Hello, ladies and gentlemen, and welcome to our Nokia Mobile Networks Progress Update event. I'm David Mulholland, Head of Nokia Investor Relations, and today in Espoo with me is Pekka Lundmark, our President and CEO, along with Tommi Uitto, our President of Mobile Networks. Before we get started, a quick disclaimer: During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our investor relations website.
In terms of the agenda for today, Pekka will provide a brief introduction on his perspective of the progress we've made this year before Tommi then provides you with a presentation to explain the progress we've made in technology leadership in Mobile Networks, how we see our addressable market evolving, and then some thoughts on the trends we see related to O-RAN and Cloud RAN and how they might impact our business. We expect the presentation section will last for around 45 minutes, and then we'll move to a Q and A section. For those looking for it, the presentation can be found on our investor relations website. With that, over to you, Pekka.
Thank you, David, and thank you all for joining us today. Before we talk about Mobile Networks, I want to say a few words about how we want to communicate with you going forward. As we said at our Capital Markets Day in March, we are taking steps to further improve our investor communications. We want to give you the information you need as clearly and as simply as possible. The key steps we have taken are summarized on the slide. We have streamlined our financial reporting. We have become more transparent about the underlying progress in our business performance, and we have been providing a balanced outlook commentary and brought greater visibility to our ESG achievements. We also appreciate that sometimes there can be too much information to fully digest in a single event.
While we will continue to hold capital market days, they will probably not become annual events. Instead, we feel it is better to give regular progress updates focused on a specific business group where you can hear directly from the business group presidents. After all, our business groups are fully accountable for their performance, so it makes sense for them to explain their own journey. We want to increase predictability, so you can expect to hear at least once a year from each business group. These events will focus on our strategy, products, and technology and will not be updates on our financial outlook. Today, we start with Mobile Networks, which makes sense because of how much progress they have made this year. But before I hand over to Tommi, let me remind you of two things. The first one is our reset agenda.
Against all of the metrics we had for this key focus area, I believe we have made meaningful progress, as you can see on this slide. We have taken significant steps to strengthen our technology leadership. Just to name a couple of product highlights, in June, we launched our next-generation AirScale 5G product family, which Tommi will talk about in a moment. In September, we launched our next-generation FP5 routing silicon. Our new operating model and divisional structure have now been firmly embedded, and I'm really pleased with how quickly the team has started to demonstrate the benefits of increased accountability. We are continuing to optimize our cost base and ensure we make the right investments to drive technology leadership in our target areas.
We have also adopted a new purpose and started the process of renewing our culture, and we have streamlined our leadership team structure to further increase accountability and agility. In short, 2021 has been the year of the reset. I'm proud of the progress we have made despite the ongoing and industry-wide supply challenges. We have created a strong foundation for ourselves as we move towards the accelerate stage of our three-phase plan. The second thing I want to comment on quickly is that while today is not meant to be an update on financials, I am really pleased with the financial progress we have made this year. You can see the key figures on screen. These are, of course, familiar figures.
In the first nine months of this year, we have delivered 6% constant currency growth year to date, expanded our comparable gross margin by 270 basis points, and significantly strengthened our net cash position. I'd like to remind you that these numbers have had some one-offs, one-off benefits, which combined with cost inflation and supply chain uncertainty, may limit our margin expansion potential in 2022. That said, I believe we are firmly on track to take Nokia to the next phase of our plan. Mobile Networks has made great progress in key focus areas this year, and that is testament to the entire team's hard work and commitment.
With that, let me hand over to Tommi to give you more details.
Thank you, Pekka. Thank you all for joining us today. My name is indeed Tommi Uitto. I led the product part of Nokia's Mobile Networks in 2019 and 2020. As of 1st January this year, I have been leading the complete Mobile Networks business of products, R&D, services and network management. Today I want to take you on the journey that we have been on in Mobile Networks this year to help you understand how we see the future opportunities ahead of us. I will touch on some of the proof points of how we have executed this year before we look at how we're working to secure product technology and services leadership, how we see our addressable market evolving, and the next iterations of mobile technology in 5G Advanced and preparation for 6G.
Finally, I will also address our positioning on Open RAN and Cloud RAN, which are topics we understand raise some questions among investors, but which we believe can be very much an opportunity for us at Nokia. If you cast your mind back to my presentation at our Capital Markets Day in March, we committed to four action items for this year, and I believe we have executed very well on those. The first commitment was to secure our product portfolio competitiveness, in particular in 5G. I will touch on this in more detail shortly, but with our AirScale portfolio launch in June, together with the 5G network performance improvements, I believe we have delivered on that and closed the gap to competition. In some areas, we even set the benchmark in the industry and got ahead of competition.
For instance, with the industry's lightest high power 400 MHz bandwidth Massive MIMO with 32 TRX, capacity and connectivity of our new SoC-based multi-radio baseband, and some features like the 3-component carrier aggregation and Voice over New Radio or VoNR. The second commitment was to improve our 5G momentum and deal-making with CSPs and private wireless. Enabled by the new competitive portfolio and roadmaps, we have now stabilized our 4G to 5G conversion rate, and I'm optimistic we have opportunities that it could start to improve again. In private wireless, we have grown from 260 customers at the start of the year to 380 in Q3. Even if most of them include 4G radio, already more than 70 of those cases include 5G radio. Then we continue to invest in our O-RAN capabilities.
The platforms we launched in June are all Open RAN ready. We are working on the open interfaces and the cloud platforms. We have had our full-fledged Cloud RAN with both virtualized CU and virtualized DU with hardware acceleration in trials already with our first contracted customers. Finally, on our cost base, we have continued to invest heavily in R&D to ensure we achieve technology leadership in 5G and beyond. Despite that investment, the improvements we have made in the cost competitiveness of our products and services, together with efficiency improvements in SG&A, have put us on a path to deliver a much better operating margin this year than we initially forecast. Let's get into some details of the strengths and merits of our renewed RAN product portfolio.
It's actually a very exciting time for mobile networks, and I feel that we have now all bases loaded to secure 5G technology leadership. We have launched our new SoC-based AirScale radios, including the industry's lightest high power 400 MHz 32 TRX Massive MIMO. These radios, of course, contribute to our 50% reduction in power consumption of Massive MIMO radios from 2019 to 2023. Our AirScale baseband is now the industry benchmark for connectivity, capacity, and flexibility. It also comes with significantly improved energy efficiency, reducing the baseband power consumption by up to 75% compared to the previous baseline. This also contributes to our commitment to have the total base station power consumption by 2023. We're on track to power our full portfolio with the latest ReefShark System-on-Chips or SoCs by end of 2022.
Finally, this year we brought together our software to a common development trunk, which means updates to system software from 2G to 5G in one single release, bringing our customers the speed, operational efficiency, and quality that they need. The customer feedback has been humbling. For example, Johan Wibergh, Group Technology Officer at Vodafone, just recently acknowledged Nokia to be truly back in 5G. Similarly, Telia Company CEO Allison Kirkby told media that Nokia has fully caught up competition in 5G. I will take you through a closer look at the portfolio, but before this, let's see a short video.
Alongside coverage, capacity is becoming a real focus area for 5G. We are the essential service behind the essential services, and we know that delivering superior 5G services is a capacity play.
