Geopolitics and OpenRAN

The current geopolitical climate and the competition between China and the United States has distorted the telecoms market and created two parallel evolution paths: one in China, with Huawei and ZTE, and another in Europe, with Ericsson and Nokia driving developments. There is also Samsung and other smaller 4G and 5G infrastructure vendors, but the supply chain dominance of Ericsson, Huawei, and Nokia cannot be matched globally. These three are in fact Tier 0 vendors and most capable of meeting mobile operators’ requirements. This creates a problem: in the United States, where Huawei is blocked, only Ericsson and Nokia are viable vendors; of those, Nokia admitted to falling behind in terms of 5G technology evolution. This leaves the Western world in the hands of a single vendor, which is arguably a situation no mobile operator executive team would be interested in.

Furthermore, Huawei’s Research and Development (R&D) is unmatched in terms of manpower and several industry leaders claim that Huawei is well ahead of its competition. This again leaves the Western world at a disadvantage, unable to tap into the technical expertise of the Chinese vendor. These geopolitical decisions have created several side effects in the industry: CTOs are reluctant to invest heavily until this uncertainty is cleared out, while the Chinese market is slowly being closed to Western vendors to account for the respective Western ban of Chinese vendors. For example, DT put all 5G contract discussions on hold until this situation is resolved.

However, there is an interesting side effect currently in discussion that is poised to radically change the telecoms value chain.

Facing this challenging situation—and potentially a monopoly—several government and mobile operators are now actively seeking alternatives to these three Tier 0 vendors, in the accelerating initiative called OpenRAN. This is not open source, but promises to open interfaces between equipment and rely on commoditized hardware coupled with innovative software. However, the market is currently polarized between two extremes: on one side, there is Ericsson, Huawei, and Nokia, which are companies with tens of thousands of employees. On the other side, there is a group of small vendors, namely Altiostar, Mavenir, Parallel Wireless, and others, employing just up to 100 members of staff. Clearly there is a need for more choice for operators at both ends of these groups: both Tier 0 (which is not probable or even possible) and the OpenRAN ecosystem.

The U.S. administration has now proposed to commit US $1 billion to stimulate alternative vendors to the established value chain. This could encourage a new group of vendors to enter the field with new and innovative ideas. However, the current state of the telecoms market does not allow the entry of new companies in the radio domain, which makes it very difficult even for the three OpenRAN vendors mentioned above in the mass market. These vendors may be establishing their presence in niche markets (e.g., rural deployments) or even greenfield operators (Dish and Rakuten), but replacing equipment in brownfield deployments is an entirely different challenge for them. There is no operator currently ready to take the risk to swap out one of the Big Three for any of these smaller vendors.

The real question is how can the U.S. government accelerate this market when most operators will not be ready to swap out their existing infrastructure, which may still have eight to nine years before it is depreciated? How can the radio market create a critical mass of demand to become the foundation of a new, growing value chain? The answer could well be in 5G for enterprise verticals. After all, it is the enterprise nature of 5G that is poised to transform business and is responsible for governments’ blocking Chinese influence. These markets will most likely be greenfield deployments, in new areas that include factories, oil platforms, smart cities, green energy creation sites, and more. In these areas, it is very likely that a new value chain will be created, in a more open approach that is not tightly controlled by the Big Three vendors. Once successful in this domain, these smaller vendors will be able to compete in the consumer domain, which requires considerably more experience in terms of deployment, maintenance, and providing for operator requirements. In this new open ecosystem, several incumbent vendors in adjacent areas may also step forward to become much more than component providers and provide hardware and software platforms for these new systems. Such vendors may include Qualcomm, Intel, and even Webscale giants Amazon, Google, and Microsoft. One thing is for certain: geopolitics may end up changing the telecoms market for the best.