After five consecutive years of growth and stable trends in 1H23, the pendulum swung rapidly towards the negative in the second half of the year. Preliminary findings suggest that worldwide telecom equipment revenues across the six telecom programs tracked at the Dell’Oro Group – Broadband Access, Microwave & Optical Transport, Mobile Core Network (MCN), Radio Access Network (RAN), and SP Router & Switch – declined 5% year-over-year (YoY) for the full year 2023, performing worse than expected.
There are multiple forces at play. First and foremost, challenging comparisons in some of the advanced 5G markets with higher 5G population coverage taken together with the slow transition towards 5G SA helped to partially explain steep declines in wireless-based investments. This capex deceleration was not confined to the RAN and MCN segments. Following a couple of years of robust PON investments, operators were able to curtail their home broadband capex as well. This reduction was more than enough to offset positive developments with optical transport and SP routers.
North America subsided faster than expected. Initial readings show that the aggregate telecom equipment market dropped by roughly a fifth in the North America region, underpinned by weak activity in both RAN and Broadband Access. On the bright side, regional dynamics were more favorable outside of the US. Our assessment is that worldwide revenues excluding North America advanced in 2023, as positive developments in the Asia Pacific region were mostly sufficient to offset weaker growth across Europe.
Also contributing to the regional and technology trends is the disruption caused by Covid hoarding and the supply chain crisis. Although this inventory correction was not felt everywhere and varied across the telecom segments, it was more notable in the RAN this past year.
Renewed concerns about macroeconomic conditions, Forex, and higher borrowing costs are also weighing down prospects for growth. The gains in the USD against the Yuan and the Yen are impacting USD-based equipment revenue estimates in China and Japan.
Supplier rankings were mostly unchanged; however, vendor revenue shares shifted slightly in 2023. Still, the overall concentration has not changed – the top 7 suppliers accounted for around 80% of the overall market. One major theme across the various telecom programs is that despite ongoing efforts by the US government to limit Huawei’s addressable market and access to the latest silicon, Huawei still maintains its position as the global telecom equipment leader. In fact, our assessment is that Huawei’s lead widened in 2023, in part because its limited exposure to the North America region was a benefit in 2023 on a relative basis.
Market conditions are expected to remain challenging in 2024, though the decline is projected to be less severe than in 2023. The analyst team is collectively forecasting global telecom equipment revenues to contract 0 to -5% in 2024. Risks are broadly balanced. In addition to currency fluctuations, economic uncertainty, and inventory normalization, there are multiple regions/technology segments that are operating in a non-steady state.
[wp_tech_share]
We just came back from a couple of intense days in Barcelona. Below we will share some initial RAN related thoughts about discussions around industry challenges, AI, 6G, Open RAN, and the 2024 RAN market.
Industry challenges – focus on revenues or cost?
While AI may have been the buzzword at the show, the predominant theme revolved around the broader challenges confronting the industry. Primarily, there’s a pressing need for increased investments to fully leverage the potential with ubiquitous connectivity, yet operators are hesitant to boost investments due to stagnant revenues.
For those familiar with the industry and our RAN research, these challenges are nothing new. The dilemma of balancing costs and revenues has been a recurring topic at MWC for decades. Even if the probability that 5G was going to change the carrier revenue trajectory in the first five years was always small and most analysts base case projections were predicated on the assumption that wireless carrier revenues would remain flat, perhaps what was different this time around was the realization that this hope seems to have diminished for the time being.
Consequently, this year’s focus appears to lean more towards cost reduction rather than revenue growth. Whether discussing 5G-Advanced, AI, automation, “softwarization,” energy efficiency, Open RAN, or future-proofing investments, optimizing TCO through capital and operational savings to enhance the chances of success in a world with constrained revenue growth emerges as a key theme.
