The calendar might say winter is officially months away, but the harsh cold has already started to settle in for the open radio access network (RAN) market. The question now is how will the ecosystem financially handle what is predicted to be several years of limited sun and what role could governments play in that survival.

The open RAN market has been a steadily growing market since it coalesced around the O-RAN Alliance in early 2018. Over those past five trips around the sun, the market has managed to dig out a growing piece of the lucrative telecommunications infrastructure market despite logistical and technological challenges.

However, analysts are now predicting that initial heat burst is set to dramatically cool.

Joe Madden, lead analyst at Mobile Experts, told attendees at this week’s Cable-Tec Expo 2023 that most vendors have been able to reap the financial rewards – or at least stability – of massive 5G network investments to this point, but his forecasts show vendors need to bundle up or risk financial frost bite.

“I refer to the cycles of the telecom business as summertime and wintertime,” Madden said. “You just had the summer of 5G where we were deploying lots of base stations, everything was groovy. But now things are down. Earnings announcements are coming out and they’re  on the negative side. The companies that are really betting big on open RAN, they're going to have to survive the winter, three years of low revenue or maybe kind of the same as where they are right now, and then see growth later. I am not sure their VC investors are going to like that.”

Why Open RAN revenue will drop

Madden forecasts that open RAN-related revenues peaked in 2022 at just over $2 billion; will dip slightly this year; and then drop to a $1.5 billion per year run rate between 2024 and 2026.

Madden’s sentiment echoed that of Iyad Tarazi, president and CEO of private 5G network platform provider Federated Wireless, who earlier this year told SDxCentral that the open RAN market and broader ecosystem has indeed hit a financial inflection point.

“It’s to be seen. I’m sure that it is to be determined,” Tarazi said of the vitality of the overall open RAN ecosystem. “The defining moments of the last 12 months – and I can tell you because I am working it myself – is everybody has to transition from innovation companies thriving on easy money with low interest rates into companies that have solid, repeatable and profitable business models.”

Tarazi said that a sound business model will be essential for these open RAN firms to navigate the near-term turbulence.

“I view the business model innovation as important as the technology innovation,” Tarazi said. “Those companies that are smart enough and have the right support and help with the right, smart people and helpers that can help them innovate their business model as well as the technology, they will thrive in the future.”

Open RAN firms feeling the freeze

Tarazi flatly stated that those that don’t have this level of support or have the right business model will suffer.

“We are going to see a rearrangement across the board, whether we like it or not. These rearrangements are healthy,” Tarazi said. “I think the [open RAN] ecosystem will continue to thrive and grow. The players themselves, it’s an individual evolution piece. Every player either will have to find the right niche, the right plan, the right business model, the right alignment, the right arrangement. And my advice to everyone is the sooner you think of the business model, the sooner you’ll thrive. Technology’s not enough.”

Some have already caved to this pressure.

Parallel Wireless, for instance, was forced last year to cut jobs tied to a broader corporate strategy realignment focused on what it called a “marathon” rather than a “sprint.”

In a LinkedIn post, Parallel Wireless CEO, chairman and cofounder Steve Papa wrote that the “significant reset” of the company’s business plan would get the vendor back to a business model it had adopted prior to the COVID-19 pandemic. He indicated this included the job cuts and “re-organizing roles” as well as “correcting wrong assumptions made in haste.”

Published reports indicated that Parallel Wireless cut as many as half of its approximately 700 employees, which came just months after it had said it planned to double its headcount by the end of 2022.

“While there are plenty of forced and unforced errors in our sprint that we could debate, they are part and parcel to any ambitious undertaking,” Papa added.

Mavenir, which Dell’Oro Group singled out as posting a drop in open RAN revenue share over the past several quarters, managed earlier this year to score $100 million in new funding. That could be key as Dell’Oro Group replaced Mavenir with Rakuten Symphony as one of its “top four open RAN suppliers by revenue” for the first half of this year.

Government’s role in bankrolling open RAN

Many are looking toward governments to help provide heat for the oncoming open RAN winter. Much of this is based on these governments using regulatory pressure to steer the telecom ecosystem toward open RAN architectures.

Federal Communications Commission (FCC) Chairwoman Jessica Rosenworcel earlier this year tied the U.S. government’s various funding initiatives to help support domestic operators to “rip-and-replace” legacy equipment from China-based vendor’s like Huawei and ZTE.

“This effort is now underway, though completion by carriers depends, in part, on further funds from Congress for the reimbursement program – and that is key,” Rosenworcel said. “When we set up this reimbursement program, we also made clear this was an opportunity for carriers to transition to open radio access network systems. In the long run, these systems can help diversify the technology in our networks and grow the market for more secure 5G equipment.”

The FCC had previously reported America’s wireless network infrastructure included at least 24,000 pieces of Huawei or ZTE equipment spanning about 8,400 locations.

The FCC program, which sprang from the Secure Equipment Act of 2021, earmarked billions of dollars to help operators replace existing network infrastructure from China-based vendors. However, many telecom industry groups have questioned the financial depth of that support.

The United Kingdom has followed a similar path, mandating that all of that country’s operators replace equipment from China-based vendors by 2027.

However, these efforts have been stymied by a lack of vendor depth. Most of the telecom vendors that were around to support 3G and 4G LTE network deployments were allowed to consolidate over the past decade, which has left two main providers in Ericsson and Nokia and some smaller players like Samsung and Cisco.

Governments are attempting to fill some of that open RAN investment void.

The National Telecommunications and Information Administration (NTIA) recently completed a 5G Challenge event that provided “winners” with access to $7 million in prize money for showing interoperability across radio units (RUs) and combined central units (CUs) and distributed units (DUs). Those winners included Mavenir, Radisys, JMA, Fujitsu and AT&T.

That financial support could be crucial to open RAN equipment providers as they continue to work on technology maturity required to gain broader market traction.

Margaret Pinson, video quality subject matter expert at NTIA, explained during this week’s Cable-Tec Expo that the open RAN ecosystem is still several years away from hitting a deployment maturity plateau.

“It's only been five years since the O-RAN Alliance was formed and this puts us really at the beginning of the product development lifecycle,” Pinson said. “We expect at least 10 years to go from a concrete, solid idea to a really robust deployable product. If you think of where open RAN is it’s really toward the beginning of that. There's just a lot of maturity that needs to happen.”

Thomas Rumbelow, head of open RAN policy and research and development for the United Kingdom Department of Science, Innovation and Technology, said his government is actively looking at ways to maintain the ecosystem while it continues to evolve.

“You don't want the smaller tier-two vendors to be really struggling,” Rumbelow said, citing how many of those vendors are reliant on a fickle VC market. “Telecom isn't a sexy industry. VCs are going to be pumping money into [artificial intelligence], quantum, that kind of stuff. It’s not an easy sale [for telecom]. So how do we make sure these guys can commercialize, stay solvent and not just get bought up by the big guys and be in a position that when we are getting to [2026, 2027, 2028] that we still have vibrant market innovations that’s happening today.”