The Impact of Huawei Potentially Entering the Open RAN Market

In July 2024, press reported that Germany is set to ban Huawei technology from the core of its networks by 2026, as well as ZTE. However, its technology can still be used in the Radio Access Network (RAN)—as long as an independent party provides the network management software by 2029. More specifically, the German operators have committed to replacing the existing proprietary software for controlling and configuring the transport and antenna network. This would not be a simple undertaking, given that there are a large number of previously undisclosed software interfaces in the individual components of the mobile network.

The solutions currently offered by Huawei are proprietary, so it is not as simple as just placing another software into the technology. However, this is not impossible, as it would require Huawei to open its interfaces, including its confidential fronthaul interface, and provide Open RAN technology to remain a player in the Western market, something it has not shown any public interest in doing previously. Moreover, Huawei is not a member of the O-RAN Alliance and has not been active in Open RAN market developments, but could adapt immediately as it has done in the past with its considerable Research and Development (R&D) workforce.

The O-RAN Alliance is working on the O1 interface to join one company’s Service Management and Orchestration (SMO) platform to another’s RAN, and the latest release by the Telecom Infra Project (TIP) Open RAN Memorandum of Understanding (MoU) Group—consisting of European telcos Deutsche Telekom, Orange, Telefónica, TIM, and Vodafone—has focused on further developing SMO requirements to ensure it can remain open, while making use of existing traditional RAN technology, especially in non-real-time Radio Intelligence Controller (RIC) and rApps.

From a technical point of view, Huawei entering the Open RAN market could be the start of bad news for Western infrastructure vendors such as Samsung, Ericsson, and Nokia, which have seen their RAN revenue decline in the European market during an exceptionally difficult time for the telecoms industry, with network infrastructure spending slowing down dramatically, all while not having to compete with Huawei for contracts. For Huawei, it means that it has the opportunity to put a stop to the “rip-and-replace” movement in Germany, but it also has the opportunity to stop it in the other Western European countries and maintain its market presence. However, the likelihood of this happening is dependent on the scenario of how Huawei becomes an Open RAN player:

1. Huawei Takes the Conservative Approach: It opens its proprietary interfaces to support Open RAN specifications, which will allow third-party software to be integrated. This will satisfy the German operators to remain in their networks and allows Huawei to market its products as Open RAN compliant without fully committing to the initiative or disrupting its current product lines or business models. In this approach, the reluctance to fully embrace Open RAN may be held against Huawei by other Western countries, and the “rip-and-replace” strategies will remain. Members of the O-RAN Alliance would have the opportunity to steer the development of Open RAN interfaces and technology to better suit its own needs, forcing Huawei to capitulate and perhaps even give up on its Open RAN projects if it becomes more work than it believes it is worth.
2. Huawei Takes the Aggressive Approach: It joins the O-RAN Alliance and becomes an active participant, allowing it to steer the development of Open RAN standards to align with its technological strengths and strategic interests (as all participants are likely to do) and ensure that Open RAN does not undermine its competitive position in the market. Huawei would be able to begin building alliances with the other Open RAN players and reduce the perception of it being an isolated player by Western countries. In this approach, Huawei could market itself as a leader in Open RAN and work on changing the market perception of its technology for the Western market, potentially fostering a more favorable regulatory environment due to reduced security concerns, while also being able to steer the development of Open RAN interfaces.

The bigger challenge for Huawei, should it pursue the Open RAN opportunity, will be in finding a third-party software solution that satisfies not only Huawei in its capabilities, but the Western operators to remain part of their networks going forward. The biggest industry players such as Nokia and Ericsson, and other smaller players will be extremely cautious to not violate U.S. sanctions. The far likelier scenario will be that the telcos themselves develop their own software to work with Huawei’s RAN hardware—Deutsche Telekom has already confirmed it has begun developing its own solution, and Vodafone is also rumored to be working on its own solution.

On a global scale, the Open RAN market remains niche, and commercial traction this year has been limited post-Mobile World Congress (MWC) 2024 in Barcelona, with no announcement matching the size and scale of the AT&T and Ericsson deal in December 2023. TIP’s focus on integrating traditional RAN technology into the SMO indicates that it is likely aiming to make Open RAN a more attractive proposition for all the major infrastructure vendors, and perhaps equipment vendors such as Huawei and ZTE.

Huawei joining the O-RAN Alliance could potentially be a win-win for both sides of the market. Huawei would be able to market its hardware and (most importantly) its 5G radios in a much more unrestricted fashion, and the Open RAN market would get a much-needed commercial boost. However, the question remains: will Huawei take the conservative or aggressive approach in embracing the Open RAN market?

The more likely scenario is that Huawei indeed takes the conservative approach, simply doing what is absolutely necessary to make German operators happy and hedging its bets in the Western market. However, to ensure that it remains a prominent player in the Western market, ABI Research expects that taking the latter, aggressive approach will be the better strategy to potentially change the regulatory tide Huawei is facing. For a variety of reasons, both Nokia and Ericsson have taken an aggressive approach and embraced Open RAN, which will ensure they maintain their market dominance around the world, so Huawei doing the same would be just as valuable.

This is a critical moment for the telecoms industry in the Western market, as what happens in Germany will set a clear precedent for how Chinese equipment vendors play a role in their networks going forward regardless of geopolitical tensions. Western equipment vendors must work quickly to ensure that they are able to capitalize on the current “rip-and-replace” trend in Western Europe and minimize the fiscal viability of operators switching back to Huawei’s 5G radios.

Tangentially, the move by Deutsche Telekom, and potentially Vodafone, to develop their own in-house network management software is an industry-first that could set the trend for operators to have more control over their own networks. However, a real Return on Investment (ROI) for developing and deploying such technology, which others are unlikely to purchase, is unclear. ABI Research believes that this move by telcos will be a short-term trend until sufficient commercial traction for Open RAN Huawei solutions occurs, after which independent software vendors will begin attempting to integrate their network management solutions with Huawei.