Leading infrastructure vendors have all reported their new enterprise private cellular wins of Q3/2022. While traditional RAN vendors seem to stagnate, Open RAN vendors like Airspan celebrate a larger number of wins. This insight therefore explores, why Open RAN are becoming successful in the enterprise domain.
New Vendors Emerge in the Private Cellular Market
As we are approaching the end of yet another eventful year for private cellular networks, telco infrastructure vendors have published their updated involvements in enterprise cellular deployments for 3Q 2022. In addition to incumbent telco infrastructure vendors, it is interesting to see a group of newly entering equipment vendors starting to gain traction within the enterprise market.
Open Radio Access Network (RAN) vendor Airspan, for example, reports 87 new enterprise deployments around the world for 3Q 2022, an increase of around 40% compared to 2Q 2022. According to numbers published by the vendor itself, the total number of enterprise deployments with Airspan involvement exceeds 400 deployments as of the end of 3Q 2022. While this number is not directly comparable to what incumbent telco infrastructure vendors report—due to different definitions—it still is an indicator that Open RAN vendors are beginning to emerge for enterprise connectivity and diversify the private cellular network supply and value chain.
Why are Open RAN Vendors More Successful in the Enterprise Domain?
At face value, industry voices always praise technology drivers behind the attractiveness of Open RAN for enterprises. Certainly, disaggregating hardware from software elements under open standards could carry certain benefits for enterprises. Enterprises often have an Information Technology (IT) infrastructure in place already, so they could run telco-specific software within existing server infrastructure, instead of having to deploy new equipment altogether. This could result not only in efficiency gains, but also in important reductions in terms of the Total Cost of Ownership (TCO), which is important, especially in the current macroeconomic climate of rising costs of production. Furthermore, the open interfaces prevent vendor lock-ins, and would allow enterprises to match components from different vendors with each other.
However, most enterprises are looking for full end-to-end solutions and, in fact, will not even be aware of what Distributed Units (DUs) and Centralized Units (CUs) are and why they should care, so it seems more likely that this will be outsourced to system integrators, increasing their share of the profit. At the same time, it is reported that specific Open RAN systems may consume a lot more energy than traditional RAN installations, which might offset some of the potential TCO savings stemming from disaggregation.
Open RAN vendors are often smaller in size, more agile to react to enterprise requirements, ready to engage in small-scale deployments, and require a lot of customization depending on enterprise requirements. The overall size (and ability to adapt) includes a range of different subsequent aspects that play an important role, too.
The larger a company is, the more inelastic it becomes against sudden change of direction. Every change will always carry certain business economic risks to the existing business units. The larger a business is, the more is at stake if it suffers from a sudden change of company direction. From this perspective, any kind of change in direction could potentially harm the existing business and client base. The larger the legacy business is, the more carefully strategy alterations will need to be waged. Enterprise verticals, however, require digitization partners that are agile enough to address individual pain points and requirements with often vertical-specific solutions that require different messaging to bring to implementers. Therefore, enterprises require a highly agile digitization partner that can change their company direction based on enterprise demands. As Open RAN vendors are typically smaller in size than companies like Ericsson, Huawei, and Nokia, they are also more agile to adapt to enterprise requirements.
More Agility and Economic Flexibility for Enterprise Offerings are Needed
Because of the size and their relatively young age compared with Tier One infrastructure vendors that have been in the market for more than 20 years, Open RAN vendors typically do not have a large legacy within the consumer domain. While on the one hand, this could be interpreted as a weakness because the consumer business could work as a safety cushion in case enterprise ambitions do not materialize, it can also be an advantage, as the consumer business is governed by a completely different sales process than the enterprise domain. In the consumer domain, the relationship between infrastructure vendor and network operator is very one-directional at a single point in time (the infrastructure vendor sells equipment to the network operator), and enterprises require a much more bi-directional, almost consultative approach, in which network infrastructure might also be consumed in an as-a-Service model (depending on the investment capabilities).
In addition to the sales structure, the consumer market is also governed by different profitability indicators. Macro networks require large amounts of infrastructure, so the margin on individual components does not have to be large, as profitability will be achieved through easy scalability and high volume. Enterprise deployments, on the other hand, will be much smaller in scale—typically a core network, an edge deployment, and a handful of small cells, meaning that profitability cannot rely on high-volume selling. With an existing consumer macro network business, established infrastructure vendors will have to strike a fine balance of embarking on new revenue models for enterprise deployments, while protecting their existing profitability in macro networks. Open RAN vendors without this legacy do not have to find this balance and can, therefore, embrace the enterprise opportunity much more openly.
This thorough analysis is an important lesson for traditional RAN infrastructure vendors, as it shows that more than just technology factors are at play in deciding the performance within the enterprise vertical segment. Consequently, traditional infrastructure vendors should do everything they can to increase the agility of their business offerings. Creating separate enterprise business units is an important step. More importantly, the expectations in terms of profit and loss horizon will need to expand to account for the fact that monetization will likely take longer in the enterprise than in the consumer domain.
At the same time, to be successful with enterprise cellular deployments, new vendors need to realize that deploying an Open RAN-based connectivity solution requires some degree of networking expertise and integration capabilities; albeit based on the same standards, integrating components from different vendors will be more complex than using an end-to-end networking solution from one of the incumbent players. Most enterprises (particularly Small and Medium Enterprises (SMEs)) do not have any cellular expertise and no strategic interest in building these up, so they will require third parties for these capabilities. Anticipating this, Open RAN vendors will need to look for strong System Integrator (SI) partners. A direct to-enterprise sales channel might be successful in the early phases of the private network market, as particularly large enterprises (with their own in-house network management and operation capabilities) currently deploy private cellular. As soon as the market starts to move toward SMEs, however, a healthy indirect Go-to-Market (GTM) channel will be important for any vendor.
Switching perspective for implementing enterprises shows once more that the deployment of a private cellular network (whether Open RAN based or not) will have to build upon a solid digitization strategy, which also considers whether a disaggregated network architecture, based on Open RAN, would deliver the desired results. In doing so, they should seek partners with a profound overview of the market and good knowledge of enterprise pain points that can recommend cellular networking architecture that addresses the respective requirements most appropriately.