Despite the temptation to invest only the bare minimum required to address known challenges, there are still rewards for those who continue to invest in their networks wisely over time. Operators are well aware of the risks associated with underinvestment, hence equipping them with the best tools to foster innovation and lay the groundwork for future monetization opportunities were still important aspects at this year’s event, even if TCO was likely in the driver seat.
How can the RAN industry jump on the AI train?
With Nvidia’s market cap quadrupling in just over a year, the message that AI is important resonated strongly in Barcelona. However, the fundamental question remains: How will AI impact the RAN market? From our perspective, most of the areas discussed in a previously postedAI RAN blogremain unchanged, with the exception of the RAN chip dynamics (the AI blog will be updated soon). To summarize, we are now considering six key areas where AI can directly or indirectly impact the RAN market:
Mobile data traffic
Operator revenue growth
Performance/experience
TCO
RAN algorithms
RAN semi dynamics
Our high-level position has not changed. We believe it is unlikely that AI alone will significantly change the trajectory of mobile data traffic or operator revenue growth. However, it is probable that AI will contribute to enhancing performance and reducing TCO through automation, power consumption optimization, resource utilization, and efficiency improvements. Similarly, it is evident that AI will increasingly influence the entire RAN stack, particularly in the second half of the 5G era and beyond with 6G.
While we do not publish vendor share data for L1 vRAN semis, one notable observation from the show was the heightened activity in this space, especially as vRAN adoption accelerates and AI becomes more integrated. This, combined with operators’ openness to exploring alternative solutions, underlies the surge in PR-related announcements. According to third-party sources, Intel currently dominates the L1 vRAN market. Notably, ARM management believes that market dynamics could shift in the future. During the event, ARM showcased the reach, capacity, and efficiency benefits of Arm-based processors in its booth. Santiago Tenorio, Vodafone’s RAN director, has also emphasized that the “efficiency of the Arm-based architecture will expand the chip and software ecosystem.” Meanwhile, Intel announced several enhancements to its vRAN portfolio, including the vRAN AI development kit and Granite Rapids-D with integrated vRAN boost/AI acceleration.
Riding on its success in the data center, NVIDIA appears now more serious about usings its chips in the RAN. Together with other founding members, NVIDIA recently launched a new AI-RAN Alliance initiative (also announced a new collaboration with Nokia).
The primary objective is to enhance the AI-RAN ecosystem and accelerate AI adoption in the RAN, thereby capitalizing on new revenue opportunities. The alliance is currently focusing on three key areas: asset utilization, new applications, and spectral efficiency, which intersect with the TCO, performance, and operator revenue growth aspects outlined earlier.
RAN infrastructure is typically dimensioned to handle peak usage, resulting in underutilization due to uneven distribution of daily traffic. The concept of C-RAN, introduced in 2010, aimed to address this inefficiency by centralizing resources. While C-RAN architecture is in use today, its widespread adoption has been limited due to economic constraints and reliance on fiber-rich operators.
What distinguishes the current vision is that the RAN evolves into a software workload, benefiting from existing hardware deployed to support non-RAN AI. However, the market is still constrained by stringent performance requirements for real-time sensitive functions. Although AI optimization may extend the range beyond the typical 20 km FH requirement, some challenges from the original C-RAN model are likely to persist.
The Alliance expresses more optimism than us regarding AI’s potential to alter carriers’ revenue trajectories and offset RAN infrastructure investments. Ronnie Vashista, NVIDIA’s SVP for telecom, envisions that networks capable of delivering necessary SLAs for advanced 5G will facilitate more AI applications and spur revenue growth.
6G is all about the RF
Although 6G was not a primary focus at the show, it’s worth mentioning that the few demonstrations we observed aligned with the message we’ve conveyed in both the RAN2030 report and the recentlypublished 6G article. Specifically, the emphasis is on utilizing the 6/7 to 15 GHz spectrum bands as anchor bands. The objective is to maximize the utilization of the existing macro grid, indicating that there is significant RF work required to support wider bandwidths and compensate for the additional path loss compared to the C-band.
