guys, it's not a fun place to be because they can view build versus buy. And by the way, if you said top 10, on our view, web-scale we use the term web-scale. It's a bit taxonomy. We tend to use it for a smaller set. There's not 10 web-scale. There might be five web-scales, including the two in China, you might argue. And then beyond that, you've got big web players, but I consider those to be just among a very large set of technical extra-large enterprises that are web-centric. So we really focus, particularly, by the way, on the guys that are trying to become a platform for other SAS offers, as in Amazon, as in Google, as in Microsoft, as in Alibaba. So those are companies that really stand and that are building big, big networks.
In the case of optical and in the case of core routing, it's still not a thing you can casually do. I'm not saying those guys couldn't do it, by the way. These are smart companies. If they want to put their focus on it, they very well could build one of these platforms. But you probably have to build silicon. Maybe not, but you probably want to build silicon in the case of core routing, not so much in the case of data center switching because you have a small route table. You have a relatively small number of features. Remember, core routers are still pretty they do some heavy lifting. You do have to do some lookups that are not quite as simple. Broadcom's getting their Avago.
But I would argue that long-term, they may not even focus so much because Avago's being driven principally by the big market and the big market switching. And that really will drive you in the cost direction exclusively. So I guess the answer to your question is that you asked how many we're doing business with. I wouldn't say 10. I would say, let's see, we're doing more than 50% on optical of the players, and we're engaged with more. And in a big way, by the way. We're not talking about we sold one or two. We're really there. And on IP, less because of the fact that whenever we walked in with IP, there was an incumbency. In optical, we were there at the ground floor when they built because these guys built IP first.
Then they realized, "Hey, why am I paying for all these stupid optical players? I'm going to build my own of those too." That's when they've grown up. We were there at the start of that. We were not there at the start of IP because we were in the service provider space growing there. We hadn't come over to call on the web-scales. We're now very engaged there. I expect that we'll start to have a similar success there with focus and time. It takes focus and time.
Thank you. Simon Leopold from Raymond James. In the optical domain, for Basil, presumably, the market is shifting from long-haul biased, 100-gig towards metro deployments. There haven't been that many awards in next-gen metro featuring things like CDC ROADMs. But can you talk about your view on your positioning in that market and the market opportunity for Nokia in metro, 100-gig?
Yeah. So we've been a long-haul-centric player in WDM historically. That's where our game was, and that's where our business was. We are doing many things in the optical business, and one of them is building down into the metro. We have some really seminal wins there with some fairly big metro players, not the ones that you're thinking of because those guys take a long time to change. But we have some real metro deployments. And that drives you in a direction of more regional links, a little bit shorter distance, lower costs, a different application of, as you correctly put, ROADMs. In fact, these customers oftentimes are still using fixed instead of even very well going to ROADMs, going to CDC is a whole nother step. But I would say this.
I think CDC is, in fact, going to ultimately make it into metros, ultimately, into the regional metro core because the customers are taking that a little bit more seriously than we thought they might. They like it so far, what we've been able to deliver. I think we have game in metro, but we're fighting our way down into that space. We have to be a bit careful of margins. We got to be a bit careful about where we enter. I think you'll find us being more relevant in metro over time from a principally long-haul model.
Questions? Well, thank you for your questions. Thank you, Basil and Bhaskar.
Thank you.
Now we'll go straight into our presentation on Global Services. Please welcome Igor Leprince, EVP of Global Services, to the stage. Welcome, Igor.
Good afternoon. So last presentation of the day, but obviously for a very big and important part of our business. And actually, I've got a lot of very exciting things to talk about. And I want to believe that's why I'm actually at the end of the day, so just before Rajeev wraps up, right? So I'm Igor Leprince, and I'm heading our global services organization inside the mobile network business group, but also with the responsibility to oversee the services function that we share across the business group, which includes our field force, includes part of our global delivery, includes also our managed services business. In this presentation today, I'll actually focus on the Nokia services business across the network business group and how we create value. So I'll start with an overview of Nokia services business today and what's happening in our industry landscape.
And then I'll explain how we develop our service value proposition to address the market opportunity, but also our customer needs. And then finally, probably the most exciting part of the presentation, I'll talk about our achievement in service delivery, but also how we drive it into a totally new dimension of efficiency, quality, and ultimately profitability. So let me start with an overview of where we are today. Over the past few years, we've built a very strong foundation for our services business. And we actually expanded our portfolio, also expanded our footprint significantly when we combined with Alcatel-Lucent. The services business today is delivering more than a third of the network revenue, EUR 9 billion of revenue. We have one services strategy that guides the work across the network business.
