650 Group Blog
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Nokia’s Global Analyst Forum this week highlighted two main trends. First, the company says it has caught up to rivals in its 5G radio development. Furthermore, the company expects its wireless systems to become increasingly technologically differentiated from competitors. Second, the company emphasizes its message that it is the “green partner of choice.” We read that the company is making more power-efficient communications equipment. Apart from its significant themes meant for headlines, the company also highlighted that: (a) it’s experiencing strong private wireless growth, (b) its RAN systems are in the pilot phase with hyperscalers like AWS, GCP, and Azure, (c) it is embracing Open RAN faster than other established competitors, (d) it expects the Remote Radio Unit (RRU) to take an increasing fraction of total RAN spending, (e) it sees the RIC as a market expansion, (f) it expects to differentiate in radio in 2022 with its growing Carrier Aggregation capabilities. Nokia, which has significant revenue exposure to Mobile RAN, is in an interesting phase of its corporate development. With having brought on new CEO, Pekka Lundmark, recently, it abandoned its end-to-end product portfolio strategy. Yet, in recent times, the company’s non-radio portfolio has outperformed radio access network growth trends, which reinforces the idea that its broad portfolio serves it well. One of the company’s primary messages from the conference was that its RAN portfolio has caught up to competitors and that next year it will deliver significant improvements, including Carrier Aggregation and a broader portfolio of Massive MIMO systems. The company also said that it is working with a broad set of infrastructure providers and infrastructure software companies that will be able to support its RAN and core portfolio; examples include Anthos, Kubernetes, VMWare Tanzu, AmazonEKS, OpenShift, among others, operating on AWS, Azure, Google Cloud or on premises-based infrastructure. Nokia is investing in broadening out the appeal of its RAN and core systems both by embracing these various non-Nokia systems, as well as supporting Open RAN. The company says it expects an increasing amount of value to accrue to the RRU and away from baseband, which we see as consistent with its support of so many different infrastructure systems that would run baseband. The company sees revenue upside in the RIC market, part of the Open RAN architecture. The company’s support of Open RAN will lead to the commercialization of Open RAN systems in about two years, according to Nokia.   Furthermore, the company’s telecom core business is experiencing an acceleration in business trends. Like the RAN architecture support for various cloud systems, Nokia is even further along in offering support for its core systems like 5G Core. Management made two comments during its discussions that did an excellent job of explaining how far along the core market is in moving towards a hyperscaler-based infrastructure. First, Nokia said that “50% of RFQs include an option to run on top of the Hyperscaler.” Second, Nokia explained that of 82 of the engagements, 20 have serious public cloud investigations and dialog going. We are also encouraged by the company’s leadership in Fixed Wireless Access (FWA) and 25G PON. In 5G FWA, the company has some significant antenna and software algorithm capabilities, and we expect new, cutting-edge products in 2022. In 3GPP 5G FWA, the company holds a significant revenue market share lead as of 3Q21, illustrating its robust capabilities. The company made a bet on 25G PON and was a significant contributor to an MSA Group called 25GS-PON. Additionally, Nokia developed its own semiconductors, called Quillion, to support 25G PON (backwards compatible to lower 10G and 1G speeds).  