Qualcomm estimates that the combination of beamforming gains at 13 GHz and a greater number of antenna elements (4096 vs. 256) will go a long way to address the outdoor link budget gap.
Open RAN is moving forward
The fundamental message we’ve consistently conveyed over the past couple of years, highlighting the resilience of the Open RAN movement despite ongoing challenges with multi-vendor RAN, remained unchanged during MWC. If anything, the event largely reaffirmed the notion that Open RAN is happening and most operators will over time incorporate more openness, virtualization, intelligence, and automation into their RAN roadmaps. The event not only provided improved clarity but also reinforced our assumptions regarding single-vendor versus multi-vendor O-RAN scenarios, while offering some optimism for smaller suppliers.
Several operators announced new commitments to Open RAN during or around the event. As a reminder, our internal tracker indicates approximately 30+ deployments by the end of 2023 (refer to the table in the January Open RAN report). Over the past month, the following operators have announced new deployment commitments: DT Germany, Kyivstar, Mobily, Ooredoo, STC Group, Telefónica, Telus, Vodafone Idea, and Vodafone Romania.
Vodafone reiterated its commitment to its forthcoming 170 K RFQ to address contracts expiring in 2025. The operator has invited 26 suppliers to participate in the RFQ process. Importantly, Vodafone believes that the best MM and non-MM radios currently available on the market, based on performance and energy consumption, are now O-RAN compliant.
Unsurprisingly, the definition of Open RAN varies. For Vodafone, Open RAN encompasses COTS server, open FH, open interfaces to SMO and RIC, integration of third-party radios including MM, support for 2G/4G/5G in Europe (3G in Africa), and FDD/TDD support. Vodafone also clarified that 30% of its European installed base will be multi-vendor RAN, while 100% of the 170 K sites will require O-RAN FH. This further validates the Open RAN movement and presents significant opportunities for both industry leaders and challengers.
Considering that the base case expectation is that RAN concentration will remain high, the event provided some hope for “non-traditional” RAN suppliers. Both Mavenir and Rakuten announced new wins over the past month. If Vodafone Idea secures5G fundingand Mavenir becomes one of the key suppliers (Vodafone Idea mentioned in its earnings call that they could roll out 5G in six to seven months once funding is secured), this could provide a much needed boost for Mavenir’s RAN business.
Additionally, NTT DoCoMo and NEC expanded on their previously announced OREX solutions by forming a joint venture with the primary objective of commercializing Open RAN packages beyond Japan. While it’s still early days with just three live field trials (Ooredoo, StarHub, Smart), the partner list is expanding.
While our Open RAN definitions have consistently included single-vendor Open RAN since we began tracking the segment in 2019, it’s important to note that not everyone has shared the same perspective on single-vendor versus multi-vendor definitions. One notable takeaway from the event and the past few months is the growing consensus that single-vendor Open RAN will indeed play a significant role in this movement. Ultimately, the overarching objective of Open RAN is to enhance supplier diversity and give more power to the operators. At the same time, the state of the North American RAN market in 2023 serves as a reminder that there are two sides to this equation.
RAN is still projected to shrink in 2024
Following a challenging 2023, the state of RAN in 2024 was a major focus in most of our meetings. The assumptions and projections outlined in the latest RAN report still hold. RAN conditions are expected to remain difficult with global RAN declining at a mid-single-digit rate this year. Most of the key players we’ve spoken with are for the most part in agreement, though risks remain significant in especially India, North America, and Europe.
In short, it was yet another exciting event. As we always emphasize, the RAN market may not be the fastest growing, but beneath that relatively flat top line, there’s a wealth of activity and opportunities to stand out. This summary doesn’t delve much into 5G-Advanced, FWA, private wireless, and NTN, but we may include more blogs on these topics in the future. If you have any further questions, please don’t hesitate to reach out. We’re planning to release updates to the Telecom Capex and Private Wireless reports in the second half of March.
