Network vendors have enjoyed a recent glut of spending from the initial rollout of LTE, but are now in the throws of a downturn. Dell’Oro Group forecast cumulative revenues between 2017 and 2021 will represent the weakest five year period this century, with $137 Billion of infrastructure spend. Nonetheless, the analyst firm is optimistic about the longer term and expects a return to growth with the initial 5G rollouts towards the end of the period.
I asked Stefan Pongratz, Dell’Oro’s wireless industry analyst, for deeper insights on his analysis.
Indoor consumption vs Outdoor investment
He notes the asymmetry between the 80% of data consumed indoors and 95% of RAN CAPEX currently allocated outdoors, which forms the basis for stronger growth opportunities of Enterprise RAN. The headline performance rates of LTE such as 256QAM require very good signal quality (signal/noise ratio) and that’s hard to achieve using macrocells “outside-in” due to heavy signal loss through modern building walls.
Growing Small Cell shipments increasing as predicted
Their preliminary data for recent small cell shipments indicates that demand increased at a rapid pace during 2016, consistent with expectations. RAN CAPEX investment continues to switch from macro to small cells. These will grow to comprise some 15 to 20% of the total RAN market in five years time driven by 4G rollouts in both urban and Enterprise together with initial 5G deployments.
Stefan expects growth of the installed base of indoor small cells by both carriers and independently by Enterprises will continue to outpace new outdoor installations over the next five years. By then, Enterprises will account for nearly a fifth of indoor deployments, generating enormous potential for businesses to install their own. Dell’Oro are extremely excited about the opportunities created through new shared spectrum bands such as CBRS at 3.5GHz , although warn it may take time to educate the Wi-Fi LAN community about the benefits.
Therefore while optimistic in the long term, they remain cautiously optimistic about the near-term upside.
A question of 5G uptake
When we look back at the reasons for rapid LTE investment, you can identify several large operators with non-mainstream 3G networks unable to take the strain of growing data demand. Verizon Wireless and KDDI Japan with 3G CDMA EVDO technology, China Mobile with 3G TD-SCDMA and accelerated their rollout plans which drove their competitors to keep pace. This skewed global market sales significantly - North America accounted for 60% of LTE sales revenue in 2010 alone.
With almost all networks now adopting LTE as the global standard, the starting point for 5G will be the same for everybody. It’s more questionable to me whether the demand for very high speed/low latency data that 5G promises will be quite as significant or commercially imperative, and whether LTE Advanced Pro (together with many more small cells) could satisfy data growth adequately instead. Whereas 4G data serves a myriad of different Apps and use cases, 5G seems to me to be dominated by HD low latency video.
The Dell’Oro Group agrees that given what we know today, incremental data traffic is expected to produce limited upside in the forecast period. In other words, in the event that no other revolutionary product or application is introduced during the forecast period and the sum of the impact of many smaller innovations produces limited data traffic upside, the competitive dynamics or the potential cost savings with 5G are likely to have a greater impact on operators’ overall 5G strategy than the demand for incremental capacity.
I am pleased to see confirmation of the migration of RAN investments from macro to small cells, and share Dell’Oro’s vision of greater in-building uptake. New shared spectrum and neutral host solutions such as CBRS hold the promise for Enterprise deployments.
Seeing beyond the 5G hype is more difficult. While Dell’Oro expect it will signal a return to RAN investment in the longer term, it’s difficult to predict accurately. As always within the mobile industry, there are several technology choices on offer and it’s never straightforward.
But a key take-away is that progress for the nascent Small Cell industry is now matching current forecasts and forecasting it will trend towards at least 20% of the RAN market in five years time (so around $30 billion annually) looks like quite a reasonable expectation.
Our thanks to Stefan Pongratz of Dell’Oro for his help with this article. For more information visit their website