Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

Profiting from vRAN: vendor

strategies for adapting to

new MNO buying patterns

Caroline Gabriel

Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

WHO SHOULD READ THIS REPORT

KEY QUESTIONS ANSWERED IN THIS REPORT

About this report

2

This report assesses the impact of the adoption of the virtualised

radio access network (vRAN) on the network taxonomy, the supply

chain and operators’ procurement and deployment processes. All

these are set to diversify significantly between the first full-scale

vRAN roll-outs in 2020 and the start of a large-scale market in

mid-decade.

These trends will create both challenges and opportunities for

vendors against a background of falling unit prices and increasing

competition. Although overall RAN capex spending will be in decline

by 2025, this report identifies areas of continuing growth in revenue

within the RAN market, driven by virtualisation, densification and

the increasing reliance of many MNOs on integration services.

To support vendors in identifying the best strategies, the report

defines four main vRAN operator procurement profiles, and

analyses the best ways for vendors to target each profile. The

profiles are based on a unique and in-depth survey of 82

established and new mobile network operators (MNOs) conducted

by Analysys Mason in 4Q 2019, which investigated budget, timing

and deployment strategies for vRAN.

In addition, the report makes use of:

▪ Analysys Mason’s internal research, including revenue

forecasts for RAN and digital infrastructure

▪ interviews with 12 RAN vendors, old and new; systems

integrators (SIs); and open industry alliances focused on RAN.

▪ Senior decision makers and business strategists responsible for RAN

within established mobile network vendors.

▪ Senior decision makers and business strategists within virtualisation,

digital and IT businesses who are interested in the size of the revenue

opportunity in the vRAN market.

▪ Senior executives within start-ups – or small and medium-sized businesses

(SMBs) focused on mobile networks – that need to understand the best

components to target to gain market share from incumbents.

▪ Senior network executives or CTOs within operators considering a

migration to vRAN within 5 years.

▪ What will the rate of migration be from physical to virtualised RAN?

▪ How much existing RAN revenue will be transferred to the vRAN market,

and will it be captured by the same, or new, vendors?

▪ What are the elements within the vRAN that will provide growth

opportunities for vendors, and how much will these be worth by 2025?

▪ What short-term and longer-term tactics can vendors adopt to mitigate

the pressure on RAN unit prices and to respond to rising competition?

▪ Which elements of the vRAN will be most available to vendors, and

which will be designed and deployed by operators or open groups?

Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

Virtualisation and disaggregation of the RAN will allow operators

to reduce their costs per site significantly while also opening up

the supply chain, which presents a threat to established RAN

vendors. The increasing use of services (often triggered by 5G

vRAN migration)¹ will provide vendors with opportunities for

revenue growth, but they must adapt to a market that is

fragmented in terms of products and operator buying patterns.

Services and densification could increase the amount of RAN capex

that is addressable by vendors by more than 10% (or USD69 billion

in revenue between 2018 and 2026). To benefit, vendors must

reassess their product and sales strategies. MNOs will buy and deploy

RANs for 5G in more-diverse ways than for 4G. We have identified

four operator procurement profiles, distinguished by the degree of

multi-vendor disaggregation and the level of vendor services required,

which vendors should use to identify key areas of revenue growth.

Figure 1: vRAN can increase vendor revenue, but the market

will be highly fragmented in product and procurement terms

4

Executive summary

KEY RECOMMENDATIONS

1. Suppliers should identify specific revenue opportunities

within different operator profiles and disaggregated RAN

elements and prioritise resources accordingly.

2. Vendors should develop new services to take advantage of

operators’ trend to outsource vRAN deployment and

integration and so increase vendor share of capex.

3. To offset lower revenue per site resulting from vRAN, RAN

vendors should develop solutions that ease deployment of

new architectures to accelerate take-up and densification.

¹ See Appendix for definitions of the architectural evolution towards full 5G vRAN.

Source: Analysys Mason

Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

Challenge: virtualisation of the RAN presents a double challenge for incumbent

vendors: it will reduce unit prices and open the door to new suppliers

By 2025, vRAN will enable operators to spend up to 65% less

per site and to buy individual elements from multiple vendors.

The virtualised RAN is challenging in terms of architecture, skills

and management and so adoption has been slow, but migration

to ‘true 5G’ networks – at scale, and with a 5G core – will be a

significant driver. Analysys Mason’s recent survey of 82 operators

revealed that, of those planning to deploy 5G core between 2022

and 2025, 72% also expect to deploy some vRAN (weighted to

2024–2025).¹ By 2025, two-thirds of RAN capex will be spent on

vRAN (including physical elements such as antennas).²

For established RAN suppliers, this presents a two-sided challenge.

vRANs will cost about 60% less to purchase, deploy and run, on a

per-site basis, than conventional RANs, once the technology stabilises

from 2023. This is achieved in several ways, including the use of

software-based architecture that runs on open-cloud infrastructure,

a shift to merchant processors and open interfaces, as well as

increased flexibility in resource usage. Our survey shows that the two

main drivers of vRAN adoption are reduced per-site opex and capex.

The available revenue per site will decline, and open architectures

will enable new competitors to enter the market. Each element of

the disaggregated vRAN can potentially be supplied by a different

vendor. Major RAN vendors’ business models have centred on

supplying top-to-bottom integrated solutions for a relatively small

number of big-ticket cell sites, but these will have to change

dramatically if established suppliers are to defend their revenue.

Figure 2: RAN/vRAN capex by equipment/services, 2018–2026²

Figure 3: Key commercial changes in the RAN expected by 2026

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¹ Analysys Mason’s survey of 82 Tier-1 and Tier-2 operators and other wireless deployers, 4Q 2019.