We have an end-to-end portfolio with multi-vendor, multi-technology capabilities, which is powerful, unique, and actually recognized really very strongly by our customer. And all of this is powered by 38,000 services experts across the globe. So that's really the foundation that allows us to work as a strategic differentiator for Nokia. And if this year was largely a year maybe of integration, a year of execution, we have set very clear goals for ourselves for the future. We want to drive focused growth and strong operating margin through synergies, through efficiencies, and also through disruption. And this presentation is all about how we'll do that. The entire ecosystem around us is changing actually extremely rapidly. And I think a lot of the presenter talked about that today.
Whether you think about self-driving car, whether you think about health issues, sporty drive wearables that Brad talked about, this means potentially a lot of new type of customer and need for new services. If you think about cloud and IoT, that will create a true multi-vendor environment across enterprise, telecom, and also the IT world. Automation and analytics actually are becoming critical in helping us to manage the increasing complexity and size of networks and data that we have to deal with on a daily basis. And then liquid workforce or crowdsourcing will actually change the way we deliver our services. And that's actually becoming a reality, and not only when you order a taxi, by the way, which, by the way, doesn't work in Barcelona in case you are wondering.
So all of this, all of this leads to a different type of transformation: operational, network, technology, also business model. And for us, this all means opportunity because we believe that the deep network services expertise will be strongly required in this environment. So before I show you how we're going to plan this industry landscape, it's good maybe to have a quick look at our primary market. So we're not providing the primary market outlook for 2017 at the services level. But as previously indicated, the network's overall primary addressable market is expected to stabilize with a low single-digit decline in 2017. For the primary market, specifically for services, we currently expect a 5-year CAGR of 1.4%. So it's clear that we're operating in a challenging market. But there are pockets of growth.
There are actually a lot of pockets of growth: small-scale deployment, in-building solution, telco-cloud evolution, system integration as a whole, optimization services, end-user experience, which you can really widely put under, I would say, the heading of professional services. But it's also clear that it would be very difficult to drive for larger growth, for larger value creation in this environment alone. And this is the reason why we are pursuing the focused strategy that I'll show on the next slide. So we look very carefully on what are the areas that we want to focus on. In our primary market, approximately 75% of our revenue comes from services as we sell together with the products. And for this, our simple goal actually, Bhaskar just talked about it, is to push the attach rate further. And we have opportunities in this area.
In professional services, we see potential growth, and we want to tap into these valuable pockets which I just described on the previous slide. Now, in adjacent markets, however, some high-value areas are growing faster. Sami mentioned some of them. The other presenter as well. That makes it very attractive for us to diversify by expanding into these selected verticals such as public safety, such as technological extra-large enterprise, which you have seen in previous presentation. And we'll do it by using our existing expertise and also by tailoring a little bit our portfolio. But we actually believe that we have a very strong right to play and to win in this business. Now, let's look a little bit more in detail.
I mean, since our primary market, the momentum is mainly around professional services, we have had a very special focus on boosting our professional services portfolio already for some time. You heard me talking about it. But especially and more recently around transformation, around predictive services, around cloud services, and around everything as a service with actually 15 new services launches this year. And as I actually am talking, the slide is not still on the slide, but I'm sure it will come magically now. Exactly. So overall, this portfolio that I've just talked about is getting traction. It's becoming really real. Many of our innovation actually have been recognized by the industry. We've won several awards for that. But probably even more importantly, we are winning strategic deals around the globe in this area.
Let me take a few examples, also related to the end-to-end portfolio that Rajeev talked about at the beginning: China Mobile, predictive services; Telefónica in Germany; Bouygues Telecom in France, again using the fixed and mobile capabilities that we have together; A1, we're really looking at outsourcing NPO transformation; or Airtel in Africa, again looking at our IP and mobile capabilities together. So I could easily just go on and on. But the point is, we are very well positioned to address our customer needs, and the end-to-end portfolio that we have is already driving additional business today. Now, in adjacent market, we're looking into growth area where we have a chance to strengthen our mix of high-value services. And I want to be 100% clear. This expansion, this diversification I'm talking about, is not a volume game, or at least it's not a volume game alone.
