The one known about 5G Telecommunications is that the economic viability of its promising architecture is contingent on evolving factors. Among the many unknowns is how the economy is affected by the maturity of a new generation of applications and their impact on revenue realized from each user. The evidence at this stage is mixed, varying from modest increases in ARPU and, at worst, declines according to a 2022 survey across eight Asian countries.
Customers unwilling to pay for new services
Customers have been unwilling to pay premiums for 5G services. In China, for example, ARPUs were flat in the first half of 2022, even as the adoption of 5G plans climbed to 50 percent of the subscribers. According to the latest numbers from South Korea, the bellwether of 5G networks which account for about 70% of all mobile data traffic in the country, the ARPU in 2022 is flat after a brief recovery in 2020. Meanwhile, the costs have increased as the average 5G user consumes around 27 GB per month, or nearly 3.1x the average 4G user.
In response to margin pressures, Korean operators have launched advanced data services. To be sure, the applications will also make greater demands on networks. SK Telecom, for example, grew T Universe, a subscription-based service that bundles third-party services leveraging AI claims revenue of KRW of 350 billion in 2021. Additionally, its customers for Metaverse grew to 1.35 million compared to 280,000 a year earlier.
Which architecture?
CSPs are likely to remain wary of charging premiums on their services and prioritize cost reduction. An overriding determinant of cost is the choice of the network architecture underpinning 5G. Legacy propriety networks don’t scale well, and their costs increase with volumes. Carriers have been shifting towards virtualized and container-based software-defined networks that can be shared for multiple applications and reprogrammed for changing requirements. As 5G Standalone networks gain consideration for the future, carriers are inclined to open their doors to Open RAN and programmable networks.
The consequent separation of the hardware and software lends flexibility for cloud-native applications and increases competition with the rising use of lower-cost white boxes as hardware. Containerized architectures sub-divide monolithic software architectures and create room for optimization. Programmability helps to combine network components in creative ways to raise the efficiency of network operations. However, the complexity of network design and operations rises by an order of magnitude with open and programmable networks.
The jury is out on Open RAN
Carriers weighing Open RAN are considering the trade-offs of cost and flexibility afforded by Open RAN with the costs of complexity with mixed judgments. According to the 2021 Annual Industry Survey of Telecom’s Intelligence, 28% of the respondents believe Open RAN will reduce operators’ TCO, while nearly 38% believe the opposite.
Besides TCO, Open RAN will strengthen operating 5G attributes required for business-critical applications. According to Analysys Mason, reduced time to deploy new services, scaling and elasticity, and support for new enterprise services are attractive for 33%-37% of the respondents.
The divided perception of Open RAN is reflected in the tentative decisions service providers make on their deployments. Most have limited their investments in Open RAN to their own hosted data centers with their existing Open RAN vendors (16%) or with a mix of existing and new RAN vendors (41%). There are also those who have a hybrid model of on-premises and one single partner (27%).
In the absence of firm data on the economic outcomes, prospective carriers of private and public networks are investing greenfield smaller networks in rural areas as they test the waters for Open RAN. According to Deloitte’s estimates, 20% of Open RAN networks are in rural areas in developed markets compared to 5% in urban areas and 60% in rural areas of developing economies compared to 15% in urban areas.
Similarly, Open RAN is growing faster in greenfield private networks in enterprise networks where integration with legacy networks is less binding. According to a survey by Analysys Mason, alternative networks are growing faster and will account for 35% of the CAPEX on Open RAN by 2030.
What are the pioneers attempting and learning
Vodafone has led Open RAN deployments in rural Ireland and South-Western UK as part of a government-sponsored effort to replace Huawei. Vodafone Ireland (VfIr) has 30 4G Open RAN sites in northwest Ireland in collaboration with Parallel Wireless, who will contribute the RAN Intelligent Controller. Additionally, it will have 2,600 Open RAN mobile sites across Wales and the southwest of England. Vodafone alone, among others replacing Huawei, decided not to opt for turnkey equipment providers–Ericsson and Nokia.
In remote rural areas, where data traffic across locations varies greatly, the disaggregated RAN architecture allows the operators to distribute their traffic across multiple sites where CUs, DUs, and RUs are spread without using an expensive central packet core. Instead, traffic distribution is mediated by the RAN Intelligent Controller. The coverage is expanded with small cells in the vicinity of virtualized base stations and disaggregated. High-traffic functions such as dynamic spectrum sharing are located in one site and low-traffic processes in others.
Conclusion
The lure of Open RAN is the flexibility its disaggregated architecture provides to break out of the stranglehold of monolithic software and fixed hardware that made it very expensive to make changes needed to find solutions. Problems such as coverage for underserved areas urgently need solutions that open new markets for especially emerging players. The complexity notwithstanding, creative carriers won’t be able to resist that Open RAN lowers the cost of innovation to find solutions that have long eluded them. They will likely keep coming back to try again despite the many failures with previous attempts to assemble disaggregated components to find solutions.
