The Role of Operators as Integrators
Traditional telecoms operators are facing flat-lining revenues and are seeking to diversify portfolios by offering integration services to other operators. Monetising open RAN expertise is one way in which operators can capitalise on emerging opportunities.
Telcos have traditionally acted as the main providers of communications infrastructure and services. Their role could be described as integrating a diverse and complex technological landscape – including multiple customer-facing and back-office domains – and delivering unified service propositions across these. However, the value associated with this traditional operator play is stagnating in the developed world, and in turn telecoms operators’ revenues are dwindling, leading them to seek to diversify revenues away from, or on top of, the provision of core connectivity services.
One emerging opportunity for operators to broaden their horizons and transform revenues lies in reselling integration experience and expertise to other telecoms operators. Operators already play a pivotal role in integrating numerous technologies, networks, and services. Extending this expertise to other operators potentially unlocks new revenue opportunities for telcos, while not straying too far from their core business of connectivity provision.
STL Partners feels that a move towards increasingly virtualised telco networks is inevitable. However, the pathways for getting there differ from operator to operator, as shown below in an excerpt from STL Partners’ Telco Cloud Manifesto 2.0. Most operators in developed markets are actively looking to diversify away from procuring their networks through one or two dominant network equipment providers (NEPs), such as Ericsson or Nokia. However, where operators differ is in who manages this diverse vendor ecosystem and the related integration challenge. Pathway 2 operators aim to develop multi-vendor networks delivered over horizontal telco cloud platforms and rely on either a vendor or SI partner to support them in integrating the solutions. Pathway 3 operators take charge of this process themselves.
Shift in the industry
Network innovations such as virtualisation, automation, and open RAN are reshaping the landscape of the telecoms industry, leading to the adoption of programmable, software-centric networks. These software-based solutions offer benefits such as greater resilience, reduced infrastructure costs, enhanced scalability, and more rapid innovation and roll-out of services through agile software-development practices.
Mobile networks comprise three main domains: the core (the ‘brain’ of the network, including centralised control, gateway, policy, and user and session management functions); backhaul and transport (the ‘spine’ and nervous system, connecting the core to the edge and access portions of the network); and the network edge and Radio Access Network (RAN: which involves all the functions and compute involved in translating IP and other data flows from the network into radio signals connecting to users, and vice-versa). Traditionally, a single NEP, such as Nokia and Ericsson, will supply everything comprised within a RAN deployment, as described above. This makes it challenging for an operator to choose the individual technological components within such a deployment. The NEP has control of the price, and the operator is locked in for the product’s lifecycle (unless they want to strip out the entire platform).
This lack of flexibility, and lack of control for the operator, has spurred the movement toward open RAN as operators seek to procure RAN components from multiple vendors and to integrate these components independently. Open RAN allows operators to select devices and systems from numerous vendors to interconnect through open and standardised interfaces. Alongside this disaggregation, virtualisation plays a key role in cost reduction, allowing the RAN functions to be delivered and developed as software functions running on comparatively standardised compute hardware. The shift in this architecture is what operators hope will combat vendor lock-in, in addition to promoting vendor competition, and in turn cause a significant reduction in capex across their RAN sites.
The specific challenge of integrating discrete network functions within a RAN ‘stack’ has traditionally fallen within the remit of the NEPs. However, as operators seek to break up RAN vendor lock-in, a select group are seeking to insource the integration of such components, following pathway 3 in STL Partners’ telco cloud roadmap. These operators include the likes of Vodafone, Rakuten, and NTT Docomo.
NTT Docomo, a branch of Japan’s incumbent operator, recently announced a new offering at MWC Las Vegas: its ‘Open Ran Ecosystem Experience’ (OREX). This aims to market NTT Docomo’s experience as a pathway 3 operator to less mature pathway 2 operators, integrating an ecosystem of vendors into a bespoke RAN solution for operators who do not currently possess the ecosystem partnerships or integration capabilities to insource this themselves. OREX permits operators to select preferred solutions across the remote radio unit (RRU) and the distributed components of the baseband function – the Distributed Unit (DU) and Central Unit (CU) – together with the disaggregated virtualisation layer and compute hardware. This customisation allows specific customer challenges to be addressed. NTT Docomo has deployed a similar solution in its own network, supported by this ecosystem of partners, which it is now marketing to potential telco customers as a potentially lucrative source of new value.
OREX’s purported benefits include maintaining a single point of contact for the operator customer, while reducing RAN total cost of ownership, with key drivers of this cost reduction including procuring COTS servers and minimised electricity costs. The aim of NTT Docomo, as stated in its FY2023 Guidance and Key Actions, is to generate JP¥10 billion (£55 million) in revenue from this open RAN integration offering ‘at an early date’.
Japanese competitor Rakuten harnesses a similar ‘operator-as-vendor’ model to NTT: developing deployment and integration expertise and experience in-house and then monetising these capabilities to other, less mature telcos through the Rakuten Symphony brand. Rakuten Symphony is deploying what it claimed to be the world’s first national, cloud-native, open RAN-based mobile network. This involved collaborating with an array of vendor partners to create a greenfield network that is now used by millions of 4G and 5G users across Japan. Edge Industry Review states that Rakuten has open RAN contracts valued at £170 million in revenue. The greenfield deployment was implemented much more efficiently than would be possible for legacy telcos, who are burdened by brownfield network infrastructure that must be upgraded, integrated with the new platforms, or decommissioned as part of any network transformation programme. Rakuten believe that its integration expertise, acquired in its own greenfield deployment, will equip it to support the even more complex challenges of operators deploying open RAN within a brownfield scenario.
For more mature, pathway 3 operators, it is worth considering the opportunity associated with monetising their expertise and experience in assembling an ecosystem of open RAN partners and navigating the associated integration challenges which come with this. This could be an opportune moment to enter the market while NTT Docomo’s offering remains new and unproven at scale, coupled with the recent changes in Rakuten’s senior management, which suggests that Rakuten Symphony may not yet have succeeded in carving out first mover advantage. In addition, for those less mature operators seeking to lean on the success of more mature operators in this space, engaging the likes of NTT Docomo could prove a fast track to success within this space.
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