A favorite tactic of the leviathan is to keep a watchful eye on smaller fish and gobble any that start to look dangerous. Facebook has done it repeatedly. Dodging slow-witted competition watchdogs, the social network eliminated one emerging threat with its $1 billion takeover of Instagram in 2012. Two years later, it dealt with another when it paid a jaw-dropping $19 billion for WhatsApp. Neither target did much real business at the time it was swallowed. Yet both seemed capable of hitting Facebook where it hurts.
Similar predation now looks possible in the telecom equipment sector as operators increasingly call for open RAN. This much ballyhooed "system" has become an umbrella term for technologies that tick all sorts of telco demands. Want a more software-based network? Check. Need something that's truly cloud-native? Look no further. Prefer general-purpose to customized processors? It covers that, too. Strictly speaking, though, open RAN is about replacing the interfaces used in today's radio access networks with standards that would facilitate competition. And that gives Ericsson, Huawei and Nokia – the RAN leviathans – a good reason to be suspicious.
To the open RAN community, the main technology culprit is an important interface that serves the link between radios and signal-processing equipment. Known as CPRI (for common public radio interface), this "fronthaul" interface is only half-baked, say critics. As a result of its incompleteness, a service provider is forced to buy radios and signal-processing (or baseband) products from the same vendor to avoid interoperability problems. CPRI's shortcomings, then, have been a helpful barrier to competition for the RAN giants. "That's the one specification that does need to be made open," says John Baker, the senior vice president of business development for Mavenir, one of the emerging open RAN players.
A complete, open fronthaul interface is precisely what Mavenir and its open RAN friends say they have now developed through an organization called the O-RAN Alliance, announced to the wider world at Mobile World Congress in 2018. Using this interface, instead of CPRI, vendors should theoretically be able to build more interoperable RAN products, allowing an operator to combine different suppliers in the same network.
Until now, open RAN has seemed like a pretty harmless fish in the RAN waters. In the first quarter of 2020, the technology accounted for less than 1% of the total RAN market, says Stefan Pongratz, an analyst at market-research firm Dell'Oro. Ericsson and Huawei have been dismissive, drawing attention to the relatively poor performance of open RAN technology compared with their longer established and more customized products.
But that is changing fast as service providers and even governments demand support for open RAN technology, seeing it as a potential alternative to risky suppliers like Huawei. Software advances are helping to compensate for some of open RAN's hardware limitations. During an investor update this week, Ericsson reportedly gave its strongest signal yet that it wants a major role in the open RAN market. Nokia has already opened its RAN interfaces for a commercial deployment by Japan's Rakuten. A well-informed source thinks all the equipment giants, including Huawei, have already experimented with open RAN technology behind closed doors.
This is both exciting and troubling for operators and open RAN vendors. Exciting because a commitment by Ericsson or Nokia would be a major catalyst for the market, said Alex Choi, Deutsche Telekom's senior vice president of technology and innovation, during a conversation with Light Reading earlier this year. "If they are really serious about implementing O-RAN-compliant equipment according to the operators' demands, then things will be accelerated," he said.
There may be trouble ahead
The troubling part is that Ericsson or Nokia could be to open RAN what Facebook was to Instagram and WhatsApp. Indeed, the mismatch between an open RAN startup and an equipment giant pocketing $25 billion in annual sales is so extreme that takeover activity might not even register on the regulatory radar, unless geopolitics intrudes. "We are concerned about the smaller innovators being acquired by the big vendors," Choi told Light Reading. "It could happen."
Choi drew a parallel with developments in the public cloud market. "We have only three hyperscalers in the public cloud and there used to be many more." What's more, the hyperscalers themselves could also be interested in buying open RAN developers, said the Deutsche Telekom man. Since he made those comments, Microsoft has pounced on Affirmed Networks and Metaswitch, two companies in the core network market, making a bid for an open RAN player less difficult to imagine. If it happened, the Nordic vendors would have an even greater reason to hit the takeover trail.
But acquisitions are not the only way they could stymie the open RAN challenge. Expertise in this area is hardly unavailable to them, with their combined research-and-development budget of almost $9 billion last year. Even if they are not the most active participants in the O-RAN Alliance, they control the CPRI specification and its e-CPRI successor, along with Huawei and Japan's NEC, and already have a complete standard they have kept secret, according to Mavenir's Baker. "Between themselves they filled the specification out, but publicly it has 200 parameters missing," he says. "Among the four of them they know exactly what they are doing and so they can essentially control this thing."
A future price war triggered by open RAN could finish off smaller players that lack muscular supporters. Perhaps partly to prevent that as well as an unwelcome takeover, Rakuten and Spain's Telefónica have made investments in Altiostar, one of Mavenir's rivals. The Telecom Infra Project (TIP), a Facebook-led association promoting open network technologies, is also providing financial support for startups through facilities it calls TIP Ecosystem Acceleration Centers (or TEACs). Choi thinks the O-RAN Alliance could "do something similar" to help new firms developing O-RAN-compliant products.
Even so, one scenario is that some open RAN vendors simply usher in new technology and drive down prices before they are swallowed up or collapse, leaving today's dominant RAN vendors weakened but still in control. This might not bother service providers if it boosts competition and makes them less reliant on individual suppliers. And provided they can make a profit, Ericsson and Nokia would naturally prefer a diminished role to being dumped by customers zealous about open RAN.
"Despite being a provider of what is a hardware platform and radio, Nokia is making a very healthy margin on this account," says Tareq Amin, Rakuten Mobile's chief technology officer, about the Finnish vendor's role in his open RAN network. "There is a way for existing incumbents to make this revenue because we want them to survive in this world." Nokia, specifically, is providing 4G radios that use RAN software developed by Altiostar.
Limited competition is probably not the future envisaged by smaller open RAN companies or politicians touting the technology as a substitute for not only Huawei but also the Nordic firms. Yet Choi is optimistic that smaller firms will be able to thrive. "As long as the market is growing and we make open architecture stronger, then all these individual building blocks can be easily integrated," he told Light Reading. "And then I don't think big vendors can acquire all these companies because there will be too many."
- O-RAN meets GSMA: The start of a beautiful friendship?
- Ericsson is not following Nokia into the unChinese Open RAN Policy Coalition
- Microsoft gets serious about telecom with Metaswitch purchase
- 5G gives RAN market a Q1 boost – Dell'Oro
- The political hijacking of open RAN
— Iain Morris, International Editor, Light Reading