In the last Huawei Analyst Summit, Eric Xu, rotating chairman of the Huawei board (previously rotating CEO) presented about Huawei’s performance and market strategy. Contrary to competitors’ CEOs, Xu mostly talked about 4G rather than 5G, and when he was asked why, he answered that 5G will be a small evolution from 4G.
Why does Huawei focus more on 4G at a time when all competing vendors—and the rest of the industry—are focusing on 5G? As we will discuss below, this is a combination of technology, politics, and market position for Huawei.
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Huawei’s 4G Announcements
In several studies, ABI Research has consistently maintained that 5G will not be positioned as a technology revolution, but will evolve through many evolutionary steps, with Long-Term Evolution (LTE) enhancements being used as a proxy during the transition. Some industry players are now starting to embrace this approach, Huawei being at the forefront. The company has announced several new features for its 4G infrastructure, helping mobile service providers squeeze even more efficiency from the existing deployed equipment. These announcements included:
SingleRAN Pro: A new unified basestation platform that supports all generations, from 2G to 5G. It also supports cloud-related technologies (e.g., Cloud Radio Access Network [C-RAN]) and can be controlled by Artificial Intelligence (AI) based network management and optimization.
LTE Low Latency: Improving radio parameters (lower Transmission Time Interval [TTI]) to lower latency. Huawei lab tests illustrated end-to-end latencies of 30 milliseconds for mobile gaming.
Transmission Mode 9: Transmission Mode 9 (TM9) allows devices to feedback information to the basestation, which can in turn shape narrower beams directed at these devices. Huawei claims three to fivefold capacity gains from TM9.
4T6S: Huawei’s is now pushing for further sectorization in congested LTE cells, increasing sectors from 3 to 6.
Software-Defined Antenna: Huawei’s new Software-Defined Antenna (SDA) supports Universal Mobile Telecommunications System (UMTS) multisector (2 sectors) and LTE 4T4R, which can be tuned by software.
Huawei also continued its CloudAIR concept, which can share spectrum between UMTS and LTE and can make spectrum refarming more efficient.
Continued efforts on Massive Multiple Input, Multiple Output (mMIMO) functionality for LTE, notably in Time Division Duplex (TDD) networks
These announcements were incremental updates to an already successful 4G strategy, but none are new revenue drivers and none of these are big enough opportunities to sustain—and justify—Huawei’s massive Research and Development (R&D) spending (Eric Xu claimed 15% of total Huawei revenues were spent on R&D during 2017). The question is: why is Huawei focusing more on 4G, when all of its competitors are pushing for 5G?
Huawei’s Short-Term 5G Market Share Is “Protected”
There are several reasons for Huawei’s insistence on 4G. First, 4G deployments are secure—no mobile service providers will likely change vendors in the current market landscape, so Huawei’s incremental updates to its existing footprint is a reliable strategy to guarantee a steady stream of revenues. Secondly, the U.S. market is the only to have announced 5G rollouts in the next year and Huawei is barred from this market (what U.S. mobile service providers roll out as 5G and when they do it is another story). Europe is a 5G laggard and LTE-Advanced Pro is densely deployed across Western European markets, making Europe lower priority for 5G. The wildcard in the 5G race is China, where the central government may decide to roll out aggressively as soon as the standard is complete. Huawei’s position in China is not under threat though, and it is reasonable to assume that Huawei will be one of the—if not the—leading vendors in China’s 5G deployments. Japan and South Korea are also fierce competitors for 5G, but certainly not as big as the U.S. and Chinese markets.
The third and probably the most important reason is that the industry is now realizing that, unlike previous generation networks, it will take much longer for 5G to attain nationwide or even citywide coverage, and Capital Expenditure (CAPEX) related to 5G will likely to be more expensive. Bringing advanced features otherwise destined for 5G —such as low latency, massive MIMO, and advanced scheduling—to LTE networks will enable a 5G-like performance for areas that are still uncovered by 5G. In addition, such sophisticated LTE networks could potentially help mobile service providers incubate early 5G use cases and stimulate adoption in key end markets. Basically, Huawei’s 4G strategy is to break down the key stones of the 5G revolution to a series of incremental LTE upgrades and position LTE enhancement as a proxy for this revolution.
Another major trend is that early 5G rollouts will likely be built on top of existing 4G contracts, and it is very likely that there will be no vendor swaps, especially in the case of Huawei. Huawei’s position in the early 5G deployment race is thus “protected” and the Chinese vendor does not have to try as hard as its competitors to attract attention. The Chinese giant can focus on incremental updates up until the standard is set and mobile service providers issue requests for proposals for nationwide deployments. It will be a different market landscape then, but for now, Huawei is focusing on 4G, has diversified its business (including handsets and enterprise, which are growing) and can support its R&D workforce for these tough one to two years.
How Will the Telco Infrastructure Market Change in the Next One to Two Years?
The infrastructure market is now set to slow down until the 5G ramp-up, expected during 2020 to 2021. Even in the lucrative U.S. market, AT&T just announced its continued efforts on its “5G Evolution” network, which essentially is LTE-Advanced Pro and beyond. Despite heavily marketing its 5G efforts, AT&T is still spending on 4G and will not likely focus on 5G in the next few years as it prepares its backbone network for 5G. In the meantime, all vendors will likely focus on cost cutting and making their operations more efficient, while Ericsson, Nokia, and Samsung will likely generate some business in the U.S. market. Japan and South Korea may also provide some new 5G revenue, but none of these will be able to sustain any of the Tier One vendors.
At the same time, telco cloud deployments (including Network Function Virtualization [NFV]) have been much slower than expected and that will not likely change in the next two years, meaning that another vendor investment will pay off in a much longer period, meaning that Tier One infrastructure vendors need to diversify their product portfolio (e.g., Huawei’s handsets business or Nokia’s adjacent markets) to survive until the real, nationwide 5G rollouts commence. Huawei has achieved the clear top position in the telco infrastructure market, but the next two years may be the most difficult ones it has faced so far.