The open networks community had its eyes hopefully on India’s upcoming, and highly accelerated, 5G roll-out, but has been sadly disappointed by the first wave of contracts from the largest operators, Reliance Jio and Bharti Airtel. Despite these MNOs’ open credentials, they have awarded the bulk of their 5G deals to Ericsson and Nokia.
The two largest operators have both been very active in open 5G initiatives and in building distinctive platforms that would favor local partners and work closely with smaller vendors. Reliance Jio had been somewhat radical in using Samsung as its only 4G RAN supplier, at a time when the Korean vendor had very few contracts outside its homeland. The new entrant also codeveloped many elements of its network with partners such as Airspan and Meta, as well as acquiring Radisys to produce its own software stacks.
While Jio has been developing a platform that could, like Rakuten Symphony, be offered to other operators, it has been less aligned with the O-RAN Alliance specs themselves than Bharti Airtel, which has conducted O-RAN trials, mainly for rural networks. But both have been very willing to work with unconventional partners – until the key moment when they have had to choose suppliers of 5G macro networks that are ready to deploy very quickly (both leaders aim to achieve significant urban and suburban 5G coverage by the end of 2023). They do not have time to wait for emerging vendors or solutions to be mature, and of course the biggest suppliers have the greatest ability to discount or bundle equipment and services in order to secure some of the biggest 5G deals around this year.
Nokia has been awarded 45% of the Bharti Airtel 5G RAN deal, building on existing relationships in 4G, and it has also gained some of the Reliance Jio contract, diminishing Samsung’s role. Nokia CEO Pekka Lundmark, speaking on the Finnish firm’s earnings call last week, told analysts: “As you know, we have not been a radio access supplier to Reliance Jio previously, so this is a very meaningful new customer engagement for us and an important market share gain.” The percentage of the contract that will go to Nokia has not been announced but he insisted it was a “meaningful market share. It’s not a small piece. So, this represents a significant volume potential for us”.
This is very important for Nokia, which has lost market share in the 5G RAN in the world’s biggest markets – the USA, where problems with its first generation of 5G equipment caused its share of the Verizon network to be reduced significantly in favor of Samsung; and China, where geopolitics have put pressure on Nokia’s or Ericsson’s ability to win significant deals against local suppliers.
However, India is challenging because, by contrast with the USA, it is highly price-sensitive, and Nokia has spoken in the past about the pressure on margins that comes with high-volume Indian contracts – and even pulled out of some managed services deals in the 4G era because they were loss-making.
However, even if one element has to be sold with discounts, there is the opportunity to upsell other products and services. Lundmark said the Indian 5G contracts could be significant for “pull-through” into optical network sales, for instance, to provide transport and backhaul.
Mark Atkinson, head of RAN at Nokia, said on his LinkedIn account: “This is what we refer to as a ‘Game Changer’ win.” He added: “Do you know which company supplied almost all of their 4G RAN equipment (except some for some small cells)? Definitely a big loss for them. Hint: their HQ is located in Korea.”
Ericsson, too, has won Jio business for the first time. While Jio plans to use Nokia AirScale base stations, Massive MIMO antennas and remote radio heads, it will also use Ericsson’s 5G RAN and E-band microwave xHaul solutions.
However, Samsung has not been excluded from its flagship 4G customer. This is not a rerun of the situation at Three UK, which also had Samsung has its 4G vendor, but replaced it entirely at the 5G stage, with Huawei (and now has to reverse that strategy). However, it will have a smaller share of the Jio network once 5G is broadly deployed, and since the operator is moving directly to 5G Standalone (SA) in most locations, there will not be the challenge of introducing new radio suppliers to work with existing 4G RAN and core. Instead, the 4G and 5G SA networks will run in parallel, and eventually are likely to be migrated to a Single RAN architecture.
