A Perspective on Open RAN

There are over 800 service providers, but market power favors a handful of radio access network (RAN) vendors who dictate the tempo of technology. With the RAN accounting for around 60% of the network total cost of ownership, open RAN promises to change the balance of power in favor of services providers by reducing vendor power through more competition and choice. To enable this vision, open RAN implements a new set of technologies inspired from the cloud infrastructure ecosystem.

With this background, I wanted to share a few notes from a large canvas of analysis we had conducted at Xona Partners to assess the competitive dynamics and market prospects for open RAN within the overall context of telecom cloud platform deployments. Many critical factors are at play across multiple domains – such as technology, economics, market structure, and even geopolitics. In fact, political factors over the past year only helped to confound market perception of open RAN.

The Thesis for Open RAN

Open RAN has 3 aspects: 1. Disaggregation of software and hardware; 2. Defined and interoperable interfaces between subsystems; and 3. An ecosystem of hardware and software suppliers. All three aspects are necessary ingredients to execute on an open RAN strategy.

The success of open RAN rests on investment into all of its elements: solid interoperable interfaces, sound ecosystem of commercially viable players, and system integration ecosystem to assemble the end-to-end elements. Open RAN – and in general “Open Telco” – brings new opportunities of investments in a host of technologies.

The Lower Cost Assumption

Open RAN aims to provide lower cost than solutions from incumbent vendors. Some may disagree with this statement, but cost has been focal point although it has different associations. Thus, the thesis for open RAN has a critical implicit assumption: solutions from incumbent vendors are priced at a premium, such that opening the marketplace to more competition at the subsystem level will lead to lower cost at the network level.

This is a tricky point! Some costs are relatively easy to value, such as a radio, a chassis or a baseband board. Other costs – and consequently the total cost of ownership – are difficult to estimate. This includes the lifetime network operation and maintenance cost, and the value associated with network performance. The incumbent vendors spent years and billions of dollars optimizing performance including corner cases that take a long time to work out in practice. This aspect is rarely if ever discussed, and is difficult to quantify. The process of “cost discovery” can only be flushed out by deploying and assessing open RAN over time.

The Market Factor

Open interoperable interfaces, disaggregation and virtualization along with other dimensions are ingredients of cloud provider’s strategy that inspires open RAN. The cloud providers assumed the system integration function and kept the largest share of the ecosystem value. Their global nature allowed them to amortize product development and integration cost over a global market place. Moreover, their business model was fully aligned with the necessity of growing an ecosystem of application developers and users.

To contrast with the telco world, 3-5 service providers compete in national geographies where cost is amortized over a relatively narrow customer base. To compensate, service providers formed procurement consortia to improve economies of scale and gain bargaining power against the vendors. In turn, vendors consolidated and their bargaining position improved. Whereas the cloud players designed and deployed their infrastructure at scale, the telcos are tightly-coupled to vendors who build products – not platforms – with little incentive for ecosystem involvement.

The current market structure is the result of many fundamental factors. This raises the question as to what extent service providers are willing to engage in order to make open RAN a success; and how cooperative would the few RAN vendors be in contributing to this goal (in fact, this applies to any open X in telecom).

Perhaps operator representation at O-RAN is a good proxy for their willingness to engage in open RAN. O-RAN is defining the interoperable interfaces that are critical to open RAN’s success. While O-RAN is a necessary step, integration is what puts open RAN into practice. Operator commitment to system integration and how they handle this function is critical. Perhaps the activities of cloud players such as AWS, Microsoft and to some extent disruptors such as Rakuten will give service providers a reason to weigh their options.

A New Breed of Vendors

Realizing open RAN rests on a system integrator to integrate and test disaggregate parts into a high-performance network. The SI would assume responsibility for key performance indicators of the end-to-end solution. This is the risk part of the equation. Naturally, the SI should reap most of the rewards for assuming most of the risk. Hence, the SI should command the most value in the open RAN value chain, especially where the service provider takes a hands-off approach. This calls for a more active role of the service provider as otherwise the new market structure would be reminiscent of the current one! [See my earlier article on integration.]

Taking the SI perspective, there is a need to control integration and performance risks. This would suggest that the SI will strive for control of the critical elements in the value chain to reduce integration and performance risks. Taking this observation a step further, there would be strong pressure for the SI to turn into a new vendor. All the while, nothing precludes the service provider from taking on the role of SI. This is a key dynamic to watch for as the market evolves.

The Technology Aspect

Technology plays an important role in assessing market direction. Yet, predicting technology success is challenging. Network virtualization, cloud native networking, open source and corresponding processes are too vast to cover here, but I wanted to share a few thoughts.

Virtualization started in the data center as a way to maximize the utilization of the computing and storage infrastructure. This account for innovations in cloud computing such as containerization and continuous integration and delivery deployment models (CICD). Cloud players went to extreme lengths to optimize operational efficiency. In hardware, this includes developing their own ASIC acceleration engines.

Virtualization of mobile networks started in the core network and slowly moved into radio access. The process has been longer than initially expected. Virtualization of the core started in the early 2010s, and the first at scale cloud-native deployments are happening now.

I bring this up since some discussions in industry circles cast RAN acceleration in negative terms. Perhaps this is because acceleration is against the grain of virtualization. RAN virtualization is particularly challenging because of computational load and real-time processing requirement (nano-second latency and jitter). Such a view misses many benefits of acceleration such as low power consumption, reliability, compact size and low weight. These are all elements that directly impact cost – the part of cost that can be quantified!

I want to make the point that not everything needs to go virtual or open – in fact, it will not. There is even a need for some closed interfaces. Some may even choose to take the opposite path towards full integration of hardware and software which was the philosophy behind small cell silicon. There is logic to this approach as well.

Concluding Thoughts

I left off many aspects that factor in the value proposition of open RAN. For instance, what role if any would open RAN contribute to developing new revenue-generating services? What impact would open RAN have in enterprise private wireless networks? As services and applications are the catalyst for deploying cloud-native core networks, what parallels are there, if any, in the RAN? What is the expected TCO of Open RAN? If you like to discuss these or related topics, feel free to contact me.

Finally, we need to take the politics and geopolitics out of the RAN!