Telecom trends for 2022

Feature articles | January 5, 2022

By Nick Flaherty

Strand Consult has followed the mobile telecom industry for more than 25 years. 2021 developed very differently from other years but was not so different from 2020. Many of the changes implemented in 2020 as the result of the Covid-19 pandemic have become the new normal, and without telecommunications, society would have collapsed from COVID-19. The bottom line is that communications networks built and run by operators are more important than ever.

For the last two years, Strand Consult has studied OpenRAN in detail and published extensively on what the technology requires to become a commercial success. OpenRAN is one of the most overhyped technical solutions since the launch of 3G in year 2000. While the OpenRAN promise to cut RAN CAPEX by as much as half does not rise to level of hyperbole that 3G would turn radio spectrum into gold, it comes close.

Open RAN

In December 2020, Strand Consult published a research note on the Chinese influence on the O-RAN Alliance. In August 2021, Nokia paused their work in the group for fear of violating US restrictions on the many Chinese members. Strand Consult has yet to find an OpenRAN proponent who can explain how the prevalence of 44 Chinese companies in the O-RAN Alliance does not compromise OpenRAN.

OpenRAN is being promoted by industry and governments from the US, Japan, Germany, the United Kingdom, and even Russia as trade policy and enterprise enhancements, though the OpenRAN market itself appears to be growing minimally. The US Executive Branch stopped referring to the O-Ran Alliance in its policy communications and now uses the OpenRAN Policy Coalition, as if it’s a technical standards development organization. Yet the OpenRAN website clearly shows that it’s an advocacy organization whose purpose is to influence governments on behalf of its member companies.

It is important to understand that OpenRAN and O-RAN are built on-top of 3GPP 4G/5G technologies. They are not solutions that can replace existing networks on a 1:1 basis. Nor do OpenRAN or O-RAN technologies support 2G and 3G, which most of the world still uses for machine2machine communications and telephony. If a legacy operator wants OpenRAN, it must likely maintain two sets of parallel base stations, one for 2G/3G and the other 4G/5G. Running two parallel networks increases rental and energy costs over one network.

If OpenRAN gets the success its proponents predict, it will account for less than 1 percent of the 5G mobile sites in 2025 and not more than 3 percent in 2030. It looks like OpenRAN is too little, too late to make a difference in a world in which operators are deploying 10,000 classic 5G sites every month.

OpenRAN technologies offer only limited features compared to the 200 3GPP 5G networks launched globally by the end of 2021. The US will evolve further as it upgrades from 3GPP release 15 to release 16 and 17, and the OpenRAN claims are even further distorted when proponents say the OpenRAN is a way for Europe to catch up to the US, China, and Korea in 5G. Note that the US and South Korea achieved 5G leadership without the use of Huawei and ZTE and without the use of OpenRAN.

2022 will see continued OpenRAN advocacy, though it will be more difficult for its proponents to evade the tough questions about the hard reality.

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Next: Cybersecurity, private networks and the cloud

China and Huawei will probably have another difficult year.

When Joe Biden became President in January 2020, many wondered how US policy would change in relation to China and Huawei. Huawei still faces significant financial pressure, and public opinion about Huawei has not changed. Many countries see it as unsafe and unsustainable to use Huawei equipment in telecommunications networks. Many operators have experienced increased reputational and regulatory risk by using Huawei, and corporate customers do not want their sensitive and valuable data to be vulnerable to the Chinese government.

In any event, the good news is that it need not be expensive to rip and replace Chinese equipment. As operators evolve to 5G, they have planned upgrade costs already, and fortunately there are many competitively priced alternatives to Huawei.

Huawei has pivoted to the cloud market and attempts to bill itself as a trustworthy IT supplier for the public and private sectors and as an alternative to the large IT software companies which supply a combination of services and a cloud. Huawei will probably succeed with its strategy in China and in some countries sympathetic to the Chinese regime. Strand Consult believes it will be a hard sell for Huawei to convince public sector buyers in the US and Europe to buy its solution of putting data into Chinese IT systems and the Chinese cloud.

Cybersecurity is getting even bigger.

Secure networks and the practices to defend them will become even more important in 2022. Both the US and EU have rolled out new policy and regulation to improve network security, including 5G. This includes the EU’s Toolbox and the US Secure Equipment Act which empowers the Federal Communications Commission (FCC) to deny equipment authorizations to firms posing unacceptable national security list. These companies include Huawei, ZTE, Hytera, Hangzhou, Hikvision, and Dahua. It is likely that drone maker DJI will be added, and many national security experts say restrictions should be increased for Lenovo, TikTok, and chip maker YMTC.

Strand Consult finds that the push for greater security is incompatible with OpenRAN technologies which are increasingly influenced by Chinese players.