It is clear that 5G networks will need even more capacity, more bandwidth, and more speed.
Leveraging the power of our latest ReefShark SoCs, we're raising the bar with our new generation of AirScale baseband, Massive MIMO antennas, and traditional radios. We're bringing higher performance, higher capacity, higher efficiency with lower weight. The modularity of Nokia's AirScale baseband and its new plug-in cards allow us to scale capacity in line with traffic growth. The new generation of Nokia plug-in cards for the AirScale base station allow us to efficiently scale up capacity. With our partner Nokia, we continue to make our 5G network better every single day.
Nokia is a trusted partner for critical networks. The networks that will play an increasingly important role for both society and the economy, and underpin more and more mission-critical functions. For these critical networks, 5G is the key technology. Let me explain why our new SoC-based multi-radio baseband has become the benchmark in our industry. Multi-radio means, of course, that we now tick the box of having the same hardware for different radio access technologies like 4G and 5G. In a baseband platform, there are six competitive factors that are above everything else. Data throughput capacity, in other words, how many gigabits can be pushed through the system per second. Simultaneously connected subscriber connectivity, in other words, how many subscribers can be connected simultaneously through the baseband system. Maximum cell connectivity, in other words, how many radio cells can be connected to the system.
Power consumption, in other words, the power consumption of the entire system or power consumption per gigabit per second per subscriber per cell. Scalability of the capacity. You see, when traffic volume grows, the so-called layer one and layer two processing need grows faster than the so-called layer three and transport processing need. This is why we keep those functions on separate boards. You have one or two common boards for layer three and transport, and then you can add up to six layer one, layer two boards as you need. If you have all the functions, layer one, layer two, layer three, and transport on the same monolithic board or pizza box, you end up buying and paying for layer three and transport capacity that you don't need or use.
This architecture is also more future-proof because there are empty slots in the chassis, and you can keep adding new boards as you go, rather than taking the risk of having to swap the whole pizza box if there are new features in 3GPP that would require new processors. We know this all too well from the past. Our Flexi base station architecture from almost two decades ago had that pizza box architecture, and it just became clumsy in network evolution. We have packaged the latest baseband SoCs in a form factor of a single board too, but this product is rather positioned as an entry-level product for low capacity or rural base station sites where high capacity would not be needed. Finally, there's plenty of headroom in our new SoCs to make them able to support many features introduced in new software releases, new features requiring further computing capacity.
Here, among all these competitive factors, we lead in almost all of them, and where we don't, we are on par. Let's move on to the radio units. We have a complete portfolio to serve any capacity and coverage needs of operators and enterprise. Anything from our unique 3-sector RF modules to 4 TRX single-sector radio heads to 8 TRX radio heads to 32 TRX and 64 TRX Massive MIMO with beamforming to integrated passive active antennas where we are the market leader. These platforms are versatile in enabling us to spin any frequency variant with minimum effort and customization with design for manufacturing, design for logistics, and design for serviceability in mind. Let's look at the Massive MIMO radio platform. There, the key competitiveness factors are volume, i.e., size, weight, occupied bandwidth, instantaneous bandwidth, and power efficiency.
Size and weight are important because of cost of installation, the cost of the supporting site structures, and of course, visual impact. The bandwidths have to be wide enough to support operator spectrum holdings today, but also the spectrum they may get in the future. Wide bandwidths are also important for operators who combine their spectrum assets to share a network or who may do so in the future. Power efficiency is basically the ratio of output power and input power. The nature of wireless technology is that you do need output power for capacity and coverage. That's just the laws of physics. What is key is the ratio between input and output power, and that's the way to reduce power consumption for a given required level of output power.
Our new fully SoC-based AirScale Massive MIMO platform features industry-widest bandwidths, industry lightest high-power 32 TRX Massive MIMO products. We, of course, have also a new sleek 64 TRX product in this platform as well, but we have focused optimizing size and weight more for the 32 TRX because that configuration enjoys and will enjoy the largest volumes in the world. Let's talk about the heart and brain of base stations, the SoCs, the silicon. Since the beginning of 2019, we have tripled the size of our SoC design team. We diversified the SoC partner base, and we now work with Broadcom, Intel, and Marvell in alphabetical order. Thanks to this, we now have all bases loaded with SoCs. Let me explain.
We can simplify a bit and say that there are at least three distinct computing functions, each requiring specific type of processors in a base station if you are to fully optimize performance, cost, and scalability. As discussed earlier, Layer 1 processing, Layer 2, Layer 3 processing in baseband, digital front-end or DFE, also known as digital predistortion in radio units. In Massive MIMO radios, there's also the so-called Layer 1 low and beamforming as the fourth function. For reasons that will become evident shortly, I also show eCPRI here as a computing function. eCPRI is the 25 Gbps interface between baseband and radio units. Nokia entered the 5G era without any SoC capable of 5G Layer 1, Layer 1 low and beamforming, and eCPRI. We had to resort to FPGAs for those functions.
Back in 2020, our main challenge was to get out of using such expensive and power-hungry FPGAs as fast as possible. By the way, FPGAs are also difficult to program for these use cases, especially when you have to optimize the use of the FPGA. The first job of the expanded SoC workforce and our SoC partners was to introduce SoCs for these functions with the fastest possible time to market, and they are now all available and shipping in volumes. We have now had the next generation of ReefShark SoCs in development for quite some time. These chips will be 5 nanometer silicon technology, which will be the best technology available at that time, because at that time, 3 nanometer technology is not yet mature. That's how you know you will be in the lead in terms of the use of semiconductor technology.
We will continue to push aggressively this boundary as semiconductor technology develops further. The way we typically work here in SoC space is that we develop some of the IP blocks for the chips, the partner develops some of the IP, and then the partner packages our IP, their IP, and third-party IPs in an SoC design and takes it to foundry. There has been some discussion in our industry about access to the latest semiconductor technologies. We believe that being on path to 5 nanometer is critical to achieve the required capacity, connectivity, performance, size, weight, power consumption, et cetera. You can offset some of that deficiency with software and good algorithms if you don't have the latest silicon, but not all of it. This may over time create an advantage to those suppliers who have access to latest silicon technologies.
Where we are now is the result of hard and focused execution by my renewed R&D team that I am so proud about. On our strategic priority to build technology leadership by improving our portfolio competitiveness over the past three years, I am extremely proud about how far we have come. We have done well to improve our R&D productivity, quality, predictability, and overall capacity and output. We made significant progress in increasing our R&D capacity and output during 2019, 2020, 2021. Our 5G R&D headcount was increased by approximately 60% from the beginning of 2019 until the end of this year.
At the same time, our 5G software feature output in terms of so-called harvested hours and number of features normalized for feature size increased by 130% during the same time period, outpacing the increase in our headcount and demonstrating improved efficiency and productivity. In other words, the feature output improvement is a combination of increased R&D headcount and improved R&D efficiency. At the same time, actually it's really part of the same phenomenon, we have improved in all operational and quality KPIs, whether internal or external. For example, our feature build accuracy has increased from 60% to 90%. Definition of Done or DoD compliance has shot up from 30% to almost 100%, and our total fault inflow reduced by 30% between second quarter of 2019 and third quarter of 2021.
