The Market Upside with Open RAN

Introduction

The transformation from the initial voice-centric models to today’s data-driven end-user applications has had a profound impact on the network, with mobile data traffic capacity increasing roughly 500-fold over the past ten years. 

At the same time, the innovation and the progress on the supply side, for coping with the explosion in data traffic, have not translated into any significant revenue upside for the suppliers. The Dell’Oro Group estimates that the worldwide RAN market from 2000 to 2020 increased at a 1% CAGR in nominal US Dollar (USD) terms. 

Operators have also struggled to extract more revenue from their customers. Dell’Oro Group estimate that currency adjusted wireless revenues over the past six years have experienced a CAGR of 0%, reflecting slowing subscription growth and lack of revenue upside from new sources.

The strong connection between wireless capital intensity and the RAN market implies that constrained operator revenue growth will remain one of the primary inhibitors of further telco capex acceleration.

These market dynamics—in combination with the inherent supplier lock-in on the RAN and the sheer amount of scale required to become a formidable RAN supplier—form the basis for RAN now being considered a moderately concentrated market place globally and a highly concentrated market place in key markets (including China and the US) per the Herfindahl-Hirschman Index (HHI). 

So as the telecom industry as a whole is moving away from the hardware driven models toward more virtualization and software, there are now three broad parallel tracks aimed at addressing on-going supply-and-demand-related RAN challenges: (1) Centralized-RAN (C-RAN), (2) Virtualized RAN (V-RAN), and (3) Open RAN.  

These efforts to move compute resources to a central location (C-RAN), use more generalpurpose processors (V-RAN), and open up the interfaces (Open RAN) are not new and have existed for some time. What is new is the broader interest among service providers to move away from the status quo.

WHAT ARE VIRTUALIZED AND OPEN RAN?

Virtualization, which disaggregates the software from the hardware, enables software to run on vendor-agnostic commercial off-the-shelf (COTS) hardware. In the RAN domain, virtualization will primarily be confined to the baseband functions. And within the baseband, virtualization will typically begin with the Centralized Unit (CU) addressing higher layer functions with less stringent processing requirements, followed by the more time-sensitive processing requirements associated with the Distributed Unit (DU).

Virtualization in the RAN is not confined to a specific location and can be deployed both with DRAN and C-RAN topologies. C-RAN in combination with V-RAN is sometimes also referred to as Cloud-RAN. 

With complete V-RAN, the RAN becomes software-defined and programmable, providing more flexibility for various architectures. 

Virtualization in the telecom world is far from new. Dell’Oro Group estimate that Network Function Virtualization (NFV) comprised around half of total Mobile Core Network revenues in 2020 (Dell’Oro Group MCN Report). RAN virtualization has not accelerated at the same pace as in the core, partly because signal processing comprises more than 90% of the base transceiver stations. Furthermore, power consumption and BOM-related cost benefits with ASIC-enabled platforms have so far outweighed the reduced introduction costs and improved flexibility with standard signal processors. Virtualization in the RAN is at least five years behind the core.

Though vRAN is typically not considered to be common now in the early Open RAN adopter phase and the implementation of vRAN and Open RAN more often than not remains mutually exclusive, the broader long-term Open RAN vision is that the network will evolve and include not just open interfaces but also more virtualized technologies and vendor-neutral multi-vendor deployments.

In addition to leading the industry toward open and interoperable interfaces, the long-term roadmap maximizes the use of COTS hardware and minimizes the reliance on proprietary hardware. 

Also, the O-RAN Alliance envisions that the Radio Intelligent Controller (RIC) and the Orchestration & Automation layers will play important roles managing increased complexity, using AI, analytics, and automation. 

Similar to V-RAN, Open RAN implementations are not confined to specific topologies.  Compute resources can be virtualized at the bottom of the cell tower, the far-edge, regional edge, or in the centralized data center.