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2021 started with the Consumer Technology Association (CTA) turning its physical event, the Consumer Electronics Show (CES) in Las Vegas, into a digital event. In February, GSMA made its Barcelona Mobile World Congress (MWC) into a combination digital and physical event. Usually, MWC attracts about 100,000 guests. In 2021, there were about 20,000 participants, of which only 5,000 came from outside of Spain.
GSMA expects to implement MWC 2022. The question is whether the physical part will be much bigger than it was in 2021. Although there are fewer hospitalizations with this wave of COVID-19 variant, more people become sick and need to stay in bed for at least a week. This variant is more likely to affect business negatively, particularly labor-heavy companies. This in turn is quite likely to affect the physical portion of MWC negatively, because unnerved potential convention-goers probably will remain at home.
2022 will continue to showcase that the mobile telecommunications industry plays a critical role in enabling modern society to function. Telecom companies should receive more goodwill and should become better at exploiting it.
Strand Consult’s study of the broadband middle mile showed that rural broadband providers face many challenges in their effort to deliver broadband to disparate customers over large geographic areas. The study creates transparency for policymakers about the cost, level and source of internet traffic. It demonstrates that five so-called Big Streamers account for a disproportionate share of downstream traffic. For every $1 of revenue earned from the five Big Streamers (Netflix, YouTube, Amazon, Disney+ and Microsoft), rural broadband providers incurred 48 cents in middle mile costs (equipment, electricity and labor), which they could not recover from the Big Streamers, end-users or government reimbursement programs.
The Big Streamers have tremendous global market power and ignore broadband providers’ requests to negotiate on cost recovery. Moreover, the free caching solutions proffered by the Big Streamers add costs to networks and only serve proprietary content. Strand Consult observes that there is a pervasive problem of unrecovered cost at the local, national and international levels that threatens sustainability and undermines policy to close the digital divide. In 2022, this problem will have an effect on the forward motion of the broadband segment.
In our opinion, O-RAN is one of the most overhyped technical solutions since the launch of 3G wireless communications in the year 2000. Although the use of O-RAN promises to cut RAN capital expense (capex) by as much as half, it does not rise to the level of hyperbole that 3G would turn radio spectrum into gold. But eventually, it comes close.
In August 2021, Nokia paused its work in the group for fear of violating U.S. restrictions on the many Chinese members. Strand Consult has yet to find an O-RAN proponent who can explain how the prevalence of 44 Chinese companies in the O-RAN Alliance does not compromise O-RAN.
O-RAN is being promoted by industry and governments from the United States, Japan, Germany, the United Kingdom and even Russia as trade policy and enterprise enhancements, though the O-RAN market itself appears to be growing minimally. The U.S. executive branch stopped referring to the O-Ran Alliance in its policy communications and now uses the O-RAN Policy Coalition as if it’s a technical standards development organization. Yet the O-RAN website clearly shows that it’s an advocacy organization whose purpose is to influence governments on behalf of its member companies.
It is important to understand that O-RAN is built on top of 3GPP 4G and 5G technologies. It is not a solution that can replace existing networks on a 1:1 basis. Nor do O-RAN technologies support 2G and 3G, which most of the world still uses for machine-to-machine (M2M) communications and telephony. If a legacy operator wants O-RAN, it probably would have to maintain two sets of parallel base stations, one set for 2G and 3G and the other 4G and 5G. Running two parallel networks increases rental and energy costs, compared with running one network.
If O-RAN reaches the level of success its proponents predict, it will account for less than 1 percent of the 5G mobile sites in 2025 and not more than 3 percent in 2030. It looks as though O-RAN is too little, too late, to make a difference in a world in which operators are deploying 10,000 classic 5G sites every month.
At the end of the day, mobile operators’ job is to deliver a great network experience to their customers. O-RAN technologies offer only limited features compared to the 200 3GPP 5G networks launched globally by the end of 2021. In practical terms, one cannot compare the functionality of Rakuten´s in Japan 4G and 5G network with the functionality of an American 4G and 5G network.
