With commercial 5G radios targeting mobile applications being a probable reality by 4Q18, both new entrants and existing vendors are ramping up their R&D efforts in the hope of capitalizing on the impending shift from 4G to 5G. Ambitions are high not only because market conditions are challenging and 5G is expected to provide a much-needed boost, but also because there are some expectations that 5G provides an opportunity to disrupt the $30 B + mobile infrastructure market.
The question we are asking today is simple — will there be more or fewer mobile infrastructure radio vendors ten years from now? While we will refrain from making any 2025 vendor share predictions, we will review share movements and vendor positioning in three markets including: 1) Total Macro+Small Cell RAN 2) Small Cell RAN 3) CBRS RAN
Vendor share positions in the overall mobile infrastructure market have changed substantially over the past fifteen years, reflecting both the successful entry by new players and the high level of consolidation that has characterized the industry. According to Dell’Oro Groups Mobile Radio Access Network Reports, the number of mobile infrastructure radio vendors with a revenue share position of at least five percent has declined from seven in the year 2000 to four in the year 2015. At the same time, new vendors with no radio share in the year 2000 accounted for 40% to 45% of the mobile infrastructure radio market in the year 2015 (Figure 1). This partly explains the motivation behind the high level of innovation that has been driving the industry over the past couple of years as new entrants and vendors with weaker share positions are improving their portfolios to capitalize on the shift towards small cells, Cloud-RAN, CBRS, IoT, and 5G.
Share shifts over the past fifteen years in the overall macro radio market are encouraging for new entrants that remain optimistic that 5G could perhaps disrupt 40% to 45% of the market again over the next ten years. However, the shift towards small cells has until this point not produced the same type of share shifts. Per Dell’Oro Group’s small cell reports, new entrants have had some but still extremely limited success indoors — far from the share shift in the 2G to 4G macro transition. At the same time, vendors with macro solutions continue to dominate the outdoor market leaving little room for non-macro vendors (Figure 2).
Small cell volumes are ramping up and are, for the most part, living up to the expectations we and others in the industry outlined five years ago. The Dell’Oro Group estimates the installed base surpassed 1M in 2016 and non-residential small cell shipments topped macro BTS shipments for the first time in 3Q17. However, the share shifts that transpired disappointed many, particularly semiconductor and small cell OEMs with no macro solution to float the cash flow until small cell volumes started accelerating more meaningfully in 2015. As radio vendors are gearing up for the next wave of opportunities with 5G and the CBRS band, there are signs that vendors are taking note of the muted small cell share shift.
At first glance, the CBRS vendor landscape might appear overly crowded. However, a closer study reveals that non-macro vendors understand it is not only about the potential market opportunity and the product, but also the likelihood of winning (Figure 3). We have spoken with multiple CBRS solution providers that have the right product to address multiple markets. At the same time, they recognize that going head-to-head with the established macro and small cell vendors for traditional mobile operator capacity driven applications might not yield the greatest likelihood of success.
Instead of spreading their resources and betting to capture a small share of a large pie, some CBRS vendors are honing in on a more focused strategy addressing a smaller part of the market where they have the greatest likelihood of succeeding. For example, in mid-sized enterprise settings, vendors with strong WiFi footprints are well-positioned to succeed. Fixed wireless in rural areas is perhaps not the most commonly used phrase in an Ericsson or Nokia strategy presentation, but it is an important market that could be served by a vendor that is willing to tailor the product, R&D, sales, and support teams for fixed rural applications.
As we look towards 5G, clearly the stakes are high. The incumbent RAN vendors such as Huawei, Ericsson, and Nokia need to have the most innovative, comprehensive, flexible, and investment proof 5G portfolio to ensure they remain one step ahead of new competitors that seek to capitalize on the 5G opportunity. Also, vendors with weaker global share positions such as ZTE and Samsung have also been much more aggressive with 5G than they were with 4G from an R&D perspective. And with China expected to play a leading role from the start with 5G, ZTE is expected to capitalize on this opportunity to play a greater role from the start.
An addition challenge remains for all the vendors including the leaders, laggards, and new entrants. In contrast to the shift from 3G to LTE, which for the most part was driven by 10 MHz 2×2 MIMO macros, the shift from LTE to 5G will not be as straightforward from a technical or application perspective. 5G will eventually be deployed in any frequency band. Sub 3/6 GHz and millimeter wave configurations will vary from 4T4R to 128T128R, RF carrier bandwidths will vary from kHz to 100s of MHz, operators will deploy macros and small cells, and the baseband will be centralized, distributed, integrated, and virtualized. And to make it more interesting, many operators don’t know yet how quickly they will move from 4G to 5G nationwide. The means vendors need to continue investing in LTE, as well — at least until the more conservative operators do come to terms with the fact that the eMBB use case is enough to justify the 5G business case.
More importantly, even though it is increasingly likely that 5G will initially be just another “G” delivering higher throughput/capacity and improved efficiencies for the use cases we are familiar with today, we maintain our view that, over time, 5G has the potential to become a game changer. It will pave the way for new applications and use cases that will change the way humans communicate with machines, making a significant impact on the wireless-based economy.
Given the wide range of technologies and potential applications with 5G, there will be no shortage of opportunities and attempts to disrupt the market, and there will likely be more vendor share changes as we transition from LTE to 5G. History is not always a good indicator of future performance. However, we still recommend reviewing not only the share changes in the overall market but also the share shifts that transpired in the macro to small cell transition. Because as the small cell vendors learned, there is more to winning than just having the right product and best data sheet. We strongly recommend 5G incumbents and new entrants to review a couple of pages from the CBRS handbook and align their strategies not only with the technologies that will characterize 5G but also the applications and use cases.
As we are talking about expanding the uses cases with new technologies, we believe the technical and efficiency aspects are only part of the story. The real opportunity can only be realized for the vendors that manage to combine the right technology with the right customer-focused strategies and the appropriate channels and partnerships. This will be a change and a challenge/opportunity for vendors. In other words, C-RAN, virtualization, millimeter wave, CBRS, massive MIMO, NB-IoT, and 128T128R radios are not the primary drivers behind the opportunities to disrupt the market. Opportunites to change the status quo include: the ability to optimize the channels and partnerships with these new technologies to provide the right solutions to address cellular connectivity in the enterprise, connect cars and trucks reliably over the cellular network; delivering fiber-like experience wirelessly, provide reliable connectivity for automation and manufacturing applications; and the ability to connect devices and machines to the rest of the world and produce incremental value for every additional machine that is added to the network.
In summary, the number of vendors with a mobile infrastructure share larger than five percent declined from seven to four between the year 2000 and 2015. For these trends to reverse over the next five to ten years, it simply will not suffice to only focus on the technology and efficiency aspects. As the industry is moving from addressing one use case with one buyer to potentially hundreds of use cases, understanding the use cases, having the right partnerships and channel strategies will also play essential roles when shaping the roadmaps and go-to-market strategies.