Mavenir raises $100M for brownfield open RAN amid China backlash

The US tech war against China has come with good and bad for Mavenir. Good because it brings opportunities to replace Huawei in countries banning the controversial Chinese vendor. Bad because it has left Mavenir without the supply of low-cost Chinese radios on which it had originally counted. It's partly why the US company has asked for so much from investors in recent years, today announcing it has raised another $100 million in a round led by Siris, its biggest owner.

"We said we'll do the software and there'll be a bunch of Chinese companies that will build good hardware and we can have a combination that works," said Pardeep Kohli, Mavenir's CEO, during an interview with Light Reading. Chinese authorities had reserved a tenth of their own market for smaller players, but radios elsewhere are generally sold through giant vendors such as Ericsson and Nokia, which already have those products, he said. After 2018, geopolitics took China and its radios out of the picture, too. "That is why we raised almost $500 million to build our own radios – because there was nobody with a business case to build them."

Figure 1: The US company has raised $350 million in less than a year.
(Source: Mavenir)

Mavenir banked exactly this amount in April 2021 when it announced that Koch Investments had taken a big equity stake, becoming its second-largest shareholder behind Siris. Thanks to Koch's interest, it ditched former plans for an initial public offering (IPO) and subsequently raised $95 million in debt financing and another $155 million from its investors before this week's news. The latest tranche brings total capital raised to as much as $350 million in less than a year.

It's a big sum for a company making just north of $500 million in annual revenues, including about $100 million from the sale of radio access network (RAN) products. Mavenir styles itself as an "open" RAN disruptor, taking advantage of new industry-approved interfaces that allow operators to combine one supplier's radios with another's software at the same mobile site – instead of buying the whole system from one giant vendor, as they usually do.

Beyond the low-hanging fruit

While earlier funding rounds supported its initial push into radios and efforts to build systems-integration skills, the latest $100 million is needed specifically for the brownfield contracts Mavenir has started to win. Earlier this year, it was chosen by Deutsche Telekom to provide massive MIMO equipment (advanced 5G products) in undisclosed parts of Europe. Last month, it landed a deal with the UK's Virgin Media O2 (VMO2) to swap out existing vendors across an unspecified number of sites. Brownfield work means supporting additional features compared with the greenfield jobs Mavenir has previously done.

"We started making revenue with low-hanging fruit and now we're reaching a point where this year we'll fill that gap," said Kohli. "If we can get to feature parity by the end of the year, then we can go and replace a complete site with 2G and 4G and 5G features." A specific reference to developing "capabilities in automation, sustainability and the use of AI" was included in Mavenir's official statement on the new funding.

The timing is auspicious, Kohli believes, because many European countries are still heavily reliant on Chinese equipment they may soon need to replace. German dependence on Huawei has become a political hot potato in recent months, for instance. Legislation requiring operators to swap out those products would potentially unlock doors for Mavenir.

Mavenir's funding needs would have been smaller if geopolitics had not forced it to diversify into hardware, concedes Kohli. "When we started it was not in our business plan to build our own radios," he said. He also admits the radio business is an unprofitable drag on the rest of the company right now. As a privately owned firm, Mavenir does not issue financial reports and so its only recent disclosure here came in its IPO filing of October 2020, when its net loss was shown to have narrowed from $97 million to $81 million between 2019 and 2020. Sales over this period rose 9%, to more than $427 million.

But recent brownfield wins are encouraging, and investors clearly buy into the growth story. In a global RAN market that generates more than $40 billion in annual sales, Mavenir needs only a thin slice of what's available to prosper, Kohli points out. "I don't need 15 or 20 customers. Even if I have two or three of them, for us to go from $100 million to $500 million is good enough." Rather than spread resources more thinly, he is concentrating the sales pitch on six countries – the US, the UK, Germany, Japan, Australia and India.

The latter alone represents a huge opportunity as Indian operators start to build out their 5G networks. Such a competitive market, rich with Asian and European vendors, allows Mavenir to measure itself against all the biggest rivals. "There we are at least getting tested to replace non-trusted vendors," said Kohli. "When all things are working, we'll be good for Europe and good for Germany and good for anybody else, because we'll have met all those feature sets and KPIs." Each of India's big operators plans to deploy about 400,000 5G sites and has built only 50,000 or 60,000 so far, he believes.

Nice terms if you can get them

In developed markets, Kohli thinks the main hurdle for open RAN players is a commercial rather than a technical one. "The way Huawei set up this business and Ericsson and Nokia followed is to build everything and then give very nice payment terms," he said, arguing that demands for money have not usually been made until long after a site is up and running. Buying from a multitude of separate open RAN suppliers that need to be compensated more speedily is not a model that operators are used to, he said. This might explain why VMO2 is buying most of its open RAN products from Mavenir instead of opting initially for a multivendor rollout.

Where service providers doing that can save money is on the operations side, insists the Mavenir CEO. Today, incompatibility between Ericsson and Nokia forces an operator to maintain separate teams for each vendor's equipment, according to Kohli. With open RAN and its underlying cloud technologies, a single team should be able to manage different suppliers, he reckons.

Its efforts to become an "end-to-end" supplier have not stopped Mavenir from championing the concept of open RAN. With Dish Network in the US, it has already proven its software is compatible with radios supplied by Fujitsu, said Kohli. Chances to show its OpenBeam-branded radios work with other companies' software may come with Deutsche Telekom or VMO2. In the meantime, Kohli may have his fingers crossed the Huawei backlash gathers pace.

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— Iain Morris, International Editor, Light Reading