The European operator reveals the rationale behind its shock decision to put its entire European footprint up for tender.

Iain Morris, International Editor

November 21, 2019

13 Min Read
Short on 5G options, Vodafone gets set for 150K-site shake-up

In the early days of the mobile Internet, several European operators embarked on network projects that rank among the boldest in their history. Ditching products from traditional Western suppliers, they turned instead to Huawei, a Chinese vendor touting advanced but low-cost alternatives, across swathes of their networks. This epic redesign would have been a task many hoped never to repeat. Yet Vodafone, whose own reliance on Huawei has grown in the past decade, is now preparing for the possibility of a new swap on a grand scale.

Just a few weeks ago, at the end of October, it issued a tender for the whole of its European radio access network (RAN), a system that comprises around 150,000 mobile sites. Replacing so much equipment, including some 5G gear that has just been deployed, would entail huge expense and risk. But Vodafone insists it is willing. "If we have to swap out our kit, we will do," says Yago Tenorio, Vodafone's head of network strategy. "We have done this in the past."

Figure 1: Sick of the Status Quo Yago Tenorio, Vodafone's head of network strategy, is determined to give open RAN a boost. Yago Tenorio, Vodafone's head of network strategy, is determined to give open RAN a boost.

The plans reflect operator concern about the state of the mobile infrastructure market. The disappearance of several equipment vendors in successive rounds of consolidation has left operators with less supplier choice than ever before. Three mammoth firms dominate the sector -- Huawei, Sweden's Ericsson and Finland's Nokia -- and doubts surround them all.

US authorities, notably, see Huawei as a Chinese government stooge and trade cheat, despite its protestations of innocence, and are fighting to have it barred from Western 5G markets. Nokia, meanwhile, messed up its 5G product strategy with a decision to use pricey, margin-squeezing components, and is now scrambling to fix the problem. All that puts Ericsson in an unhealthily strong position. Vodafone is determined to find alternatives.

"Operators are really interested in vendor diversity right now," says Gabriel Brown, a principal analyst with Heavy Reading, the market-research arm of Light Reading. "You have a situation in Europe where they have as much Huawei as they want and politically it is hard to expand that. You have Nokia with challenges in 5G RAN. That leaves Ericsson in prime position and not exactly motivated to negotiate better terms. [The operators] need the prospect of new entrants."

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

Vodafone has no shortage of reasons to be unhappy about the existing ecosystem. One of the main triggers for the big European tender, says Tenorio, is a lack of 5G progress in several key areas defined by the 3GPP standards body: the so-called Options 4, 5 and 7 (referencing the various options of connecting the radio access network to a 4G or 5G core platform). These, explains the Vodafone man, would allow an operator to make better use of its 4G network in conjunction with emerging 5G capabilities. Option 5, for instance, would let Vodafone provide new 5G core network services on 4G basestations. Yet the level of effort required has led to supplier resistance, says Tenorio. "So far the suppliers have had a very limited appetite for these options."

From Vodafone's perspective, the big three vendors have been similarly resistant to calls for more open network technologies. In a traditional RAN, an interface called CPRI (for common public radio interface) forces an operator to buy radio units from the same supplier of the "baseband" products that process signals (or, at least, from that company's radio partners). Vodafone wants the freedom to use different suppliers and the big three have not budged, says Tenorio. "I am not seeing any signal that Ericsson or Nokia or Huawei would be willing to open interfaces."

Figure 2: You Better Believe It Vodafone has put the entirety of its European RAN up for tender. Vodafone has put the entirety of its European RAN up for tender.

Accordingly, the front page of Vodafone's October-issued request for quotation asks vendors for two things: First, 5G support for the Options 4, 5 and 7 that Vodafone deems so important; and second, compatibility with new open interface specifications developed by the O-RAN Alliance, an association that today includes most of the world's big service providers.

