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Notes on India, 5G and ORAN…

India, in recent weeks, has had a lot of news flow. After nearly three months of Covid19 induced lockdown, the country is taking its first, tentative steps to emerge from lockdown and restore even a semblance of normality. The path to normalcy differs across States, with competing approaches, the great variance in the incidence of Covid19, and a healthy dose of confused policy all contributing to the uncertainty that has shrouded the economy in recent weeks. The Government’s policy responses to the pandemic have not really moved the needle.

On the geopolitical front, recent news flow has been dominated by a violent border skirmish with China after a standoff at multiple border points over the last few months. The aftermath of the border tensions has triggered action from the Indian Government, in the form of a ban on 59 Chinese apps, including giants like TikTok, WeChat, UC Browser amongst others. There is also a renewed push for a ban on Huawei and ZTE from being able to bid for 5G contracts and while this has been rumored for some time, recent events would seem to have put paid to the chances of Indian telcos from choosing gear from these vendors.

There has been enough written on this topic but there are other, related effects from recent events, and in this blog, we would like to cover as many of them as possible.

India will be late to 5G

India’s proposed 5G auction has been sliding from its originally planned window in late 2019. According to its recommendations, the regulator, Telecom Regulatory Authority of India (TRAI), proposed an allocation of 100MHz and 200MHz of the total spectrum in the 3.3-3.4GHz and 3.4-3.6GHz bands, respectively. With this allocation, the incumbents would have access to at least 80-100MHz of spectrum for launching 5G in the mid-bands.

Other factors have also contributed to the ongoing delays in the timeline for 5G, including:

- The proposed auction was already hobbled by the ridiculously high reserve pricing levels (US$70.8m per MHz of spectrum for 5G in the 3.3-3.6 GHz band) proposed by TRAI, standing at roughly five to six times higher, relative to realized auction pricing in markets like South Korea, Spain, the UK, and Italy. TRAI has employed a controversial and frankly, dubious, methodology in linking the reserve prices for 5G to prices discovered in previous auctions and assuming a premium for 5G. Also, mmWave spectrum is not part of the current proposal, thereby limiting the options for CSPs to the sub-6 GHz frequencies. Parts of the high-frequency millimeter wave spectrum in 24GHz and 28Gz bands are currently being held by the Indian Space Research Organization (ISRO), and allocations for the use of telecommunications services will be subject to availability. It is important to note that such accommodations have proven tricky in India in the past.

- Spectrum pricing and availability were already challenging but the far bigger shock occurred when the incumbent CSPs lost their battle with India’s Department of Telecom (DoT) in the Supreme Court of India and were served with notices for payment of an estimated penalty of about INR147,000 crore (US$19.5bn) in form of retrospective license fee charges, interest and penalties on license fee and spectrum usage charges. The worst affected was Vodafone-IDEA Limited, promoting the Vodafone CEO to lament their ability to continue in India. Faced with such a massive outlay, the incumbent CSP has barely stayed in the black in operational terms, even with an increase in tariffs contributing to better unit economics. Vodafone-IDEA’s viability as a going concern and a looming duopoly is a huge blow for the prospects of a successful 5G auction. To be fair, Bharti Airtel also is faced with a massive liability due to the Supreme Court ruling but overall, they are in much better shape than Vodafone-IDEA.

- The prospects of outside investment in India or foreign players applying for a license is virtually zero in the current climate, barring a miraculous, unforeseen buyout of Vodafone-IDEA. The prospects for the state-owned BSNL/MTNL combine stepping into the breach is also virtually non-existent. Depending on one’s perspective, the telco is either in the midst of a massive restructuring exercise and will come out stronger and more competitive; or the current stasis is merely the calm before the storm and ultimate demise of the entity.

- The parlous state of finances for the country’s CSPs will prevent serious interest in 5G for the near future. We would categorize Jio in this manner as well. Despite their much-ballyhooed “tsunami” of investment in recent weeks, Jio has in effect wiped out the staggering amounts of debt incurred in the buildout of the Jio network across India. At this stage, it is assumed but still unclear whether new funds will be available for 4G network expansion and 5G network buildout.

The ORAN lovefest continues apace but is it relevant for India?

One of the biggest stories in recent months has been the incredible market momentum for the Open RAN movement (ORAN). Operators globally have been advocating for distributed network architectures that decouple the radio frequency (RF) unit from baseband processing functions through C-RAN (V-RAN) implementations. Traditional RAN equipment including the remote radio head and baseband unit came from a single vendor which was a tightly coupled box, designed, ostensibly, to achieve the highest performance levels. However, the tight coupling also meant a bunch of proprietary interfaces that prevented a “best of breed” approach for telcos and also drove up costs. Not only did service providers lose flexibility in terms of procurement options, but they also lost the ability to “engineer” their CAPEX outlays. Deploying the same equipment for serving both high-end as well as the low-end segments made little economic sense for the operators. Where C-RAN (V-RAN) allowed operators to achieve some rationalization through centralized baseband pool processing, it did not allow multi-vendor combinations. Open RAN (ORAN) aims at adopting open interfaces at the different levels of an increasingly disaggregated RAN. With its open interfaces, ORAN serves as a key to induce more competition in the supply chain through vendor diversity. Wider choice of vendors for key RAN elements and the use of general-purpose hardware in the RAN can positively impact the capital outlay of service providers.

