But overall, RAN market declines at the fastest pace in seven years, led by North America
While analysts talk up the growing expenditure in fibre broadband and data centres, the radio access network (RAN) market segment is fading away after its four-year expansion phase.
Analysts Dell’Oro suggests that after plateauing for 2022 and 1Q23 RAN, revenues declined at their fastest pace in seven years in the second quarter. Although a drop off was expected, the rate of decline surprised that analysts.
To coin another analyst firm Gartner, 5G services seem to have hit the “Trough of Disillusionment” phase on their hype cycle.
“It is tempting to point the finger at data traffic patterns, 5G monetisation challenges, and the odds stacked against an economy struggling with persistent levels of elevated inflation,” said Dell’Oro Group VP Stefan Pongratz.
He added: “Although these are, of course, important factors, we attribute the poor performance in the quarter to the clouds forming in North America. Alongside challenging 5G comparisons, the decline was amplified by the extra inventory accumulated over the past couple of years to mitigate supply chain risks.”
Dell’Oro’s Q2 2023 RAN report confirmed Huawei, Ericsson, Nokia, ZTE, and Samsung as the leading RAN suppliers with Nokia recording the largest RAN revenue share gains between 2022 and 1H23. Ericsson and Samsung’s RAN revenue shares declined between 2022 and 1H23.
Huawei huge
Huawei’s quarterly RAN share reached the highest level in three years. Huawei’s 2Q23 RAN revenue share outside of North America was as large as Ericsson and Nokia combined. This is not surprising given Huawei’s domestic market. China Mobile recently reported that at the end of June 2023, it had 1.761 million 5G base stations, including 578,000 using 700MHz. It is now providing services to 393m 5G network customers.
Pongratz said global RAN revenues are expected to decline in 2023. “Regional projections are mostly unchanged; however, the short-term outlook has been revised upward in APAC excluding China and downward in the North American region,” he said.
Capex cuts reflect the smaller spend
Even in Q1, there were signs of the impending cuts in mobile spend. Analyst firm Omdia’s Global Telecoms Capex Tracker – which tracks capex for the top 10 global operators representing around 47% of spend – saw significant cuts from Deutsche Telekom and Verizon after years of heavy investment in their US mobile networks.
Omdia concurred with Dell’Oro that APAC would lead to slight growth in mobile spend, offsetting declines elsewhere. Overall, Omdia forecasts that global telco capex will grow 1% in 2023, driven by 5G deployments in Asia.
In its fiscal year ending March 2024, Vodafone announced plans to reallocate investment toward customer experience and brand. The telco will spend $162m and $108m on those areas, respectively. Vodafone said it will also allocate its capex to regions with better return on capital employed (ROCE).
Where next for RAN when 5G Advanced arrives
In just four years, operators have invested more than $300bn globally in 5G-related capex, deploying more than 15m macro and small cell radios – the heightened interest in ROCE is hardly surprising. Pongratz however believes that despite the slowdown, it is still early in the broader 5G cycle.
“Our baseline scenario rests on the assumption that the 5G cycle will be longer and deeper than the LTE investment phase. And even though the base case is not hinging on the premise that 5G-Advanced will drive another capex cycle, Release 18 and future releases are expected to play important roles in this next part of the 5G journey,” he wrote in a blog.
“Predicated on the assumption that the first part of the 5G-Advanced standard will be frozen in early 2024, commercial deployments could become a reality by 2025. If so, a significant portion of the 5G base stations deployed in 2027 will include some 3GPP Release 18 features,” he added. “Before we set unrealistic expectations, it is important to keep in mind that it took more than 10 years for enterprises to achieve an enterprise Wi-Fi installed base of 5% to 10% of the projected 2027 installed base.”