² For more details, see Analysys Mason’s Telecoms capex: worldwide trends and forecast 2017–2026.

Virtualised RAN

By 2026,

revenue will be

shared between

multiple vendors

Per-site revenue will

fall to USD75 000

Conventional RAN

Single vendor provides

everything, from chips

to software

Revenue per site

USD200 000

(excluding services)

Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

Vendors can leverage trends such as outsourced RAN and

densification to mitigate the impact of vRAN on their revenue.

The scale of adoption of these trends will depend on operators’

procurement profiles, which will be more diverse for 5G than 4G.

Network equipment vendors currently only access about 62% of

global operators’ RAN capex budget because the rest is spent in-

house – largely on design, network roll-out (NRO) and

optimisation. However, many operators plan to outsource these

activities to reduce costs, and this process will often be

accelerated by densification, the economics of which will rely on

vendors providing automated and as-a-service solutions.

The degree to which operators will need to rely on these external

services, as well as the pace of their migration to open, dense

architectures, will together form the basis of four distinct RAN

procurement profiles (see Figure 4),1 which we have identified

though extensive surveys and interviews with operators.

Vendors should familiarise themselves with the key requirements

of each profile to increase service and product revenue and to

unlock additional RAN capex. Although overall RAN capex will

decline, the amount that is addressable by vendors will increase

by a cumulative USD69 billion between 2018 and 2026, largely

because of services and outsourcing. Over half of that new money

(USD39 billion) will come from the migration to vRAN. Vendors

and professional services providers will need to repurpose their

network roll-out offerings to support vRAN integration.

Figure 4: Operator vRAN procurement profiles and the key ways

that established RAN vendors can address operator requirements

7

Solution: vendors can capture a higher percentage of RAN capex by understanding

and targeting the diverse deployment strategies of different operator groups

PROFILE 1: LEADER

▪ In the vanguard of open

vRAN

▪ Established in-house

resources

▪ Vendor strategy: develop

specific cutting-edge

technologies.

PROFILE 2: LEAN MNO

▪ Moving quickly to open

vRAN, but capex-light,

limited inhouse

resources

▪ Vendor strategy: develop

advanced vRAN

deployment services

PROFILE 3:

CONSERVATIVE

▪ Sticks with a single-

vendor approach for

vRAN

▪ Cost-sensitive

▪ Vendor strategy:

facilitate densification to

mitigate price pressures

PROFILE 4:

AGILE CHALLENGER

▪ New entrants,

sometimes enterprise-

focused. Very capex-

light, high level of asset

sharing and -aaS

▪ Vendor strategy: forge

strategic relationships

with –aaS.

¹ For further detail, see slide 17 in this report.

USD69

billion

new RAN

capex

Source: Analysys Mason

Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

Recommendations

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1Suppliers should identify specific revenue opportunities within different operator profiles and decide which

disaggregated RAN elements they can best support, and then prioritise resources accordingly.

The move away from vertically integrated RAN will lead to more choice within the supply chain and diverse deployment

strategies. The vRAN will be made up of independent elements, each of which can be targeted by different suppliers,

so all vendors must identify the ones that they can support best in order to prioritise go-to-market activities. They must

also adapt their customer engagement to prioritise operators whose buying patterns match their own strengths.

2Vendors should develop new service offerings in order to take advantage of the pattern being followed by some

operators to outsource vRAN deployment and integration.

Our survey indicates that 47% of operators aim to reduce in-house RAN deployment as part of the transition to

vRAN. This will create an expanded market for network services, which can be addressed by established or new

suppliers and will increase the percentage of RAN capex available to vendors by more than 10% in the mid-2020s.

Vendors need to invest in software skills to convert conventional NRO revenue into higher-margin vRAN services.

3To offset reduced revenue per site resulting from vRAN, RAN vendors should develop solutions that facilitate

densification, which will boost unit numbers and overall revenue, as well as profitability.

To address the increasing need for network capacity, operators anticipate that they will need up to 10 times more

sites and antennas by 2026 than in 2020. However, current architectures make this level of densification

uneconomical. Vendors that develop dense vRAN solutions that offer significantly lower cost per site than current

systems – and that are simple to deploy – can increase their market share and defend revenue levels.

Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

ContentsExecutive summary

Research overview

Vendors must identify key elements to pursue a product strategy

The outsourcing trend can increase addressable RAN market

Densification may offset a decline in per-site revenue and profit

Appendix

About the authors and Analysys Mason

Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

About the author

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Caroline Gabriel (Principal Analyst) leads Analysys Mason’s wireless research. She contributes to our Next-Generation Wireless Networks,

Operator Investment Strategies and Spectrum research programmes and works directly with our research clients to advise them on wireless

network trends and market developments. She has been engaged in technology analysis, research and consulting for 30 years, and has

focused entirely on mobile and wireless since 2002. As co-founder and research director of Rethink Technology Research, Caroline developed a

research base and forecast methodology based around deep contacts with mobile and converged operators worldwide. Her focus is on critical

issues and trends related to mobile and wireless infrastructure, particularly operator deployment intentions for 4G, 5G, cloud-RAN and other

technologies.

Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

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facing clients, in addition to the wider effects of global forces.

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Analysys Mason’s consulting services and research portfolio

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Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

Research from Analysys Mason

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Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

Consulting from Analysys Mason

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Profiting from vRAN: vendor strategies for adapting to new MNO buying patterns

PUBLISHED BY ANALYSYS MASON LIMITED IN APRIL 2020

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