Reading Wall Street Tea Leaves on 5G, Metro, and the Edge

Wall Street has credible reasons to believe that O-RAN is going to end the dominance of the big mobile network equipment vendors, and it may re-jiggle the vendors’ ranking too. The bigger question is the impact it might have in the networking industry overall. It may be that there’s no success in networking in the future without a credible O-RAN story of some sort. It may also be that O-RAN will need to change to realize the full benefits of all of this. Street data may help us assess these questions, and maybe answer them too.

The telcos have a decades-long history of messing up their own futures by launching and supporting “transformation” projects that were totally disconnected from reality. One could argue that the whole of 5G specifications, from the 3GPP, are an example. These specifications failed to truly define an open framework for 5G even as they mandated hosting principles that almost had to be open to work. They also built on NFV work that was itself out of touch with reality.

When the O-RAN Alliance was founded (by AT&T, China Mobile, Deutsche Telekom, NTT DOCOMO and Orange) in 2018, it faced the same sort of risk that contaminated previous telco standards and transformation projects. Despite that, for reasons I’ll get to, O-RAN actually produced something that was not only useful but potentially transformational. The biggest reason for that wasn’t the technical excellence of the work, but the specific target.

The 3GPP specifications tended to open up 5G infrastructure with respect to control-plane function hosting. Yes, it did that with NFV, but the operators who founded O-RAN weren’t trying to replace NFV but to address something that they believed the 3GPP work didn’t open fully, which was the 5G New Radio (NR), the 5G Radio Access Network (RAN) specification. In the 3GPP work, the X2 interface provided for base-station coordination of resources and resource management, but the interface was interpreted differently by different vendors, and the exact mechanism for the resource orchestration, configuration, and management was opaque. O-RAN’s contribution to all of this was to open up that opaque process through the concept of the Resource Intelligent Controller or RIC.

Opening up the 5G RAN opened up the critical (and, as I’ve said, opaque) part of RAN implementation. In doing so, it broke a potential proprietary RAN lock-in, and that was the thing that really changed the mobile network market forever. The majority of 5G is still proprietary because of the past vendor-specific infrastructure model and past vendor relationships, but it’s very clear to the Street (and to me, and many others) that we’re entering the open age with regard to mobile networks.

Over the last decade, mobile network infrastructure has actually become less “open”, meaning it’s been more dominated by a few large vendors. Street data says that a decade ago, Ericsson, Nokia, and Huawei had about 65% of the market for mobile infrastructure, and today they have nearly 80%. Nokia’s success, and Ericsson’s to an extent, can be traced in part to their at-least-titular support for O-RAN and openness, and the Street is now projecting that vendor lock-in for mobile networks will not operate in 5G.

An elephant in the 5G infrastructure room is Huawei, who has had the largest market share in mobile infrastructure over the entire last decade. However, it’s market share has been fairly static from 2016 because of tensions between the US and China that have spilled over to other 5G infrastructure buyers. Huawei was the price leader in mobile infrastructure, and the diminution of its influence put cost pressure on operators, pressure that an open 5G infrastructure market could be expected to relieve. If price-sensitive infrastructure deals favor O-RAN, then that only adds to its importance.

As I’ve noted in past blogs, 5G is the only area of telecom spending that’s actually budgeted, and that alone means that it will have a massive impact on vendor opportunity. A vendor who wants to sell to network operators who have any mobile service commitment will need to have a 5G strategy, period. If the Street is right (and I believe they are) about the open-5G drive among operators, then that means those vendors will need an O-RAN positioning, and a positioning toward where O-RAN is leading us. Thus, it’s critical to know where that is.

5G is made up of two distinct pieces, the RAN/NR piece and 5G Core. The term “5G Core” is perhaps unfortunate, because virtually nothing in it relates to what we’d think of as “the core” of a network, the deep transport router functionality. 5G Core is really a metro strategy because its primary role is subscriber and mobility management, which is functionally focused on metro areas because that’s the typical scope of movement of mobile customers. 5G RAN, and O-RAN, are “edge” or “access” strategies that extend from the metro area outward to the towers. Arguably, it’s the metro that’s the focus of 5G infrastructure because everything touches it.

That’s even more true when you consider that the most visible of the (arguable) 5G drivers is low-latency applications. It makes little sense to spend dollars to control mobile network latency, only to throw away the benefits by hauling application traffic a thousand miles to a cloud host. You’d want the applications to be run proximate to the point of RAN attachment, which is (you guessed it!) the metro.

The big innovation of O-RAN, technically speaking, is that RAN Intelligent Controller or RIC, but a second benefit is that the “hostable” elements of the RAN, which are the functions of the “baseband” portion and the so-called “Central Unit” and “Distributed Unit” or CU/DU, are controlled by the RIC but virtualized onto open devices. That means that specialized chips aren’t mandatory in the structure; as long as you can virtualize the CU/DU software functions onto a hardware device, you can use it.

