The following is an excerpt from the OFC 2016 First News that Dell’Oro Group contributed to.

Finally, the wait is over. While it felt like an eternity, OFC week is now just around the corner. More importantly, all the companies that have been holding back their product announcements for this one week, dedicated to all things optical, can now share what they have been working on up to this point. In this early batch of first news releases, we reviewed press releases from 23 different companies.

A look at the first wave of press releases point us to a belief that the theme of OFC 2016 will be about speed and efficiency.

Regarding speed, the press releases were geared around the development of higher speed components and better testing equipment as well as 100 Gbps WDM system deployments. The companies in this category of announcements included:

ADVA Macom O-Net Communication ProLabs
Gowanda Electronics Maxim Phoenix Photonics Teledyne
Keysight Technologies Methode Polatis VI Systems

 

Regarding efficiency, the press releases announced better manufacturing and test equipment with additional functions to reduce time and waste. Furthermore, this year efficiency announcements went beyond equipment and includes software, services, and organizational changes. SDN is here and companies are positioning themselves to capture the opportunity and extract value. The companies in this category of announcements included:

ADVA Connected Fiber Luna Innovation VPI Photonics
Arden EXFO OptoTest
Aria Fiber Optic Center Polatis
Calient inTest Thermal Solution TDK

 

Further detail on each of the company announcements mentioned are included below. Please take the time to read them in preparation for OFC week, a week dedicated to all things optical.

Similar to the theme of these early press releases, here at Dell’Oro Group, we believe one of the top topics at OFC 2016 will be about higher speeds, about going beyond 100 Gbps WDM to 200 Gbps and 400 Gbps. More specifically, we believe this is the year for 200 Gbps WDM and that discussions at OFC 2016 will levitate towards higher capacity product platforms, higher speed components, and faster test equipment to support the demand for 200 Gbps WDM line cards.

In Dell’Oro Group’s latest Optical Transport research report, we find that demand for 200 Gbps WDM is outstripping earlier projections and we continue to raise our forecast with each report. While the total number of 200 Gbps wavelength shipments is still low, the associated revenue that system equipment manufacturers garner has reached a material level. We estimate that 200 Gbps WDM line card shipments resulted in approximately $230 million of revenue in 2015 and project them to drive at least $720 million in 2016.

There are three drivers for 200 Gbps wavelength demand:

  • Supply: Up until mid-2015, Alcatel-Lucent (now Nokia) was the sole vendor supplying a high volume of 200 Gbps WDM line cards. We anticipate that by mid-2016, at least seven vendors will begin volume shipments of these line cards, reducing a service provider’s dependence on a limited number of suppliers.  By 2017, all WDM vendors will likely offer a 200 Gbps line card.
  • Price: For metro applications, a 200 Gbps line card is priced favorably against a 100 Gbps line card. We estimate that in 2015, the average price of a 200 Gbps line card on a dollar-per-bit basis was approximately 15% to 20% below that of a 100 Gbps line card.
  • Efficiency: Besides doubling the capacity of a single fiber, use of 200 Gbps line cards can optimize network utilization. Since all 200 Gbps wavelengths are delivered on flexible modulation line cards that can operate at speeds ranging from, say 50 Gbps to 250 Gbps, a service provider can choose the appropriate line speed for the current demand.  Therefore, a service provider can choose to operate a link at a higher utilization by running at 100 Gbps until the need arises to shift the line speed to 200 Gbps in the future.

Needless to say, we believe the future is bright for 200 Gbps WDM, and we think it’ll be a focal point at OFC 2016.

I had the opportunity to meet and interact with key stakeholders in the mobile infrastructure industry last week during the Mobile World Congress show in Barcelona.

Key Takeaways from the show:

  • Doing more with less
  • Opportunities drive high level of innovation
  • In-building/densification puzzle not solved
  • Carriers don’t want to wait five more years for 5G
  • The future is promising

The main themes of this show reflected the state of the mobile industry namely that it is in the midst of an on-going digital transformation, meaning MWC 2016continuously changing and more demanding end-user requirements. At the same time, vendors and carriers are struggling to convert these more demanding end-user trends into increased revenue and vendors have become extremely good at doing more with less. Incremental mobile data consumption has grown nearly 10-fold over the past five years and during the show, the leading radio vendors announced new BBUs that will provide enough processing capacity for the foreseeable future for even the most optimistic data traffic consumption scenarios. At the same time, I did not talk to one service provider that expects infrastructure prices to go up.

