NOK Nokia Corp

By Adria Calatayud

As the backlash against Huawei Technologies Co. continues, cellphone operators worldwide are coming to terms with an unpleasant truth: there aren't many rival equipment makers around.

Accelerating the development of alternatives to established vendors might help to diversify supply chains. However, industry executives and analysts warn that these alternatives, which have been years in the making, will take time to materialize.

U.S.-led scrutiny of Huawei has boosted interest in finding alternative vendors. A bipartisan group of U.S. senators introduced a bill to subsidize the development of open-architecture network technologies--which would standardize networks to allow software to run on equipment coming from nearly any hardware maker. This would reduce reliance on Huawei and create opportunities for new players to enter the market.

Scrutiny of Huawei has put the business of making telecom gear in the spotlight as much as the Chinese company itself. The market is currently dominated by a trio of vendors--Huawei, Sweden's Ericsson AB and Finland's Nokia Corp.--which gives telecom operators a limited choice as they start to invest in the deployment of next-generation 5G networks.

In countries like the U.K.--where the government has limited the role of Huawei in 5G networks--telecom operators that haven't reduced their exposure to the Chinese company already are expected to book extra costs to do so. The telecom industry is hoping that having more players in the market will diversify supply chains, reducing risk and lowering costs.

"There was more choice of network equipment suppliers 15 years ago than there is now and the industry is keen on expanding that vendor ecosystem," Vodafone Group PLC's Head of Network Strategy and Architecture, Santiago Tenorio, told Dow Jones Newswires.

Telecom operators are pushing for change in the telecom-equipment market. Two international alliances of tech and telecom companies, universities and research centers are trying to develop networks that source gear from multiple vendors, which could attract new players to the market.

"Everybody wants it to happen," said Janardan Menon, technology analyst at brokerage Liberum Capital. Mr. Menon expects progress to be slow but steady, and cautioned that it could take years before these open-architecture networks become a reality.

The O-RAN Alliance--which counts U.S. cell carriers Verizon Communications Inc., AT&T Inc. and Sprint Corp. as well as China Mobile Ltd. and Japan's SoftBank Corp. among its members--is creating an ecosystem of new products that will support multi-vendor, interoperable radio-access networks. Meanwhile, the Telecom Infra Project, whose members include Facebook Inc. and Vodafone among others, is working on similar projects. Tech giants such as Intel Corp., Qualcomm Inc. and South Korea's Samsung Electronics Co. are backing both groups.

Nokia is also a member of both the O-RAN Alliance and the Telecom Infra Project. Ericsson has engaged with the O-RAN Alliance, which the Swedish company sees as aligning closer to its goals, but not with the Telecom Infra Project.

"Ericsson is actively contributing towards O-RAN specifications to make it a viable alternative in the future," an Ericssson spokesperson said. Nokia and Huawei didn't respond to requests for comment.

The O-RAN Alliance and the Telecom Infra Project in February agreed to collaborate on 5G radio-access networks. They reached a liaison deal that allows for sharing information, referencing specifications and conducting joint testing.

Although some 4G projects using these open-architecture are already in operation, the technology isn't yet ready to be deployed at scale. Facebook and Telefonica have launched a telecom-infrastructure company in Peru called Internet para Todos, which relies on so-called open radio-access network, or OpenRAN. Meanwhile, Vodafone is testing OpenRAN in rural parts of the U.K., following trials in South Africa and Turkey.

"OpenRAN is ready to be deployed commercially in pockets of the network, but not at scale throughout a market yet," Mr. Tenorio said. "None of the smaller providers which OpenRAN is bringing into the market are ready yet to compete at scale with the likes of Nokia, Ericsson and Huawei," he added.

To be sure, the development of open-architecture networks began before Huawei's woes. The Telecom Infra Project was launched four years ago, and the O-RAN Alliance was formed in 2018 through the combination of two projects with shared goals.

There is no major U.S. manufacturer of cellular equipment currently, even though the U.S. is the biggest market in the industry for telecom equipment. The rise of open-architecture networks could create opportunities for smaller companies like Parallel Wireless, Mavenir or Altiostar, all of them based in the U.S., to have a say in the future of telecom networks.

It is unlikely that these new entrants take revenue from Huawei, Ericsson or Nokia in the next few years, said Liberum's Mr. Menon. However, as the market begins to perceive that there are alternatives to the trio, their valuations could be hit, Mr. Menon said.

Write to Adria Calatayud at adria.calatayud@dowjones.com

(END) Dow Jones Newswires

March 13, 2020 07:24 ET (11:24 GMT)

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