A few words on services which are an important driver for our competitiveness. Many of our customers buy services attached to the products such as network planning and optimization and deployment services. Of course, all of our customers naturally buy technical support services for the products. The more competitive our attached services are, the better the overall solution. The more profitable our attached services are when customers buy services attached to products, the better the overall profitability. What this also means is that we have embarked on shaping the mix of our business as we want to become less heavy on lower margin deployment business, especially turnkey. With continued focus on digitizing service delivery, we can enhance speed and quality of deployments, maximize network quality while reducing TCO for our customers and improving our margins.
A couple of hot examples are explained on the slide, in more detail with our work on driverless acceptance, site design automation, and intelligent issue resolution with Nokia Digital Assistant with, machine learning techniques. Our increased R&D capacity has enabled us to not only introduce new hardware platforms, but accelerate feature development. Some features impact network performance, such as throughput or coverage, while other features enable new services such as voice over NR or VoNR. Let's see how we have been doing this year in downlink throughput. In other words, the data speed from network to a device in 5G. The data in these graphs was crowdsourced by Tutela Technologies from one of the South Korean networks that has 5G radio from three different suppliers in different areas of South Korea.
Crowdsourced data is meaningful in that there are millions of data points gathered by apps in iOS and Android devices in the background of using the apps, and it is therefore much more representative of the real customer experience than drive tests where tricks can be played with deep packet inspection and policy control. The upper graph on the left is showing the evolution of average downlink data speed in the three suppliers radio networks of this operator this year. You can see that downlink speed in the network supplied by Nokia, the blue curve, jumped during the summertime. That's when we upgraded to our release 21A.
The bars at the bottom on the left show the average data speeds per city or region, and this shows that the Nokia network, again with the blue stack, is present in important cities such as Busan with lots of traffic, making it more challenging to achieve high speeds. If you then look at the user experience specifically more than just the basic KPIs, look at the graph on the right. The data on user experience in video conferencing and cloud gaming shows that the Nokia supplied area delivers very good quality, more of the dark green portion of the bars, and has also the lowest share of the bad experience samples in the data. We take pride in optimizing network performance, not just for the basic KPIs, but the real customer experience per service.
South Korea was the first country to launch 5G networks in the world on April 3rd, 2019, and we supply all three networks there in the home market of one of our key competitors. Let's look at how we are doing in the rest of the world since then. Today, Nokia is a radio supplier in approximately 40% of all launched 5G networks, and we supply half of all countries that have live 5G. Further, we have 59 5G standalone deals with nine of those networks live. Since the beginning of 2019, we have won 30 completely new radio customers that we did not have prior to 2019. In the same time period, we managed to increase our radio market share in 23 existing accounts where we were already supplying.
Since the beginning of 2019 to date, we have won approximately half of all the geopolitical opportunities that have arisen. All of this has helped us offset some of the market share loss that we experienced in North America and of course in China, though the latter was less detrimental in terms of margins. As reported alongside our Q3 earnings, our 4G to 5G conversion rate, excluding China, has therefore stabilized at around 90%, and we still have opportunity to grow it. More than anything, I believe this speaks both for the strong relationship we have with our customers and the renewed trust they have in our 5G technology.
A lot of what has been now discussed was focused on the CSP space, but one of the other success stories we've had this year is the continued growth of our private wireless business, which has expanded to now include over 380 customers, of which over 70 are on 5G radio. We have highlighted in the past the verticals we target in different industries, but today I wanted to give you two concrete examples of customers that we are working on in this space. Lufthansa Technik has deployed a Nokia 5G private wireless solution to enable virtual engine parts inspection. Their technicians use 5G-enabled mobile devices to allow customers to remotely attend engine parts inspections. Entering pilot stage just before the pandemic, the solution quickly demonstrated its value and quickly moved from trial to business-critical infrastructure of Lufthansa operations.
We have another brief video to explain more.
A table inspection is where all the experts gather around the engine to make a decision on how to proceed with the engine repair. Before we had the virtual table inspection, customers actually were required to travel to Hamburg to be here inside the hangar to see and inspect their engine parts. The virtual table inspection, we've done that on Wi-Fi. It does not work so well because we have cranes moving around, we have big engines, so we have a lot of metal. 5G enables us to have a reliable stream being handed over as we move across the hangar from access point to access point, from cell to cell, without having any connection drops anymore.
The major benefit for our customers, which are the airlines for Lufthansa Technik, they can have a stable, high-quality video stream so that they can see little sub-millimeter scratches, they can see on their end. With beamforming, we have an advantage while we're moving around. You have always, where you are in this specific moment, the highest possible download or upload rate, whatever you need. Before we thought maybe in the future we would do like 50% of our turbine inspection virtually. We had to do 100% of our turbine inspection, we had to do them virtually. We were really glad that this 5G network was already in place, and it was really mission-critical for us.
I think the highlights of the Nokia solution for us was the day when we activated the network, and it worked. Not one minute unwanted downtime in the whole year, so this network, it just works, and it's stable. That was nice. For me personally, the best highlight was for the first time I heard the customer saying, "Okay, this is a crystal clear image. This is, how the virtual table inspection can be done. We have actually a very, very strong cooperation with Nokia because we are on the front end of this whole development of 5G. We are very happy that they want to share their knowledge, and we are sharing our industrial knowledge with them.
The cooperation with Nokia has been very good. As soon as there have been technical questions or detailed technical questions, and Nokia was always there with the right people at the right time. We were very satisfied with the cooperation with Nokia.
Isn't that fantastic? We have also just recently announced our work with Agnico Eagle in Finland, who is using a 5G standalone network to bring connectivity both on the surface and up to, or should I say down to one kilometer below ground for its people, sensors, devices, and vehicles. In fact, some of the machinery will be autonomous and remotely controlled over 5G. The solution will both improve operational efficiency and increase the level of safety for the teams working at the mine. We are still in the early stages of what we believe will be a significant opportunity in 5G private wireless over the next decade, and we recognize that much more work is still needing to be done to prove the whole business.
We have the solutions today, and we are working with customers, channel partners, distributors, and CSP partners to prove the business case exists. I would like to finish this section of the presentation before we start to look more into the future of our industry with a brief revisit of what we said in March and how we have fared, including our financials in mobile networks. Pekka mentioned that these events are not intended to be focused on financials, but we still want to give you a summary picture of how we see it in my scope. We have clearly executed ahead of the schedule and much faster in 2021 than we expected in March. I'm pleased to say that this has really been down to focusing on those factors that we highlighted on this slide at the CMD.
As we strengthen our product competitiveness, maintain and build scale, manage the cost base, we do see a positive trajectory for our margins. Pekka has previously highlighted that we face some uncertainties related to our supply chain, both in terms of component availability and cost inflation as we looked into 2022. The challenging situation makes it difficult at this point to comment on the short term, but I want to make our ambition for the business long-term clear. While we presented a target at our CMD for 5%-8% operating margin comparable by 2023, our ambition continues to expand beyond that. Like I said back in March, in this business, one should make north of 10% operating margin.
As we execute on our strategy, and specifically on those focus areas of scale, competitiveness, technology leadership, and efficiency in our cost base, we have a clear ambition to take this business group to a double-digit comparable operating margin. Let's now start to look forward. I would like to give you a picture of how we see our addressable market evolving over the next decade or so. We currently forecast that between 2021 and 2024, our addressable market for Mobile Networks will grow at a 2% CAGR excluding China. We have been questioned about the sustainability of the current demand cycle and whether 2021 might be the peak. While growth will likely slow down a bit, we do not see a peak yet, and particularly as private wireless starts to become more material in volumes, we believe there is good scope for our market to grow.
