What Are Overlay Networks and How Are They Shaping Our 5G Future?

Overlay networking unlocks new possibilities at the multitenant edge for deploying 5G, AI and edge applications

Rodney Elder
What Are Overlay Networks and How Are They Shaping Our 5G Future?

You’ve probably heard of overlay networks, and if you haven’t, you’re at least familiar with the most widely used one: the internet. But did you know that overlay networks are a critical technology that’s paving the way to widespread 5G adoption globally?

In this blog post, we’ll walk through what overlay networks are and then talk about why they’re essential to 5G open radio access network (Open RAN) and the strategic placement of the user plane function (UPF). Finally, we’ll look at some exciting projects that are exploring the use of overlay networks for the next frontier of 5G networks.

Overlay networks—A crash course

In the simplest terms, an overlay network is a virtual network of nodes and logical links built on top of an existing network, often called an underlay network. The aim is to enable new services or functions without needing to reconfigure an entire network design. Overlay networks generally provide more flexibility than physical networks, as well as enhanced security, redundancy and efficiency. And they’re everywhere; in fact, the public internet—which was originally built as an overlay on a telephone network—is the most widely used overlay network.

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Overlay networks use many different protocols and exist in multiple forms. The simplest is a point-to-point tunnel (VPN) between any two nodes universally connected via an underlay network. These are very simple and inexpensive but don’t provide the deep features and capabilities of an SD-WAN solution. SD-WAN—a second form of overlay network—typically requires either hardware or software at every edge and aggregation location, as well as a controller, often provided as a service.

While overlay networks have been around for a long time, they’re now critical to several emerging technologies, including 5G, cloud and the IoT.

What do overlay networks have to do with 5G?

By 2028, there will be 5 billion 5G mobile subscriptions, and 5G population coverage will reach 85%.[1] As 5G traffic grows, every 5G device must have a UPF session anchored somewhere on a computer. Think of the 5G UPF as a conduit for network data that flows between 5G users and the applications they want to access. It’s a virtual network function (VNF) that plays a crucial role in the promise of 5G to deliver reliable, low-latency, high-throughput connectivity. You can learn more about the UPF in our recent blog post on unlocking the potential of 5G, but for now, suffice it to say that the UPF is fundamental to enabling 5G capabilities. And overlay networks are fundamental to the 5G UPF because of the flexibility they provide, enabling you to deploy the UPF in the right edge locations for your business.

Overlay networks are also fundamental to another piece of the 5G pie—the radio access network (RAN). What’s RAN? RAN is the part of a wireless telecommunications system that connects devices through a radio link. With 5G, it is moving toward virtualized RAN, or vRAN in the cloud, where all the RAN elements would be cloud-native implementations deployed in the cloud, hosted fully as a service in a multitenant cloud infrastructure. The goal of Open RAN is to make hardware, software and interfaces in the cellular network interoperable regardless of the original vendor.

So, to connect the dots, the 5G UPF takes encapsulated traffic from the RAN and prepares it to travel over traditional networking infrastructure. Overlay networks, while not a new concept, play an important role in advanced 5G mobile infrastructure with regard to where and how mobile traffic is broken out of the RAN and interconnected with public/private networks for access to user and machine applications.

Making RAN in the cloud a reality

Let’s think for a moment about the compute required to handle the incoming growth in 5G mobile adoption. RAN makes up the largest CAPEX and OPEX costs for mobile networks. A single compute cluster is designed to handle a specific number of UPF sessions based on the number of endpoints and the throughput required—traditionally while provisioned for peak capacity. So, in a world of 5 billion 5G subscriptions, we’ll need substantial compute power to handle the increased traffic. RAN is often an underutilized resource, with most radio base stations operating below 50% use.[2] To handle more 5G mobile traffic, we need better utilization at lower costs.

In contrast, RAN in the cloud takes advantage of the benefits of cloud—including more efficient resource utilization. To that end, NVIDIA has developed a framework for a unified, GPU-accelerated data center to more effectively utilize RAN computing power. This will allow you to enable more features and functions in the future or higher concentrations of core functions. You can easily scale capacity quickly when you need it.

Equinix and NVIDIA are also working on a RAN-in-the-cloud proof of concept (POC) at our 5G and Edge Technology Development Center. The POC deploys distributed 5G UPF at the metro edge using Equinix Fabric® as an underlay network, along with overlay technologies enabling 5G RAN in the cloud with multitenancy at the metro edge.

The environment provides a foundation for additional functions and improved utilization of compute capacity, while Equinix Fabric, as a software-defined interconnection solution, delivers speed and flexibility for adjacent edge-optimized mobile applications. In this example, NVIDIA is using GPU capabilities to perform all the 5G RAN functions (vDU, vCU and the dUPF).

Overlay networks are critical for addressing the challenges facing operators and application providers. This POC provides a RAN-in-the-cloud framework demonstrating efficient and effective use of compute capacity for 5G operators while also enabling predictable and scalable interconnection for application providers.

Equinix is also working with the open-source community free5GC[3] to support exploration of additional ways overlay networks may apply to the future of 5G. We’re encouraging testing, development and evaluation of additional overlay network scenarios with the 5G Edge Developers Framework, which I discussed in my previous blog. We use repeatably deployable 5G standalone pods on Network Edge.

Deploy 5G at edge metros

Overlay networks are critical for the enablement of next-frontier mobile networks. They show promise for solving some of the timing and synchronization challenges that hinder 5G transport now. Strategically deploying 5G at Equinix International Business Exchange™ (IBX®) data centers in metro edge locations gives you a robust infrastructure for your existing services while also maintaining the capabilities to improve efficiencies and offer new services.

Learn more about how to use core infrastructure to support your 5G future in our white paper Create digital advantage at software speed.


[1] Ericsson Mobility Report, November 2022.

[2] Rajesh Gadiyar and Shuvo Chowdhury, RAN-in-the-Cloud: Delivering Cloud Economics to 5G RAN, NVIDIA Developer, February 13, 2023.

[3] https://www.free5gc.org/.

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