Selling pre-5G

So are operators going to use 5G to break vendor lock-in or not?

One item to come out of Ericsson’s recent results was its assertion that it has been reducing margins on its new LTE radios in China, with a view to gaining market share.

I picked up on this as I read the results, and it seems the admission also disturbed analysts, given this write up from LightReading’s Ian Morris.

The interesting element here is Ericsson’s surely implicit assumption that LTE market share gained from selling a radio platform that can be upgraded to support 5G radio will translate into 5G radio market share.

But Ericsson is not alone. Nokia too has accepted that this is the game in China. Here’s a transcript of Nokia’s results call, with the following quote from Suri:

“While we do not see any widespread worsening in competitive intensity, we do see a change in China. The early positioning for 5G is well underway in that country, and the cost of gaining or even maintaining footprint is significant. We are working to address the situation with our deal discipline, as we want to ensure the right long-term footprint, but not at any cost.”

So it seems fairly clear that Nokia is prepared to take a hit to ensure its future position – although not “at any cost” – where it sees that “gaining or even maintaining a footprint” is significant.

Later in the call, Suri returned to the theme (bold sections are TMN’s edits). Here he seems more equivocal about cutting prices, saying the company is looking to “maintain deal discipline”. But it still reads like the company will compete on price where it thinks it right to do so:

…when it comes to China what is happening there with the 4G expansion tenders is that that is creating conditions for moving to 5G. And that is why we have seen a little bit more robust competition in China as people want to position for 5G. 

We’ve also decided that, you know what, we will – because even maintaining footprint can cost. So what we’ve decided is that we will only go for what we think is right. So we will apply the deal discipline there. And so, yeah, it’s unique. It’s something we’ve seen before and I don’t believe that this is something that will become more of a global phenomenon as the move to 5G takes place, because in other markets your installed base is much more sticky and matters a lot.

Let’s not forget that for at least a couple of years in a row, as 4G was more in rollout than expansion phase, Nokia was in the habit of announcing billion Euro framework agreements in China. So to a certain extent the company’s LTE business is done – and profitably so. Where it sees the need to maintain “footprint” in what is now a pre-5G market then it is doing so, because it recognises that Chinese operators will not necessarily make the 4G to 5G jump with the same vendor.

And that figures. Ericsson says that what it is actually selling is a radio platform – the ERS – that utilises a baseband that is already a de-facto 5G platform, given that Ericsson claims the ERS is truly software-upgradeable to support 5G. But hey – Nokia was saying over a year ago that its Airscale is 5G-ready.  Huawei claims the same for its 5000 series base station platform. So, in that sense, the vendors are not subsidising LTE expansions with a hope that transforms into 5G footprint. They are actually pushing out the first pawns up the 5G chessboard.

Will we see this mirrored elsewhere? Outside China, Suri said, “ the installed base is much more sticky and that matters a lot”. Well, one hope of the operators is that for 5G the opposite will very much be the case. They want to break this stickiness. In fact, a goal is to be able to put together software defined radios with active antennas from different manufacturers. That’s the open, white box network that relies on OpenSource based virtualisation and network control to fracture the stranglehold the major vendors have on the RAN, and on how it is priced.

Here, if you delve into what the main vendors are doing, they have not really opened up the internal interfaces that would allow this to happen, despite their lip service (or should that be TIP-service?) to the contrary. But if you thought you could be disrupted at a later stage by “unsticking” the RAN, then wouldn’t you be “buying” share now – especially in a market where an installed base doesn’t translate to customer stickiness?

Now that pawn move looks like more of a pawn sacrifice, opening up space to deploy the big guns from the back row of the board.

So, let’s recap.

– Being “5G-ready” is terminology for basebands that have the ability to deployed within a 5G architecture (virtualised within a C-RAN) and that can in future support different protocols, flexible frame rates, massive MIMO – the actual 5G air interface signifiers. All the main vendors claim this for their latest generation base stations.

– Selling a 5G-ready platform doesn’t necessarily mean that you will gain all of the RAN element of the operators’ upcoming 5G upgrade. But some vendors are prepared to subsidise sales in any case, reasoning that operators certainly aren’t going to reinvest in new radio baseband platforms just for 5G  within a short time frame. And those basebands will still be tied over proprietary interfaces to the RRUs from the same vendors.

– Therefore, if operators aren’t careful, 5G isn’t going to achieve one of the key business objectives that they have stated they hope to achieve – ie. the “unlocking” of the radio access network.

One strategic danger for the operators rushing to 5G early is that they miss out on the promise of the white label RAN and its newcomer, cheaper vendors, for at least as long as the next technology refresh. That gives later-comers the opportunity to launch 5G using platforms designed purely for the task in hand, and at significantly lower “cost per bit” as it used to be called.

If you want to see what impact a latecomer taking advantage of next generation economics looks like – take a look at what Jio is claiming in performance terms for its late era LTE-A platforms and virtualised core technologies. Or, actually, T-Mobile’s fightback against Verizon’s spectrum-fed early lead in LTE.

Early go-to-market operators cannot afford to wait, so they will go with the best option available now. At least they – or some of them – are getting it cheap.

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