Even when we do see the 5G-related peak in CSPs building 5G for mobile broadband connectivity in wide area, we believe that industry spending is then more stable for a few years as private wireless ramps up and fills the gap between that point with the CSPs and when 6G investments start to pick up towards the end of the current decade. I would also remind you of one other commitment Nokia made at the CMD, which was to grow faster than the market in our outlook for 2023, and we believe we are putting Mobile Networks on that same trajectory relative to its addressable market as we push towards technology leadership. Preparing for future opportunities starts now.
In 5G, beyond building the basic coverage and capacity for mobile broadband connectivity, our key focus areas include the following: industrial 5G use cases, private wireless networks, IoT solutions, sold through our CSP customers, through channel partners, and in some cases direct. More advanced applications and services utilizing 4G, 5G slicing, AI and ML, and new IoT capabilities. Improved network efficiency with automation and energy efficiency improvements. Network architecture evolution utilizing Cloud RAN and partly O-RAN. With 5G Advanced introduced for the second part of the 5G decade and cycle the following. Actually, this one I will discuss in more detail on the next slide, but it will enable new usage areas while also improving user experience and different services availability. Towards the end of the decade, we will then start introducing 6G.
It is still early stages on the 6G journey, but we envision it to bring massively more capacity, new spectrum bands such as sub-terahertz and very low FDD bands, and a new golden band from 7 GHz up, requiring more sophisticated Massive MIMO, adaptive AI-based air interface or AI air interface, and more use of machine learning techniques. When the time of 6G comes, we should not assume that we can all start from a clean slate. Our customers will want to ensure seamless evolution of network architectures, 5G, 6G products, user equipment, platforms, chipsets and software. It's going to be an exciting evolution from 5G to 6G, but first, there's still a lot to gain from basic 5G and 5G Advanced. Let's take a look at 5G Advanced. Here are some of its planned characteristics.
Extending 5G coverage and connectivity with link budget, beamforming improvements, side link for vehicles, and RedCap for wearables and industrial sensors. We actually used to call RedCap eMTC or Extreme Machine-Type Communication in the past. Expanding 5G functionality with even 10-centimeter accuracy in positioning, timing synchronization, and all sorts of IoT improvements. Enhanced 5G user experience for humans with edge computing and mobility improvements for use cases like cloud gaming and extended reality. Actually, extended reality can be expected to become a killer app in the 5G Advanced era. SNS Intelligence predicts that there will be over 100 million XR users by 2025 and 1 billion by 2030 enabled by 5G Advanced.
Finally, 5G Advanced is also planned to boost network operability, network optimization, and network efficiency, including energy efficiency for that matter, by leveraging data analytics, machine learning, centralized baseband unit resiliency, slicing enhancement, and more. For the final section of my presentation, I want to address more directly a key question we get often from investors, which is, what does O-RAN and Cloud RAN mean for Nokia's business? Let's start with some background. O-RAN Alliance was launched in June of 2018 by merging xRAN Forum with C-RAN Alliance. The alliance also works in close collaboration with the Telecom Infrastructure Project, or TIP, whose mission is to deploy end-to-end disaggregated telecom infrastructure in varying environments. There are currently more than 290 contributors in the alliance, 30 of which are operators, and many of them are my largest customers.
The alliance is focused on enabling multi-vendor combinations through open interfaces that it believes could bring lower TCO along with increased programmability. Nokia has been and is the leading contributor in O-RAN Alliance. We are contributing to almost all O-RAN working groups, and we are co-leading two of them. The group working on RAN Intelligent Controller, which is a new innovative network function, and the group working on this open fronthaul interface between radio and baseband. It was Nokia who contributed this open eCPRI 7-2 interface between radio and baseband, or more specifically, radio unit, i.e., the RU, and distributed unit or DU. Here's a picture of the O-RAN architecture shown here vertically with the network functions and open interfaces, some of which have been defined in 3GPP and some in O-RAN.
Generally speaking, O-RAN outlines an architecture with different implementation options, and nothing is mandatory, which adds to the variety. RAN Intelligent Controller or RIC is the only new network function with many potential use cases of AI and ML in network optimization, for example, a sort of API to the radio network. Here, baseband has been split into two parts. You have the centralized unit or CU for non-real-time sensitive Layer two and Layer three processing. You have the distributed unit or DU for Layer one and real-time sensitive Layer two processing. Then there's radio unit for transmitting and receiving radio signal and converting it from and to digital signal. The open interface that is of most interest to CSPs is the open fronthaul between RU and DU. Note that so far I have not said anything about virtualization or Cloud RAN.
O-RAN is really about splitting the base station, about the horizontal disaggregation, even if shown here as a vertical stack in this picture. As such, O-RAN doesn't take a stance on separation of hardware and software. In practice, of course, companies making O-RAN compliant CU and DU software make it for hardware using commercial processors as opposed to custom silicon. That then makes sense to try and make use of benefits of cloud computing in CU and DU, those benefits, which we know from core networks and IT functions. Remember that one of the objectives of CSPs is to lower the entry barrier for new suppliers who can then focus only on RUs, DUs, CUs, only on software or hardware.
In other words, it can be said that O-RAN is about horizontal disaggregation of the base station, whereas Cloud RAN is about vertical disaggregation and separation of the baseband hardware and software. Actually, you can make O-RAN compliant products, DUs and CUs, with purpose-built hardware. You can make Cloud RAN, which is not O-RAN compliant. They, of course, often go together hand in hand. In this picture, the uppermost example shows an O-RAN system with purpose-built hardware where the CU and DU are in the same baseband unit. The picture here is an AirScale baseband chassis to illustrate this example. Here in this picture, the O-RAN is connected to a cloudified core network, so you have the cloud symbol.
The second picture from the top shows an architecture option where the DU and CU are both virtualized and in different locations with an open interface between them, the F1 interface. This shows a cloud symbol for virtualized CU because that function is easier to cloudify than DU, and it can be even co-located in edge clouds or regional edge clouds with, for example, CDN content delivery network, or gateway part of the packet core. The VDU here is shown with a picture of Nokia AirFrame Open Edge Server, but it could be any server, a cloud server optimized for far edge cloud deployments. It is using commercial processors as opposed to custom silicon like Nokia ReefShark.
This virtualized DU can reside at the cell site in a CSP network with the RU, or it can be at most 20 km away from the cell site if we are to make use of the low latency capability of 5G. It’s not really a data center in the classical way of how people think about data centers. It’s a small cloud server. Of course, the radio units then are. Well, they are radio transceivers and they cannot be virtualized. Let’s stop here for a second. What is interesting is that the market has now started to understand that general-purpose processor CPUs are very expensive and power-hungry in Layer 1 processing in a DU. So-called hardware acceleration is needed.