What hardware device? There are three classes of network device that could be used in 5G RAN and Core. One (obviously) is the server, the commercial-off-the-shelf or COTS hosting point. A second is the white box, the open-hardware-modeled switching device, and the final one is the legacy network switch/router. That last device is responsible for providing IP connectivity, and it’s really a lower layer of the User Plane of 5G. The other two device options differ in the extent to which they’re generalized resources versus specialized communications devices. The former is most useful when there’s more than one thing a device at a specific point in the mobile topology could be expected to do, which will generally mean further inward, to the metro. The latter is the default strategy for something further out, which means the RAN, toward the tower.

What makes this resource independence and virtualization work is the “vRAN” concept, which is related to but not identical with O-RAN. The purpose of vRAN is to allow RAN (and, I believe eventually) 5G Core functions to be developed in a hardware-independent way, including independence of specialized switching chips. As I’ve suggested above, vRAN virtualization is a key part of the O-RAN value proposition, and so I believe that the two are joined at the hip. However, there are some vendors who are advancing vRAN concepts faster than O-RAN concepts, and some that go in the other direction.

The major mobile vendors have very different positions in all of this. Nokia is already aggressive with respect to vRAN and O-RAN, and the Street expects them to become even more so as the open-model strategy gains traction with operators. Ericsson and Huawei are far less committed; my operator contacts tend to agree that both vendors are just “blowing kisses” rather than making changes.

That suggests that there’s an opening for other vendors, and the Street likes some other non-network-specialized tech giants, Fujutsu, NEC, and Samsung, as well as up-and-comers Mavenir and perhaps Rakuten. The former group has the advantage of credibility of scale, something telcos generally value highly, but their success depends on O-RAN and open-model 5G in general, because otherwise big vendors tend to stir telco fears of vendor lock-in. The latter group represent the open wave in 5G better, but perhaps not as well as others could.

If we consider edge computing part of the mix, we have to look for more IT-centric players, particularly HPE, IBM/Red Hat, and VMware/Dell, but the timing may be critical. None of these players have realized a complete and mature 5G strategy. 5G spending is expected to peak in 2023, and 5G is already the only driver of increased mobile operator spending and the major driver of telco spending gains overall. It may well be that Ericsson and Huawei expect competitive pressure from operators to drive their deployment decisions faster than an O-RAN/vRAN movement can mature, reducing the threat of competitors from any source mentioned above.

The reason these three players, as well as the public cloud providers, are interested in all of this. Nobody really knows what a “5G application” would look like, nor how many of them could deploy, or when. The edge computing opportunity isn’t really driven exclusively by 5G, but because 5G is deploying and is defining an open-model, virtualized, edge function set, it could also define a model of edge hosting and even a middleware model. If there is a sea change coming in computing, it would likely come from edge-specific applications. My modeling has always said that the total revenue from this could hit a trillion dollars, but it won’t be easy to realize because it will require assembling a wide range of technologies into a cooperative system. The biggest liability the mobile network’s traditional infrastructure leaders face is that they don’t have a clue on this topic.

The final truth here relates to the “don’t-have-a-clue” group and the fact that the mobile network vendors aren’t the only ones in that category. Remember that legacy switching and routing, which form a big chunk of the 5G User Plane, is one of the product classes that will make up 5G infrastructure, which means legacy network vendors will see their own opportunities change with 5G deployment.

The future of the network is going to be decided by the fusion of switching/routing and hosting, and that fusion happens in the metro area and nowhere else. The big question is how it happens, at least from the perspective of the switch/router vendors. Is the metro network a network first, or a huge data center? If it’s the latter, there has to be an element of data center thinking in metro strategy. You can see Cisco’s’ recent application-oriented M&A in that light, but it’s more easily validated (if not yet effectively exploited) in Juniper’s metro-fabric, Apstra, AI, and 128 Technology stuff.

A great metro strategy is a great network strategy, and a great metro strategy has to be based on some credible network/hosting/edge vision and 5G/O-RAN/vRAN positioning. That’s where the build-out money for metro will come from through 2024. Get a piece, and you’re a winner. Fail, and you fail, convincingly and in the long term, no matter how good your product suite is overall. You can’t make money where it’s not being spent, and metro is that place, now and going forward.

The big fly in the ointment here may be Nokia’s announcement on the O-RAN Alliance, saying “we have no choice but to suspend all of our technical work activities” because of the threat of US sanctions applied to some Chinese companies who were members. Other international bodies like the 3GPP secured US licenses to permit Chinese participation without sanction risk, but the O-RAN Alliance has so far not done that. I don’t think this is going to derail O-RAN, and I don’t think that it will impact Nokia’s relationship with O-RAN, but it could delay broader progress in open-model 5G innovation. If the Alliance doesn’t address the sanctions risk, it might delay open-model 5G just enough to give those mobile vendors a shot at locking up the 5G market before it peaks in 2023, and that might impact edge computing by decoupling hosting and networking at the edge. In short, a lot’s at stake in the next couple years.