Growth Drivers and Business Opportunities in the Mobile Telecom Market
HuaweiTech: What are the growth drivers for the telecom market in 2023?
Stefan Pongratz: I would say at a high level, from a revenue perspective, the analysts here at Dell’Oro Group remain optimistic about the growth prospects for the telecom equipment market. We are forecasting slight growth this year even as global CAPEX is projected to decline. That would mean it would be the sixth consecutive year of growth for the six telecom programs that we track. Of course, there will be some variation depending on the technology segments.
If we look at wireless, things are slowing down. We had a couple of remarkable years of growth in the RAN market, which increased by more than 40% between 2017 and 2021. And even if it is still early days on the 5G journey, I find the comparisons are becoming more challenging and that this is impacting overall RAN market growth. We saw that in 2022 and also in the first quarter of 2023.
As a result, suppliers and operators will move to other areas. Now there is a shift towards fixed wireless access and enterprises, and that is something that will continue this year as well.
On the supply side, I think the journey of reshaping the RAN will continue with more automation, openness, virtualization, and intelligence, and it is not going to be a step function. It is already happening, and it is something that is also going to continue in 2023.
As we move beyond wireless, I think that the COVID-19 pandemic, or the response to the COVID-19 pandemic, really highlighted the importance of having consistent access to high-performance broadband connectivity. Right now, operators, enterprises, and governments are doing everything they can to catch up with more upgrades and subsidization efforts to minimize some of the broadband inequities that been exposed and become more apparent over the past couple of years.
In fact, in 2022 the broadband access program was the strongest growth vehicle, and we believe that there is more work to be done there as well going forward.
On a regional basis across both the wireless and wireline programs, I think there will be a little bit of a shift for some of the more advanced markets to the less advanced markets, which is already playing out. If we look, for example, at wireless, both North America and China have been major growth vehicles over the past couple of years. In the first quarter, we saw steep cuts in the North American RAN market, but at the same time, that was offset by switching investments in India. 5G is slowing down as well in China, but we do not expect the slowdown to be a steep as the shipment guidance by MIIT. Nevertheless, that has been going on for some time. And we do see a little bit of a maturity there as well when it comes to Europe. From both the wire and wireless perspectives, there is more work to be done, especially when it comes to upper mid-band 5G deployments. It is lagging behind the global average a little bit.
Another event to consider this year is the normalization of some of the supply chain. I would say that it has impacted the market differently and, certainly in the first quarter, we saw that some operators were able to pause investment or slowdown their investments more than others. But in other regions it might have had the opposite effect, so that’s something we will need to monitor in 2023. But overall, it should be an exciting year.
HuaweiTech: Should we be excited about 5.5G?
Stefan Pongratz: Yes, we should be moderately excited. 5G Advanced and 5.5G are an important part of the broader 5G journey. But as with everything, it is going to be relative, and adoption and success have so far been mixed.
If you look at the first phase, I think it is fair to conclude that for consumer mobile broadband, 5G has been a success, providing operators with important tools to manage data traffic growth and reduce cost per bit. But at the same time, 5G has so far mostly been a story about mobile broadband and fixed wireless access. And we really have not touched the surface yet when it comes to connecting industries and machines. When we look to the next part of this 5G journey, if there is anything at all that can improve efficiency and provide incremental gains, that will be helpful in a world where people consume more data and where spectrum resources are limited. At the same time, there is some excitement that there is going to be more investment, and an increased focus in this region will be standards when it comes to moving beyond mobile broadband and having more enhancements with connected industries and machines.
And I think that is where there is some excitement coming.
HuaweiTech: What are some of the opportunities with 5G/5.5G?
Stefan Pongratz: It is a good question, especially now with investment in public and mobile broadband slowing. I think the search is on for the next big thing. Both fixed wireless access and private wireless are strong candidates here, but the dynamics are a little bit different when it comes to fixed wireless access. It is a slightly smaller opportunity, but it is happening now and it is already producing dividends, both for the suppliers and the operators.