CSPs have now understood and accepted largely that hardware acceleration with add-in cards is needed in cloud servers for Cloud RAN to make any sense. Otherwise, it's just too expensive and power-hungry. There are now several chip suppliers who have announced that they will make commercial O-RAN compatible chips with hardware acceleration for Layer 1. Interestingly, the big three web-scale companies have had hardware acceleration for various workloads in their public service clouds for quite some time. What is also interesting is that even if one uses hardware acceleration, a full-fledged edge cloud or far edge cloud server has higher product cost and consumes more power than purpose-built hardware today. We can expect that this difference may diminish over time, and of course, the overall benefits of cloud computing may eventually outweigh any remaining cost deficiency and power consumption deficiency in a far edge cloud server.
In any event, this deficiency, together with the transport network capabilities and limitations, is one of the factors that is currently slowing down the adoption of Cloud RAN. The third picture from the top shows what can be an enterprise use case where the virtualized DU resides in an on-premises or on-prem server with other workloads in a private wireless network at an industrial campus, for example. In other words, we believe that most of the so-called far edge cloud sites will actually be on-prem in case of enterprise or at cell sites in case of CSP networks. Once again, why are operators, some technology providers, and even some governments after O-RAN? One reason is the programmability, especially the programmability of the RAN intelligent controller, especially if the industry is into introducing open APIs to the architecture.
Another reason is stimulation of innovation by allowing different players to focus on where they can add most value and potentially complement each other's capabilities. There's also the diversification of supplier base. Yet another reason is that operators believe that network prices would come down because of more competition or because of cloud hardware. Further, by having the option of using different suppliers for RUs and then DUs or CUs, operators can avoid costly swaps if a baseband or DU/CU solution must be changed for whatever reason, but by keeping and reusing the existing RUs. Some governments have their geopolitical reasons for supporting O-RAN in the supplier industry. At the same time, there are several engineering challenges to be solved. If base stations are disaggregated, then someone must re-aggregate them for features, for performance, for security, for operational concepts and lifecycle management.
This goes beyond traditional interoperability of 3GPP network elements. The feature sets, the roadmaps, the different implementation options in the spec, the operability concepts, they have to be aligned adequately between the suppliers of RU, DU, and CU. This, of course, has an operational cost still in the foreseeable future. When things go wrong, from time to time they will go wrong, CSPs would want to have clear accountability for the performance of the radio network with one party. O-RAN compliant networks will have to coexist with no or non-O-RAN compliant parts of the network, just like Cloud RAN will have to coexist with purpose-built hardware, at least during the time when they are being built. Then there's the topic of the cost and power consumption.
The O-RAN challenger suppliers are using hardware platforms that use commercial chips and even FPGAs because the technology is still nascent and specifications are maturing. The result is a hardware platform that has a cost and power consumption that is multiple of that of purpose-built hardware with custom silicon. O-RAN Cloud RAN is not necessarily cheaper, at least not anytime soon. As said, the difference can be expected to diminish over time, and then eventually, whatever remaining cost and power consumption deficiency may eventually be more than offset by cloud computing benefits in terms of automation, orchestration, scalability, capacity elasticity. Why then is Nokia so active in both O-RAN and Cloud RAN? First, one can look at this through the lens of innovator's dilemma.
If there will be RAN disaggregation, then experience and history from business world tells us that it's better to be part of defining it, be on the inside track, even if it means disrupting yourself. We can now prepare our SoCs, our hardware platforms, our software platforms for O-RAN and Cloud RAN and prepare ourselves for benefiting from the disruption or minimizing any damage that it could cause. Second, there are the geopolitical and market dynamics at play here. Some governments have outright banned some suppliers, while other governments are taking more subtle measures, and while some operators are worried about these things and the security of supply. Many of these operators are even, and even governments are mandating O-RAN as a requirement to replace some specific suppliers and also to enable and secure supplier diversity and choice.
This is where we can win more than we would lose. You see, there are many large radio networks in the world with two suppliers, but without Nokia today supplying. If operators are considering changing one of those two suppliers, the race will be typically between those who embrace O-RAN and not one of the incumbents. By being a leader in O-RAN among established suppliers, we can win in such replacement cases. We can also compete effectively against O-RAN challengers because we have better radio performance, better algorithms, which is important to maximize spectral efficiency to make the most of what is typically the CSP's most expensive and valuable asset, in other words, the spectrum. We have better robustness, better security, richer feature set, and so on. Third, there's the aspect of innovation.
We do truly believe that RIC as a new network function can add a lot of intelligence innovation to the ecosystem. Further, we already have fantastic multi-vendor references of complementary portfolios between Nokia and another supplier, where we have replaced one of our key competitors at large stadiums and arenas by connecting our baseband system to another supplier's special antenna systems that we don't have in our portfolio, and we shouldn't even have. These cases have been a true win-win-win for the CSP, Nokia, and the antenna system supplier. When you add all these things up, we believe we have more to win than lose. O-RAN is a big trend in our business. I referred to the 30 operators already. We are already engaged with more than 50 of our customers in this topic in general.
I said, if we play this right, we can win more than we would lose. How fast do people then believe O-RAN and Cloud RAN would grow their share? For one, Dell'Oro sees that the 10% threshold would be reached around 2024, 2025 for Open RAN and 25% threshold some 2-3 years later. Before 2024, we would agree with Dell'Oro that O-RAN sales would not reach a meaningful level of scale. Note however, that it is possible that some CSPs will require O-RAN compliance in the contracts and O-RAN compliant products, but still buy both RF and baseband from the same supplier. It's an option for the future. It can also be about performance.
We expect multi-vendor O-RAN to proliferate first in lesser areas with 40X radio, whereas CSPs are typically expected to use the same supplier's massive MIMO radio and baseband in dense urban areas for maximum performance. One way to try to understand these opportunities and threats associated with O-RAN are to consider a few scenarios. In this 2-by-2 matrix, you can see 4 scenarios based on whether O-RAN technology maturity and performance will be low or high, whether operator demand for O-RAN will be low or high. If O-RAN technology does not mature fast enough or perform well enough, we can continue to lead the market with complete vertical as base stations.
If O-RAN technology does mature fast enough and does perform well or even faster than anybody thought, we can win more from the established competitor suppliers by embracing O-RAN more than the others, so that we and more than we would occasionally lose to any new O-RAN challengers. You can draw similar conclusions with Cloud RAN as an adjacent topic and partly overlapping topic with Open RAN. To finish, there are three points I would really like you to take away from my presentation on Mobile Networks progress. Thank you for bearing with me. It's been a little bit techy today. First, we have delivered on the objectives we set for ourselves for 2021, and the results are coming in even faster than we expected.
We believe we have now completed the reset stage, and we can now look forward to accelerating, scaling up, and helping Nokia success in the future with our customers. We have increased our R&D investment, funded that partly by reducing SG&A. We have closed the 5G gap to competition, and in many aspects, we have surpassed competition. We have what it takes to lead the market in 5G Advanced, private wireless networks, Open RAN, Cloud RAN, and towards 6G. We continue to see robust demand for our addressable market. We forecast a 2% CAGR for our Mobile Networks addressable market through 2024. Many of you have been concerned about Open RAN and Cloud RAN and what they might mean for our industry.
I hope I have been able to provide you with some reassurance that we know what to do and we can win more than we would occasionally lose. We are actively and deeply engaged in developing O-RAN and Cloud RAN. We understand the challenges they face, the opportunities they bring, and we believe we have the strategy that will serve us best. Thank you for your attention. Now back to David for the Q and A section.