It is probable that, for now, Jio will deploy SA RAN solutions from each of its three suppliers on a regional basis – with Ericsson not supporting the same Open RAN interfaces as Nokia and Samsung, it will not be practical to mix the suppliers’ base stations and radios within the same networks without costly engineering effort, and the agreement of all three NEPs to open their interfaces fully. So far, despite their Open RAN protestations, Nokia and Samsung have only opened their fronthaul interface for a very few selected clients, notably Rakuten in Nokia’s case.
So Samsung will have to share Jio in future (Airspan is likely to continue to provide small cells for cities and enterprises, as it does in 4G). But the Korean vendor has won a new Indian customer, securing its first deal with Bharti Airtel, alongside the incumbents in that operator, Nokia and Ericsson.
This is almost certainly a direct result of the restrictions placed on Huawei and ZTE by Indian officials (though an official or outright ban has not materialized). Huawei had previously leveraged its high performance, competitive pricing and credit terms to build a strong base in India, with all the operators except Jio. But the two Chinese vendors were excluded from last year’s government-sponsored 5G trials, and refused a trusted vendor certificate, which is necessary for any deals with government agencies.
It does not appear, according to insiders, that Samsung will support full O-RAN for Airtel, at least in the first generation – the operator, although an active member of the O-RAN Alliance, has indicated that the solutions will be for rural areas first.
It is not just in India where the big two network equipment providers (NEPs) are clinging on to power. Although Nokia lost significant Verizon RAN business to Samsung, it is working with AT&T and T-Mobile USA, alongside Ericsson in both cases, and Samsung at AT&T. Despite the two operators’ talk of launching Open RAN next year, it is unclear how they are defining it. It does not appear to be a plan based on vanilla O-RAN standards, and they are likely to pursue their habitual strategy of working with a group of suppliers on a platform that is defined inhouse. This would be multivendor but based on individual operator specifications rather than open interfaces (AT&T took the same approach with it Domain 2.0 initiative and white box developments for software-defined networking, while Verizon has codeveloped multiple platforms, such as its IP Multimedia Subsystem, with a group of compliant vendors).
Both operators have said they hope to introduce new RAN vendors into their networks in future, but the first wave of virtualized RAN looks set to be provided, to the MNOs’ specs, by traditional suppliers. Niklas Heuveldop, president and CEO of Ericsson North America, told FierceWireless: “US operators lean in hard. They push R&D harder than others.” However, he acknowledged that Verizon will do multivendor networks, though mainly based on 3GPP rather than O-RAN standards. He said: “They can use an Ericsson core with Nokia radios and vice versa”, based on 3GPP specs.
However, the big NEPs may see a decline in their US revenues as 5G build-outs slow from next year, and that will not be fully balanced by the Indian wins because of the difference in pricing in the two huge markets. Verizon and T-Mobile have recently suggested that they will start to wrap up their 5G roll-outs from next year, and AT&T may slow down too, once its C-band spectrum is well deployed.
“This year is sort of a peak capital year,” T-Mobile CEO Mike Sievert told investors in May. Next year, “capital will be lower”, and Verizon CEO Hans Vestberg echoed this view at an investor event last month, pledging that spending would come down next year after the $10bn investment in the C-band 5G upgrade in 2022-2023.
“Capex in particular is expected to drop significantly at Verizon and T-Mobile next year,” wrote financial analysts at Morgan Stanley in a recent client note, while fellow Wall Street watchers at Raymond James wrote: “2022 spending growth provides encouragement, but deceleration in 2023 could worry investors”, warning that TMO could reduce its 2023 capex by as much as 24%, from $13.7bn peak in 2022 to $10.2bn in 2023.
Morgan Stanley estimates that Verizon will spend $22.3bn in total capex this year on its wireless and wireline networks, but will reduce that to $19.9bn next year. AT&T has said it will spend $24bn on wireless and wireline capex this year and about the same next year, but 2023 spending is likely to swing away from 5G and towards the operator’s huge fiber build-out project, which will last until 2025.