The United States will evolve further as it upgrades from 3GPP Release 15 to Releases 16 and 17, and Rakuten probably will fall farther behind. The O-RAN claims are even further distorted when proponents say the O-RAN is a way for Europe to catch up with the United States, China and Korea in 5G technology. Note that the United States and South Korea achieved 5G leadership without the use of Huawei and ZTE equipment or the use of O-RAN.
2022 will see continued O-RAN advocacy, although it will be more difficult for its proponents to evade the tough questions about the hard reality.
When Joe Biden became president in January 2020, many wondered how U.S. policy would change, concerning China and Huawei. Strand Consult maintained that the policy was bipartisan and was unlikely to change, and, if anything, it might be toughened, particularly as reforms adopted in 2018 gave the new administration additional tools to prosecute human rights violations.
Huawei still faces significant financial pressure, and public opinion about Huawei has not changed. Many countries see it as unsafe and unsustainable to use Huawei equipment in telecommunications networks. Many operators have experienced increased reputational and regulatory risk by using Huawei, and corporate customers do not want their sensitive and valuable data to be vulnerable to the Chinese government.
In any event, the good news is that it need not be expensive to rip and replace Chinese equipment. As operators evolve to 5G, they have planned for upgrade costs already, and fortunately, there are many competitively priced alternatives to Huawei.
Huawei has pivoted to the cloud market and attempts to bill itself as a trustworthy IT supplier for the public and private sectors and as an alternative to the large IT software companies that supply a combination of services and a cloud. Huawei probably will succeed with its strategy in China and in some countries sympathetic to the Chinese regime. However, it will be a hard sell for Huawei to convince public sector buyers in the United States and Europe to buy its solution of putting data into Chinese IT systems and the Chinese cloud.
In 2021, it was telling how gatherings from leaders from across and political spectrum, from developed and emerging countries alike, view cybersecurity. All nations are concerned about addressing serious global problems like illicit finance, human trafficking and ransomware driven by rogue nations and crime cartels. This concern means that secure networks and the practices to defend them will become even more important in 2022.
Both the United States and the European Union have rolled out new policies and regulations to improve network security, including 5G. This includes the European Union’s Toolbox and the U.S. Secure Equipment Act, which FCC to deny equipment authorizations to firms posing an unacceptable national security list. These companies include Huawei, ZTE, Hytera, Hangzhou, Hikvision and Dahua. Drone maker DJI is most likely be added, and many national security experts say restrictions should be increased for Lenovo, TikTok and chipmaker YMTC.
Strand Consult believes the push for greater security is incompatible with O-RAN technologies, which are increasingly influenced by Chinese players.
There is good news and bad news about big tech. Just when health authorities believe they have the virus under control, a new variant emerges. Similarly, governments are trying to regulate big tech. Yet, just when it seems that big tech could be pinned down, big tech adapts to the new reality – with a new name, a new practice or a new public-private partnership.
The conversation about big tech and its role in society will continue in 2022. Policymakers must realize that big tech is adapting faster than the efforts to regulate it. If anything, the regulations adopted to date, such as the General Data Protection Regulation (GDPR), have made big tech even stronger. Today, these companies’ revenue, market share and earnings have increased, compared with the time before regulation. Additionally, the government has made it harder for small and medium sized companies to compete.
The bottom line is that efforts to regulate big tech have failed. Governments should instead make big tech pay for its use of resources. Current policy allows big tech a free ride on telecom networks and the public’s airwaves. These giveaways only increase big tech companies’ market share and profitability.
These are important lessons as policymakers look at the cloud market.
Policymakers will turn their attention to public clouds, which hold an increasing amount of citizen and enterprise data. Big tech probably has more knowledge and data about people and firms than the government itself. In 2022, cloud services from Amazon, Microsoft and Google will emerge in the public consciousness. It is hard to see how a Chinese alternative could gain traction in this market, but it still raises questions about existing cloud practices.
Mobile operators put parts of their networks in Amazon, Microsoft and Google clouds. As mobile networks are increasingly integrated with clouds, this means that individuals and firms are even more embedded with big tech. There is no turning off big tech and no choosing not to use it.
