We just published our semiannual five-year mobile infrastructure radio access network (RAN) forecast, and we are pleased to report that we remain optimistic that the RAN market will grow over the forecast period. At a first glance, this might not seem like a significant event to issue a forecast with a positive growth expectation. However, given that we published negative five-year growth projections consistently for six years, and this is the second consecutive forecast update with a positive growth component, it is an important change in how we see the market unfolding.
Taking into consideration that the overall mobile infrastructure market lost around a fifth of the revenues over the past ten years at a time when mobile data traffic advanced nearly 2000-fold, the fundamental question is fairly simple: Why are we suddenly so optimistic about the future when data traffic is only expected to grow six- to seven-fold?
At a high level, there are three key drivers behind the renewed optimism: (1) The near-term 5G vision makes sense and the momentum is accelerating (while 5G by itself will not expand the market, it can raise capex/revenue in the short term, particularly in China). (2) There is new capex to address IoT, Fixed Wireless Access, Public Safety, and Enterprise opportunities. (3) The shift toward active antennas will grow the scope of the RAN market.
Although there are multiple 5G visions, one of the overarching themes is that 5G will be the technology that connects everything. As a result, 5G will have a profound impact on the wireless-based economy. While we firmly believe that the long-term vision still holds, we are aware that it is easy to overstate the effects of a technology change in the short run, while underestimating the effect in the long run. Just as it took ten years to realize the smartphone+3G and LTE+video visions, it will take some time to realize the full potential with 5G. Our conversations with the service providers over the past six months indicate that operators are coming to terms with the new 5G narrative, supporting the thesis we have communicated previously that 5G initially will be just another G delivering higher throughput/capacity and improved efficiencies/costs for the mobile broadband use cases we are familiar with today. And it will likely take a long time to reach the full end-user potential with 5G.
More importantly, even if the near-term drivers have changed, the 5G momentum is improving. The baseline analysis assumes that the business case to upgrade the RAN to support NR for mobile broadband applications is extremely compelling, and 5G NR will scale at a significantly faster pace than LTE did initially. 5G NR investments are expected to be at least a year ahead of LTE investments, with 5G now accounting for a sizable portion of the total RAN market by the end of the forecast period.
At the same time, complete 5G system upgrades with cloud native cores and network slicing will be deployed more gradually—operators are expected to focus on upgrading the 5G RAN before tackling the 5G Core, resulting in a Core/RAN ratio that is deviating somewhat from the historical EPC/LTE capex trends.
In the search for new growth opportunities to expand the addressable RAN market, we anticipate the opportunities over the long term to be the greatest with IoT, as well as enterprise in-building and private deployments. Although Fixed Wireless Access (FWA) and Public Safety represent smaller opportunities, the likelihood of these applications generating any upside in the near term is greater, given the state of the demand drivers. The industry has talked about the upside with IoT, public safety, FWA, and enterprise in-building deployments for more than a decade. These are not new opportunities, but what has changed is that there are now clear signs that these verticals are growing. The overall growth potential over the next five years will vary significantly depending on the applications—the forecast assumes the growth areas outlined above will advance nearly four-fold over the forecast period accounting for a sizeable portion of the overall RAN market by the end of the forecast period.
While the shift toward active antennas will not by itself grow the market, the scope of the RAN market will change. The use of Massive MIMO in conjunction with LTE has so far produced mixed results, with the combined LTE and NR installed base gaining some momentum in 2018. The technology is expected to play a more fundamental role from the start with midband macro 5G NR deployments. The business case for upgrading to NR hinges on the incremental performance upside that can be realized with the 16T16R, 32T32R, and 64T64R configurations. There is little debate that more radios will improve performance; however, operators are seeking to find the right balance between the incremental performance and BOM. The Massive MIMO analysis and projections contained in the RAN forecast is contingent on a gradual paring of the price premium relative to the 4T4R and 16T16R/32T32R/64T64R radio systems.
In short, the shift from 3G to 4G did not expand the mobile infrastructure market. While we are not suggesting that the shift from 4G to 5G by itself will expand the market, we are optimistic about the short-term capex/revenue deviation with the early adopters and the potential capex upside with new nontraditional telco opportunities using both LTE and 5G NR. Overall, we believe there are grounds to be optimistic about the medium-term outlook.
Stefan Pongratz is a Senior Director at the Dell’Oro Group, the trusted source for market information about the telecommunications, networks, and data center IT industries. Mr. Pongratz joined the Dell’Oro Group in 2010 after spending 10 years with the Anritsu Company. Mr. Pongratz is responsible for the firm's Radio Access Network and Carrier Economics Research programs and has authored advanced research reports on the wireless market assessing the impact and the market opportunity with Small Cells, C-RAN, 5G and CBRS.
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