We'll now move to the Q and A session. As mentioned previously, this event is focused on our products, technology and strategy rather than a financial update. We would ask you kindly to focus your questions in these areas, and we'd also ask that you would limit yourself to one question. Thank you, Tommi and Pekka. We will now move on to the Q and A. As mentioned previously, this event is focused on our products, technology and strategy rather than a financial update. We would ask, therefore, that you would focus your questions today on Mobile Networks, considering we have Tommi with us. As a courtesy to others on the call, please limit yourself to one question and a brief follow-up. Operator, could you please give the instructions for the Q and A?
For the question- and- answer session, if you are viewing the video webcast, please remember to mute the audio on your computer before asking your question as there is a 30-second delay. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before asking your question. To withdraw your question, please press star then two. I will now turn the call back over to Mr. David Mulholland.
Thank you, operator. I think the first question is coming from Simon Leopold of Raymond James. Simon, please go ahead.
David, thank you very much. Appreciate you folks doing this today. This is a good level of detail and helpful. I wanted to go into a little bit more on the Open RAN trend, particularly in light of the letter that European operators published a couple of weeks ago. I guess I'd like to get an understanding of the implications for Nokia. It's not clear what the operators are asking the European community to do and whether or not this means a potential for some funding directly from governments for Nokia. How you see this possibly playing out in the EU? Thank you.
Yeah. It is indeed true that, as O-RAN, like I said, the disaggregation would require that somebody reaggregates for performance and features and operability concepts and so on. That of course does create some additional cost and workload. I believe that operators have approached the European Union and asked for some funding for different types of labs and R&D work required for this type of O-RAN reaggregation and making the different bits and pieces work together. In some cases, it is possible for suppliers also to apply for such funding. We are of course looking at how to tap into that opportunity.
Cool. Thank you, Simon. Our next question comes from Alexander Peterc from Société Générale.
Hi, good afternoon. Thanks for the presentation. It was very, very interesting. Could you maybe expand a little bit on your enterprise strategy Mobile Networks? First of all, we've seen a bit of a slowdown in overall enterprise sales at Nokia. Is that also true in Mobile Networks, and how do you or if you could just set some color on that, how you explain that. Then, you know, as a side question, do you think your current initiatives in private wireless networks are the right route to additional revenue streams in this area? Or would you also consider M&A as seems to be preferred by Ericsson at the moment? And then just finally, as a very quick follow-up, do you have any initial thoughts on what AWS announced yesterday with a private 5G initiative?
Is that going to be a new disruptor or new player in this area? Any thoughts on that? Thanks a lot.
Maybe I take that question because the overall enterprise strategy is of course a group-wide question. Also it's important to understand that when we look at our private wireless system strategy, the responsibility for the system solution is actually within the CNS, Cloud and Network Services division. Of course, the Mobile Networks division provides the radio subsystem for that. Well, first of all, enterprise is 7% of Nokia's sales. We expect that part to grow faster going forward than the CSP part, because obviously that is a fast growth market. We did have some slowdown in our own sales development in Q3, but we also did say that private wireless is actually growing double-digit.
We continue to be bullish about that market opportunity. This is actually validated by some of these latest announcements, including the one from AWS. There are 14 million industrial campuses in this world, and we recently did a study through Bell Labs, which came to a conclusion that 70% of the world's large enterprises would invest in enterprise wireless in the next five years. This is a market that will have different dynamics compared to the traditional CSP market. CSP certainly will be interested in this market, and we have a platform that we call Service Provider as a Partner. In addition to that, we are working with multiple partners to create an ecosystem for all of this.
We are working with web scalers, we are working with other platform companies. We are working with traditional distributors. We are working with the systems integrators. The opportunity is big. It's a fast-moving market. Your question, if I understood it correctly, that have we done enough so far? I don't think anyone can say that because it is such a fast-growing opportunity. We are doubling down on this. We have just some time ago decided to significantly increase our R&D investment in this and also go to market investment in this. We are not announcing any specific M&A strategies, but definitely this is a segment where we are not ruling out any possibilities going forward.
Anything to add, Tommi?
No, nothing much to add.
Thank you. Thank you very much.
Yep.
Cool. Thank you very much, Alex. We'll take our next question from Dominik Olszewski from Morgan Stanley. Dom, please go ahead.
Yes. Afternoon. Thanks for taking the question. Just one really on R&D for Tommi. In the slides, you mentioned a 60% increase in R&D head count directed towards 5G. How should we expect that to develop towards 2023? And specifically talking about the opportunities of advanced 5G and potentially the four-quadrant matrix around O-RAN, 'cause that requires some sort of flexibility. How are you seeing the R&D head count evolving now?
As the head count estimation for the future would automatically imply certain OpEx spend, I can't really comment on that. We will comment on our future outlook then after the Q4 results. As to the O-RAN work, now that the SoCs are O-RAN compliant, it is really about software work, and that's part of our plan.
Thanks, Dom. We'll take the next question from Frank Maaø from DNB. Frank, please go ahead.
Yes. Hi. Thank you for taking the question, and very helpful with all these details and also more longer-term thoughts on that you're sharing. I would like to ask you a little bit about the next generation 5 nanometer process node, the chipset that you announced. First of all, do you expect this to ramp, you know, in the first part of 2023 or how fast would you expect that to ramp compared to the current generation, which is of course taking quite a bit longer time?
How important do you see that your customers see this type of technology roadmap with access to the most advanced cutting-edge process nodes from the foundries? How important they see this really is to have a credible tech roadmap compared to perhaps some of the your competitors that for some reasons, geopolitical or otherwise, don't necessarily have access to the same technology. Is that something that your customers is starting to appreciate the importance of having that type of credible technology roadmap? That's my main question.
If you could also potentially answer to some extent whether or not that next generation chipset would offer you opportunities to design out other materials of your bill of materials to compensate for rising chip prices, such as cooling or casing or, you know, designing out other components to compensate that. That would be very interesting. Thank you.
I should not go into the details of the exact availability dates of any of our processors. What I can say is that when we move to 5 nanometer technology, this industry or this base station functions are probably not the first use case. You would expect some machine learning use cases to be really the first user of that for obvious reasons. But we are then riding that wave, and we believe that when we have 5 nanometer technology in our base station products, well, we will be in the lead. And at that time, nobody has 3 nanometer technology available. I should not really comment on behalf of my competitors.
Generally speaking, experts do say that access to 7 nanometer, 5 nanometer, then 3 nanometer, as opposed to some of the previous process nodes, does have an impact on product, you know, cost, size, power consumption, weight because of power consumption. You need a bigger heat sink and potentially some of the performance, because it could be that some of the algorithms can only be run. They can be so heavy that they can best be run by latest silicon. The third question I actually have to now say I missed. What was the third one?
Frank, do you wanna repeat the question?
Yes. It was just really about whether or not your customers really.
Ah.
appreciate this.
Yeah.
this type of
Yeah. Correct.
Incredible tech roadmap compared to perhaps the ones that they are committed to that don't have the same kind of credibility around that.
Yeah. I shouldn't speculate on what the customers believe or not. You're better off asking them.
Hmm.
Thank you, Frank.
Yeah. Sure.
Thank you.
Thanks, Frank. We'll move to the next question from François-Xavier Bouvignies from UBS. François, go ahead.
