Increased Investment into Open RAN Initiatives Show the Democratization of the Telco Supply Chain Is Well Underway

The rollout of 5G in the consumer domain is well underway and continuing to take shape, with more than 160 operators globally having launched 5G services. Meanwhile, governments, public bodies, and regulators are beginning to understand 5G as critical infrastructure. Consequently, there is fierce debate about the security of 5G equipment from different vendors and to what extent their involvement in the 5G rollout should or should not be restricted.

Most notably, this has manifested itself in a discussion about so-called "high risk" vendors and whether to exclude them from the rollout of 5G networks. While the debate about the security of Huawei devices dates back to the early 2000s, it became more dynamic in 2018, when then-director of U.S. national intelligence, Dan Coats, actively warned the United States about purchasing Huawei and ZTE products for security reasons. Because of these alleged security problems, as well as geopolitical concerns (the alleged breach of U.S. American sanctions toward Iran, among others), the United States was the first national government to restrict the role of certain "high-risk" vendors for the country's rollout. While ABI Research has discussed the impact of these vendor restrictions extensively in The Impact of Huawei Restrictions on 5G Markets (AN-5339), the discussion about these measures shows that national governments understand the importance of a diversified telco supply chain to support the nationwide rollouts of 5G.

Again, as discussed in The Impact of Huawei Restrictions on 5G Markets (AN-5339), restricting the role of certain network infrastructure vendors without investing in new technology alternatives will limit the competitiveness within the market. This leads to two different effects: increased prices for operators and a slowdown in technology advancements. Different investment plans in alternative technologies like Open RAN are emerging within the industry to diversify the network infrastructure supplier landscape and reduce reliance on the remaining major vendors like Ericsson and Nokia.

At this stage, two different types of investment initiatives are emerging:

1. Major network operators are increasing their investment efforts into Open RAN. In Europe, Deutsche Telekom, Orange, Telefónica, and Vodafone signed a Memorandum of Understanding (MoU) on Open RAN in January 2021. In the Asia-Pacific region, Japanese network operator NTT DOCOMO announced a collaboration with 12 partners to enhance the 5G Open RAN ecosystem in February 2021.
2. There are also increased governmental activities to fund Open RAN initiatives to increase diversity in the network infrastructure vendor market: According to recent reports by German newspaper Handelsblatt, the German government is preparing an investment program equivalent to US$2.4 billion (€2 billion) into Open RAN vendors. In the United Kingdom, the Department for Digital, Culture, Media & Sport set out a strategy for 5G supply chain diversification in December 2020, which includes increased funding into Open RAN activities and trial projects. Furthermore, the U.S. government is also intensifying its efforts to fund Open RAN initiatives.

These investment programs can do much more than mitigating the distortive effect of vendor restrictions and restoring the degree of competitiveness in the network infrastructure market, as funding Open RAN initiatives will enable more than a handful of infrastructure vendors to gain market traction. This would, in turn, increase the degree of competitiveness within the network infrastructure market and would remove operators’ dependency on a handful of large enough infrastructure vendors. From an economical point of view, the increased competitiveness will decrease the equipment price that operators or system integrators and other implementers (for enterprise 5G) will have to pay in the long term.

While these investment programs will be an important enabler for small infrastructure vendors looking for opportunities to enter the market. It should be noted that it will take years until they show their desired effect and result in a more diverse landscape of infrastructure vendors with commercially available 5G network equipment on offer. Therefore, it is important for the public sector to stand by its investment plans and focus on long-term vendor diversification, rather than expecting any immediate returns. In line with this, public authorities need to appreciate the importance of reliable investment announcements as a basis for the industry to make important business decisions.

To create more vendor diversity in 5G network rollouts, regulators play an important role, as they will be responsible for setting specific guidelines for spectrum auctions and, therefore, can directly influence the composition of infrastructure vendors. At the heart of it, regulators should have absolute legal clarity on any vendor restrictions to avoid any potential delay of 5G spectrum auctions (as has happened in Sweden, because of an appeal against certain vendor restrictions).

To successfully diversify the telco infrastructure supply chain, regulators need to work closely with national governments to assess any spectrum-related issues that would prevent or deter new infrastructure vendors from entering the market. Spectrum auction regulations, for example, could include specific clauses on a minimum number of infrastructure vendors that network operators would need to rely on to be allowed to take part in 5G spectrum auctions. On the other hand, regulators should seek collaboration with international counterparts to be able to offer internationally harmonized guidelines for network operators. Not only would this facilitate the rollout of 5G in general, but it would also give new infrastructure vendors the much-needed reliability to be able to address a large enough market with their network infrastructure equipment.