It is through these interfaces, and the "open RAN" ecosystem they support, that Vodafone believes it has the best chance of boosting competition. Consequently, it has become one of the most visibly active members of the Telecom Infra Project (TIP), a Facebook-inspired industry body trying to spur innovation and reduce equipment costs through software and open network technologies. Details of Vodafone's Europe-wide tender were first announced at the annual TIP Summit, held last week in Amsterdam. "We are looking for more modern, up-to-date, future-proof and lower-cost kit. It is a great opportunity for open RAN," says Tenorio. And Europe is only the starting point. "We will follow with the rest of the world. In the end it will be 200,000 sites."

Next page: All or nothing?

All or nothing?
For all the warnings to the big three, a 150,000-site swap is highly unlikely. In urging European authorities not to follow the example of Australia's government and ban Huawei, Vodafone's senior executives have repeatedly drawn attention to the cost and logistical challenges of replacing RAN equipment. Nor is Vodafone in the best fiscal health for such an overhaul. Its debts have escalated due to 5G spectrum investments and a multi-billion-euro takeover of cable assets previously owned by Liberty Global. At the same time, its revenues have flatlined. The squeeze has already forced Vodafone into network-sharing agreements it would have balked at years ago. Open RAN, moreover, is still immature and unproven in commercial settings.

"I don't think we have reached the point where we can throw all the European kit into the bin and deploy only open RAN," acknowledges Tenorio. "However, if we are putting 100,000-plus sites to tender, and open RAN gets a fair market share, it would be an injection of business into the open RAN ecosystem."

Six months to end-Sept 2019

Six months to end-Sept 2018

YoY change

Revenues

21,939

21,848

0.4%

Operating profit/loss

577

-2,029

128.4%

Net profit/loss

-1,891

-7,802

75.8%

Adjusted EBITDA

7,105

6,915

2.7%

Free cash flow

34

566

-94.0%

Net debt

48,107

32,110

49.8%

Source: Vodafone.

How much business depends on several factors. The first is the response of traditional players to Vodafone's tender. Partly, that means what impact it has on support for Options 4, 5 and 7 in the 5G standard. "The challenge is that you also need chipset vendor support for the devices -- with that not forthcoming as far as I know, RAN vendors don't want to support these extra options," says Heavy Reading's Brown.

The other question is whether Vodafone's move prompts Ericsson, Huawei and Nokia to introduce open RAN goodies of their own. Brown reckons those companies are likely to have developed but not commercialized high-quality "virtual LTE" products, allowing network software to work on general-purpose hardware. And Tenorio is encouraged by the recent radio access network virtualization initiative between Ericsson and Nvidia, a Californian maker of graphical processing units. "It goes in the direction of disaggregating software and hardware but does not open anything," he says. "At least they are taking some steps."

Figure 3: Out of Options Gabriel Brown, a principal analyst with Heavy Reading, says there has been little vendor support for some 5G options defined by the 3GPP. Gabriel Brown, a principal analyst with Heavy Reading, says there has been little vendor support for some 5G options defined by the 3GPP.

Nevertheless, Tenorio is not optimistic the big kit vendors will embrace change. "If they come and say they have open interfaces that would be a dream, but frankly I am not expecting it," he says. Even if it happened, Vodafone would have to swap old gear for new products to benefit immediately. A likely outcome is that Vodafone finds itself "somewhere in the middle" of replacing everything and changing nothing. "I would hope that the open RAN vendors play wise and well enough to win some of the share," says Tenorio.

Just as it may prompt a rethink by the big kit vendors, the indication that Vodafone is ready to give other players even a small share of business should stimulate investment. "It is a big signal to investors in smaller open RAN companies," says Brown. "To meet the requirements of a Tier 1 operator for any sizeable deployment, you need a lot of money, and the only way they will get funding is through the likes of Vodafone saying it will do this at a decent scale."