Big Tech mutates faster than the Corona virus.

There is good news and the bad news around Big Tech. Just when health authorities think they have the virus under control, a new variant emerges. Similarly, governments are trying to regulate Big Tech. Yet, just when it seems when Big Tech could be pinned down, Big Tech adapts to the new reality—with a new name, a new practice, or a new public-private partnership.

The conversation about Big Tech and its role in society will continue in 2022. Policymakers must realize that Big Tech is adapting faster than the efforts to regulate it. If anything, the regulations adopted to date like the General Data Protection Regulation (GDPR) have made Big Tech even stronger. Today these companies’ revenue, market share, and earnings have increased compared to the time before regulation. And government has made it harder for small and medium sized companies to compete.

The bottom line is that efforts to regulate big tech have failed. Governments should instead make Big Tech pay for their use of resources. Current policy allows Big Tech a free ride on telecom networks and the public’s airwaves. These giveaways only increase their market share and profitability. These are important lessons as policymakers look at the cloud market.

The Cloud explodes in 2022.

Policymakers will turn attention to public clouds which hold an increasing amount of citizen and enterprise data. Big Tech probably has more knowledge and data about people and firms that the government itself. In 2022, cloud services from Amazon, Microsoft and Google will emerge in public consciousness. It is hard to see how a Chinese “alternative” could gain traction in this market, but it still raises questions about existing cloud practices.

Mobile operators put parts of their networks in Amazon, Microsoft, and Google clouds. As mobile networks are increasingly integrated with clouds, this means that individuals and firms are even more embedded with Big Tech. There is no turning off Big Tech and no choosing not to use it.

This adds to the complexity and difficult of data portability from one cloud to another. In practice, companies may find it impossible to migrate from one cloud to another. While this sets off alarms in the antitrust world, it does not diminish the technical reality that cloud services from Amazon, Microsoft and Google are not comparable 1:1. In practice, Amazon, Microsoft and Google will not achieve the same result if you use the three platforms’ AI solutions to analyze your data. One big question in 2022 is which has the most intelligent AI solution: Amazon, Microsoft or Google.

One thing is for sure: it is far easier to switch the vendor of 5G infrastructure equipment that to switch cloud providers.

The markets for mobile phones and services are boring.

With few technical improvements in each subsequent phone, the main difference for Apple launches is the model number. In 2021, Apple released iPhone 13, and in 2022, there will likely be an iPhone 14, and so on. It is a testament to the company’s marketing that it has been able to navigate inevitable device fatigue.

Mobile apps also lumber on with subsequent versions. The key development in 2021 has been the use of mobile apps to manage Covid-19, and that trend will continue in 2022. Additionally governments have entered the mobile app market in a big way with vaccine passports, which for many countries have become or will be de riguer.

Tower companies spread in the value chain.

Tower companies are an important part of the efforts to find profitability in an increasingly difficult telecom market. Many mobile carriers have discovered that they can sell off their towers and post unrealized assets. In Europe alone, it has contributed some €36 billion to the mobile industry.

Around the world we see these tower companies starting to spread in the value chain. In Brazil, they invest in fiber, while others consider whether to enter the spectrum market. During 2022, we will see much more of this.

A case for study is Denmark’s TDC. Three Danish pension funds PFA, PKA, ATP and Macquarie Infrastructure and Real Assets have chosen to split the telecom operator into an infrastructure company and a service company. The two new entities will be TDC Net for infrastructure and Nuuday for service. Strand Consult has followed the process closely and calls it financial acrobatics. The trend of breakup of telecommunications companies into infrastructure and service entities will be seen increasingly in 2022.

The market for private 5G networks is hot and crowded.

In 2021 much was written about private 5G networks, who will build and who will run them. It’s a market in which many want to enter: everyone from mobile operators to IT companies to system integrators to infrastructure suppliers. OpenRAN players also want to enter, though it remains to be seen if they can deliver the heavy demands of a classic mobile network. Expect fierce competition, very low margins, and an inevitable shakeout.

2022 will show rising prices.

After mobile and broadband prices have either fallen over time, 2022 should be the year when prices rise around the world. Look no further than Denmark which in 2021 found the telecom regulator colluding with energy companies to price-fix the wholesale price of fibre access at level above what the market offers. As such, prices are guaranteed to rise in Denmark because of regulators’ efforts. Given that the regulated price of fibre will increase, broadband prices on private networks will follow.

We also expect that many of the operators that have difficulty creating value for their shareholders through organic growth will raise prices in 2022. It follows that a highly valuable service like broadband telecommunications should increase in price. This is the law of demand, and without price increases, it will be difficult to invest in network upgrades.

www.strandreports.com

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