It's about creating value for both the customer and Nokia. So we'll focus on areas where we can leverage a few things: our telco-grade expertise and experience, the experience that we have in managing flawless network performance, area where the multi-vendor, where the multi-technology AI capabilities will be a central asset. Actually, as a matter of fact, we already have a lot of very valuable references in all of this area today. So I'm not selling you the future. That's what we do today. I can give you a few examples. In public safety, we are working already with Everything Everywhere, with the city of San Diego. In smart city, we are working with Zain in Jeddah, with Nedaa in Dubai. In railway, we are working with Norwegian Rail, and we deployed actually the communication network of the Gotthard Tunnel in Switzerland. Or we are managing the S-Bahn in Berlin.
So we have these cases, these references today, and they involve a range of very high-value services. So in summary, from a strategic standpoint, we focus our portfolio development to address the opportunities in the primary, but also in selected adjacent market as we drive for growth, but with a special focus on higher-value services contributing to our profitability. Now, to the most exciting part of the presentation and the final part, the execution part, or more precisely the service delivery, the part that actually makes or breaks the profitability of our business. Over the past few years, we've built a really leading global service delivery model. I really believe so. It started very small. It started from our GDC in India, in Chennai, 10 years ago, a handful of people with a great mission.
During the journey, we have continuously pushed the limits of centralization, pushed the limits of automation. We have taken the degree of remote delivery up to 47%. Today, we have 9,000 people working in our global service delivery centers. It's been obviously a decade of continuous transformation, and this will still continue to this path. If you put the remaining integration effort aside, I think what we have ahead of us is more like continuous improvement. In the new industry landscape that I described at the beginning, I think we need to do things very differently. This cannot be done through the traditional path. We'll have to do much more to drive the next wave of delivery transformation, much more. In this area, I intend to lead the industry.
Frankly, without this, we'll not be able to lead the industry or help our customer with their TCO, their efficiency, and clearly will not be able to lead the industry in terms of profitability for our shareholders. So this is why this is so critical, that part. So let me give you a few more examples of what we do. So we launched Nokia AVA some months ago. And AVA is our next-generation cognitive platform and stands for extreme automation, virtualization, and intelligence analytics. AVA really works our vision for our service and our tool development. This is a single platform and is a vehicle actually to drive further speed, quality, and efficiency in our service development. And again, that's not the future. It's already live. It's actually in a demo in the back room for the first module, for example, our predictive services.
While we do that, we also develop new concepts for our workforce. Already today, we are testing and using drones for site inspection in some of the countries. We also look at how to evolve our field force to a crowdsource model where any engineers can pick up a ticket close to them and solve it. To obviously make this model work, we need additional technologies. We are piloting AR to share troubled tickets to give fast guidance to a resolution. In the future, the workforce could also connect to our digital assistant who can answer questions in a targeted way. As you can imagine, that will save the engineer's time to browse through manuals simply, will help us to reduce the need for deep expertise in the field.
And as another example of our efforts in this area, probably my favorite example for that matter, of how we are driving extreme automation, we are putting in production software robots. So robots, these robots we are putting in production are processing manual repetitive tasks and actually enabling our engineers to focus their time on more complex tasks. A second example of a robot in how it's used in one of our global delivery centers in India for alarm monitoring, they're actually handling the majority of the alarms 5 times faster than humans with 100% accuracy, 100%. So we've actually established processes to industrialize completely this robotics process automation within Nokia with an ambition to have 1,000 robots in use by the end of 2017. And this is only in services.
So overall, our ultimate vision is to get at least 80% of the tasks in 50% of our services automated by 2020. Quite a bold vision. But the idea is, while automation takes care of these repetitive tasks, humans can focus on the more complex works. And clearly, our engineers will slowly become data scientists as we go along. So there is a lot of innovation and new type of thinking involved in this area. And the way our delivery evolved is very disruptive. I actually strongly believe that the time where you can throw more people at problems is clearly over. I think this time is over. So to complement what I say, let me show you a short video that will introduce you to our robots and digital assistant. And now to conclude. So there are three ways for us to drive our cost and efficiency.
One, and probably the most important, is extreme automation. Here we cover activities from the AVA platform to robots and various efforts that we have in this area that we just talked about. Another aspect is a tool process and delivery model harmonization. Here we target to reduce the number of tools that we have by a third by the end of 2017. Then under the continuous transformation, we have a very strong approach to implement further efficiency levers and best practice across the delivery chain. Very clearly, we've also embedded Lean and Kaizen practices in our delivery center actually and markets for years now. These are the key steps featured on the timeline. In the interest of time, let me summarize. We intend to grow our revenue faster than the market while driving strong profitability.
Our ambition is to drive services as a key strategic differentiator and value creator for Nokia. With this, thank you for your attention. I'm ready to take questions. First question. I'm going to just call on someone. Ginarden.