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Today, Rakuten announced that has acquired the rest of Open RAN startup, Altiostar. It already owned 67% of the pioneering vendor, and paid another $370 million to acquire the rest, at a valuation just over $1 billion. The company is adding Altiostar to its Rakuten Communications Platform (RCP) capabilities now known as Symphony, that it is selling to mobile network operators. The company also announced its first commercial customer for RCP Symphony, German startup mobile operator called 1&1. Now that RCP Symphony has expanded to include RAN, the total system is rather comprehensive (shown below).  The company shared what is included in the Symphony suite, which can be broken into five major pieces: 1) Internet & Ecosystem Services, 2) Digital Experience, 3) Intelligent Operations, 4) Network Functions, and 5) Unified Cloud. Compared to traditional telecom equipment companies like Ericsson, Nokia and Huawei, who have significant parts of their revenue exposure in the last 4 of the major pieces that Rakuten offers in Symphony. What’s different is Rakuten will be offering Membership & Loyalty Platforms, Media & Gaming Platforms, Payment & Finance Platforms, and Marketplace. Additionally, Rakuten can offer Cloud Infrastructure, similar to what Amazon Web Services, Microsoft Azure and Google Compute offer. We think Rakuten is taking on a lot by offering Symphony, but it has proven that many, if not all, parts already work – that’s because it has 4 million Japanese subscribers on its Rakuten Mobile Network already. That is a big endorsement. The 1&1 deal includes the entire RCP full stack and is structured as a “Design-Build-Operate” contract. The plan is to start work “next quarter,” and all engineering is done in-house by Rakuten and the team will manage installation done by others. By 1Q22, Rakuten will be deploying commercially for 8 years, and its operation plans last 10 years. The mix between base stations, servers and network software is 70% radio access network and 30% on the rest. Hardware and software mix is 65% hardware, rest software and services. RCP provides an “open-book” approach on purchasing of hardware to its customer. Rakuten claims it is in discussion with many potential customers and partners around the world about RCP (this includes Altiostar discussions), which include in the Americas, 27 client interactions; In Europe, 19 client interactions; in Middle East & Africas, 11 client interactions; Russia & CIS, 5 client interactions; and in Asia Pacific, 22 client interactions.  On April 21, 2021, DISH, the fourth wireless operator in the US market, and hyperscaler Amazon Web Services (AWS) announced plans to work together, whereby DISH will leverage AWS infrastructure and services to build a cloud-based 5G Open Radio Access Network. The DISH/AWS announcement is important because this is the first 5G Radio/hyperscaler deal – or second if you count Rakuten as a hyperscaler. We are encouraged by the DISH/AWS deal and think this represents a big step in the industry. What’s so important is that two of the three major Radio Access Network (RAN) functions will be running on AWS; these are the Centralized Unit (CU) and the Distributed Unit (DU). We see the DU running on the AWS service called Outposts as being the most critical part of this announcement, because historically this hardware has been delivered as a proprietary hardware system using proprietary semiconductors from the likes of vendors like Ericsson, Nokia and Huawei. Thus, AWS’ involvement in the DISH network serves as a reminder of the opportunity for RAN vendors to deploy cloud native RAN in future cellular network deployments. DISH is employing a terminology it called a “Capital Light” model, whereby it reduced the amount of capital spending it requires to build out its planned national network. Key to achieving this light capital model is leveraging the capital spending done by AWS and instead leveraging what some might call an OPEX oriented model. DISH plans to launch live cellular services in Las Vegas, NV first, and then its 5G network will cover 20% of the US population by June 2022 and then 70% by June 2023 and 75% of by June 2025, and thereafter it will continue its build to “match competitors beyond 2025.” The company also plans to begin building enterprise focused 5G networks beginning in 2021. In our follow-up inquiries to the AWS and DISH teams, we have learned that DISH is exercising an option to run O-RAN using AWS Graviton hardware plus Enterprise Kubernetes Services. Additionally, DISH has the option to use Intel based COTS based hardware in parts of its network. Thus, DISH has flexibility to deploy baseband systems on AWS or in its network, and can use Graviton or Intel systems. We have seen AWS engage in contracts with other parties where there are minimum usage rates or dollar commitments. We are not sure this is the case for the DISH deal, but AWS explains that it expects to deliver “thousands of site specific hardware,” while at the same time DISH expects that by mid 2023, it will have built out “15,000 cellular sites.”  What AWS plans to deliver to DISH  DISH use of AWS infrastructure We wanted to share some insights on how this relationship appears to be structured. It appears that many scenarios have been envisioned as to how the relationship may evolve in the future, and we think that both parties have worked in contract terms that allow some flexibility in achieving each company’s goals. We did not review the contract between the two companies, but in a webinar presentation held April 30, 2021, executives from DISH hedged their bets somewhat on the relationship with AWS in ways we found interesting:
In a briefing with Rakuten Mobile today, we learned two neat things: It is experimenting with 3GPP on satellite, and it hopes to announced a full-stack Rakuten Communications Platform (RCP) customer as early as next quarter. The company also shared some plans that it has for improving coverage to 96% by the end of the summer '21, and that it believes it has a 50% total cost of ownership advantage for its 5G infrastructure versus a traditional network operator.