Hi. Thank you. I echo what my peers have said about, you know, the usefulness of the presentation. I have two quick ones on the Open RAN, if I may. The first one is, you mentioned the requirements of some of your operators or customers around the compatibility of Open RAN or Open RAN ready. So I wanted to ask you if you can give more color on that. I mean, how much today you think is it in terms of requirement of your customers? And more specifically, how it works exactly, you know, when you have an Open RAN ready, you know, base station radio, how does it work? You can just, you know, enable the feature at some point. How easy it is?
What do you need to do when you enable it? It would be very helpful. The second one is on the integration. You mentioned integration as an important hurdle maybe for Open RAN. What's the situation today on integration? Do you see a solution in terms of possible players being able to do that? Is Nokia interested in doing that? Just to have some color on the integration hurdle and how you see things going forward. Thank you very much.
Yeah. Thank you. Excellent question and, as well, like the previous one. First, this O-RAN compatibility. What it means in practice is that, if I start from the SoC, the System-on-Chip, there are certain things that you have to take into account there, to make sure that they are O-RAN compatible, and that's basically coming from the O-RAN specification. Then the same thing for the hardware platform, so that then the overall hardware platform can then implement or can support the open interfaces. The open interfaces are simply software.
This readiness means that even if an operator would not mix and match different suppliers, RU/DU or CU, they could do so that they may buy RU/DU, CU from one supplier, but they would have the optionality to later change one of these and connect to the existing one. We have now made O-RAN compliance in the SoCs and the hardware platforms default in all of our systems. What it means is that our customers can then software upgrade to these open interfaces when we have them all available. There's more than the open fronthaul, of course. Some customers may not need it immediately. They will take you know whatever standard eCPRI interface or the old eCPRI interface.
They may actually even want to implement the open interface, even if all the different elements come from Nokia. The software upgrade ability is really the key thing there. Then to your question on the integrate-
Is it differentiation?
Pardon?
Sorry, just a follow-up. Is it a differentiation versus your competition, this feature that you offer? Do you-
Yeah, it is a differentiator, especially in case a supplier has hardware platforms that are not prepared for eCPRI 7-2. Because not all platforms in the market support eCPRI 7-2. To your question on integration. Indeed, there is some work, especially this year and in the next few years. There's still some work in the integration to be done. One of the challenges in Open RAN today is that the number of so-called profiles has proliferated and almost exploded. A profile means a configuration between, or a certain combination or permutation of certain type of radio head with certain type of baseband. It is not yet so simple that you could just buy two different things and they would immediately work.
Some integration work is required just for the basic interoperability and getting the performance right. Many operators are looking at us because of our system experience and our insights and our technical capabilities, and they're asking if we could be the integrator. There are some operators who are thinking about doing it by themselves and even selling this type of integration service to the market.
Thank you, François.
Very helpful. Thank you very much.
Thank you, François. We'll take our next question from Sandeep Deshpande from J.P. Morgan. Sandeep, please go ahead.
Thanks for this presentation. Really useful. I have a question on your U.S. market, and then related, but just a quick related follow-up. I mean, you did lose share in the U.S. market, and at the beginning of the year, you had indicated that this would be an impact on 2021. I mean, you are not saying that as such for 2022. Should we be of the view now that most of that impact has flown through the numbers in 2021 on the Mobile Networks? At this point, you're now clearly stating as well that your product is as competitive, if not more competitive even than your competition.
Does that help you know, to reengage with this U.S. customer, and potentially, you know, win back some of that footprint, and does Open RAN help in that case? Thank you.
Yeah. Thank you. Thank you, Sandeep. Like I said, we can't really comment on 2022 today. We will leave that for the Q4 results. If you could hold the question until that time.
Maybe just to clarify one thing, Tommi there, since we have talked so much about this in connection with the 2021 results, and I think I said this in the Q3 communication also that when we look at Q4 year-over-year, and then especially the U.S. markets effect on that impact is definitely going to be there in Q4, which is embedded in our full 2021 guidance. Then when we get to next year, this starts to be significantly less meaningful impact because the biggest hits we have really taken during this year.
We haven't really, after those customers made decisions already around mid-2020, we have not lost anything new in North America. On the contrary, we have had some win back. Overall, we believe that, from this point of view, the worst starts to be over. Of course, in all cases, if you lose market share in a market, then after that your target needs to start winning it back. That, of course, is also our goal in the U.S.
What I could add to that. Thank you, Pekka. In the United States, we have announced publicly two five- year 5G deals with two of the three largest operators and CSPs. That of course makes us quite a strong supplier in the U.S. In terms of the reengagement, of course, all big carriers in the United States are important customers to us. They all have our base stations in their network, which you can see with your bare eye. We of course, with a more competitive product, will be very carefully watching as to how we could do even more business in the United States.
Thank you, Sandeep. We'll take our next question from
Thank you.
Daniel Djurberg from Handelsbanken. Daniel, please go ahead.
Thank you. Thank you, David, for letting me on, and also thank you very much for a super interesting presentation. My question would be a little bit if you could give any more color on the component shortage situation. We heard about long delivery times and so forth, and I wonder if it's more a t o optical switches and IP routing rather than the radio side, the PS side. If you could comment anything on the trend and hopefully progress with regards to your geography or segments would be great. Thank you.
That question we have commented only on a group level, but I can confirm that this is across the board. It's not only an MN or network infrastructure issue, it is really affecting everybody, and of course, this is not a Nokia specific issue. Hey, look, we have really no new information on that. The situation continues to be exactly as challenging as we expect it to be in our Q3 communications. We continue to fight every day for components. Most of the suppliers are in allocation mode. We hope that gradually during 2022, the situation would start to ease, but right now it is exactly as we said in Q3.
Okay. Thank you.
Thanks, Daniel. We'll now take our next question from Robert Sanders from Deutsche Bank. Rob, please go ahead.
Yeah. Hi, good afternoon. Yeah, I was just wondering if you could talk a bit about the services side of the business. Historically, that has been a bit of a drag on profitability and slightly erratic. I was just wondering if you could talk about that as a driver of your profit outlook, and within that, the move to the sort of as a service model delivery approach. Thanks.
Yeah. In my business, indeed, in Mobile Networks, the services that we sell are the network design, so network planning and optimization. That's of course including some particular capabilities and skills and algorithms and tooling. That warrants better margins than, for instance, deployment services, installing the equipment, or project management for that, or even turnkey where there could be some civil works. That's typically the lowest margin part of the business. Then you have the technical support business, which of course in high tech is very important to any customer or any supplier of that customer. We have not yet been shaping much our business in terms of reducing dependence on the lower margin deployment business.
Like I said in my presentation, we are aiming to reduce our dependence on the lowest margin deploy business.
Thank you, Rob. We'll now take our next question from Sami Sarkamies from Nordea. Sami, please go ahead.
Thanks. Tommi, to what extent have Mobile Networks sales benefited from market share gains from Chinese vendors? Looking at your sales in Europe, they have not picked up much yet, even though you have won about half of the Huawei swaps. When will we see the impact and how material a tailwind could it provide to your growth going forward?
