Earlier this week, Nokia’s share price was hit by 8% by a rumour that Samsung would edge it out of Verizon’s radio network. What’s behind it? Is it a puff of smoke from a magician’s trick or a warning shot from a volcano of seismic moves afoot?
Nokia’s market valuation is circa 20 billion Euros so 1.6 billion Euros is a costly rumour for its shareholders. I talked to my colleagues David Martin, Dean Bubley and Dave Burstein to get their expert views on this, and this is my take based on that as of 10th July 2020.
Nokia’s share price on Google Finance
Why does open RAN matter?
Open RAN is an important concept in this story. It encompasses a group of technological approaches, including vRAN, C-RAN and open-RAN, that are designed to make the radio access network (RAN) more cost effective and flexible. The interplay of the various component technologies is complicated, but important – see our report Open RAN: What should telcos do?.
The key message is that open RAN involves a shift away from traditional, proprietary radio hardware and network architectures, driven by single vendors, towards new, virtualised platforms and a more open vendor ecosystem. This is generally seen to be a good thing in the operator community – and Verizon has been very public about its ambition to adopt it.
Trying to read the smoke signals
The rumour appears to have been publicised by Rosenblatt Securities analyst Ryan Koontz, who claimed on Tuesday that Samsung was about to “leapfrog [Nokia] to secure one of the largest new supplier telecom contracts in many years”: a contract whose value he estimated at $1.5 billion per year over five to seven years.
The implication is that Verizon will replace Nokia with Samsung as one of the two suppliers of its 4G and 5G RAN (the services of the other supplier, Ericsson, being retained). Koontz alleges that Verizon will be going beyond this and ‘ripping out’ a lot of its existing 4G kit.
Verizon is one of the world’s largest telcos and an early champion of 5G, so it’s unquestionably a prestige partner for any supplier. This would indeed be a big deal, in every sense – although it should be noted that Verizon issued a somewhat non-committal denial of Koontz’s claim on the very same day.
On the same day as the rumours got going, Samsung announced the commercial availability of its 5G virtual RAN (vRAN) platform, while Nokia declared it was “ramping up the adoption of open RAN interfaces in its AirScale [cloud RAN] portfolio”, with the full set of said interfaces due to be rolled out next year.
What is at play here?
First up, cost. The word in deep net-techie circles is that Nokia’s decision to use flexible but power-hungry FGPA1 chips in its radio kit has cost it business against Ericsson and Samsung. Ericsson chose cheaper but inflexible ASIC2 chips, while Samsung say their kit is virtualised and can use anything.
Second, openness. While Verizon has been working with Nokia for some time on cloud RAN, it is known to have now also tested a pre-commercial version of Samsung’s vRAN platform. The crux of the matter, from the technical point of view, seems to be the degree to which Samsung’s and Nokia’s RANs are, or are not, open.
Central to the idea of openness is that components of the network should work with each other, regardless of who made them or how they are operated. To achieve this, the network is chunked up into pieces which in theory then be run on any system – no longer just on hardware that is proprietary to a given vendor, but on standardised / commoditised bits of hardware operating in a virtualised, cloud-based way.
Nokia’s new platform supports the open interfaces adopted by the O-RAN Alliance industry grouping. However, the solution does not support the full set of interfaces, and relies on Nokia’s own sever hardware – so is not in fact fully disaggregated or open. And it won’t be available until next year.
Samsung claims that its RAN is indeed fully open – although some observers are sceptical about that, too, especially as Samsung has been marketing the benefits of an end-to-end, Samsung-only platform. Importantly, however, it’s available now.
So is it possible that Verizon will jilt Nokia?
It’s believable that Verizon will work more closely with Samsung – if it thinks Nokia products are pricey, don’t fit as easily with its DSS, and it can strike a great deal with Samsung.
It is certainly believable that leaning on Samsung might save costs. $1.5 billion per year for up to seven years is a lot. But Verizon has probably been able to drive a great deal from Samsung, whose pricing is rumoured to be lower.
It’s also possible that Verizon has more faith in Samsung’s commitment to / roadmap for open RAN. Its platform is more deployment-ready, too, enabling Verizon to accelerate deployments now while future-proofing for innovative use cases further down the road
Also, Verizon needs to use Dynamic Spectrum Sharing3 (DSS) owing to its limited mid- and low-band 5G spectrum allocations. To cut a long story short: that means Verizon needs its 4G and 5G RAN to be tightly integrated. Ericsson appears to have passed the test in that regard for the other 50% of its 5G network. But if Verizon was already dissatisfied with Nokia on the above two grounds, then it becomes more viable and attractive to rip out the Nokia 4G kit and replace it with an integrated 4G / 5G solution from Samsung, rather than adding Nokia 5G to 4G and then have to patch-in Nokia for the next ten years.
But what about other vendors? The picture is complicated: Ericsson is working with everyone; Huawei is disallowed in the US; Fujitsu is busy working with Dish – and most other OpenRAN vendors are too immature for a big network with lots of legacy kit to integrate.
Nokia is coming a little late to the open RAN party, and we doubt that Nokia open RAN next year will be enough to dissuade Verizon from beginning to deploy Samsung open RAN this year.
As for Verizon completely ripping out Nokia from its network, this looks much harder to call at this moment. It’s a lot of money and would take some considerable time and effort. And might Verizon be better served by keeping Nokia in the fold so it has more choices?
What else is possible?
Apart from the material impact on Nokia’s share price most of the news this week is still rumour, and the above is conjecture based on what we’ve heard and learned through the analysis for our Telco cloud tracker.
No doubt the story will continue to evolve, and there are a lot of other unknowns and possible factors, such as that:
- Verizon is still cannily negotiating with all parties
- It’s US election year and there are behind the scenes moves happening
- More open RAN solutions and announcements are likely to materialise
The bigger picture?
Stepping back a bit, it is hard to tell whether this is just another case of operators swapping out vendors – or like a tremor from the shifting of tectonic plates in the overall supply chain of the telecoms industry. Will we see more such rumours and developments?
Virtualisation, and the rapidly accelerating interest of the hyperscalers in telcos as a market and a route–to–market, look to be major themes for the next few stage of industry evolution. We will be publishing a lot on this space in the near future. So watch this space!