Ericsson and Nokia, the two European heavyweights of the network equipment market, have many noticeable differences. One is as Swedish as Abba, while the other is a Frankenstein's monster of Finnish, French and US parts (only with neater stitching than Boris Karloff). One is predominantly mobile, while the other dabbles in many bits of the equipment business. One is in turmoil; the other is coping.
Less obviously, Ericsson AB (Nasdaq: ERIC) looks more resistant to the idea of open networks than Nokia Corp. (NYSE: NOK). Neither, of course, really wants its customers to mess around with newfangled software technologies: These would make fraternizing with other suppliers much easier, and pose a threat to the lucrative old ways. But while Nokia has quietly become involved with some of the most important associations pushing for open network technologies, Ericsson remains stubbornly on the outside.
This is even more evident with the recent hullabaloo surrounding virtualization of the radio access network (RAN). For the big equipment makers, this is a more serious concern than other types of virtualization. The RAN has previously gobbled up most the spending on mobile networks and been a major source of revenues for the leading vendors. Virtualizing it would allow an operator to do its signal processing on standardized boxes in data centers, and could lead to major cost savings. Software vendor Mavenir Systems Inc. thinks virtualization could slash RAN capital expenditure by 50%. Such details must trouble any traditional RAN supplier. (See Is vRAN Still Too Hot to Handle?.)
But the market is undeniably moving in a troublesome direction. The year started badly for Ericsson when Cisco, a supposed partner, assembled a new group called the Open vRAN initiative, potentially undermining Ericsson's main business activity. At around the same time, several of the world's biggest operators clubbed together to form the Open RAN Alliance (or ORAN Alliance, for short). One of its aims is to make some of those RAN interfaces more open and interoperable. Germany's Deutsche Telekom AG (NYSE: DT), an ORAN Alliance member, hopes virtualization based on these open interfaces will cut RAN capital expenditure by half. (See Cisco Lands One on Ericsson With Open vRAN Initiative and Major Telcos Pool Efforts to Slash 5G RAN Costs.)
That is a direct challenge to the equipment giants that have controlled these interfaces and stand to lose out in a more open environment. Indeed, Rethink Research, an analyst firm, says these vendors have been able to block RAN virtualization through their ownership of the CPRI interface, which is used in important "fronthaul" connections between radio units and baseband equipment. Solve this kind of problem and operators might get the open and virtualized RAN some crave.
The Telecom Infra Project (TIP), an initiative that Facebook started in early 2016, is also trying to unlock the RAN. Phluido, a startup involved with TIP, has been working on an alternative to CPRI that would lower costs, it claims. While Phluido has no interest in releasing an open source version of its technology, it is an advocate of open approaches and interoperability. Inside TIP, it has been collaborating with operators including BT Group plc (NYSE: BT; London: BTA) and Vodafone Group plc (NYSE: VOD). (See Facebook's TIP Seizes vRAN Initiative From 3GPP.)
None of this would seem to give Ericsson or Nokia much incentive to participate in any of these groups. Yet Nokia has been involved with TIP since it was founded. Perhaps more strikingly, it is also a member of the ORAN Alliance. Ericsson has signed up to neither.
Next page: The upside of the open RAN