How AT&T’s US$14 Billion Contract with Ericsson Impacts Nokia and the Entire Open RAN Market

The year 2023 has seen the telecoms industry endure a revenue crisis, with 3Q 2023 financial statements for both Ericsson and Nokia reporting between a 10% and 20% Year-over-Year (YoY) decline in net organic sales. This is also related to the overall 5G market slowdown due to inventory corrections and slowed operator spending. Despite this, governments and vendors have not wavered in their agenda to develop fully disaggregated Open Radio Access Network (RAN) networks that will be deployed in large-scale, nationwide deployments. A number of trials and Proofs of Concept (PoCs) were seen in 2023, with Europe being quite entrenched in these, and Open RAN deployment announcements have begun.

In December 2023, Ericsson and AT&T announced a US$14 billion multi-year joint commitment to deploy fully integrated Open RAN sites starting in 2024, in collaboration with Fujitsu. This announcement represents AT&T moving away from Nokia, choosing Ericsson as its primary equipment supplier for 5G networks, with a target of having 70% of its wireless traffic going through these sites by 2026. For Ericsson, this news solidifies its stronghold on the North American RAN market, with other operators such as Verizon also choosing it for radio equipment.

Regional vendor dominance is to be expected in the 5G market. Huawei and ZTE dominate the Chinese and African markets, Ericsson and Nokia are both strong forces in Europe, and Fujitsu and Samsung dominate the Japanese and South Korean markets. The AT&T and Ericsson announcement highlights a pivotal movement in the Open RAN market, where a Tier One operator with an existing mature network has assigned a nationwide Open RAN contract to a Tier One vendor. Details of the contract are not yet available, but it appears as if Ericsson will perform a nearly End-to-End (E2E) system deployment, an antithesis to the Open RAN philosophy of a more diverse supply chain. This may lead to Open RAN being dominated by Tier One vendors, eventually leading to fragmentation. One part of the market, namely brownfield operators, may choose to partner with Tier One vendors like Ericsson, whereas more bold operators may partner with diverse, best-of-breed vendors. This could have significant consequences on the future of Open RAN:

• Interoperability Issues: If regions or operators gravitate toward specific vendor stacks, it could undermine the promise of Open RAN for interoperability across diverse implementations. This would complicate scalability for operators, as they would suffer from vendor lock-in and be restricted to the technological advancement and inventory of the vendors.
• Reduced Vendor Ecosystem: Distinct regional fragmentation limits access and economies of scale for challenger vendors and startups in the Open RAN market. This reduces the competitive dynamic that was expected to spur innovation through the influx of new entrants. While market consolidation for the number of vendors was inevitable, continued fragmentation would result in an overcorrection in this regard.
• Open RAN Specification Risks: Dominant vendors may influence standards to maximize compatibility with their own proprietary solutions. This could result in new entrants finding their innovations or products no longer compatible if standards overly converge to the technology of the early leaders, leading to interoperability issues and new entrants struggling to gain market traction.

Whether fragmentation occurs or not, this news from AT&T is a critical moment for the Open RAN market, a marquee Open RAN win in the U.S. market. This signals that open architecture adoption is quickly shifting phases from the trial and PoC stage into mainstream deployments by major operators. The size of the deal gives the entire Open RAN ecosystem a boost toward escaping “niche” status and the industry should expect increased innovation funding and commitments across the vendor ecosystem. Vendors must work quickly to position themselves to gain market traction and support growing demand:

• Expand Manufacturing Capacity: Vendors must ramp up component, subsystem, and device manufacturing globally to meet the growth in deployment orders. Ensuring that ample supply is available will be critical to avoid bottlenecks and capitalizing on this opportunity. As volumes increase, vendors must optimize their inventory management, logistics, and distribution to maintain margins and avoid bottlenecks. There is a chasm of supply chain capabilities between Tier One Open RAN vendors (e.g., Ericsson and Nokia) and contenders (e.g., Mavenir and Rakuten Symphony).
• Vendor Partnerships for Innovation: No single vendor can optimize the entire Open RAN stack in isolation. Targeting co-innovation facilitates advancement of Open RAN capabilities much faster. Vendors that can synergize with leading external partners will gain first-mover advantage in delivering compelling integrated Open RAN solutions to operators.
• Expand Geographic Presence: Targeting emerging markets or regions where Open RAN adoption is accelerating will be key for vendors. Establishing an early presence in these markets can offer opportunities for long-term growth and becoming leaders.

Finally, this AT&T announcement serves as a blow to Nokia, with some estimating that their previous deal with AT&T accounted for 8% of their revenue. Nokia can still expect continued growth prospects, but not as rapidly as Ericsson can expect; therefore, Nokia must work quickly to prove its Open RAN capabilities and prevent any further perception slide.