I just want to find out the networks business saw some weakness in 2016. Did you see the same degree of weakness as was your business somewhat more resilient than the hardware side of the business? And if so, how do you differentiate what's happening in yours versus hardware? And second question is just, how big is managed services for you as a proportion of revenue? And is that something that you're pursuing actively in the market?
Okay. Very good question. So the first part of the question, as I said, approximately 75% of our business is attached services. So naturally, this part of the business follows a similar trend to our hardware and software business, right? So while we don't report that separately, you can expect a similar trend. The professional service part, though, is where we drive growth, right? But you have to remember that 75% is attached, so it's heavily impacted by the trajectory that we have in our network business, hardware business overall, right? On your second question for managed services, I mean, we have a significant scale in managed services coming from the managed services that we had from both companies. And that's something we are pursuing. But I think compared to maybe one of our competitors, we are looking at managed services slightly differently.
Again, that's for us, not a volume game. I think we have very strict criteria that we use when we look at managed services. What sort of services we provide? Are that higher-value services? Can we transform? Do we have a long-term view on how we're going to get to a profitable stage for the managed services deal? And obviously, do we do that for customer that are strategic for us? So we have very strict criteria. And under these very strict criteria, we are pursuing managed services. But we are also very strict on how we look at the managed services deals. Rob.
Yeah. One of your competitors had quite a disastrous first half in professional services, particularly. The issue seemed to be in three of their transformation projects. There was some rescoping that led to them seeing a significant deterioration in margin. I was just wondering, are you exposed to those kind of risks, and what are you doing to manage those? Thanks.
Sure. Oh, very good question. So I would say, first of all, maybe the generic answer to your question is we are managing all our business line, the five business lines that you've seen at the beginning of the slide, with a profit in mind, right? So I think that's the first answer. So all these business lines are there to generate profits for us, right? So that's the first thing. I think the second part is we have a more selected strategy very clearly in terms of how we look at large deals. Clearly, when you've seen from our strategy, while we look at Telco Cloud evolution and how that goes towards the IT world, right, and we are building competencies in these areas, we're also restricting our scope to the area that we are comfortable with.
If you look at, for example, prime integration, which are the sort of deals that you are referring to, I believe we have a very strict set of criteria on in which condition are we going to prime integration. I think that's the difference to maybe what this competitor you're referring to is doing, right? So we are much more selective. Of course, we use what all the presenters talked about, which is our capacity to also transform and drive extreme automation in the way we deliver to ensure that indeed we can transform and this project become profitable.
Aha. Thanks. I think one of the key areas that you've worked on over the last 4, 5 years has been about doing more of these services contracts through offshore delivery centers. I think I can't remember the number exactly what it was, but I think it's gone up significantly. And now you say it's about 47% or so. Can we expect that number to inch up even further beyond like 50, 60%? Is there a limit where you can go, which basically puts some kind of a limit to your EBIT margin improvement in that business?
Yeah. So that's a very good question. So the answer is yes, but that's not our obsession anymore. And maybe again, a differentiation to our competition. So why that? I think the first obsession for us is extreme automation and the efficiency we put. And when we do that actually in our global delivery center and if you take, for example, the number of mandates, then of course, you reduce the percentage. Before we become so efficient in our global delivery center that actually the less people we have impact the percentage of our global workforce, which is the way, for example, our competitor is using a higher percentage than us, right? So we use a completely different metric for that. So why I say yes, but is I think we'll continue with that, but there are restrictions on that.
I think if I think about the next five years, all the areas that are presented around extreme automation, around robotics, around these areas have a much, much larger opportunities to drive our efficiency, to drive our opportunities than just centralization, right? And I think with the sort of cloudification, with our global delivery center becoming wisdom center more and more, I think the degree of centralization will be important but will not be as critical that it has been in the last five years. So I think we've built that platform now. Now it's all about extreme automation for the next stage. Richard.
Hi. Just two simple questions. Maybe the 75% attach rate comment doesn't quite capture this. When you look at your EUR 9 billion of business, what portion of that would be on a multi-year recurring contracted basis? When you look at your employee base, what portion of those would have come from one of your customers? Because I think the fear in services is that recurring revenue can get cut off and that you're kind of the dumping ground, if you will, for the unwanted staff or functions of some of your customers. I don't know if you could speak to either of those two questions.