The Open RAN concept in fact is not new. Open RAN initiatives were led by two main organizations OpenRAN and O-RAN Alliance, founded in 2016 and 2018 respectively, and have been gaining the needed momentum and maturity to claim a place in the supply chains. While vendors such as Mavenir have been around since the early moves for virtualization and disaggregation of the core network elements, the momentum in Open RAN initiatives is widely driven by the service providers. Japan’s greenfield operator, Rakuten, is a leading adopter of the technology while other notable deployments include those from Etisalat, Telefonica, and Vodafone. Traditional vendors have already started warming up to the idea. Nokia was among the first few to crack, perhaps in view of its small market share that it may lose fast to ORAN proponents. Ericsson and Huawei remained more dismissive in the initial days. However, things are changing fast. Ericsson also joined the O-RAN Alliance and focuses on upper-layer functions including open F1, W1, E1, X2/Xn interfaces.

Also, operators are focusing their efforts where it matters the most. Rakuten invested $114m in Altiostar and has since deployed their software commercially in its RAN networks, while Reliance Jio acquired Radisys and is trailing its proprietary ORAN centric solution. A key challenge in ensuring interoperability among various ORAN vendor products and implementations is being addressed through the opening of common tests and integration centers. Reliance Jio is leading these efforts, working with other service providers and vendors to facilitate ORAN testing and integrations.

India will be a keen adopter of ORAN

But is ORAN relevant for emerging market CSPs like Jio, Airtel, and Vodafone-IDEA? We believe it is. India’s CSPs have already tasted success with mobile broadband and rank amongst the world’s leaders in per capita mobile data consumption. Data traffic has increased three-fold over the past two years, especially in the aftermath of the Covid19 pandemic, and that has come with barely half of the country's total mobile base subscribed to high-speed data services. Driving transformations at this scale are not easy, particularly in low-income economies like India where demand is highly price elastic.

India’s telcos face a daunting task. They need to maintain CAPEX levels to keep up with the demand for broadband services but they are extremely constrained by a lack of capital resources which will shift their focus to ORAN and more affordable solutions. The incumbents RJio, Bharti Airtel, and Vodafone Idea have already started diversifying their supplier base and identifying vendors beyond the traditional suppliers to include the likes of Altiostar, Mavenir, Airspan, Parallel Wireless, and Sercomm among many others. But will ORAN be equally relevant to all the CSPs in India?

Many would believe ORAN is popular with greenfield operators, the likes of Rakuten, Dish, and Reliance Jio. For incumbents, introducing ORAN in 4G will still require them to separately manage legacy and the new networks. There will be a lot of variances here. In India, an operator like Jio is a relatively recent entrant compared to Airtel and Vodafone-IDEA. Jio’s 4G LTE network (based on Samsung Networks) has a RAN network that can be upgraded to 5G through software updates. However, Jio will need to keep adding new sites and base stations and faces a strategic choice – continue with Samsung on an expansion and upgrade roadmap, or invest in ORAN. To be sure, Jio is already conducting trials in their labs though the company is still nowhere close to deployment. For Jio, ORAN will not only create opportunities for “engineering” CAPEX as they plan for an eventual 5G launch but will also allow them to mix and match vendors who can meet their network specifications. ORAN can also be relevant for incumbents like Airtel and Vodafone Idea who will be able to maintain a single network for 4G and legacy technologies both supported by ORAN. They can then reuse/repurpose the same hardware as they leapfrog technologies. Vodafone in Turkey and Etisalat in the Middle East are good examples to follow. Both have deployed fully virtualized 2G, 3G, and 4G systems that are upgradable to 5G with ORAN vendors. This has enabled these telcos to simultaneously run 2G, 3G, and 4G using the same radio base station.

But doing ORAN is not easy. A software-centric disaggregated network requires operators to work with multiple vendors increasing the complexity of tasks that are to be managed by the operator. Rakuten acknowledges playing a central role by building strong capabilities in software and system integration to manage its multi-vendor network rollouts. Jio is well equipped to follow a similar philosophy as it acquired Radisys. For both Rakuten and RJio, successfully implementing a fully virtualized end-to-end cloud-native network that draws on open standards is important, particularly so if they can then offer this expertise to other ORAN enthusiasts. For others, ORAN vendors can also help as they are building system integration (SI) capabilities.

Indian CSPs, already severely financially constrained, need to make smart choices, including giving ORAN a close look!!! The RAN accounts for 60-65% of the total cost of ownership of a network and is the key area of focus for architectural transformation. Cost savings through collocating and sharing of baseband resources in disaggregated networks are outweighed by the need for a low-latency fronthaul which is often an owned fiber connection. ORAN helps with defraying the cost of moving to a distributed network architecture and while there may not be an immediate, short-term drop in CAPEX, ORAN will benefit CSPs by improving network economics in the long run.

This week’s blog post has been written with contributions by guest author Inderpreet Kaur.

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