This situation adds to the complexity and difficulty of data portability from one cloud to another. In practice, companies may find it impossible to migrate from one cloud to another. Although this sets off alarms in the antitrust world, it does not diminish the technical reality that cloud services from Amazon, Microsoft and Google are not comparable 1:1. In practice, Amazon, Microsoft and Google will not achieve the same result if you use the three platforms’ AI solutions to analyze your data. One big question in 2022 is which has the most intelligent AI solution: Amazon, Microsoft, or Google?
One thing is for sure: It is far easier to switch the vendor of 5G infrastructure equipment than to switch cloud providers.
Strand Consult has chronicled the development of the mobile phone market and has published popular reports on the iPhone. It has grown banal to watch Apple launch subsequent new versions of the iPhone that look nearly identical to the one before. With few technical improvements in each subsequent phone, the main difference is the model number. In 2021, Apple released iPhone 13, and in 2022, there most likely will be an iPhone 14, and so on. It is a testament to the company’s marketing that it has been able to navigate inevitable device fatigue.
Mobile apps also lumber on with subsequent versions. The key development in 2021 has been the use of mobile apps to manage COVID-19, and that trend will continue in 2022. Additionally, governments have entered the mobile app market in a big way with vaccine passports, which for many countries have become or will become de rigueur.
Tower companies are an important part of the efforts to find profitability in an increasingly difficult telecom market. Many mobile carriers have discovered that they can sell their towers and post unrealized assets. In Europe alone, selling towers has contributed some 36 billion Euros to the mobile industry.
Around the world, we see tower companies starting to spread in the value chain. In Brazil, they invest in fiber, while others consider whether to enter the spectrum market. In 2022, we will see much more of this activity.
A study case is Denmark’s TDC. Three Danish pension funds, PFA, PKA, ATP and Macquarie Infrastructure and Real Assets have chosen to split the telecom operator into an infrastructure company and a service company. The two new entities will be TDC Net for infrastructure and Nuuday for service. We believe it to simply be financial acrobatics. The trend of the breakup of telecommunications companies into infrastructure and service entities will be seen increasingly in 2022.
In 2021, much was written about private 5G networks, such as, who will build them, and who will run them. It’s a market in which many want to enter, everyone from mobile operators to IT companies to systems integrators to infrastructure suppliers. O-RAN players also want to enter, though it remains to be seen if they can deliver the heavy demands of a classic mobile network. Expect fierce competition, very low margins and an inevitable shakeout.
The United States notched an unparalleled success with the C-band spectrum auction, a record for the U.S. spectrum at more than $90 billion. Mobile operators were set to launch 5G in this band on Dec. 5, 2021, but were hijacked by the Federal Aviation Administration (FAA), which posted a dubious advisory about 5G transmissions and altimeters.
U.S. planes fly to more than 50 countries where some 200 5G networks operate, and there have been no reports of interference between 5G transmissions and altimeters. The FAA, which has known of 5G for years, has done nothing to modernize altimeters. The question is which aviation lobby the FAA is protecting, which most likely is small aircraft operators and possibly helicopter operators that don’t want to upgrade their safety equipment.
Commercial aircraft makers such as Boeing produce planes with three modern altimeters each. Their requested mitigation was a guard band of 110 MHz; the FCC doubled it. U.S. operators also volunteered to reduce power levels around U.S. airports for six months to prove compatibility and will roll out 5G in the band on Jan. 5. Thus, the United States has the most generous, though excessive, protections for altimeters in the world.
All in all, we’re going to see that the big markets are going to set agendas for other markets. Much of what is needed requires political goodwill in a world in which the political system rarely understands the importance of what is happening.
After mobile and broadband prices have fallen over time, 2022 should be the year when prices rise around the world. Look no farther than little Denmark, which, in 2021, found the telecom regulator colluding with energy companies to price-fix the wholesale price of fiber access at a level above what the market offers. As such, prices are guaranteed to rise in Denmark because of regulators’ efforts. Given that the regulated price of fiber will increase, broadband prices on private networks will follow.
We also expect that many of the operators that have difficulty creating value for their shareholders through organic growth will raise prices in 2022. It follows that a highly valuable service such as broadband telecommunications should increase in price. This is the law of demand, and without price increases, it will be difficult to invest in network upgrades.
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John Strand is CEO of Strand Consulting.
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