[wp_tech_share]
Near the end of last year, there were a number of public announcements highlighting the growing adoption of 25GS-PON. Arguably the most important of these was Google Fiber’s announcement that it will be using 25GS-PON along with a Wi-Fi 7 router to deliver symmetric 20Gbps residential services through its Gfiber Labs Division. Currently, Gfiber Labs is delivering the 20Gbps service to the University of Missouri-Kansas City and the United Way of Utah County, but plans to expand availability to individual subscribers in select markets, including Kansas City, Raleigh-Durham, as well as markets in Arizona and Iowa.
The 20Gbps service tier is intended for power users and is priced accordingly at $250 per month. But as Wi-Fi 7 devices including phones, laptops, tablets, and TVs, begin to proliferate in the home, the need for each of these devices to access data at multi-gig speeds will also grow. As part of its announcement, Google shared a number of demonstrations designed to showcase what is available through the combination of 20Gbps of bandwidth and Wi-Fi 7, including a total throughput of 15Gbps across multiple devices using Wi-Fi 7’s MLO (MultiLink Operation) capability, and 25ms latency between a wired game console and a WI-Fi mesh extender.
Google’s cache as an innovative ISP, along with its demonstrated ability to change the competitive dynamics in the markets where it offers FTTH services has helped spark additional industry interest in 25GS-PON for not only high-end residential services but also services for enterprises, campus environments, access network aggregation, as well as wholesale connections.
Membership in the 25GS-PON MSA (Multi-Source Agreement) Group has grown substantially, now encompassing a diverse range of service providers, equipment vendors, and component suppliers. Most importantly, product development for critical equipment, including ONTs and coexistence elements, has accelerated. At least 10 different ONT vendors have joined the MSA. These vendors all have decades of experience designing ONTs as either OEMs or ODMs. Having a diverse vendor ecosystem for ONTs is critical for service providers to feel comfortable deploying the technology. In January, Actiontec announced its XVG-99SK, a 25GS-PON SFP ONT that is already in tests with customers and partners. We expect additional ONTs to be announced as the year progresses, likely corresponding with expected service provider field trials and deployments.
25GS-PON Window Staying Open Longer
One of the driving factors for the growing interest is 25GS-PON is its ability to coexist with GPON and XGS-PON without having to deploy additional feeder fiber, splitters, or other ODN elements. The other is the ability for service providers to expand the addressable markets of their PON networks to support residential, enterprise, mobile transport, and wholesale services over a shared infrastructure with sub-millisecond latency and guaranteed capacity.
Those two factors are why there are now nearly 900KK 25Gbps-Capable OLT ports in service provider networks around the world. In our most recent 5-year forecast, published in January, we estimate that a total of 23,400 of these 25Gbps-capable OLT ports were actually purchased by service providers to support revenue-bearing traffic, with the bulk of these being purchased in North America and Western Europe.
We expect these purchases to increase to over 200k OLT ports by 2028, We see more scenarios now in which service providers are relying on on XGS-PON to deliver broadband to the vast majority of their residential subscribers while also layering on 25GS-PON to offer premium tiers of 10Gbps or more, as well as enterprise connectivity, all at just a small incremental increase in cost.
With average annual growth rates in bandwidth consumption returning to more normal, pre-pandemic levels, the need to dramatically increase billboard speeds has become less pressing. Instead, the focus for service providers now is how to maximize their access infrastructure investments to flatten the network and address more use cases and market segments, while also building sustainable networks that consume less power than their predecessors. These are the target characteristics of hybrid XGS and 25GS-PON networks.
Because of our more normalized expectations for bandwidth growth, along with conversations with both equipment vendors and service providers, we have reduced our short-term forecasts for 50G-PON, pushing out the ramp in adoption from 2026 to 2028. Though we do expect to see early deployments of asymmetric 50/25 PON, primarily in China, work to define the specification for symmetric 50G-PON is still underway. Symmetric speeds are what service providers want to deploy going forward, so the vast majority of those considering 50G-PON as their next step will likely have to wait until at least 2026 for product availability. Even then, there is no guarantee that the expected higher costs associated with the required transmitters, DSPs (Digital Signal Processors), and ADCs (Analog-to-Digital Converters) will be reduced with volume shipments.
