Ericsson, Nokia at front of queue for Orange 5G contracts

France will soon become the last of the major western European economies to hold an auction of 5G spectrum, giving its operators the licenses they need to launch the next-generation mobile technology. That will be a welcome development to Ericsson and Nokia, both of which must be at the front of the queue for contracts with France's biggest telco.

Orange, which has already announced plans to launch commercial 5G services next year, has built the entirety of its existing radio access network (RAN) with the Swedish and Finnish suppliers, relying on their gear for its 2G, 3G and 4G systems. Stephane Richard, its CEO, has also ruled out the use of Huawei as a 5G vendor in France amid security concerns about the Chinese company.

That would also seem to exclude ZTE, a smaller Chinese vendor similarly viewed as a security risk in some government and telco circles. South Korea's Samsung, the other 5G vendor that rounds out the big five, could feasibly play a role. In fact, Richard told Reuters in April that Orange would carry out trials of Samsung's 5G equipment in Saint-Ouen, near Paris, later this year. But Samsung remains focused on specific markets and opportunities, according to experts, and has not previously featured in Orange's French network.

Although Ericsson and Nokia have yet to announce 5G deals with Orange, both companies have been involved in its French trials and will expect to share most of the 5G contracts that come up for grabs. Orange is now in a selection process for suppliers of 5G equipment at "French and global" levels, a spokesperson for Ericsson confirmed, while declining to comment further. Nokia had not sent feedback for this story at the time of publication. But ceding ground to another player would be a surprising upset for either one of the Nordic vendors.

Largely, that is because major telcos nearly always stick with their existing 4G suppliers when upgrading to 5G. With the "non-standalone" version of 5G, which uses the 4G "core" in conjunction with a 5G RAN, using different 4G and 5G radio vendors could lead to interoperability problems, say experts. An operator that moves to a different vendor for its 5G rollout would typically have to replace 4G equipment with gear from that new 5G supplier.

This swap-out would inevitably result in higher costs and slow down the deployment of 5G services, explaining why UK operators heavily dependent on Huawei are resisting calls to ban it from the 5G market.

Switches do happen. Three, the smallest of the UK's four mobile network operators, used Samsung as a 4G RAN supplier but last year picked Huawei to build its 5G network. Under that contract, it is phasing out Samsung and replacing it with Huawei's 4G equipment.

But Orange has no obvious reason to attempt a similar overhaul in France. "Samsung hasn't really committed to Europe and so it was an inevitability that when Three went to tender it would be replaced," said Gabriel Brown, a principal analyst with Light Reading sister company Heavy Reading, in a previous discussion.

"Samsung gear is good, but European operators want local support and supply chains and it didn't get enough scale in 4G to make this investment worthwhile," added Brown on the rationale behind Three's decision. "Also, this equipment has a lifespan and the Samsung gear had more or less come to an end."

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A direct move to "standalone" 5G, which introduces a 5G core, could make it easier to swap vendors. But standalone brings its own set of challenges, and most European operators see non-standalone as the first logical 5G move.

Orange seems likely to join their ranks. "Changing the core will be pretty complex with IT and integration issues," said Emmanuel Lugagne Delpon, the senior vice president of Orange's Lab Networks division, during a meeting with Light Reading last year. "The easier path is to do non-standalone with the existing [4G] vendor."

For operators keen or forced to use a new 5G vendor in a non-standalone setting, but desperate to avoid a 4G swap-out, Nokia has recently been touting what it calls an "overlay" solution. With this, an operator would not have to replace 4G equipment, CEO Rajeev Suri and CTO Marcus Weldon have recently explained. Instead, it could introduce a "thin layer" of the new vendor's 4G systems and use that to guarantee interoperability between the 4G and 5G networks, they say.

So far, however, there is little sign this feature has led to significant market share gains for Nokia. "The majority of deals are converting existing customers to 5G and maybe expanding some share," said Kristian Pullola, Nokia's CFO, during a recent phone interview.

Auction rules
Equipment vendors and operators hope France's upcoming 5G auction will not be a rerun of the sales that have taken place in Italy and Germany in the last year. Each of those auctions raised about €6.5 billion ($7.3 billion), dramatically exceeding expectations. Critics subsequently accused government authorities of lunging shortsightedly at the opportunity for a windfall that will imperil long-term 5G competitiveness.

Arcep, the French regulator, recently said it would hold a two-stage process for 310MHz of spectrum. In the first stage, up to four operators -- the same number that currently operate nationwide mobile networks in France -- will be able to pay a set price for an allocation of at least 40MHz if they make certain coverage and speed commitments.

After this commitment phase, companies will have the chance to bid for additional 10MHz blocks. No bidder will be allowed more than 100MHz in total at the end of the process.

Under pressure to show it is not deliberately designing its auction to inflate prices, Arcep says it has been in talks with other European regulators about "the lessons learned from their own auction procedures, and to compare the mechanisms used."

Ericsson has been urging Europe's regulators to scrap costly auctions in favor of so-called "beauty contests," in which operators would sign up to stringent coverage obligations in return for minimal license fees.

The Swedish vendor is clearly worried that costly auctions will hinder 5G deployment and weaken its sales outlook in European markets.

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— Iain Morris, International Editor, Light Reading

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