So, what's so important about "3GPP on satellite?" If satellites are able to communicate with all cell phones and other cellular devices, this would mean that coverage could be enabled where we might need to have placed macro base stations. If we don't need macro base stations everywhere as satellites provide that coverage in sparse areas, or maybe even along highway routes, then a future cellular operator might be able to build its network with far fewer macro towers and rely more on a "barbell" approach, with small cells providing high throughput in busy areas and satellites providing coverage between busy areas. This would reduce demand for 5G base stations. Rakuten expects that its satellite partner, AST, may offer satellite coverage for Japan at the end of 2023 or the beginning of 2024 - that is a ways off. But, this means that in 3 or so years, the need for base stations may be considerably reduced. Also, Rakuten spokesperson, Tareq Amin, said he thinks it is possible that Rakuten may announce its first RCP customer as early as next quarter. We published about RCP in November 2020, around when the team first started making RCP known to the public. This means that a division of a mobile operator, Rakuten Mobile, may be selling its know-how, technology and services to another telecom operator, presumably outside of Japan. This is a big deal in that most operators buy from vendors and systems integrators, not from others who are in the same business as them. It is also a big deal because cloud companies like Amazon, Microsoft and Google all want to sell their cloud services to operators, too. And, if RCP gets there first, and sells its full stack (radio, core, billing, orchestration, OSS) it would represent a first-ever full stack services deal. In conjunction with its recent Rakuten earnings call this week, Rakuten Mobile disclosed some more of its plans. This mobile operator is becoming a telecom vendor. Specifically, it said that “by expanding the Rakuten Communications Platform (RCP) globally, Rakuten aims to evolve from a Japan-headquartered tech company to a global leader in telecom.” We see this as an explicit statement that the company plans to sell its telecom software and related services to operators worldwide. For instance, Rakuten Mobile just announced a partnership with Saudi-based operator, stc. This move pits Rakuten against Microsoft (who just acquired telecom companies and runs a cloud), Oracle (who runs a cloud and made telecom company acquisitions), and the rest of the telecom industry (traditionally Nokia, Ericsson, Huawei, ZTE, Amdocs, Netcracker and others).
In offering RCP to other operators around the world, its unique value, as we see it, is that Rakuten has successfully built an LTE and now a 5G network based on Open RAN. What we find interesting is that the company has developed a significant amount of intellectual property in-house or through technology sharing. In an interview today with Tareq Amin, Rakuten Mobile executive, we asked what technology has been developed in-house by Rakuten. Here’s what we learned.