Sure. So a little bit like the answers that also Baskar gave earlier, we have recurring business. The care business is a recurring business, a very profitable business, as you know. Our managed services business is also a recurring business. I can't give you an exact number. We don't break down this number. But these are two important parts of what we do. I would say only a small portion of our 38,000 experts today come from managed services. And the reason it's maybe a much smaller portion than our competition is because our managed services business is smaller than competition on purpose. That was a strategic decision we have. It has huge scale, but it's smaller than that. So I don't think we are particularly exposed to these particular trends.
Great. Thank you for your questions. Thank you, Igor. Well, I hope today's presentations have helped with your understanding of Nokia and how we're moving forward, higher returns through focused growth. To provide some reflections on today's event, I'd like to welcome President and CEO of Nokia, Rajeev Suri, back to the stage.
Thank you, Matt. Thanks to all of you for joining us today and for your attention and engagement over the course of the past eight hours. We talked about strategy, innovation, about execution, and about our goals and aspirations. We shared more than a little bit of detail about market conditions, our integration, and some of our key financial targets for the future. We talked about business groups, regions, sales capabilities, and we laid out the case to invest in Nokia. A lot of information, to be sure. I hope that from all this detail, several key messages were clear. First, even if market conditions are not ideal, Nokia is well-positioned. We have strong competitive advantages in our favor.
And among those, a unique end-to-end scope that others cannot match, as well as an operating model that is proven to be extremely effective in both good times and bad. With these strengths, we are remarkably well-positioned to win in our primary addressable market with communication service providers and to target new opportunities in new markets. Second, that despite near-term top-line challenges, we see a path to stabilization and future growth. Market conditions are expected to improve after 2017. The two specific challenges related to the Alcatel-Lucent acquisition that I mentioned at the start of the day should soon be behind us. And we will move forward to target some new growth segments with communication service providers and in attractive adjacent markets. Third, that even as we look for growth, we will keep our discipline and our focus.
Growth only for the sake of growth is not the Nokia way. And as we target new adjacencies, sharp focus will remain the order of the day. We do not intend to try to be everything for everybody as we take a more expansive view of our market. We want to be the world's finest provider of end-to-end networks to communication service providers and then bring these networks to a broader set of customers. There will be no free-for-all rush to expand, no massive acceleration of R&D spending, and no operating expense increases unless clearly justified by the scope of the opportunity that lies before us. Fourth, licensing is and it will remain very much at our core. Many people today identify us as a networks business. And yes, of course, we are that. But to me, we really are a networks and a licensing business.
As such, we will ensure that we will deliver on the potential of our current intellectual property portfolio while also continuing to renew. Our investments in digital media and digital health put us at the heart of two fast-growing segments and potentially at the heart of some very interesting future opportunities to monetize our innovations in those areas through licensing. Fifth, we believe that we can deliver strong financial results that reward our shareholders. In our networks business, that means growing faster than our primary addressable market and reaching operating margins in the range of 10%-15% with all our networks business groups in the double digits. Our priority is and it will absolutely remain shareholder value creation. And then one last point, optimism. Yes, we operate in a challenging market with tough competitors. There's nothing new to that.
The world of technology is developing in our favor. Demand for connectivity and capacity continues to skyrocket. There is no sign that this will change anytime soon. More customers need the kind of massive high-performance networks that we provide. Governments, utilities, transportation companies, large internet players, all of these and more increasingly need what we do. More customers need access to our innovations as well. Cellular connectivity is expanding into cars and other areas. Virtual reality is becoming more and more mainstream. Digital health is poised to disrupt an often dysfunctional industry for the better. That is why I look ahead with optimism and with confidence. After all, Nokia has shown over its 150 years of history that it is a company that can seize new opportunities and successfully grow them, that it can successfully transform again and again, and that ability still exists today.
It exists in our culture. It is deep in our DNA. It exists in my superb leadership team many of you have seen on stage today. It exists in all the people of Nokia who have shown the flexibility, the determination, the intelligence, and the drive to push aside boundaries and to win and then win some more. So yes, we are pragmatic. Yes, we are disciplined. And yes, indeed, we are focused. But we are also optimistic. I am also optimistic. And I hope you leave us today with optimism as well. So thank you for your time, for your attention, and for being part of the Nokia journey. So now I'll hand it back to you, Matt.
Thank you, Rajeev. Thank you again to everyone who joined us today. Please enjoy the reception. Please remember to fill out the CMD survey. I'd like to remind you that during the presentations today, we've made a number of forward-looking statements that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external such as general economic and industry conditions as well as internal operating factors. We have identified these in more detail in the risk factors section of our 20-F for 2015, in our interim reports, in our Capital Markets Day press release issued today, as well as our other filings with the U.S. Securities and Exchange Commission. Thank you.