The radio access network controversy has its roots in national security concerns involving Chinese vendors.
“The broad trend towards open architectures with increasing virtualization will accelerate,” said Pekka Lundmark, president and CEO of Nokia, talking about open radio access networks, or open RANs. The term radio access network refers to cellular system base stations and software-defined networking.
First, the U.S. government has declared the use of Huawei equipment by cellular carriers in 5G wireless communications networks to be a security risk and has barred its use.
Second, a billion dollars’ worth of Huawei equipment already has been installed.
Third, installing open-RAN equipment is supposed to allow carriers to use competing manufacturers’ technologies for lower prices.
Fourth, taxpayers will pay for replacement equipment under the Secure and Trusted Communications Network Reimbursement Program.
On Nov. 23, House of Representatives Committee on Energy and Commerce Chairman Frank Pallone and Ranking Member Greg Walden sent FCC Chairman Ajit Pai a letter, urging him to assist companies financially. The companies in question mostly are small communications providers — rural cellular companies — eligible for reimbursement for the cost of removing and replacing suspect network equipment.
FCC Chairman Ajit Pai said that traditionally, wireless networks rely on a closed architecture in which a single vendor supplies many or all the components between network base stations and the core. He said open RANs can fundamentally disrupt this marketplace, leading to an exponential growth in the number and diversity of suppliers, more cost-effective solutions — and place the keys to security in the hands of network operators, as opposed to a Chinese vendor.
Commissioner Jessica Rosenworcel suggested launching an open RAN testbed at the FCC to bring together operators, vendors, vertical interests and government agencies.
Commissioner Brendan Carr said that the FCC needs to accelerate the transition to open RAN so smaller providers looking to use the rip-and-replace dollars have confidence that they have a real choice, and open RAN vendors have a real shot at competing for their business.
Commissioner Geoffrey Starks said no carrier should be forced to adopt open RAN. Nevertheless, he said their consideration of open RAN would encourage global competition with Huawei, capitalize on U.S. software advantages, accelerate the development of open RAN as a product model and a business case, and allow alternative vendors to enter the market and offer specific network solutions.
Commissioner Michael O’Reilly also said the process should be voluntary. He said open RAN can reduce threats to overall network security.
A report written by Caroline Gabriel, the research director and an analyst at Rethink Technology Research, forecasts that open RAN will be deployed at 65 percent of all cell sites by 2026, accelerating fastest with small cells. Her report says open RAN will account for 58 percent of total RAN spending at $32 billion.
Over at Dell’Oro Group, vice president and analyst Stefan Pongratz projects the total RAN spend will approach $70 billion to $80 billion for the combined 2020 and 2021 period. He said that although Dell’Oro Group correctly identified that the RAN market would appear disconnected from the underlying economy throughout this year, it underestimated the pace and the magnitude of 5G rollouts, calling it an acceleration at a torrid pace.
Here is how Pekka Lundmark sums things up:
“Telco operators will continue to need to support massive capacity demands with commensurate cost increases. As a result, we expect capex to remain constrained, as operators will look to drive a step-change in cost effectiveness.
“The broad trend towards open architectures with increasing virtualization will accelerate. This will be driven by cost pressures as well as the need to increase speed and agility.
“Adoption will vary widely and a full transition is more than a decade away, but the shift to more open interfaces, virtualization and cloudification, network function disaggregation, AI-driven automation and optimization is well underway.”
Huawei has every incentive to continue marketing proprietary radio access network equipment, wherever it can. For the United States and many other countries with security concerns, momentum increases in favor of open RAN.
The upside of Crown Castle International’s investments in fiber and small cells dwarfs the possible downside, Daniel Schlanger, executive vice president & chief financial officer of Crown Castle International, said in an interview with Dave Barden, managing director, Bank of America Securities yesterday during the BofA Merrill Lynch 2020 Media, Communications & Entertainment Conference.
Schlanger was responding to a question about whether Crown Castle could have invested money in ways that would have given a higher return and if he regretted investing in fiber and small cells.
“It’s clear that the investments that we made over the last five years are not the highest return investments,” Schlanger said. “We could have bought stock in Tesla and made seven times our money, but our business is not to speculate in stocks. When you factor in the probability of an upside, the upside way outweighs the downside.
“Do I think we made a mistake? Absolutely not. We are trying to create a model that worked so well with towers. We have shared infrastructure that lowers our customers’ costs and generates a return over and above our costs of capital for our investors,” he added.
The question was tied to arguments made by Elliott Management, which has a $1 billion interest in Crown Castle, that the company’s stock has underperformed compared with other public towers because of its fiber strategy, which has yielded “disappointing returns despite the $16 billion of investment.”
