Mavenir unhappy about chip prices for smaller open RAN players

MADRID – FYUZ – The theme of food, a handy metaphor for the mash-up of ingredients that happens in open RAN, was sustained throughout the day. Propped on stands, an assortment of fruit poked out from behind on-stage speakers this morning as if they were chatting at a grocery store. By the afternoon, a local musician was using wired-up cauliflowers, pineapples, peppers and butternut squash as percussion instruments in a low-cost techno performance based on commodity, off-the-shelf equipment.

The price of pineapples became a discussion point for one panel. "If I buy a pineapple and someone else does, it should be the same price," said John Baker, the SVP of business development for Mavenir. Unless he's refilling his fruit basket, Baker is not in the fruit-buying business. His point was that semiconductors and other components, which his company does occasionally buy, do not carry a uniform price. Smaller players buying in smaller volumes usually pay higher per-unit fees.

"Somehow, the component community needs to get together and come up with a way for smaller companies to get the best pricing for components," he said. "If you don't buy in volume, you pay a high price, but the maker of the components is manufacturing in volumes. Why are we all not getting the same price as large suppliers?"

Figure 1: A man playing techno on fruit and veg. No, really.
(Source: Iain Morris/Light Reading)

It hits on one of the challenges for the open RAN community. For some, the entire concept is about fostering innovation by smaller companies, allowing specialists to compete for contracts that would traditionally have gone to the likes of Ericsson and Nokia. If Mavenir, which makes radio units besides writing software, has significantly higher unit costs than its big rivals, it will struggle to be competitive.

But the complaint was dismissed by Joel Brand, the senior director of product marketing for Marvell, one of the world's biggest silicon suppliers for use in radio access networks (among other things). "It is a fair comment," he began. "Volume matters anywhere in the industry, and we are talking about millions of units. When Mavenir becomes the same size as Nokia, they will get the same price."

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As a privately owned company, Mavenir does not publish details of its earnings. But it is rumored to have made about $600 million in revenues in its most recent fiscal year. In 2020, when it was considering an initial public offering, a filing with the US Securities and Exchange Commission showed that it made $331 million in sales for the previous fiscal year and a net loss of $81 million, down from $97 million the year before.

The gulf with Nokia is huge. Last year, the Finnish equipment vendor, lauded by Vodafone at this event for its progress on open RAN, managed sales of €22.2 billion ($22.1 billion) along with €1.6 billion ($1.6 billion) in net profit. But the pricing discrepancy has an equivalent in the fruit market, said Brand. "Is there a Costco in Europe?" he said. "If you go there and buy larger volumes, you get a discount."

Not so vibrant after all

The situation is unusual because Costco, unlike the proponents of open RAN, is not trying to cultivate an ecosystem of smaller suppliers. Cristina Rodriguez, the vice president of Intel's network and edge group, suggested that companies look for cost savings in other areas. "As an industry, we need to highlight the value from a cost point of view of having a virtualized platform, the general opex savings when, for example, you can fully automate the network and have zero-touch automation and deploy software much faster."

But this would still leave bigger players with lower costs if everyone took advantage of the same technologies. And there was a growing sense at this year's show that startups and mid-sized specialists are losing out to the industry giants. Vodafone cozied up to Nokia and awarded Samsung fresh business in Germany. Other big players were keen to advertise offerings that span almost the entirety of the value chain. Besides Dish in the US, there are few signs of operators using an array of specialists in their networks.

The question is whether operators really care when it comes to their mainstream business. "Optionality" is critical, insisted Yago Tenorio, Vodafone's network architecture director and the chair of the Telecom Infra Project, on stage this morning. "The number of players in radio has actually decreased to a level that is not healthy anymore," he said. "In most regions, there are three players, and in some, one can't play."

Tenorio dreams of a much more vibrant open RAN market. "Bringing in one other vendor would solve some problems, but probably only commercial ones," he said. With open RAN, there could potentially be numerous suppliers providing a boost to innovation and putting pressure on the incumbents. But for telcos less gung-ho about open RAN, a three- or four-player market, as opposed to a two- or three-player market, might just do.

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— Iain Morris, International Editor, Light Reading