December 15, 2021
The sunflower-yellow arm of an ordinary-looking excavator scoops dirt from the ground, swings 90 degrees and deposits the load. Nothing unusual, you think, until you peer into the cabin and notice the driver's seat is empty.
The autonomous excavator is partly a showcase for NEC and its latest 5G goodies – a standalone core that has apportioned a chunk of network capacity just for driverless digging. "This is what we feel is the future of 5G," says Patrick Lopez, NECs Canada-based global vice president of 5G product management, in reference to 5G's versatility. "With slicing and ultralow latency, we can detect in real time how much dirt is left in the pile."
The Japanese technology firm had a relatively low telecom profile in the days of 4G rollout, when the industry coalesced around a few big Nordic and Chinese vendors. It hopes to change all that with the latest generation of mobile technology, smashing through the Ericsson, Huawei and Nokia oligopoly like a sumo wrestler through a shoji. "It is NEC's ambition to be a large and leading telecom equipment maker globally," says Lopez.
Figure 1: NEC boss Takayuki Morita aims to capture a fifth of the open RAN market by 2030.
(Source: NEC) It has been energized by open RAN and sees that technology as a catalyst for its growth. With 4G, most operators bought the radio access network products for a given site from the same vendor's system, partly because different suppliers were about as communicative as warring relatives. Open RAN's new interfaces are designed as a corrective. Using them, an operator could, say, mix one vendor's radio units with another's baseband software. Specialists see it as the unlocking of the RAN opportunity. Operators hope it will spur competition. NEC benefited from a head start in open RAN, having supplied open radio units to NTT DoCoMo, Japan's largest operator, long before the concept took off globally. But the game changer came with Rakuten, a Japanese version of Amazon (albeit smaller) that decided to build a new mobile network entirely on open RAN principles. NEC was soon chosen to supply 5G radio units. More recently, it has secured the contract to provide Rakuten's standalone 5G core. Rakuten's ability to run a functioning open RAN network in Tokyo without performance problems has been great publicity for NEC. Lopez can now list Germany's Deutsche Telekom, Spain's Telefónica and UK-headquartered Vodafone as triallists or full-blown customers. NEC, it is safe to say, has emerged as one of the initial winners of the open RAN movement. Its 5G business may be on the cusp of a boom. Today, it is a relatively small and unprofitable unit, generating about $370 million in revenues for the 2021 fiscal year and running up an operating loss of roughly $110 million (excluding Netcracker, a subsidiary that develops business and operational support systems). By 2026, NEC is confident of hauling in about $1.7 billion in annual sales and delivering an operating margin of 10%. To put that in context, the radio access network market normally generates between $30 billion and $35 billion in annual revenues, while the mobile core sector is worth about $8 billion. Dell'Oro, a highly respected market-research firm, puts NEC's share of today's RAN market outside China at 2%. But NEC reckons it can do much better through open RAN. By 2030, it is targeting a 20% share of the entire global market for open RAN products. While analyst estimates of open RAN's impact over the next few years vary widely, both Dell'Oro and Omdia, a Light Reading sister company, reckon the new technology will account for a tenth of annual RAN spending worldwide by the mid-2020s. In 2030, when 6G starts to put down roots, open RAN may conceivably be ubiquitous. A 120-year-old startup The ability of small RAN vendors to challenge the might of Ericsson, Huawei and Nokia is often in doubt. For all the talk of open RAN specialists, the industry giants do not have many obvious gaps or deficiencies in their product portfolios. Last year, they spent a combined $31 billion on research and development. They are embedded in telco infrastructure globally. NEC is no ordinary midsized challenger, though. It is, for a start, part of a Japanese conglomerate employing about 115,000 people and generating more than $26 billion in annual sales. This, combined with its enthusiasm for the new, puts it in a unique position, thinks Lopez. "You have emerging vendors that move fast and are innovative and don't usually have the scale to manage large deployments, but they are open whereas the traditional vendors are usually more closed," he says. "We see ourselves as the best of both worlds. We're effectively a 120-year-old startup." The Japanese company evidently lacks the R&D muscle of Huawei, investing a total of $1 billion across various activities last year. Unlike either Huawei or Ericsson, it does not have its own silicon unit for RAN chips. To compensate, and in the true spirit of open RAN collaboration, it is partnering with silicon specialists such as Intel and Xilinx on product development. It has also focused initial efforts on a few select areas. The first was a massive MIMO (meaning lots of antennas) 5G radio unit, now deployed at both Rakuten and NTT DoCoMo and set for rollout by Vodafone UK. The model advertised by Rakuten in August last year came with 32 transmitters and 32 receivers, weighed less than 22 kilograms, provided throughput of up to 1.7 Gbit/s and could