Some other components are not developed by Rakuten (the radios come to mind), but this is an exciting development. RCP would be delivered as a “private cloud” on the premises of carrier customers (partners). The terminology Rakuten is using for this “private cloud,” is it’s a “pod.” RCP’s plans are a very interesting development in the industry. There is one more thing. Rakuten said it is working with a technology supplier that will sell Rakuten a server card that would allow a combined router and RAN processing function to co-exist on a server. Today, the servers it uses to support its Open RAN radios use an FPGA NIC. These servers can support up to 16 base stations. We see the addition of routing to this card as an extension of the capability – but it means there may be a diminished need for cell site routers. Ericsson Capital Markets Day Part Two:
Networks summary: When asked how it took market share (North American has 53% share 2Q20, up 5% vs 2018), management pointed to having made more significant R&D investments in radio than competitors. It cited Dynamic spectrum Sharing and its cost-efficient radio-related ASICs as examples of valuable features to customers. The company expects O-RAN will continue to evolve, with limited uptake starting in 2023. Cited IPR challenges as one challenge. Elsewhere in the presentation, it said it is #1 contributor to 5G standards; we take it that this IPR gives Ericsson leverage to slow ‘O-RAN’ down. Digital Services: The team said the split of Digital services for T4Q 3Q20 as (excluding IPR, consulting, and learning services): • BSS 20% • OSS 25% • Comm services 15% • Packet core 20% • Cloud and NFV infra 10% The Digital Services team has: • addressed 37 of the 45 ‘critical and non-strategic’ projects • revised its BSS strategy, and it is now 5G focused • 75% of its portfolio exposed to growth as of 3Q20 sales • Cloud infrastructure has 200 customers • 5G Cloud core has 80 customers (includes “5G” EPC and 5GC SA contracts). Packet core should grow faster than the others • 5G SA count is now at 30. 5G SA revenues should begin in 2021 from most of these contracts. • BSS has 120 contracts, 9 of which were competitor swap-outs • Orchestration has 100 customers Dig Services software + support in T4Q 3Q20 was about 55% of total revenues, and it expects 60% by 2022. It has about 40% recurring revenue T4Q 3Q20 and expects it to be about 55% by 2022. Expects Japanese and Korean operators to deploy SA by the end of 2021; expects Japanese 5G market to ramp very soon because it is a heavy user of iPhones. It expects 600K 5G base stations in China in 2020 and the same number in 2021. Emerging Markets Summary: Recently acquired Cradlepoint has > 60% GM and a recurring revenue SaaS model. 200K enterprises, 3,000 public agencies, 1,500 channel partners. It has won 30 dedicated network deals. Today, Alan Weckel participated in Intel's webinar on how technology is changing from the edge to the cloud. It was clear working on this project that the data center is rapidly innovating to next-generation technologies to keep pace with data growth. How will networks for communication service providers (CoSPs), cloud service providers (CSPs), and enterprises evolve to handle the dramatically increasing data volumes expected in the coming years? Increasing data volumes are being driven today by smartphones, laptops, IoT, and, in the near future, by emerging 5G-enabled services. 650 Group's internal projections indicate that data entering/exiting the data center (north/south) is driven mostly by consumer content (e.g., video). In contrast, a wide range of use cases ranging from enterprise applications, consumer data, and cloud applications drive data between machines. As part of the webinar, we authored a white paper on how quickly technology is involving in the data center. As we did our end-user interviews during the last few months, we saw many advancements in technology to support the growth of data in the cloud. We are excited to see all the new announcements coming as we close out 2020 and enter 2021. Please download the white paper by clicking on the link below. 
Ericsson has served the mobile service provider industry well over the years. Most devices connected to its customers’ networks are mobile phones; this, however, is changing. Internet of Things (IoT) devices are entering the fray and provide an avenue for growth, as is the enterprise market. Additionally, Ericsson’s channels have mostly been to operators, at a time when enterprise growth is expected to provide additional cellular industry growth. Ericsson’s portfolio, until the Cradlepoint acquisition, was not particularly well-positioned to benefit from IoT and enterprise growth vectors.