The additional time required for all elements of the 50G-PON ecosystem to mature keeps the window open longer for 25GS-PON, as enterprises will demand symmetric 10Gbps+ speeds to their facilities to allow them to continue expanding their reliance on cloud-based services. Additionally, service providers, like Google Fiber, will continue to innovate their residential broadband offerings, staying in front of cable’s DOCSIS 3.1 Plus and DOCSIS 4.0 service offerings.
[wp_tech_share]
5G has come a long way since the Korean operators launched mobile 5G in early 2019. In the first five years, operators have invested around $0.4 T globally in 5G-related capex, deploying 20 M+ macro and small cell radios. Even so, the results are mixed. From a RAN investment and coverage perspective, 5G has accelerated at a much faster pace than previous mobile technologies. Preliminary findings suggest that 5G already covers around 45% of the global population, according to Ericsson’s Mobility Report. To put things into perspective, LTE reached the same milestone in early 2016. In addition to the reduced gap between the advanced and less advanced markets, the capacity boost realized with the upper mid-band taken together with the proliferation of Massive MIMO is providing a step function reduction in data delivery costs. The SK Telecom 5G/6G white paper focusing on 5G lessons points to a 70% reduction in cost-per-bit relative to LTE. At the same time, 5G has so far been mostly about improving the economics and increasing the data buckets for the existing use cases. However, 5G has so far had limited success in expanding the use cases and reversing the carrier revenue trajectory.
As we look to the next phase of this 5G journey, any incremental technology advancements that can improve spectral efficiencies will be valuable in a world where spectrum is limited and both humans and machines consume increasingly greater amounts of data. Additionally, any enhancements that can promote the growth prospects for Enterprise/Private 5G and Cellular IoT (cIoT)—ultimately helping to realize more aspects of the broader 5G vision—will also play an important role in this next phase. The objective of this blog is to provide updates on the 5G Advanced blogs we previously posted and to review the technologies, opportunities, and RAN implications with 5G-Advanced/5.5G.
What is 5G-Advanced?
The 3GPP roadmap is continuously evolving to fulfill the larger 5G vision. In this initial 5G wave that began in 2018, 3GPP has already completed three major releases (new releases every 1.5 to 2 years): 15, 16, and 17.
These initial releases have been key to the success of both MBB and FWA. But there are still shortcomings that need to be addressed, in order to fulfill the broader 5G vision. Current plans for Release 18 and beyond (often referred to as 5G-Advanced or 5.5G) involve gradual technology improvements aimed at elevating 5G to the next level, creating a foundation for more demanding applications and a broader set of use cases. In addition to performance improvements and support for new applications, sustainability and intelligent network automation are also important building blocks in the broader 5G-Advanced vision (Ericsson).
Source: Huawei
Current priorities with 5G-Advanced include:
More capacity and better performance. Some estimates suggest that MIMO enhancements, better beam management, and full duplex technologies taken together with other advancements, including multi-band serving cell (MB-SC) and Extremely Large Antenna Array (ELAA) will deliver another 20% of efficiency improvements relative to today’s 5G. Enhanced uplink (UL) and multi-cell UL improvements could pave the way for greater data rate and latency improvements in the UL. For reference, Huawei defines 5G-Advanced as a site that can support at least 10 Gbps of cell capacity. ZTE is also targeting 10 Gbps+ with 5G-Advanced.
Expanded coverage. In addition to MIMO and IAB coverage enhancements, 5G-Advanced includes Non-Terrestrial Network (NTN) connectivity improvements, building on the NR/LTE-based NTN support that was introduced with Release 17.
