Thierry Maupile, Altiostar's head honcho of strategy, is not happy at the suggestion his employer is worth a measly $250 million.

It came in a speculative piece last week by Light Reading, with the value extrapolated from the $45 million that Japan's Rakuten paid for all the shares owned by Tech Mahindra, an Indian systems integrator.

Back in 2018, Tech Mahindra took a 17.5% stake in Altiostar for about $15 million in cash. But its stake had shrunk significantly, Maupile told Light Reading, when Rakuten bought those shares.

So what was it, and how much is Altiostar really worth?

As a privately owned company, Altiostar is under no obligation to publish details of sales, profits or various financial transactions – and Maupile is not for sharing any of that information.

What he will say is that Rakuten's purchase implies a valuation much closer to the figure of $600 million, cited in Light Reading's recent coverage as an earlier valuation of Altiostar, according to an anonymous source.

Tech Mahindra's stake was apparently diluted when Altiostar attracted investments from Qualcomm, Rakuten and Telefónica.

Cisco also still holds a stake in Altiostar, says Maupile, contrary to suggestions it had sold its shares.

Altiostar is one of several relatively small US companies developing radio software for open RAN – a fashionable technology that would let operators mix components from different suppliers at the same mobile site.

That is not possible with mainstream technology and could inject competition into a mobile infrastructure market still dominated by Huawei, Ericsson and Nokia.

Ready for open RAN?

But for open RAN's detractors, Altiostar might struggle to justify a $250 million valuation, let alone a $600 million one.

While a few "greenfield" operators are investing in open RAN, there is skepticism that existing operators will be ready for several years to jettison the customized 5G gear they are now deploying.

Dell'Oro, a highly respected market research firm, thinks open RAN might be able to capture a double-digit share of the overall market for radio access networks within the next five years.

Assuming that total RAN investments are relatively stable over the forecast period, and using the upper limit of Dell'Oro's revenue forecast, this would give open RAN about $3.5 billion in annual sales, at best.

The market will be fiercely contested, however, and Altiostar supplies only the software used in open RAN networks. In that sector alone, it is likely to face competition from Mavenir and Parallel Wireless, two other US cheerleaders, as well as Ericsson, Nokia and Samsung.

Although Ericsson has regularly played down open RAN's potential, it has also said it aims to be a force in that market once the technology measures up.

Nokia and Samsung, meanwhile, are already touting open RAN products.

From a service provider perspective, the main point of open RAN is to boost competition: If operators are left facing a three- or four-player setup, as in today's mainstream RAN market, they might not be happy.

Indeed, this seems partly to explain why Rakuten has built up a majority stake in Altiostar – in Maupile's words, to prevent a "hostile takeover."

Telco software companies have never attracted the lofty valuation multiples attached to other cloud and software companies, either.

Openet, an Irish developer of telco charging software, was valued at just 2.6 times its annual revenues when recently bought by Israel's Amdocs, notes Danielle Royston, an independent consultant who was previously the CEO of Optiva, another telco software firm.

On that basis, Altiostar would have to generate about $100 million in revenues to justify a $250 million valuation, and about $230 million to be worth $600 million.

Interest in its products is growing fast, according to Maupile. Back in January, it was staring at ten to 15 prospects. It is now eyeing more than 70 opportunities, he says. More than 25 trials, with operators including Vodafone, Orange and AT&T, have provided the proof that open RAN actually works, Maupile tells Light Reading.

Yet Rakuten's launch of a commercial service this year is undoubtedly the main reference point for the US firm.

"The Japanese don't compromise on quality and we have deployed more than 20,000 radios from different vendors," says Maupile. "What has been deployed so far at scale in Japan is, in fact, quite exceptional."

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

Nevertheless, several financial analysts have yet to be convinced by the Rakuten project.

"Quarterly losses from Rakuten's mobile network are proving much higher than we anticipated," wrote financial analysts at New Street Research in August, as reported by Light Reading.

MoffettNathanson, another analyst firm, reckons network savings associated with open RAN and other cloud technologies may be insufficient.

"The many not-network costs associated with running a mobile business, such as supporting retail outlets ... customer acquisition costs, and customer service, arguably matter more," it said in its own research note.

In Rakuten's hands

Rakuten's ownership of Altiostar is another potential issue.

While it could open discussions with a range of potential customers, there may be concern that Rakuten's grand ambitions intrude on Altiostar's independence.

The Japanese firm is keen to sell Altiostar's products alongside various other Rakuten-approved technologies through what it now calls the Rakuten Communications Platform (RCP).

RCP could emerge as one of the major cloud platforms in the telco market, but Steve Papa, the CEO of Parallel Wireless, is not convinced it would have much interest in supporting alternatives to Altiostar, including his own business.

Despite Rakuten's ownership stake, Maupile refutes any suggestion the Japanese company is Altiostar's overlord.

"Even if owns a lot of shares, Rakuten doesn't control Altiostar," he says.

Regardless of the influence Rakuten has over Altiostar's strategy, there can be no denying that the open RAN fortunes of both firms are now inextricably linked.

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— Iain Morris, International Editor, Light Reading