support a wideband channel of 100MHz, all of which made it made it look like a competitive alternative to the big kit vendors at the time. Tareq Amin, Rakuten Mobile's chief technology officer, also reckoned it cost half as much. "That was probably best in class in the market in terms of performance, even compared with traditional ones, and it was deployed in Tokyo, in very urban and dense environments," says Lopez. "And that drew attention to NEC and soon enough we ended up with requests from other operators that were interested in open RAN but didn't quite know if it was ready for showtime." Figure 2: NEC in headline figures (Source: NEC) The main highlight since then has been the standalone 5G core, also developed in response to Rakuten demands. Unlike the Cisco product that Rakuten used before announcing it would switch vendor, the NEC core is cloud-native, insists Lopez. That would mean it can be hosted in various settings, including the public cloud. As a fully converged core, NEC's can also handle both the standalone and non-standalone variants of 5G technology, along with older 4G services, according to the NEC executive. "We think it is probably one of the first cores available commercially that has those characteristics," he says. Next in line from the NEC 5G factory is RAN software for the distributed unit (DU), the part of the open RAN network that handles baseband processing. Few details are available at this stage (a full launch is planned for next year's Mobile World Congress), but US chipmaker Qualcomm revealed plans for a DU partnership with NEC just last month. Until now, NEC's radio units have relied on software from the likes of Altiostar (now a Rakuten subsidiary) or a big kit vendor. Next year, it will be able to market an in-house alternative. Plugging the gaps As it plugs the gaps in its portfolio, NEC starts to look more like a big 5G supplier that can meet all a telco's various needs. No doubt, it is a long way from having the portfolio breadth of an Ericsson, Huawei or Nokia. But it will be able to tick many of the important boxes: massive MIMO units, RAN software, core network tools and, through Netcracker, many of the supporting IT systems. What it still misses it hopes to provide through partnerships, becoming the main point of contact for customers as a systems integrator. "I think more than half of our deals right now have us acting at some level as a systems integrator," says Lopez. The best example is probably Telefónica, he reckons. "It is not just using our products but also our systems integrator services, as well as products that we help them select from our competition to integrate in that end-to-end solution." Any doubts about NEC's prospects largely relate to the outlook and rationale for open RAN more generally. If NEC were able to capture a fifth of the open RAN market, it would be a RAN giant itself – a development that hardly chimes with open RAN ideas about diversification, especially if other big suppliers hit similar targets. Europe's telco giants, moreover, sound increasingly worried about overreliance on Asian and US suppliers for open RAN products. They are desperate to cultivate a local ecosystem. All-encompassing deals with NEC are unlikely to appeal to operators concerned about dependency one or two big suppliers. As a systems integrator responsible for the important network decisions, NEC could stoke the same worries about "lock-in" as Ericsson and Nokia do now. Even if the interfaces support an easier swap-out of specific elements, the contractual arrangements might not. It is hard to believe NEC would not offer more favorable terms to an operator buying its RAN software and radio units than to a customer that takes one or the other. There is also a sense open RAN may have arrived too late to have a major impact on 5G. In developed markets, many operators have already signed 5G contracts with traditional vendors, limiting the addressable market for open RAN. Lopez dismisses the argument, noting that a geopolitical backlash against Huawei has led to a 5G course correction in some countries, regardless of the economic logic. "Obviously, there is the Huawei swapout, and that forces operators that made commitments to re-evaluate those commitments," he says. In addition, outside China, South Korea and a handful of other advanced markets, 5G is still not widely deployed. There is plenty of scope for contracts to be renegotiated or terminated before that happens, reckons Lopez. "In the next few years, every RAN is going to be an open RAN," he says. "The traditional RAN is going to be in a minority." If that is a controversial view, NEC has indisputably been one of the main beneficiaries of the push for more open RAN infrastructure so far. Besides a head start, it now has relationships with some of the world's best-known service providers inside and outside Japan, as well as a growing 5G reputation and the resources of a very big business at its disposal. Few open RAN companies could talk about owning a fifth of the entire market and be taken seriously. NEC is definitely in the mix. Related posts: NTT DoCoMo, not Rakuten, may be the open RAN leader Vodafone demands Arm silicon, not Intel, for open RAN in cities Telefónica puts NEC in its open RAN driving seat NEC expands AWS tie-up to gain 5G edge NEC and Fujitsu team up to ensure O-RAN compliance — Iain Morris, International Editor, Light Reading
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