More intelligence. Releases 15-17 already include some AI/ML features. 5G-Advanced will offer AI/ML enhancements in the RAN (including the air interface) and the management layers. In addition, Intelligent RAN and AI-powered analytics will help operators to improve the performance and proactively address network issues before they become a problem.
Energy savings. Release 18 includes a confluence of static and dynamic power-saving enhancements for the radios and the overall RAN. Also, the specification is targeting to define a base station energy consumption model with various KPIs to better evaluate transmission and reception consumption/savings.
Flexible spectrum (FD, DSS, CA). NR is currently based on TDD or FDD spectrum. Full duplex (FD), a 5G-Advanced contender, improves spectrum utilization by allowing UL and DL to share the same spectrum (FD should improve capacity and latency, especially in the UL). Release 18 also includes DSS capacity enhancements (increasing PDCCH capacity by allowing NR PDCCH to be transmitted in symbols overlapping with LTE CRS). Other spectrum-related upgrades with 5G-Advanced include multi-carrier enhancements and NR support for dedicated spectrum bandwidths below 5 MHz.
Critical IoT. 5G-Advanced includes multiple industrial and IoT related advancements. Release 17 included support for Time Sensitive Networking (TSN), which will be expanded in 5G-Advanced to support Deterministic Networking (DetNet).
RedCap IoT. NR-Light or Reduced Capability (RedCap) was introduced with 3GPP NR Release 17. 5G-Advanced will introduce lower-tier RedCap devices, seeking to find a better set of tradeoffs between cost, performance, and power consumption.
Ambient IoT. Passive IoT, sometimes referred to as Ambient IoT, will allow devices/objects to connect without a power source.
Sensing. Harmonized communication and sensing (HCS) is a Release 19 study item.
Positioning. Positioning is already supported in Release 16/17, though 5G-Advanced is expected to improve positioning accuracy and power consumption (Nokia has said sub-10 cm positioning is doable). In addition, Release 18 will include support for RedCap devices.
Source: Nokia
Where are the opportunities?
Looking ahead, operators will continue to invest in new RAN technologies and architectures that will allow them to better navigate stable carrier revenue trends and increased network complexities. 5G-Advanced is not the only toolkit. But it will play an important part as the operators incorporate more virtualization, intelligence, and automation into their RAN roadmaps. AI and ML already play a role in current 5G, and they are expected to penetrate further across the RAN stack.
It might not be the most exciting revenue growth opportunity for carriers, but one fundamental aspect of 5G-Advanced will be to support more demanding consumer MBB applications. The days of exponential data traffic growth are clearly in the past; however, global mobile data traffic is still projected to increase threefold over the next five years, reaching 0.5 ZB/month by 2028 (mobile plus FWA). While operators are currently in a fairly good position from a capacity perspective, especially those not aggressively pursuing FWA, some of the technology improvements with 5G-Advanced can help to address capacity limitations in hotspot areas.
Since the base case is built on the assumption that AR/VR will comprise only a small part of total mobile data traffic throughout the forecast period, the successful introduction of a new AR device for the masses could significantly alter the data traffic growth trajectory and corresponding RAN requirements.
With 5G RAN growth now slowing and carrier revenues staying flat, both operators and enterprises appear cautiously optimistic about the industrial focus promised by 5G-Advanced. Private LTE/5G is trending in the right direction, but the market remains small. The slower start is not impacting the long-term growth thesis: proliferating cellular connectivity into enterprises and industrial settings where WiFi or public cellular connectivity is poor remains a massive growth opportunity. Although LTE and 5G NR Releases 15-17 are sufficient to address the majority of existing use cases, 5G-Advanced will provide important IoT and industry-focused enhancements.
