India's massive telecom market, the largest in the world by population, is a salivating prospect for any vendor of network equipment. A rapid-fire rollout of 5G by Reliance Jio and Bharti Airtel, the two biggest telcos, previously helped Ericsson, Nokia and Samsung to compensate for a slowdown in other countries. But it was quickly over and seemed less profitable than the kit makers would have liked. What's more, Vodafone Idea, the number-three player beset by financial problems, showed little sign of reaching for its mangy wallet.

That changed last week when the operator revealed it had awarded $3.6 billion in contracts for the launch of 5G and expansion of 4G networks. The update is notable for a few reasons. To start, it represents a big change of the vendor team by Vodafone Idea, which is benching Huawei and ZTE, Chinese vendors it relied on heavily for its 4G rollout.

Huawei, China's biggest equipment vendor, had expanded a 4G contract with Vodafone Idea as recently as June 2021, after the geopolitical climate for Chinese companies had already turned frostier. Back in 2015, it was reportedly set to receive a 60% share of network deals at Vodafone India, one of the two operators that merged in 2018 to form today's Vodafone Idea. By the time of that 4G expansion contract in 2021, Vodafone Idea was Huawei's biggest Indian customer, according to local press reports then. But the contracts awarded last week partly involve replacing Huawei's 4G equipment.

If Huawei is the big loser, then Nokia, in terms of network footprint, appears to be the main winner. Data shared with Light Reading by an authoritative source gives it a 52% volume share of the work handed out, with Ericsson bagging 37% and Samsung just 11%. In June, Vodafone Idea flagged trials of virtual radio access network (RAN) technology with Samsung in the three "circles" (service areas) of Chennai, Karnataka and Bihar. But Nokia appears to have landed the 5G contract for Chennai along with deals for three other key metros, namely Mumbai, Hyderabad and Kolkata. In Chennai and Andhra Pradesh, both of which Nokia highlights in a press release, it is replacing the incumbent Chinese vendor.

No space for open RAN hopefuls

Also notable, although perhaps not surprising, is Vodafone Idea's omission of any Indian vendors or less well-known suppliers touting "open RAN." That concept, as defined several years ago, was supposed to help smaller RAN providers compete against the industry giants. It offers new interfaces between different parts of the RAN, allowing an operator to join one vendor's products to another's at the same mobile site. With the older interfaces that are still mainly used, telcos must buy all the products for a given site from one vendor's system.

Despite showing some interest in what open RAN could do for local suppliers, India has yet to produce any noteworthy 5G RAN vendors. Challengers from other parts of the world have also failed to advance. Instead of building multivendor sites, most large "brownfield" operators have continued to divide their networks on geographical lines, appointing a single big vendor to look after each region. Research by Omdia, a Light Reading sister company, shows the combined RAN market share of the big five (Huawei, Ericsson, Nokia, ZTE and Samsung) rose from 94.6% in 2022 to 95.1% last year.

Even so, while there is no reference to open RAN in Nokia's press release, the various products it is selling to Vodafone Idea are understood to comply with specifications drawn up by the O-RAN Alliance, the group in charge of development. In theory, this would allow the operator to replace a discrete set of Nokia components – radios for a particular spectrum band, for instance – with a different vendor in future. But those specifications do not minimize the practical effort of integrating one company's technology with another's. Increasing the number of suppliers per site could also make the network costlier and more complex, say experts.

Margin pressure

Nokia's products include the latest generation of its Habrok radios for massive MIMO, an advanced 5G technology, along with its ReefShark-branded system-on-chip technology. It is also contributing MantaRay, its self-organizing network platform. But there is no role for virtual RAN, which would substitute various general-purpose compute platforms for the more customized technologies of a traditional network. With virtualization, say proponents, operators could use the same compute resources for other network and IT needs. Yet Vodafone Idea's decision to stick with purpose-built technology across so much of its network suggests it has yet to be convinced of the benefits.

Such a big deal in what is now regarded as one of the most advanced 5G markets could be important for Nokia. It has lost ground in North America following the decision by AT&T last year to become more heavily reliant on Ericsson. Having already served two thirds of the AT&T footprint, the Swedish company is currently replacing Nokia at the remainder. The broader market has also experienced a slump, with RAN product revenues down 11% last year, according to Omdia. It is guiding for another contraction of between 7% and 9% this year.

The potential concern for Nokia's investors is about the profitability of the Vodafone Idea contract. Just as the US is regarded as perhaps the most lucrative country for RAN vendors, so India is seen by many analysts as a place of thin or non-existent margins. "India is kind of a drain on resources," said Earl Lum, the president of EJL Wireless Research. "The more share I gain in India, the more money I lose. That's really the picture there." In the first quarter of 2023, when Jio and Airtel were rolling out 5G at full throttle, the gross margin at Nokia's mobile networks business group shrank almost 6 percentage points year-over-year, to about 34%. Nokia blamed that decline on "regional mix."

After tax, Vodafone Idea reported a net loss of about $768 million on sales of roughly $1.25 billion for its recently ended first quarter. But it has said it will fund its latest capital expenditure plans through equity financing and that it is in an "advanced stage of discussions" to secure about $3 billion in funded and $1.2 billion in "non-fund-based" facilities. To parts of the vendor community, that may all sound very welcome.