Are geopolitical splits threatening economies of scale in telecoms?

The polarization of the world along east-west lines, embodied by the growing rivalry between the US and China in geopolitical and technological affairs, risks creating siloed telecom systems and networks, disrupting economies of scale in the industry and harming telcos, providers and consumers alike.

“One thing that concerns us, and we have been public about that, is this kind of geopolitical divide that's happening. If we start breaking the standardizations, then I think we all stand to lose,” Chafic Nassif, Ericsson’s new president for Latin America North and the Caribbean, told BNamericas.

One of the main focuses of concern is the potential split between standards backed by US and European companies, on the one hand, and Asian companies, and particularly the Chinese, on the other.

This would result in potentially higher costs if companies have to come up with different products to serve different markets and devices are not really talking to each other.

Operators and companies in Latin America would be caught in the crossfire between the standards and have difficulty reconciling systems, harmonizing standards (such as in spectrum and devices) and creating economies of scale – in short, the entire set of elements necessary for rapid and adequate deployment of networks to connect people and bridge the critical digital divide in the region.

“Part of the reason why we've been able to reach billions of people with connectivity is because we’ve been able to standardize things, benefit from economies of scale and have a healthy competitive environment,” said Nassif.

BEYOND 5G

Because 5G rollouts are already underway, the problem could affect later advances in 5G systems and the next generation of mobile technology, 6G, the specifications and standards for which are yet to be defined. 

And despite public calls for global cooperation, Ericsson itself is partaking in technical discussion groups that exclude Chinese and other Asian vendors.

AT&T, Ericsson, Nokia and Qualcomm, among others, formed the Next G Alliance in October 2020 through a US-based standards group dubbed the Alliance for Telecommunications Industry Solutions (ATIS), whose motto is “Building the Foundation for North American Leadership in 6G and Beyond”.

In Europe, the Hexa-X project is led by Nokia and supported by Ericsson, with dozens of entities, researchers and telecom experts from different EU countries taking part.

In China, officials have made 6G a top priority under a multi-year plan, and local providers and telecom operators are working on their own technical and research projects as well.

SECURITY, POWER AND BOYCOTTS

The underlying factor in this concern about standards is related to the recent boycotts of Chinese firms by European and US ones and vice versa.

A US-led boycott campaign against Huawei and ZTE equipment on the grounds of alleged security risks led some allied governments – though not as many as the US hoped – to veto Chinese equipment gear in their 5G networks. Although the boycott was not that widespread, it has still hurt Huawei's revenues.

Sweden, home to Ericsson, is an example of this. There, authorities banned telcos from using China’s Huawei for their 5G rollouts. In what many see as Chinese retaliation, state-owned China Mobile banned equipment from Ericsson and Nokia in its 5G contracts.

Ericsson CEO Borje Ekholm went public on the geopolitics and standardization topic last September. In an interview with Light Reading, Ekholm said:

"If the tech world is fragmented east and west then it is going to mean competition between two ecosystems."

Furthermore, in the view of western firms like Ericsson, pushing the Chinese out of defining standards rather than bringing them to the table could actually favor them.

"Despite strong 5G investment in the US, it's less clear whether a western ecosystem will be able to keep up with the vast R&D spend in Asia – particularly China – that's already happening," Ekholm told Light Reading.

The issue of standards and economies of scale in telecoms is also a source of concern for US telecoms solutions companies.

“We see the geopolitical driver weighing on industry discussions, but we prefer to stick to the technical side,” Antonio Carlos Tostes head of pre-sales for Latin America and Southern Europe at US telecoms software firm Mavenir, told BNamericas.

“But I’d say it's critical to maintain the balance and economies of scale, as these dilute operating costs for the entire chain,” Tostes said.

OPEN RAN

Both Ericsson and Mavenir are also betting, albeit with significantly different emphases, on opening up networks to different hardware and software providers, or the so-called open RAN system, which has various different groups working on its standardization.

Ericsson, which, like incumbent vendors Nokia and Huawei, tends to be more affected by the diversification of suppliers, is somewhat more skeptical of the model, although it publicly backs it and participates in discussion and standardization groups, as well as in the development of open RAN cloud models.

“When it comes to open RAN, I think that’s more an architectural debate. We're investing, experimenting. We actually think it has some use cases in certain areas, but there has been very strong hype around it,” Nassif said.

In short, in Ericsson’s view, open RAN is a process, but no silver bullet. 

“[Some say] ‘Oh, it’s going to change the industry’, but when you start looking deeper, there’s a lot of costs associated with it, there’s a multi-vendor situation when you need to know who takes ownership of the integration of everything," Nassif said.

Huawei has a similar view.

A recent report called “open RAN is a marathon, not a sprint”, authored by Gareth Owen, associate director of Counterpoint Research, and shared by Huawei on its website, says:

“Open RAN proved to be much more difficult to implement than initially envisaged, and several planned deployments were postponed.”

“At present, however, open RAN deployments consist of a handful of mostly greenfield commercial deployments and numerous legacy network trial deployments,” he added.

According to this report, the most likely opportunities for open RAN are in new network builds or in emerging markets where 4G and 5G is still in the planning stages. Several MNOs are also looking to deploy open RAN in rural markets, the report says. 

Other opportunities include small cell deployments, particularly in-building deployments and 4G/5G private networks. 

US firm Mavenir is likely to be one of the main beneficiaries of this diversification of providers, betting on web-scale cloud, private networks and other applications. 

The company claims that its core virtualized RAN (vRAN) product leverages interfaces, virtualization and web-scale containerization to support various deployment scenarios – including private, hybrid cloud, and public cloud – resulting in nearly 40% savings in total cost of ownership (TCO) over five years 

The company is somewhat suspicious about the proclaimed defensiveness of Ericsson and Nokia, and even Huawei, regarding open RAN. 

"There is a lot of confusion in the market because the vendors, especially the competition, try to undermine the definition of open RAN in different ways. We don't see Ericsson and Nokia doing real open RAN, it's mostly lip service on their part,” Bejoy Pankajakshan, EVP, chief technology and strategy officer at Mavenir, was quoted as saying by the Economic Times.

The fact is that, as with the standards and technical specifications on 5G and 6G, open RAN has also become politicized, being brought into the geopolitical cauldron.

In the US, the view of Congress and the government is that pushing open architecture is a way to undermine China’s stronghold in the RAN market, replacing their equipment and enabling the entrance of new providers – potentially US companies that have not yet made it into the upper ranks of the telecoms solutions industry, such as Mavenir, Altiostar and Parallel Wireless, among others.

Whatever happens, the debate is far from over for now. In fact, the geopolitics of standardization may be only just beginning.