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Core Network Market to Be Extended as Digital Transformation Demand Rising

by Guang Yang | Apr 23, 2020

New Opportunities Emerging for 5G Standalone Architecture

China Mobile announced the result of its 5G Standalone Architecture (SA) core network tender on April 7th. China Mobile will deploy two sets of 5G core networks for B2C market and B2B market respectively - a significant change compared with the legacy 3G and 4G networks.. The contract value of B2B core network is estimated about 15% that of the B2C network.

This represents a transformation of China Mobile’s growth strategy. Enterprise and Industrial IoT have become the hope for China Mobile to gain growth momentum in the 5G era. That is why China Mobile insists that it will deploy SA core network rather than Non-Standalone Architecture (NSA) as most of the operators outside China are doing. The SA core network should enable China Mobile to serve the diverse requirements of vertical industries while keeping network costs at a reasonable level.

In the same week, Deutsche Telekom switched on the first 5G SA private network at the Center Connected Industry (CCI) at RWTH Aachen Campus. The network is running in Deutsche Telekom’s 5G spectrum, while the network server, standalone core and radio system are all located on the campus, so the network can provide dedicated connectivity to the campus area. This private URLLC deployment indicates a new growth opportunity for 5G, particularly the SA core network.

Vertical Players Desire 5G SA Capabilities

As telecom service providers start to deploy dedicated 5G SA networks for vertical markets, leading vertical industry players are also showing strong interest in the capabilities that 5G SA brings. In September 2019, Siemens collaborated with Qualcomm for the first private 5G SA network in a live industrial environment using the 3.7-3.8GHz band that has been allocated to private 5G networks by the German regulators. “Industrial 5G is the gateway to an all-encompassing, wireless network for production, maintenance, and logistics. High data rates, ultra-reliable transmission, and extremely low latencies will allow significant increases in efficiency and flexibility in industrial added value,” said Eckard Eberle, CEO Process Automation at Siemens.

In February 2020, Lufthansa Technik and Vodafone Business built an SA private 5G campus network at the 8,500 square meters Lufthansa base at Hamburg Airport. Based on dedicated spectrum for private 5G, the network is completely independent from the public one, from the server and the core, to the antenna. With a capacity of more than one gigabit per second (Gbps) and latency times of less than ten milliseconds (ms), the private 5G SA network is “the perfect solution” for the connected Lufthansa base. 

SLA is Key for Vertical Market

All these players – either telecom service providers or vertical industries – see 5G standalone architecture is best suited to support mission-critical applications that require an ultra-short response time.

As pointed by Antje Williams, SVP 5G Campus Networks, Deutsche Telekom, “5G networks are particularly suited to industrial uses with demanding performance requirements.” Actually the network performance and QoS – that is reflected to the requirements in the agreements between the customers and service providers, the corresponding Service Level Agreements (SLAs) – has become the important differentiator for telecom service providers in enterprise and vertical markets.”

“The key issue for enterprise 5G is how to show SLAs to the customer. If you can do that, you can sell anything,” according to Arnaud Vamparys, Senior VP Radio Networks and 5G champion, Orange (refer to Strategy Analytics whitepaper 5G Positioning & Pricing Strategies). 

Therefore, core network’s role in the entire mobile network becomes more important in 5G era, particularly for vertical markets. Core network functions traditionally handle subscriber management, call processing, mobility management, etc. for the mobile communication system. Now with 5G SA network slicing software, the core network delivers effective end-to-end SLA management for the mobile communication system. This is a great step that enables the mobile industry to enter broader industrial markets.

Dedicated 5G core network for enterprise and verticals can enable service providers to support vertical partner’s digital transformation from multiple dimensions. Ultra-reliability low latency (URLLC) and high reliability connectivity (HRLLC) can enable major enhancements for multiple sectors - flexible manufacturing, smart ports, smart mining, etc. - through accurate remote control, automated guided vehicles (AGVs), automated failure detection, etc. The dedicated network deployment can securely isolate data and protect data privacy. These are important requirements for the vertical industries that are adopting 5G into their production processes. The network automation features of 5G core network can enable vertical players to customize their networks flexibly and easily. With SDN control industrial users can orchestrate, schedule and manage network service parameters to flexibly deploy networks and applications, or add or delete User Equipment (UE) devices.

5G Core Network Market Size Expands

This opportunity is also attracting the cloud service giants. Amazon, Google and Microsoft are all partnering with telecom service providers to deploy computing services at the edge of 5G networks to extend their cloud service portfolio. Microsoft recently acquired Affirmed Networks - a specialist of fully virtualized, cloud-native core network solutions. Microsoft hopes the acquisition will “evolve our work with the telecommunications industry, building on our secure and trusted cloud platform for operators.” The value of the deal may be up to $1 billion, according to CNBC’s report, while the total value that Affirmed raised before this acquisition is $155 million.

The impact of the COVID-19 crisis on the global economy further highlights the need for 5G enabled digital transformation. In our recent blog Should Mobile Operators Push Back 5G Plans to 2021?, we discussed 5G’s contribution to the COVID-19 response effort by supporting remote medical treatment through cloud robots or unmanned vehicles and online consultation. Strategy Analytics believes COVID-19 could cause many businesses to accelerate their plans for digital transformation. 5G has an important role to play in creating positive outcomes from current disruptions.

We analysed the possible deployment scenarios for private 5G networks in enterprise applications in our earlier report Where is the 5G Enterprise Opportunity for Telecom Operators?.  Private networks could even share spectrum and 5G base stations with the public mobile network in some cases. The 5G SA Service Based Architecture (SBA) core now offers service functions (SFs) to enterprise customers to support their digital transformation. This will expand the potential market size for core network functionality in the emerging intelligent and highly automated enterprise and vertical industrial markets. It is too early to estimate the magnitude of the additional market for 5G Core software that digital transformation and Industry 4.0 demand could bring. The enterprise market for these applications is still evolving and many service providers have not fully decided their B2B strategies. But China Mobile’s case indeed indicates significant market opportunities.  
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