Yeah. Like I said, we have won approximately 50% of all the value that operators have moved in the last almost three years from some suppliers due to geopolitical reasons or performance reasons. That has helped us offset some of the impact of our market share loss in North America and also in China, of course, in 2020, 2021. It hasn't totally offset it, and that's why what we said after the Q3 or in the Q3 results was that this year we expect to be between 25% and 20% market share in 4G, 5G, excluding mainland China, which is slightly less than we had last year.
One thing to keep in mind when we talk about competitor or taking share from competition, if a swap is involved, which is always the case, if you have, for instance, a 5G non-standalone case where the 5G network is anchored to the 4G network, then it's good to remember that in the beginning these deals are quite pressed on the margins because of the swap discounts. That impacts, of course, sales and also profitability. Then once the swap is over and you return more to the run rate business, then the profitability recovers. That happens typically over the first two years or so.
Cool. Thank you very much, Sami. We'll now take our next question from Paul Silverstein from Cowen. Paul, please go ahead.
Thanks, David. Relative to the 30 new RAN customers since the start of 2019 and the 23 customers you referenced as having increased your share with, how many customers remain, whether in percentage or in number terms, where you can benefit from your meaningful improvement from a technology competitive positioning standpoint? How far along are we into the 5G cycle from a customer decision-making perspective?
We are of course still in early stages of the 5G cycle. I mean, if you just look at how poor the 5G coverage is in many parts of the world where even the 5G decisions have been taken, like Europe or dare I say, you know, even United States, many parts of Asia-Pacific, then how low the 5G enabled subscription penetration is, then certainly the conclusion there is that there's plenty of coverage and capacity work to be done in just the basic 5G. Then you still have some markets where we have some big customers and in some markets that have not yet made their first 5G decisions.
That would include countries like India, Vietnam, Russia, some Latin American countries. So to date, from my recollection, we have a bit more than 200 contracts now for 5G. That helps you put into perspective what it means if we have won 30 such customers in 5G that we didn't have yet in, you know, as a 4G customer in 2018. There are still further opportunities for that, and the improved competitiveness of the product portfolio, of course, helps in that.
Maybe just to add one thing there. Of course, right now the networks are built mostly for coverage. Yes. As Tommi said, there are still significant holes in that coverage in most parts of the world. But then once this phase has been completed, then gradually we will start seeing new investments where then capacity is being built and that's when campus wireless indoor coverage, city center coverage, depending on how much new bandwidth-hungry traffic there will be and new applications there will be in those networks, and that will then likely be another investment wave in the coming years.
Yeah. Correct. Thank you, Pekka.
Thank you, Paul.
I appreciate it. Thank you.
We'll now take our next question from Didier Scemama from Bank of America. Didier, please go ahead.
Thanks, David. Let me add my real thanks for your explanation on Open RAN. I think it's probably the most candid, transparent presentation one could hear on Open RAN. Two questions. First, just a clarification. I'm not sure I understood the answer on the question on Amazon AWS Private 5G initiative yesterday. Are they reselling you hardware, or is it their own hardware to the best of your understanding? Then second, one bit that I would like to understand or hear from you is who does the deployment of an Open RAN network, in the case that, let's say, neither Nokia, nor Ericsson, nor Huawei is involved in the network, who is going to do that?
Because historically, that's one of the things that you guys do and clearly adds a bit of glue, if you want, to the set of hardware with the operator. Thank you.
The only thing I can at this stage say about AWS is that we are working with them on multiple fronts. One is clearly, for example, in a project like DISH in the U.S., where we are putting our core network to run on AWS platform. We have a multi-cloud, any cloud strategy for our radio network part to the extent it is going to be cloudified. There are initiatives going on there as well. Then when it comes to private wireless, what I can say at this stage is that, as I already said earlier, we are working with multiple partners. We understand that this is going to be an ecosystem game.
We want to make sure that applications that we bring to the market, NDAC, MX Industrial Edge that we recently launched and all the software that we run on that platform, that it will be compatible with as many hyperscalers' platforms as possible. That's all I am able to say about that at this stage.
Yeah. If I can add to that, indeed, we have shared that we have been working with AWS, but also for that matter, Google and Microsoft Azure, on making our Cloud RAN run on their platform. We are piloting with all three for the reasons that they may, of course, be providing that type of service to CSPs and enterprise alike. To the second question on the deployment, who does the deployment of O-RAN. If you think about the pure deployment service, then some of our customers are buying that service, the deployment service today, directly from contractors or general contractors, GCs, like we often call them.
That would also be possible in the O-RAN constellation or setup, especially if the new O-RAN suppliers would not have services delivery capability.
Cool. Thank you very much.
Okay. Can I just ask a quick follow-up, David? Just a quick one.
Sure.
Is that okay?
Go ahead, Didier.
No, just thank you. Just looking at your quadrant of scenarios, I just wonder if I can add maybe one scenario, which is, let's say O-RAN doesn't deliver and, you know, there are no real new entrants of any significance, at least not in the near future. What's the impact on pricing prior to O-RAN being deployed? E.g., isn't the discussion already poisoned in your conversation with your telco customers? E.g., you know, Huawei has sort of disappeared from certain markets, not all markets, but certain markets in Western Europe, where they seem to be the most pressing intentions to deploy Open RAN. Are they bringing that directly in the conversation now that they cannot, you know, use Huawei as a threat when it comes to pricing?
Yeah. Of course, it's obvious that a duopoly would not be a favorite scenario for anybody. That's of course also highly unlikely, and there are anyway 3-5 suppliers, established suppliers in the radio access network market. Some of them may not be able to compete in some markets, but in a typical market, you would have five radio access network suppliers. I wouldn't say that our discussions with our customers have been polluted. We have good customer relationships, and they have been able to keep the market competitive in the current environment as well.
Thank you, Didier. We'll now move to our last question from Peter Nielsen from ABG. Peter, please go ahead.
Thank you very much, and thank you again for this presentation, gentlemen. Very, very useful and much appreciated. I'd like to return to the next generation SOCs, please. Tommi, you discussed it from a competitive standpoint. I'd like to focus on the cost standpoint. Will they also contribute as a sort of a step change in terms of the input cost? And is this something that is baked into your ambitions for longer-term margins in the double digits? Are the new SOC sort of an important factor, contributing factor here, please? Thank you.
The SoCs are part of the margin evolution like we outlined in March in the Capital Markets Day. I don't really have much to add or anything to add to that. What we said back then in March is that this operating margin improvement would come from increase in scale, so winning certain volume. It would come from reduction of cost of goods sold. In other words, in the direct cost, and that would then be where SoCs are clearly a factor. It would come from lesser central cost of sales intensity, and then it would come from OpEx reduction in SG&A, in particular. When we talked about the margin evolution in March, you had all these different categories there.
SoC is an important part of the product cost reduction. SoCs are more cost-efficient than FPGAs are. They consume less power and then when they consume less power, there's less heat. Less heat means smaller heat sink and less machinery, so to speak, for heat dissipation. There are sort of consequential impacts as well. You have the impact of easier programming, which is then rather on the R&D OpEx side.
Thank you very much, Peter.
Yeah, I appreciate that. Thank you.
Thank you.
Ladies and gentlemen, this concludes today's call. I would like to remind you that during the call today, we've made a number of forward-looking statements that involve risks and uncertainties. Actual results may therefore differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our investor relations website. Thank you very much for joining us today. If you do have any further questions, feel free to reach out to the investor relations team. Have a good day.