Next page: Moving in the right direction

Moving in the right direction
The good news is that open RAN players look increasingly capable of meeting service provider needs. When TIP issued a request for information (RFI) about 5G software based on open RAN technology, not one of the big three kit vendors responded. But the seven companies that did -- Altran, Altiostar, Mavenir, Parallel Wireless, Phluido, Radisys and Samsung -- were on average about 60% compliant with the RFI requirements, says Tenorio. "That is not a bad starting point at all."

Samsung, moreover, scored 80%, putting it some distance ahead of the rest. Much larger than other contenders, the South Korean firm showed its readiness to support O-RAN Alliance specifications and run its software on general-purpose servers, according to the Vodafone executive. Those results are partly what compelled Vodafone to press ahead with the European tender. "It tells us that to put 5G on open RAN, we are probably readier than we thought," said Tenorio during a presentation at the TIP Summit.

Want to know more about 5G? Check out our dedicated 5G content channel here on
Light Reading.

Vodafone has also been encouraged by recent open RAN trials with Mavenir in the UK and Parallel Wireless in Ireland. While the technologies are still not "fully interchangeable" or able to work on "pure, standard x86" servers, both those companies are moving in the right direction, says Tenorio. In the not-too-distant future, he is hopeful that operators will be able to use general-purpose kit without compromising on performance.

In the meantime, some important gaps remain. Open RAN, says Brown, is still "a release or two behind" the mainstream 5G market. "They need to catch up on features and functions. If they can close the gap from two years to a year or six months, it will become more interesting." Tenorio reckons "massive MIMO," an advanced antenna system that boosts mobile performance, is a "difficult thing for open RAN to crack." That partly explains why operators today see open RAN as a good option for less demanding rural markets, according to Brown.

Some industry experts remain entirely unconvinced by open RAN. John Strand, the CEO of advisory firm Strand Consult, does not buy into the cost-saving argument. Profit margins at Ericsson and Nokia are already wafer thin, he notes. Minus restructuring charges, Ericsson managed an operating margin of just 4.4% in 2018, while Nokia barely broke even. That does not suggest operators are being overcharged, especially when their own margins are much healthier. Operators would save more by cutting unnecessary jobs, he says. "You could get rid of half the people working for Vodafone and you wouldn't see any impact on the company," he proclaims.

Yet operators insist otherwise. Internet para Todos, a Peruvian joint venture between Facebook, Spain's Telefónica and two Latin American banks, has built a wholesale network in Peru using both traditional and open RAN technology. At the open RAN sites, where Parallel Wireless is the main supplier, capital expenditure on electronics was half as much as in the traditional RAN provided by Huawei, says David del Val, the CEO of R&D for Telefónica.

Figure 4: Halving the Bill David del Val (seated), Telefonica's head of R&D, says open RAN technologies slashed electronics costs in half. David del Val (seated), Telefónica's head of R&D, says open RAN technologies slashed electronics costs in half.

Perhaps the biggest open RAN challenge is to do with the operational complexity it may bring. A single giant vendor gives operators "one throat to choke," says James Crawshaw, a senior analyst with Heavy Reading. An open RAN network featuring multiple vendors means there are more numbers to call when something goes wrong, says del Val.

Systems integrators are springing up to offer help, but they want their cut, too. Mavenir and Parallel Wireless have also questioned if these organizations are genuinely independent. Tech Mahindra, one of the most prominent systems integrators, once refused to work with Parallel Wireless because it favored Altiostar, an open RAN vendor it backs, alleges Steve Papa, the Parallel Wireless CEO.

Tenorio's announcement has certainly grabbed the industry's attention. One TIP Summit attendee who works for an investment bank says you could hear a pin drop when the Vodafone executive revealed details of the tender. It is no bluff, Tenorio insists. "Operationally, swapping out kit is not necessarily what we want to spend time doing, but the outcome is bigger than that," he says. A few months from now, when the tender results are in, the industry will have a better sense of just how disruptive the open RAN could be.

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— Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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