How the Shift Towards Open Architectures Impacts the Telecoms Ecosystem

With classic cellular architectures, there is a limited number of vendors involved in building the network. Liability agreements are clearly defined and, with pre-integrated end-to-end solutions, interoperability challenges are non-existent. With open radio access network (RAN) elements proliferating in the ecosystem, the number of vendors competing in the market increases significantly. In this environment, there are more players who offer smaller (and potentially cheaper) modular network components. By allowing multiple suppliers to compete to provide different subcomponents in the ecosystem, Open RAN injects competition into the supply chain. Rather than a restricted choice, operators now have freedom of choice in how they construct their networks. For example, there are now more than 60 Open RAN suppliers globally, which opens the door for even more innovation.

Modular architectures like Open RAN have a significant impact on the industry’s structure. They enable non-integrated vendors to design and sell best-of-breed simpler solutions. For example, in its recent launch of Pikeo, an end-to-end 5G SA experimental cloud network, Orange partnered with numerous vendors. For the first stage of the network roll out, Mavenir was selected for cloud 5G Open RAN, Casa Systems for cloud 5G SA core network, and Hewlett Packard Enterprise for Cloud 5G SA SDM (Subscriber Data Management). Further, Dell Technologies was selected for infrastructure and servers supporting RAN Centralized Unit, Distributed Unit and Core, and Xiaomi for devices. It follows that 5G platforms will be built on a foundation of a multi-vendor ecosystem that includes both the existing large Network Equipment Vendors (NEVs) and new, pure-play software vendors.

Network Equipment Vendors (NEVs), like Ericsson, Nokia, Huawei, and ZTE, enjoy a strong foothold in the ecosystem. NEVs have troops in place and are highly entrenched in key markets. That gives them a good foundation to leverage existing relationships for continued growth. They have a strong innovation element in 3GPP standards and have thousands of personnel working in Research and Development (R&D). The commercial imperative for NEVs is to provide a robust and scalable performance. That comes from top-to-bottom vertically integrated deployment stacks that are associated with continuous (sustaining) innovation. Continuous innovation refers to normal upgrading of products that does not require consumers to change behavior, but, importantly, may not necessarily create new markets. This is an aspect NEPs should address as discussed in ABI Research’s insight on NEPs (IN-5939).

On the other hand, pure-play software vendors (e.g., Mavenir, Affirmed Networks, etc.) offer innovation and agility. These players shape their business to be disruptive with what constitutes “discontinuous innovation”. They do not attempt to bring better products in the market. Rather, they disrupt and redefine the trajectory of serving CSPs by introducing modular solutions that may not be as performant as existing products. But innovation from these players offers other benefits—typically, they are simpler, offer convenience and flexibility, and are less expensive. This introduces novel ways of doing business—and potentially new growth avenues—that require CSPs and enterprise verticals to change their current mode of behavior and/or to modify other products and services they rely on. Further, software vendors introduce new products faster because they can upgrade individual products without having to redesign everything.

When we view challengers vis-à-vis NEVs, the latter used to compete strongly with an interdependent architecture in a very telecom-specific landscape (intramodal competition). But a growing presence of challenger vendors means that NEVs will compete with new telecom entities (intermodal competition). CSPs assert that going forward, they will keep working with NEVs but also introduce “added value” from disruptor vendors to establish a ‘link’ with IT/software in their operations. This is especially important for new value creation in enterprise domain. Here CSPs should seek to embrace a competitive and diverse ecosystem. It is unlikely that a single vendor offers a broad set of capabilities to support all lines of business. With agility and innovation, challenger vendors like Mavenir and Affirmed Networks will compete, and oftentimes partner, with NEVs to best meet requirements of specific customers.

The 5G market, unlike preceding cellular generations, is very dynamic and rich. NEVs are, by and large, highly entrenched in key markets and have existing operator relationships that they cultivate. Pure-play software vendors, on the other hand, offer innovation and agility, particularly on evaluation criteria such as openness, public cloud integration, and time to market within the narrow scope of what they provide. A key imperative that challenger vendors should address in their strategic foresight is liability agreements. This is pertinent in a disaggregated ecosystem, one that blurs the lines of which vendor is responsible for which network failure. This is an area where system integrators (SIs) have a key role to play. SIs have an abundance of expertise related to integration services. That will place them in good standing for CSPs’ implementations that will require customizations, special integrations, and servicing.

Further, challenger vendors operate without a reference base and without a support base within a market that continues to be highly reference oriented and highly support oriented. It thus follows that mapping out a commercial undertaking that fires on all cylinders may not be ideal for a challenger vendor. Instead, they may consider picking niche segments carefully, obtain some reference customers, and then dig in and hold for major market dominance may materialize with time and in line with wider ecosystem disaggregation. Open RAN is a case in point. Vendors such as Airspan Networks, Altiostar, Enea Openwave and Mavenir are driving the market in that domain with cloud native capabilities, and as a result, are altering the industry structure. These vendors stand to play a key role in the coming years.

An open ecosystem alters the industry structure not just for vendors but also for CSPs. It opens opportunities for new entities to acquire spectrum and build their own network assets. With open architectures, CSPs play a Lego game for their networks. Consequently, they should master network construction and base business in an end-to-end fashion for (new) service automation and management. Orange, for example, with its project Pikeo, is building a fully software-enabled “blueprint for the next generation of more efficient and digital networks”. Vodafone and Qualcomm is another partnership example to develop blueprints aimed at making cellular infrastructure more innovative and competitive.

CSPs must embrace these blueprints to diversify their revenue base, but equally important is to realize that their core competence in a 5G and Open RAN world, just like 4G, remains connectivity. So they must be cautious that in the long term, attempts to diversify their revenue base does not weaken their core competency. In other words, CSPs must be cautious that they do not jump into new pools where they have no sense of the depth or temperature of the water.