The telecommunications industry has reached a dead end and needs a paradigm shift. On the one hand the traffic demand is rising exponentially, while on the other, revenues become saturated and their increase is logarithmic. The traffic & revenues gap is constantly widening. Clearly, one cannot achieve a different outcome by applying the same method so, there is a need to change business models. Some of them, including those used on the Radio Access Network (RAN) market, are as obsolete as if they were designed in the Stone Age.
RAN is one of the most important elements of the telecommunications network. It constitutes the majority of the CAPEX and OPEX costs on the operator’s side. In terms of physical locations of the network nodes, it is also the most numerous part of the network. Over the decades, there was one and only one business model applied in RAN - a single supplier covering the entire value chain. That’s how 2G, 3G, and 4G were built. The global RAN market became dominated by only 3 suppliers, responsible for 80% of installations (Global mobile base station market share 2019-2020, Trendforce (August 2020)). This led to a situation in which customers really had no choice, especially in those markets where Huawei had been excluded from the competition. A choice between two big suppliers is really no choice at all.
According to the British Ofcom “5G networks have the potential to generate significant economic and social benefits across a range of industries and services. But these benefits can only be realised if we have confidence in the security and resilience of the infrastructure that they are built upon.” (5G Supply Chain Diversification Strategy, 2020). That is why the UK government is reviewing the supply market for telecoms infrastructure and attracting new entrants to diversify the landscape.
We can see a similar situation in American and other markets. Models considered as good 20 years ago are no longer effective. In fact, this single-vendor approach is at the very root of the problems we are currently facing, which boil down to a standstill in the telco industry. Governments and business players realised that there is a burning need for diversification and letting more players into the market. This cannot be achieved via the traditional approach - the market remains blocked. But as always, the technology comes to the rescue.
For quite some time now, it has been possible to disaggregate the value chain by separating the software from the hardware, thereby creating new marketplaces. So, instead of buying a single monolithic solution from one vendor, it is possible to build a network based on elements (software and hardware) provided by multiple vendors. Some people call this open ecosystem approach Open RAN.
Open RAN brings the promise of significantly lowering the market entrance threshold, allowing many more players to join the rivalry and thus encourage true competition. By analogy with other domains, it is by all means a paradigm change. We have observed similar changes in the field of modular computers, smartphones, or streaming services. Whenever such a paradigm change happens, all the predictions usually give an underestimated picture of the future. For example, back in the ‘80s, telecom companies were predicting the shape of the market in the 2000s. AT&T estimated that by that time, there would be 700 000 cell phones globally. At the same time, Motorola estimated the number of devices would be much lower, only reaching 270 000. History shows us how wrong both of them were. More than one hundred million cell phones were sold in the year 2000 in the United States alone. Interestingly, based on those predictions, AT&T decided not to enter the mobile telephone business, which resulted in missing out on one of the biggest opportunities of modern times. (Exponential Organizations, 2014).
It is hard to predict what exactly the Open RAN market will look like 5 or 10 years from today. Based on the history of innovation mentioned above, we can be sure that the figures in the reports, even though they seem big, are highly underestimated. For example, Omdia research company estimated in 2020 that Open RAN is likely to generate about $3.2 billion in annual revenues by 2024, giving it about 9.4% of the total 4G and 5G market. According to ABI Research, total revenue from Open RAN for indoor enterprise networks will reach as much as $7.6 billion in 2026. Still, despite these numbers seeming high, it is my opinion that the market will grow even larger than that. It appears that Rakuten Mobile, the pioneer of Open RAN, shares the same view. According to the CEO of the Rakuten Group, the market will be worth $100-150 billion within a few years (source: https://www.telecomtv.com/content/open-ran/rakuten-plays-a-hybrid-tune-with-its-symphony-spies-100b-market-42136/amp/). Rakuten has just spent over $1 billion to acquire Altiostar.
There is one thing we can be absolutely sure of - the telecommunications revolution is happening. We are entering a new era where there will be many players instead of just a few, and where the costs of building networks will be lower and where everybody who needs to do so, is able to build a 5G network tailored to their needs.
