The news that AT&T was dropping Nokia in favor of Ericsson was enough to move both companies’ stocks in opposite but predictable directions. The news that the decision was based on AT&T’s goal of Open RAN, given Nokia’s initial leadership in that space, was perhaps the major surprise. The question now is just what this really means, and I think that finding the answer requires we look beyond both AT&T as an operator and the two vendors as 5G providers. To do that, we need to start with some basic truths to create the lens through which we can view this news.
Truth Number One. Talk to operators as I have, and you find that every single major operator worldwide will say that they have profit challenges. Almost every one will tell you that new revenues alone cannot resolve those challenges, and a significant majority will say that new revenues can’t even hope to hold the line. If not revenue, then what? Cost management. Operators are actively, even frantically, seeking ways to significantly reduce their costs. That goal is the only real driver for the “open network” initiatives; they want to be able to pick network elements from a pool of competing but compatible vendors.
Truth Number Two. 5G was the operators’ massive collective delusion. Mobile standards need to evolve at regular intervals to accommodate growth in both the number of subscribers and the amount of traffic per subscriber. That evolution is going to mean a significant capital commitment, and any time an industry faces major capital spending bumps, Wall Street starts looking at the members of the group as the walking dead by default. How will that investment pay off? Answer, the only acceptable-to-the-Street answer: New revenues. But of course, 5G never really had much of a shot at creating new revenues.
Truth Number Three. The tech media, always hungry for stories that could generate ad revenues when people clicked on them, found the operators’ collective delusion of new revenues from new 5G applications to have more mass appeal than boring evolution-of-wireless stories. That converted what was essentially a defensive delusion aimed at covering the Street’s ROI questions, into a positioning battle. First to the illusory goal wins, meaning that 5G became a way to attract customers. Thus, operators had to accelerate into a path that didn’t lead to any improvement in profits, and for many could be expected to reduce them further.
OK now let’s look at the AT&T situation. They will never earn a respectable return on 5G, it won’t provide them a revenue boost. It is therefore critical to get some serious cost management steps in play. I’ve had 27 operators comment on AT&T’s move in some way, and 25 say that they believe the real driver was to drive down costs immediately. Just betting on Open RAN doesn’t do that, as rival Verizon found out. An operator could well use Open RAN to bludgeon vendors into lowering their prices, but it’s the lower prices that are the goal and not Open RAN. A strategist at one big competitor to AT&T said “AT&T has been pushing open-model networks for years. This wasn’t about that, it was about hammering vendors for the lowest price.”
This isn’t to say that AT&T isn’t committed to Open RAN. As I’ve noted, and as this AT&T rival noted, AT&T has been one of the world’s champions of open-model network technology, and they’ve saved a bundle with it. So the problem isn’t that Open RAN couldn’t save money, but that it couldn’t save it fast enough, particularly given that the technology has yet to match, as a true open ecosystem, what the major vendors like Ericsson, Nokia, and Samsung could offer. Those vendors put the stamp of Open RAN on their stuff to preserve the future, but to deliver in the present it was time for some solid, traditional, feet-to-the-fire vendor negotiations. Lowest price wins, gang.
Ericsson offered the lowest price. Nokia has been on a roll in the operator sector of the equipment market, the top of the list in openness according to 49 of 74 operators who commented on open-model 5G technology, a list that Ericsson topped for only 13 operators. Operators think Nokia was reluctant to get into a price war when they were winning the overall 5G feature and open-model network war. A network vendor told me that “you’re not winning a deal when you sign it at a loss” and I think that’s how Nokia feels.
How do the open-model people feel? Five Tier One operators’ planners offered me an interesting perspective, which was that this Ericsson/Nokia thing actually demonstrates that Open RAN is in trouble. Why? In an ecosystem where only cost really matters, openness is important only insofar as it leads to commoditization. Open RAN was really justified based on the presumption that the open model would encourage feature-building on top, creating new services and revenues. But if the market doesn’t really value features because nobody will spend more for anything, then this justification is vacuous. “Open RAN needed to deliver on new features, new service models,” one operator told me. The focus on creating an interoperable community delivers on potential commoditization, not on building new service visions.
Then there’s this point. I’ve had 32 people who are directly involved in Open RAN in some way offer comments on the technology’s ability to create useful new service features. Of that group, 27 admitted that they did not see any “current momentum” for such a thing, and 16 said that they didn’t believe that there were any new service features with revenue potential that would optimally be hosted in the RAN. If you analyze the views of the 27, they’d say that what service users want is either new experiences as consumers, or lower cost as business service buyers. The first of the two things is clearly more a cloud/metro story, and the second is commoditization.
Which is the problem in the end. A standard framework like Open RAN, with specified interfaces linking every piece tightly into place, makes it very difficult for a vendor who wants to build and defend feature value. Promote a new service feature to attract operators, and you tell every competitor what to try to build and offer at a lower price. Standard environments naturally commoditize, and nobody wants to enter a commodity market, particularly if they have to spend money to develop it. The only alternative a platform could promise to price-based differentiation and commoditization is feature differentiation and the facilitation of new business cases for services. But promising valuable new services isn’t enough, and operators aren’t convinced that Open RAN has demonstrated it can deliver.