When it comes to the private wireless, I would say there is a massive growth opportunity, but we are not as far along. And the revenue upside both for suppliers and operators is simply not there. Our own estimates suggest that private 5G still accounts for less than 1% of the broader 5G RAN market. The same type of incremental revenue can be seen on the operator side of things.
This does not mean that the slower start, of course, does not impact our long-term growth thesis. We still remain very optimistic about future potential, especially when it comes to industrial settings. We talk about manufacturing plants, logistics, warehouses, airports, and mining scenarios where connectivity is from a Wi-Fi network, or where the outdoor public mobile network is insufficient. I'm not saying that this kind of connectivity is no use to enterprises. But for now, I would say that the opportunity for private 5G networks is greater.
Overall, we will see a lot of growth ahead after a slower start. I think Amara’s Law is going to come into play: We will probably continue to overshoot a little bit over the short term, but there is no doubt in my mind that most of us will fail to grasp the long-term potential of having access to consistent, high performance, broadband connectivity with licensed spectrum in end devices.
HuaweiTech: What are the technical advantages of 5.5G and 5G Advanced?
Stefan Pongratz: Obviously, massive MIMO has played a pivotal role in getting us to where we are, especially with the with the upper mid-band. There are also incremental improvements slated for 3GPP Release 18 and 5G Advanced. When it comes to Massive MIMO both in downlink and uplink, there are other technology advancements when it comes to coverage.
Overall, I think the estimate is that collectively this type of enhancement will improve this type of efficiency by 10% to 20% in the mobile broadband use case. When it comes to operational efficiencies, there will be much more AI, machine learning, and automation. There will also be several enhancements in energy efficiency that will be important as we now take the next step on the 5G journey, and as we talk about moving beyond mobile broadband into industrial IoT.
The standard has more advancements slated for improved reliability and improved latencies, especially when it comes to RedCap at significant cost and power consumption improvements. So overall, it is a pretty good mixture for technology advancements in mobile broadband and industrial IoT.
HuaweiTech: What is the commercial timing for 5.5G?
Stefan Pongratz: Well, the standard is slated for to be frozen in 2024. If that is the case, we anticipate commercial deployments to become a reality in the 2025 timeframe.
HuaweiTech: What are the challenges and opportunities that exist with 5G2B?
Stefan Pongratz: I think it's a good question. I mean, after all, we have talked about deploying small cell into enterprises now for the past ten years. The reality is that the installed base for enterprise Wi-Fi access point is probably a hundred or nearly a thousand times greater than the private LTE 5G small cell install base. And of course, we keep changing the wrapping around it.
But some of the challenges are still there when it comes to cost, device ecosystem, ecosystem complexity, spectrum availability, and awareness. I think one of the more important trends we are seeing right now is modifying positioning. There has been a lot of effort in basically positioning private LTE and private 5G as Wi-Fi+ in places where Wi-Fi already exists. There is pivot away to what is now selling connectivity.
However, we are seeing improvements. The activity that will continue to trend in the right direction here going forward is awareness. But it is a major challenge. I think there are some disconnects, both from a responsibility and from an outside perspective. In terms of responsibility, for many enterprises, there is still a kind of belief that Wi-Fi is their responsibility. And the seller is responsible to the carrier. That is going to take some time to work through.
But we also should be mindful of the fact that it actually took more than ten years when Wi-Fi started to reach an installed base of 5% to reach 10% of the projected 2027 installed base. In other words, that is ten years to get from 5% to 10% plus access point penetration. In addition to positioning and awareness, I think when it comes to selling private LTE/private 5G, we need to look at the successes. We have had to change the strategy, and the reality that there are now thousands of private wireless deployments in service. Companies can demonstrate tangible benefits when it comes to cycle time, productivity improvements, or downtime.
One of the larger power utilities in China installed a 5G-enabled monitoring system and reported that the inspection duration time was reduced from three days to one hour. In another case, an equipment supplier started utilizing 5G connected cameras along with software to significantly reduce the amount of manual inspection required. They reported that quality improved by more than 95%. We need to basically move away from selling 4.9G (LTE+), 5G, 5.5G, 5G Advanced, 6G, and AI and instead focus on productivity improvements such as cutting three days to one hour, lives saved, and improved quality of life.