Fueled by the vision that 5G has a growing role to play in the Factory of the Future, expectations for 5G and 5G-Advanced in manufacturing are rising. While WiFi and LTE still dominate the smart manufacturing connectivity market, our assessment indicates that 5G RAN revenues to support the manufacturing vertical are on the rise. In fact, manufacturing already accounts for a double-digit share of Huawei’s, Nokia’s, and Ericsson’s ongoing private wireless projects. Huawei recently reported that manufacturing constitutes approximately 40% of its enterprise ToB revenues, and its enterprise 5G RAN revenues experienced rapid growth in 2023
Nonetheless, it is still early days outside of China, and the majority of enterprises are in the exploratory phase when it comes to using 5G-based AGVs, Digital Twin, AR/VR, and quality inspections. The improved reliability, latencies, device costs, positioning accuracy, and UL throughput should all contribute to improving the industrial 5G business case, but as with most enterprise verticals, it will take time.
Another area gaining attention is RedCap, a 5G NR-based cellular IoT technology introduced in Release 17 and further improved in Release 18. RedCap offers “slimmed down” 5G capabilities, targeting mid-tier IoT use cases that require reasonable bandwidth and robust battery life, albeit not the most stringent latency requirements (though still suitable for many applications). Bearing in mind that the industry has been discussing Cellular IoT for decades now, expectations are more tempered this time around
Passive IoT, sometimes referred to as ambient IoT, is also contributing to the renewed interest in Cellular IoT. In addition to the improved economics compared to RFID-based sensors, Passive 5G-Advanced IoT solutions are expected to be advantageous from a power consumption perspective. According to Huawei, some passive IoT devices (C tags) should potentially consume 100 times less power than NB-IoT devices.
What does this mean for the RAN forecast?
After a couple of years of exponential growth, 5G RAN investments are now slowing. Yet, it is still early in the broader 5G cycle, and total 5G NR plus 5G-Advanced RAN revenues are poised for further gains. Although the base case assumes that 5G-Advanced will not trigger another capex cycle, Release 18 and future releases are expected to play pivotal roles in this next chapter of 5G.
Predicated on the assumption that ongoing trials are successful, the ecosystem is in good standing, and the first part of the 5G-Advanced standard will be frozen in early 2024, the first wave of commercial deployments could become a reality by the second half of 2024 and into 2025.
5G-Advanced encompasses a broad array of technology enhancements. Some operators are already planning to upgrade their networks to support 10 Gbps (China Mobile recently announced the completion of 1K 5G-Advanced gNBs using 260 MHz of BW), while others might focus more on the IoT aspect. The majority of 5G base stations deployed in the latter part of the forecast period will incorporate some 3GPP Release 18+ features.
In short, 5G-Advanced is soon ready for prime time, with initial commercial deployments commencing in 2024. There is nothing wrong with a little bit of optimism and thinking big. At the same time, following the mixed results in the first 5G wave and the resulting rise in skepticism about the broader 5G business case, the industry now has an opportunity to recalibrate expectations.
[wp_tech_share]
About three years ago, Zscaler’s CEO Jay Chaudhry expressed a viewpoint in an SDxCentral article that distanced the company from the SD-WAN market. Chaudhry stated, “Network security is not really very meaningful. We decouple network access and application access with zero trust. We don’t put people on the network, we connect a person to a particular application or service. If you believe that network and security should be decoupled, there’s no reason for Zscaler to get into the SD-WAN space.” This stance highlighted a philosophy focused on securing direct application connections rather than managing the broader network layer.
Fast forward to last week’s Zscaler Zero Trust (ZT) SD-WAN announcement. Zscaler unveiled a strategic pivot that places them squarely into the SD-WAN space, indicating a significant expansion of their focus towards networking. By introducing new hardware appliances, the Z connector series, Zscaler targets small to medium-sized branches, aiming to blend zero trust security with SD-WAN capabilities. This move positions Zscaler as a competitor against existing SD-WAN behemoths like Cisco, departing from Chaudhry’s earlier assertions.
