How do you define diversification?
Diversification, in the context of the UK’s telecoms industry, is the desire to broaden the choice of equipment and solution providers in this sector. The UK government’s current telecoms diversification initiatives focus very much on wide-area public networks forming part of our country’s critical national infrastructure.
Diversification is a goal for the complete telecoms value chain; it goes well beyond the more visible areas of virtualised core and Open RAN CU/DU stacks. The market understands the primary drive for diversification to have largely emerged from the desire to address the emergence of an essential duopoly of mobile vendors a few years ago, in the UK and Europe, by the de-facto (and now de jure) exclusion of Huawei from the supply side in the UK and beyond. This has also exposed several other structural market weaknesses that have gradually emerged as a result of ever-increasing consolidation over the last 15 years. Signs of this include the market power swayed by the large vendors, the dominance of closed single-vendor ecosystems, prohibitive entry barriers to new players, the slow progress in service innovation, the slow adoption of open network architecture and COTS platforms and the increasing concentration of technical know-how to a handful of dominant players. In recent years, we have seen the re-emergence of a diverse ecosystem of open network software and hardware.
The drive for diversification also extends beyond Core and RAN stacks and encompasses COTS architectures, virtualisation and cloud platforms – all the way down to the increasingly critical silicon chipset components for both networks and devices alike – as the market should not accept oligopolies dominating any part of the supply chain.
It is also interesting to see that while there is increasing diversification momentum on the supply side, there is an increasing drive for consolidation on the demand side, with mergers across the mobile operators and service provider community and the dominance of many 5G spectrum auctions by incumbents – with notable exceptions. Demand-side diversification is largely overlooked, but it could play a big role in pushing diversification and innovation downstream.
How significant do you think supply chain diversification is and why?
For a market to function well, it needs a healthy amount of competition. So, it is very important to avoid duopolies or oligopolies in any part of the value chain. Diversification increases innovation and competition, helping drive down costs and accelerate digital inclusion and digital transformation. It potentially makes new deployment models feasible too and hence opens up the ecosystem for the delivery of connectivity services as well as the individual equipment components within network solutions. For example, we have seen the UK ecosystem successfully pioneer and commercialise new enterprise and neutral host business models for connectivity deployment.
In addition, we see that much of the R&D and business model innovation takes place in the UK – by UK SMEs and Universities and by substantial secondary R&D and BD centres established in the UK by international organisations. This is very significant for the UK’s vision as a high-skill, high-productivity economy.
Real Wireless is looking at the benefits of a broader platform ecosystem in the RAN through the DCMS FRANC Proteus project. Under this project Parallel Wireless is developing a platform agnostic L1 for the 5G Distributed Unit (DU), to demonstrate single software development that can be agile and deployed on a wide range of platforms whether x86, ARM, or any of other diverse innovative silicon platforms emerging for 5G.
What implications will it have for your organisation?
Real Wireless advises several organisations across the complete value chain on the strategic opportunities for innovation and market disruption presented by this change. We also advise government agencies on strategies to foster and nurture diversification. Our experts are immersed in the ecosystem, working collaboratively with many of the main actors across the supply- and demand sides and in government; this has given us a rich and nuanced understanding of the market’s driving forces, key technologies, opportunities and dependencies, across the full value chain.
Beyond the UK, we have already advised tier 2 mobile service providers requiring support on their diversification strategies and we anticipate this strand of work growing as the UK develops leadership in this area. Our involvement in three consecutive EC Horizon 2020 projects (5G-NORMA, 5G-MoNArch and 5G-TOURS) over the past 7 years, has also given us the opportunity to develop an understanding of dimensioning and costing of virtualised network architectures supporting network slicing.
Beyond our clients in the mainstream telecoms industry, we also expect diversification and related changes to the ecosystem to impact the range of options available to our clients who are users of wireless technology. We also see emerging synergies between the transition of outdoor, wide area wireless networks to virtualised, centralised, shared deployment models and the neutral host style shared architectures that we already have a long history of advising venue owners such as airports and stadiums on.
What are the key challenges in diversification?
Challenges are many; established practices, resistance to change, the market dominance of well-established oligopolies, narrow profit margins, tight R&D budgets, risk aversion and unrealistic expectations all present formidable barriers to any player seeking to break through to commercial adoption and scale.
In addition, the public network industry (both vendors and service providers) has fallen out of favour with the investor community, especially when compared to the more fashionable big-tech sector, notwithstanding the very recent tech slowdown. Uncertainty about the market adoption of open networks is also impacting investor sentiment.
In addition, there is a view that the now long-established commercial model of full turnkey network rollout and outsourced operation to a single major vendor does not fit well with the new diversified value chain. Moving away from such models introduces challenges in integrating solutions from various vendors and understanding where responsibility for resolving faults lies. Additionally, the pricing structure for virtualised multi-vendor network solutions is far from clear and whether similar performance to single vendor solutions can be obtained at a similar or improved cost.
How do we overcome these challenges?
Government intervention in the UK and beyond is helping to nudge, convene, promote, and support an increasingly thriving ecosystem of diversification innovators; practical initiatives such as strategy papers, and the £billion+ investment in government-funded programmes and several rounds of grant competitions have been very well received and are starting to make an impact. There is also increasing government consideration around spectrum licencing and market regulation initiatives in more detail, as well as the use of public sector procurement using its consolidated buying power to generate clear demand for open networks and diverse suppliers.
The increasing involvement of the cloud hyperscaler ecosystem is also helping to inject some much-needed energy, cloud innovation, cash, and external investor attention.
To address the commercial model challenges mentioned in the last question, the telco industry is starting to consider how to disentangle itself from legacy single-vendor approaches and to either take on more responsibility for network design, integration, rollout, and management once again – or to find willing new partners that can emulate the role of the single-vendor partner – such as system integrators or Towercos. Public and private investment in interoperability labs is also giving vendors the opportunity to integrate products and prove end-to-end performance across multi-vendor chains of equipment. Standards for open networks are also a crucial element in giving vendors open interfaces to work towards.
In terms of improving confidence amongst investors in open networks, commitment amongst mobile service providers to open network rollouts can have a huge impact. For example, in India, the declaration by Reliance and the Indian government to rollout out a nationwide 5G open RAN has stimulated the vendor ecosystem in India.
What do you think the next 3-5 years look like for the telecoms sector?
Increasing portions of networks are being deployed using open and diversified supply chains; this is already taking place in the core networks and in rural and low-density radio networks and inside buildings and venues with increasingly diverse private and neutral-host network value chains. This, in turn, is creating the confidence to expand to high-density urban environments. The transition to 5G SA, truly service-based architectures and orchestration of network functions are all trends that should support more diverse supply chains too.
In addition to this, increasing market consolidation on the supply side, with several mergers or acquisitions between open network players, gives rise to a clearer landscape of a handful of strong contenders; accelerating replacement of high-risk vendor systems with open networks, each specialising in part of the network architecture; service providers upskill and increase their scope, breadth and depth, to allow them to manage the increasingly diverse and complex supply chain and to transition away from the single-vendor outsourcing operating model; and increased value chain disruption by big-tech hyperscalers and tower companies.
What is the one thing people should know about diversification?
How to engage their telecoms service providers with demands for impactful product and service innovation, which will be enabled by private networks, network slicing and RIC xApps and rApps, in a more open and diverse network telecom ecosystem.
As for investors, they should know that this is a key moment of market disruption, where fortunes can be made and lost – and therefore an opportunity to invest in a resurgent telco industry.