Crown’s interest in fiber and therefore small cells stretches back to 2014 when it purchased 24/7 Mid-Atlantic Network, which owned 900 route miles of fiber in the Baltimore/Washington corridor. At the time, Crown had more than 6,000 nodes under contract that it was in the process of building, and it needed fiber to build out small cells for Verizon in the Baltimore market. Since then, it has purchased numerous other fiber companies, including Quanta Fiber Networks (Sunesys) in 2015, FPL FiberNet Holdings in 2016 and Wilcon Holdings in 2017. Today, it is the long-term owner of more than 80,000 route miles of fiber.
Crown has been installing small cells for indoor, outdoor and mixed-use areas since 2003, and today it has 70,000 small cells on air or under contract.
Schlanger said it is too soon to judge whether the investment into fiber and small cells will pay off, and he said he is confident that the data needs spurred by 5G technology will bring exponential demand for more small cells. On Crown’s web site, it projects that 800,000 new small cells will be needed by 2026.
“We are not to the point where these investments (under any underwriting scenario) would have generated returns over and above our cost of capital,” he said. “It is not a sufficient time to determine whether they were the right decisions or not. As we look out into the future, we feel very strongly that small cells will be an important part of the network architecture going forward.”
Schlanger said the economics of collocation on small cells are good enough push up the initial anchor tenant yield, which is 6 percent to 7 percent, up to 10 percent to 12 percent.
“The assumption is we are adding a single additional tenant per small cell or an additional two to three nodes per mile of our fiber that we already own,” Schlanger said. “That is a relatively low bar to make a return. The potential is there that we could add significantly more small cells if we see the potential upside of millions of small cells in the United States and we have fiber in the top 30 U.S. cities, which is where the majority of those small cells will go. We could see seven or eight nodes per mile. The upside in that is huge.”
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LTE is the fastest-growing mobile network technology worldwide, 2013 will be the peak year for deployments, TDD LTE is on the rise and Huawei and Ericson dominate infrastructure contract awards, according to several recent industry reports.
More than 184 LTE networks were in service as of the end of July, with another 159 planned or in deployment. Successful LTE deployments have been achieved by various by operators including Verizon Wireless, SK Telecom, NTT DoCoMo, Everything Everywhere and Vodafone D2 (Germany), according to a report from Informa Telecoms & Media.
Huawei and Ericsson are dominating the market in terms of the allocation of infrastructure contracts. According to Informa’s calculations and data provided and validated by vendors, Huawei accounts for 40 percent of network contract awards, Ericsson has 34 percent and NSN follows with 17 percent. The other 9 percent is divided among Alcatel-Lucent, ZTE, Samsung and NEC.
“The top three vendors have illustrated significant technological expertise and support to mobile operators, with Huawei and Ericsson having attracted the largest share of contracts,” said Dimitris Mavrakis, co-author of the Informa report.
Unlike in the U.S. market, network sharing is popular in foreign countries to reduce opex and consolidate infrastructure platforms.
The Global Mobile Suppliers Association counts 200 LTE networks, a slightly higher number of commercially launched systems than Informa, including 182 networks deployed in FDD mode, nine TDD networks and nine FDD/TDD networks. In the longer term, several operators have expressed interest in converging TDD and FDD to increase network capacity, especially when existing unpaired spectrum holdings are available.
More than 50 mobile carriers worldwide have committed to TDD LTE technology, according to a report by Research and Markets, and more than 30 OEMs have commercially launched TD-LTE-compatible devices, the majority of which support both FDD and TDD.
“In October 2012, the TD-LTE ecosystem received a major boost when China’s Ministry of Industry and Information Technology announced that the entire 190 MHz of spectrum in the 2.5/2.6 GHz band will be allocated for TD-LTE deployments in China, which harmonizes its TDD spectrum with Japan and the U.S., two major LTE markets,” according to Research and Markets. “These developments could allow the TD-LTE ecosystem to reach significant economies of scale, boosting further infrastructure and device investments in TD-LTE technology.”
Although the market is going to move toward LTE-A, which includes several different updates on the existing LTE standard, most operators are just at the LTE stage, according to Darryl Schoolar, principal analyst, wireless infrastructure, Ovum.
“Some of these LTE-A announcements could be considered premature as they only are using one LTE-A feature, mainly carrier aggregation,” he said.
On Aug. 20, Ericsson announced that it has supported South Korea’s SK Telecom in expanding LTE-Advanced commercial service network to the downtown areas of 84 cities nationwide, including the entire Seoul metropolitan area and six other major cities.
On June 26, SK Telecom launched LTE-Advanced service with up to 150 Mbps speeds in the Seoul area, the downtowns of 42 cities and 103 campus towns, with a plan to deploy 32,000 LTE-Advanced base stations by the end of the year, including 300 college campuses.