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After a decade of fierce rivalry with China's technology giant Huawei, Europe's telecoms equipment champions Nokia and Ericsson could soon face myriad new competitors to contend with.
As Europe cuts back on using Huawei equipment in its 5G networks, mobile operators are looking far and wide for companies to replace it. The Continent's "big four" telcos Deutsche Telekom, Telefónica, Vodafone and Orange on Wednesday published a joint "memorandum of understanding" pledging to prioritize the development of "Open RAN" technology, a concept that would benefit smaller equipment and software makers.
Open RAN encompasses the idea of chopping up the 5G supply chain into smaller pieces and imposing standards on equipment and software firms so their products can work together — a "Lego approach," as one expert called it, to digital infrastructure. It would allow operators to procure specialized kit and services in smaller contracts with different players to piece together a 5G network, breaking the market power of “end-to-end” vendors like Ericsson and Nokia.
The operators' public campaign in favor of the standards comes after years of lobbying against 5G security laws that will significantly decrease Huawei's market presence in Europe in coming years. The operators, now barred by governments from using Huawei in several European markets, see Open RAN as a fix to what they consider a duopoly in the vendor market that allows Ericsson and Nokia to charge higher prices for 5G equipment.
Once in place, Open RAN could help equipment makers like South Korea’s Samsung and Japan’s NEC, cloud providers and tech giants like Amazon, Google and Microsoft as well as smaller, specialized software companies like Altiostar and Mavenir gain a stronger foothold in Europe’s growing 5G market.
The big four operators said they'd also "promote to European policymakers and industry that adopting a competitive Open RAN ecosystem will place Europe and European industry at the front in the race of technological leadership."
But for the two European leading vendors, Ericsson and Nokia, the political push to boost new competitors could put more strain on already-narrow profit margins and troubled financials.
Geopolitics of standards
Operators across the world in 2018 started working on new standards in an association called the O-RAN Alliance. It's a standard-setting body that includes participants from more than 200 companies across the tech sector, including Microsoft, Facebook, chipmakers, software firms and Europe's leading vendors Ericsson and Nokia.
The O-RAN Alliance includes Chinese operators but not its tech giant Huawei — which is telling.
The Chinese giant has always perceived Open RAN as a challenge to its dominance: "O-RAN is currently hijacked for geo-political reasons. It's been weaponized, specifically against Huawei," a company official said in a conversation in June, requesting not to be named because of the sensitivity of the issue.
The push for Open RAN standards quickly gained pace in the U.S., where lawmakers realized the country's technology industry had missed the boat on developing 5G equipment.
U.S. Congress in November passed a bill approving $750 billion in public funding to develop Open RAN technologies.
The U.S. tech industry has also been leaning on European capitals through a lobby group called the Open RAN Policy Coalition, formed in May last year. It gathers smaller U.S. software firms like Altiostar and Mavenir with household names like Cisco and Juniper and tech giants Facebook, Google, Microsoft, Intel and others. Non-U.S. names include Samsung, NEC, Fujitsu, Rakuten, as well as Europe's three largest telecoms operators and Nokia.
"One thing we've heard from European governments ... is that a diverse ecosystem is very important and they want to see that European vendors have a share of the market," said Alex Botting, senior director at Venable, a lobby firm that represents the coalition in talks with European authorities.
In London, the initiative got backing from the government when it presented its "diversification strategy" in November. It pledged £250 million in funding to boost innovation in Open RAN and try to introduce new, smaller 5G equipment makers. It also pledged to fund a new trial with Japanese telecoms vendor NEC.
Europe's gain, Europe's loss
For European lawmakers, the question is which specific European companies would gain from Open RAN — besides the operators that expect it to bring down procurement prices.
The concept comes with risks to its own leaders in the field, Ericsson and Nokia, who increasingly have free range in markets that have blocked or are shunning Chinese vendors.
"If you break that duopoly and you have lots of new suppliers, what does that do to the two European incumbents?" said Alex Sinclair, chief technology officer at global telecoms operators association GSMA.
Nokia has arguably been more receptive to the idea of Open RAN, but Ericsson has been lukewarm.
Its Chief Technology Officer Erik Ekudden said in an interview in July that the technology was still “maturing.” He said the telecoms network market was already open for competitors to try and enter, but few had succeeded because it's a tough market. “We have a consolidated market, we have relatively few radio access network vendors … But it’s still an extremely competitive market,” Ekudden said.
Lawmakers in Europe have still sought to diversify telecoms vendors as part of the EU's "5G security toolbox" process that aimed to decrease the dependency on Huawei.
Regulators, lawmakers and industry officials are exploring policy options to soften the blow of phasing out Huawei, in working groups within the EU's digital services department as well as in the NIS Cooperation Group, a roundtable of cybersecurity experts of EU countries and the Commission.
In Berlin, the government also expressed support for Open RAN in recent updates of telecoms security rules, and operators have launched pilot projects with new vendors already.
Technical challenges ahead
Above all, the operators' document Wednesday is a signal to both the industry's supply chain and the regulators overseeing it that they take Open RAN seriously.
In the document, they pledged to work together on Open RAN standards, invest in developing the technology and push governments and regulators to contribute research funding and “policy support.”
The four telcos, together with U.S. and Chinese counterparts like AT&T, Verizon, China Mobile, China Telecom and China Unicom and others, buy the most network equipment. A choice for a certain technology is certain to spur research by suppliers in coming years, and that could speed up the process to get large Open RAN networks up and running.
"Left to its natural course, this would probably take many years to become significant," said GSMA's Sinclair, adding that operators' public support "is all about accelerating this."
But running a network of smaller building blocks also increases technical headaches, he said: "If you're dealing with smaller suppliers, you have quite a lot of procurement problems," adding Open RAN networks would need a "system integrator" company to manage all the different parts — a role that operators in past decades have sourced out to vendors like Huawei, Ericsson and Nokia.
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