I had the opportunity to sit down with Zscaler this week for a briefing on the new Z connector appliance family encompassing three models: the ZT 400, ZT600, and ZT 800. The hardware appliances range in performance from 200Mbps to 1Gbps, which Zscaler stated was sufficient for small to medium branches. Zscaler admitted the need for higher throughput hardware and is actively investigating. Until faster hardware arrives, customers must rely on the VM-based software appliance (Zscaler Branch Connector) that can scale horizontally with 3rd-party load balancers.
A critical application of Zscaler’s strategy is enhancing IoT environments, with the appliances featuring IoT device discovery, yet, notably, they do not include Wi-Fi capabilities. Distinctively, Zscaler adopts a subscription-based model for its Z connector appliances, marking a departure from most of the industry’s standard practice of selling hardware solely through a capital expenditure (Capex) model. Details on the pricing remain confidential, with an announcement scheduled for this month (February) alongside the release of the Z connector software.
Zscaler’s SD-WAN strategy presents a streamlined, cloud-based alternative to complex traditional networking frameworks, emphasizing ease of management. The conversation underscored Zscaler’s potential to enhance or supplant current SD-WAN infrastructures. Yet, Zscaler recognizes its significant challenges in evolving into a hardware-centric enterprise. These challenges span the spectrum from regulatory compliance and establishing efficient distribution networks to ensuring next-day hardware replacement capabilities and bolstering support services. Additionally, Zscaler is focused on refining its SD-WAN solutions to enhance competitiveness and expand its offerings to support larger branch networks, necessitating integration with campus and Network Access Control (NAC) systems (in the vein of “Universal ZTNA”).
Adopting Zscaler Z-connector appliances positions Zscaler as a central network provider, managing secure application access via its Zero Trust Exchange and linking an enterprise’s operational integrity to its performance. This shift towards consuming a secure network as a service, akin to how cloud services for servers and storage are utilized, marks a significant change in enterprise networking that may feel foreign to some. Networking goes from hardware with blinking lights to an ephemeral service from the cloud. Despite this, it’s part of an industry-wide transformation, with other progressive vendors like Aryaka, Cato Networks, Cloudflare, and Versa Networks offering some or all their network services in a similar fashion.
This trend toward network as a service, the SASE framework, and multi-cloud networking are key pillars of my Distributed Cloud Network concept, which I discussed in my op-ed on SDxCentral. Collectively, these elements represent the future of enterprise networking, integrating new technology and consumption models into the broader, evolving landscape of enterprise IT strategies.
Zscaler’s evolution from sidestepping SD-WAN by exclusively relying on integrations with third-party SD-WAN vendors to now offering SD-WAN capabilities natively underscores the company’s adaptability and strategic growth. This shift highlights Zscaler’s responsiveness to changing market dynamics and marks a significant new chapter in its journey as a single-vendor SASE provider.
My SWOT analysis follows:
Strengths
Market-leading SSE with a strong security focus with zero trust architecture.
Simplified cloud management and deployment.
Targeted solutions for small to medium-sized branches.
Adoption of a modern subscription-based business model.
Weaknesses:
New entrant in the hardware-focused networking market.
Limited hardware portfolio breadth.
Pricing strategy not clearly defined.
Convincing established customers to switch from traditional vendors and approaches may pose challenges.
ZIA and ZPA are built on separate technology stacks and operate as distinct networks, unlike some newer SASE vendors that utilize a single network with a common technology stack. Having separate technology stacks/networks increases the risk of subpar networking performance and reliability.
Opportunities:
Rising demand for integrated security and networking solutions.
Shift towards service-oriented and cloud-based network management.
Opportunity to capture a niche market looking for simplified SD-WAN solutions.
Threats:
Competition from better-established SD-WAN vendors like Cisco, Fortinet, and Palo Alto Networks.
Resistance from customers loyal to traditional networking methods that rely on more of the security and networking smarts embedded in each SD-WAN device.
Need for continuous innovation in a rapidly changing SD-WAN and security landscape.
Newer SASE vendors offering a unified technology stack across functions may appeal to customers seeking streamlined solutions, posing a competitive threat to Zscaler’s dual-product approach.