During the GSM era, base stations were the engineering 'crown jewels' of an infrastructure manufacturer’s business. They worked hard at improving basestation performance and reliability, and vendors took great pride in offering equipment with the highest sensitivity or longest time between failures.
To some extent this pride and effort was justified because base stations lead a hard life and failure was (and still is) expensive for network operators. But some of this bravado was pure luxury as base-station price margins in the GSM days were very large. This allowed manufacturers to indulge in over-engineering their products and to perform all the design in-house.
The situation is very different at the dawn of the 3G era. Various factors – including operators getting wise to high prices, the slowdown in telecoms spending and an abundance of equipment vendors – have reduced base-station price margins to zero or less. As a result, vendors are starting to design for price, rather than just for performance.
A commoditization process is occurring. This is shown by much shorter product-development cycles. Another sign of commoditization is the growing interest in the creation of open interfaces between base-station subsystems. Shorter product life cycles indicate that basestation engineers and their suppliers are aware of the need to cut costs. If vendors develop a new base station every three years instead of every seven, they should benefit from increased margins. Indeed, second-generation UMTS base stations are appearing now, with the third-generation in the design phase. This would have been unthinkable during the GSM era.
The move to standard interfaces is being led by groups such as the Open Base Station Architecture Initiative (OBSAI), which is championed by Nokia, and the Ericsson-led Common Public Radio Interface (CPRI). They are standardizing the interfaces between different parts of the base station.
While standards are crucial for the commoditization process, questions remain regarding the true motives of OBSAI and CPRI. One view is that vendors are desperate to achieve profitable base-station businesses and this has over-ruled their engineers’ desire for the best in-house design. For this scenario base-station manufacturers will follow handset makers and become system integrators. The other view is that the leaders of OBSAI and CPRI see their in-house solutions as superior enough to displace the competition.
At PA Consulting Group we are engaged in a healthy debate about which strategic direction the base-station market will take. Our current view is that base-station vendors will soon evolve into system integrators.
Subscribe to PA's On wireless newsletter
To keep up to date on the latest thinking in wireless communications, subscribe to PA's newsletter 'On wireless' - click here to request