IoT devices come in all shapes and sizes, and they use a number of different connectivity methods, from cellular to Wi-Fi to Bluetooth to LoRa and many others. In 2020, we expect only 16% of IoT and wirelessly connected devices will connect to cellular systems; the rest connect to more popular (and mostly free) connectivity types. We see cellular connections growing in the future, but as a percentage of all IoT and wirelessly connected devices, we expect it will drop to 13% of all such devices five years from now. The reduction in the fraction of IoT and wireless devices connected to cellular is why the “cellular to other” gateway market (Cradlepoint’s main market) makes sense. There are some use cases where cellular backhaul connections to connect Wi-Fi, Bluetooth, Zigbee and others are vital. With US-based CBRS and European nations’ private enterprise spectrum opening up the opportunity that enterprises will build their own networks – without needing a mobile operator’s help with sub-leasing licensed spectrum – the folks at Ericsson had a choice to make. The choice was to continue selling to and through mobile operators and hope that mobile operators keep their share of enterprise and IoT growth, or to acquire products and distribution channels to access enterprise growth. Ericsson’s competitors were partnering with Cradlepoint with some success. Recently, Nokia’s enterprise revenues hit about 10% of revenues, in part because it was selling LTE gear to customers in verticals such as utilities, mining & exploration, and logistics & shipping. Many of these customers were using devices such as Cradlepoint’s. Ericsson is now invited to these ongoing dialogues as these networks expand and change. We would be remiss if we didn’t mention 5G in relation to Cradlepoint. Some enterprises seek a secondary wireless connection to supplement their primary wired broadband connection. Gear such as Cradlepoint routers can serve this need well. In this sense, we can see why Ericsson uses messages such as “Ericsson accelerates 5G for Enterprise with the Cradlepoint acquisition.” This acquisition is not without controversy, in our view. The Swedes are acquiring a company located in Boise, Idaho, and as such, managing from afar may present challenges. Cradlepoint sells its devices differently (mainly through channels) from how Ericsson sells its gear (mainly direct); these two distribution methods may conflict. Ericsson sold its cell phone business many years ago because it conflicted with its mobile infrastructure business. Similarly, Cradlepoint gear is focused mainly on enterprises, we see a similar conflict because Cradlepoint’s customer base liked its independence from cellular gear-makers. If Ericsson can manage through these challenges, it may enjoy exposure to IoT, enterprise and 5G gateway growth opportunities. Alex Choi, SVP, Head of Strategy and Technology Innovation at Deutsche Telekom, presented at Day 2 joint keynote broadcast for ONF's Spotlight event on 5G and open source. He shared several comments about DT’s strategy that we thought were interesting and showed that the German telco is looking to break away from old ways of doing business.
 Activity surrounding Open RAN is hitting a fever pitch. We have been seeing accelerating operator and vendor announcements supporting Open RAN, and now the Open Networking Foundation has announced that it is launching SD-RAN to complement Open RAN. The plan for SD RAN is to open up critical portions of the RAN architecture, allowing both open source and vendor based microservices, called xApps, software connect to the SD RAN architecture’s Radio Ixxx Controller (RIC). To date, we’ve seen vendors like Parallel Wireless, Mavenir, Altiostar, Samsung and Nokia throw their weight behind Open RAN. Japanese operator Rakuten has been very vocal about its successful commercial launch in April 2020 that uses Open RAN and a virtual computing system to support various RAN functions such as baseband. ONF’s SD RAN project takes things another step, though, by allowing operators and vendors to to leverage open source in the RAN environment. Getting there presents a challenge. With its announcement, the ONF will support a nRT-RIC and xApps, this is the intelligence that needs to be opened up, according to Timon Sloane, VP for ecosystems and marketing for the ONF based in Menlo Park. He says that functionality from a powerful RIC and xApps can finally deliver the integration and benefits needed for an open approach to work. Adding some muscle, the open RAN development community, and associated carriers globally, have shown their support for this latest project, a software defined RAN that will put a focus on open systems for 5G and the deeper integration. The ONF’s SD-RAN project specifically is backed by a coterie of industry players: The O-RAN Alliance, Telecom Infrastructure Project (TIP), and Facebook. Also, global carriers and cloud providers like AT&T, Google, China Mobile, China Unicom, DT and NTT. Lastly, system/chip companies like Intel, Sercomm and Radisys. The ONF’s proposed µONOS-RIC, is a microservices SDN controller based on ONF’s ONOS platform. 650 Group is bullish on this effort as previous attempts have not come to fruition and the ONF has already had lots of success with its CORD/cloud edge data centers and broadband access with the likes of AT&T DT and Comcast.  |
CHRIS DePUY
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