For many years, the mobile infrastructure market has been structured around the primary customer relationship between a mobile operator and its primary network OEM: Verizon and Lucent; Vodafone and Ericsson; SK Telecom and Samsung. The bonds between these companies are strong because the legacy networks in place require service, and any new equipment must interoperate with the existing gear.
Now, the market is changing. First, base station deployment by mobile operators has been slow over the last 18 months, despite an extremely strong demand for mobile data. Mobile operators are shifting gears, away from "Tower and Power" and toward new network concepts.
Second, mobile operators now have some experience with alternative suppliers. Femtocell vendors have come into the operators with consumer-grade units, which can operate independently from the rest of the network--handoffs can be clunky, and it's okay. For once, the operators have been able to deploy something that does not depend so heavily on interoperability with their primary OEM supplier.
Some recent press announcements illustrate how the market is changing:
- Mindspeed announced a relationship with China Mobile for TD-LTE small cells.
- KT and SK Telecom have chosen Cavium's Octeon SoC for their carrier-grade femtocells.
- Freescale, Texas Instruments, Broadcom and other vendors have also introduced SoCs with complete PHY software, competing with differentiation at Layers 2-7.
- Qualcomm, having has struck out in femtocells and small cells, decided to buy a smaller vendor to get started.
As an RF guy, it's easy to be nostalgic about the "good ole days" when good radio design was a differentiator in the market. Nowadays, the radio section is becoming a commodity at the box level, and the real value lies in the software for coordination, control and transport of the mobile network. Accordingly, many major OEMs have given up on trying to differentiate with nifty radio circuits and have reinvented themselves as software vendors.
It's tempting to draw the conclusion that the dominance of Ericsson, Huawei, Alcatel-Lucent, Nokai Siemens Networks and ZTE is over because the chipset vendors have absorbed most of the hardware functionality and even the Layer 1 software. But, we need to look deeper.
In fact, the "standards" in the mobile network business are not standard. Soft handover, softer handover, 2G to 3G to 4G handovers, network optimization and early SON features all rely on proprietary algorithms. Even the CPRI and OBSAI standards have never been used for multi-vendor substitutions because within these "standards" are proprietary interfaces for normal operations and for maintenance functions. Only the original base station vendors know the codes necessary to offer interoperable equipment.
The number of proprietary interfaces and algorithms will increase dramatically over the next three to four years. With coordinated multipoint, interference cancellation and additional SON use cases, the number of proprietary interactions between small cells and macrocells will multiply in countless ways.
In the end, Mobile Experts believes that the top OEMs know what they are doing. The strategy to back away from radio hardware and focus on software has been happening for years. For the vendors with a large footprint, differentiation in proprietary "non-standard" interoperation will be far more powerful than any competitive advantage in radio design.
The Radio Access Network sector is starting to look like the famous "Wintel" alliance, with chipset vendors dominating the hardware and software vendors dominating the "customer experience". Look for two or three SoC vendors to emerge as winners, with each major OEM building fortresses out of software.
Joe Madden is principal analyst at Mobile Experts LLC. He is a Silicon Valley veteran, with 23 years in mobile communications, navigating through IPOs, LBOs, divestitures and M&A. He leads the analysts at Mobile Experts, focusing on nitty-gritty analysis of mobile communications and semiconductor markets. Madden graduated, cum laude, from UCLA in 1989.