After three years of very healthy performance, the large scale RAN market is beginning to decline. Stefan Pongratz of Dell’Oro Group forecasts an eight percent reduction during 2016 alone. He thinks that Small Cell revenues, already over $1 Billion annually, won’t grow quickly enough to fill that gap. I asked him how this could affect the shape and size of the vendor community looking forward.
Three dominant players
Making money out of RAN equipment has been tough. Well known brand names such as Motorola, Siemens, Alcatel and Lucent have been subsumed by the big three – Ericsson, Huawei and Nokia – who now dominate over 80% of worldwide sales.
There have been huge investments in LTE in recent years – US networks were the first to adopt LTE in a mass scale, China Mobile has built out over 1 million LTE macrocells and now over 480 networks worldwide have commercial LTE capability But these new technology upgrades have now achieved their initial goals and are moving on to the next phase. Relatively few new macrocell towers are being installed.
Even with this recent glut in sales, Stefan points out that total RAN vendor revenues are lower in 2016 than they were in 2006 before the iPhone was launched. Yes, I know that sounds crazy given the enormous growth in network data capacity and traffic over that period, but it is true. The “Bang for your Buck” in terms of network capacity per dollar has never been better.
Dell’Oro forecast a moderate decline in global RAN equipment sales over the next 5 years of -2% CAGR annually.
Small Cells won’t substitute for this decline
One of the key benefits of Small Cells is that they are considerably cheaper. This is especially true for those found indoors, where ancillary equipment such as power, secure cabinets, air conditioning, wireless backhaul etc. aren’t required. Prices and profit margins are lower and less attractive than outdoor macrocells.
The Small Cell Forum point out that annual small cell sales will exceed $2.4 billion this year, estimating that the Enterprise Small Cell sector alone will reach $4 billion by 2020 [forecast from Mobile Experts]. This compares with an estimated $2 billion of DAS equipment during 2015.
Stefan doesn’t believe that the new revenue growth from Small Cells will offset the decline in macrocell sales, although it looks to me like being large enough to pay attention to. He thinks the RAN vendors have been quite successful in defending their turf outdoors, with limited success from outdoor small cell vendors to date. Indoors, the new small cell vendors have had more but limited success – the Dell’Oro Group estimates the top 3 RAN vendors accounted for about 70% of the non-residential indoor small cell market in 2015. The real opportunity for new entrants will be when the Enterprise market takes off – we’re not talking about carriers deploying in Enterprises themselves as we see today – but when Enterprises themselves buy and install the product. If this uses a spectrum band that doesn’t interfere with the outdoor macrocells, then the opportunity will be considerably greater.
A change in vendor mix
Small Cells aren’t dominated by the same three large RAN vendors– the mix introduces several new players with plenty more startups seeking to enter the market. China Mobile alone has added ten new Enterprise small cell RAN vendors into its supply chain in the past year. Relative newcomers including Airspan, ip.access, Parallel Wireless, Spidercloud and many others have already become widely adopted. Many more newer entrants are positioning to capture market share.
How are the major RAN vendors responding?
Nokia realised that mobile infrastructure has a limited upside and their ALU purchase was partly driven as a means of diversification – the acquisition included assets in wireline such as broadband routers.
Ericsson is seeking new revenue growth areas such as TV/Media, Cloud, and OSS/BSS. Its wireless business remains core, having disposed of other assets in recent years to focus on wireless infrastructure.
Huawei has grown a $20 billion smartphone business to become #3 in a relatively short timeframe.
Nonetheless, Stefan expects major RAN vendors will continue to cut costs in their wireless infrastructure businesses. In the longer term, some of the rumours circulating about possible mergers/acquisitions may come true. We’ve already seen considerable reductions in staff after the Nokia/Alcatel-Lucent acquisition, and Ericsson cut back 2,200 Swedish staff in 2015.
In short, Stefan doesn’t expect the decline in overall RAN expenditure to be a game changer for small cell vendors, but strong growth in the Enterprise sector could see growing market share for new entrants.
Dell’Oro’s latest quarterly report on the RAN market
ThinkSmallCell's Global Mobile network statistics 2016