Despite flat-ish infrastructure trends, interest is high to capitalize on the on-going shift from outdoor coverage to indoor and urban densification. After all, this is a $30 B-plus market that was initially designed to support voice services and the ever changing end-user requirements are opening up opportunities for new entrants while the incumbents want to defend their turf. The end result is that the level of innovation that we have witnessed in the mobile infrastructure industry has been mind-boggling. More BTS architectures have been introduced over the past couple of years than the entire industry introduced in the first 25 or 30 years rolling out 2G and 3G. And during the show, vendors announced several new architectures and solutions which ultimately will improve the efficiency, flexibility, and scalability of RAN resources. Of particular interest during the show was how far some vendors have come when it comes to moving radio functions towards standard IT hardware.

While small cell deployments have clearly moved from the hype phase to reality (the Dell’Oro Group estimates the non-residential small cell market more than doubled in 2015 approaching $1 B), it is still very early days for small cells and there is yet plenty of on-going innovation both from a technology and business perspective targeting a more compelling TCO.

Of particular interest during the show was the continued commitment to basically make small cells more like WiFi – the combination of neutral host and lower-cost equipment/installation/maintenance are more and more seen as a good framework for accelerating small cell adoption particularly in the enterprise. All of the leading small cell players have now announced plans for deploying LTE (LTE-U/LAA, or MuLTEFire) in the unlicensed 5 GHz bands. Increasingly, vendors find the non-existent or negligible interference from outdoor macro and WiFi to be a lucrative proposition – spurring interest in the 3.5 GHz band, where applicable. It is also becoming increasingly clear that the initial vision of having these integrated small cells deployed with dedicated operator specific radios will limit the pace of adoption – and the inherent benefits of the unlicensed bands will open up opportunities to transfer network ownership from the carrier to the enterprise, building owner or third party. As a result, you could stop by Qualcomm’s booth and see a plethora of 3.5 GHz solutions including prototypes with interest from non-traditional players, including Google.

Although initial small cell vendor share estimates suggest the traditional macro RAN players, including Huawei, Ericsson, and Nokia, are capturing the largest revenue shares in the non-residential small cell segment, new entrants see the reduced technical barriers of entry with a spectrum band that is not interfering with the outdoor macro as an opportunity. At the same time, go-to-market strategies and enterprise channel experience will likely play an important role for the indoor enterprise segment. Ruckus – a WiFi provider – announced it plans to bring 3.5 GHz LTE products to market in 2017.

An important piece to make small cells more like WiFi is cost. I remember having a conversation a couple of years back with a CTO with one of the Tier1s in the US and he told me the small cell radio can be free of charge as he would still rather deploy a macro. This is a reflection of the business case challenges with small cells if one uses similar models and processes as one did with macros; as a result the radio equipment will account for a single-digit share of total TCO, resulting in a rotten business case when comparing to a macro (if 90% of the costs remain constant). Much of the emphasis over the past couple of years has naturally been on working on bringing down the cost of the 90% as opposed to the 10%. But with some progress on the 90% side (though it should be pointed out that there is much work left), carriers and vendors believe the time is ripe to address the cost of the 10% portion (which ideally will be higher than 10% assuming progress on the 90%).

For example, Parallel Wireless introduced an enterprise “white box” small cell solution that they hope will make LTE as easy to deploy as WiFi, partly by bringing down the equipment cost to the <$500 range. Similarly, numbers were thrown around by other players suggesting target prices in the <$100 range for 3.5 GHz and 5 GHz LTE APs.

There were also a wide range of new RF mapping solutions launched at the show aimed at making LTE as easy to deploy as WiFi. In short, lots of progress when it comes to the “WiFi-ification” of small cells (I can’t take credit of the term – saw it in a Ruckus article). The irony is that the 802.11 roadmap is also evolving and who is to say that for some of these use cases, particularly in the not overly crowded enterprise scenario, that the performance gap between WiFi and LTE will not be smaller by the time the LTE or 5G-fication (new term, my invention) will be a reality.

Finally, when it comes to 5G, my main conclusion from the show was that 2020 is still four to five years out – yet carriers and vendors need new revenue streams today. At the heart of this matter is the fact that we are at a similar phase today as we were ten years ago, namely four or five years to the next big thing – LTE then, 5G today. The difference being that ten years ago, 3G deployments were sparse while 4G coverage today is available nationwide in most of the advanced economies and well on the way in many of the developing economies. The challenge here is that carriers are deploying new technologies at a faster pace with each technology generation, yet the standards are not accelerating at the same pace. As a result, pre-5G commitments are growing at a rapid pace, even if the LTE-A roadmap will drive strong upgrade investments and deliver adequate performance for some of the potential revenue streams carriers envision with 5G.

As with any technology shift, it is not always clear initially what will ultimately be the killer use case and there is no difference with 5G. I was impressed by the variety of demonstrations and the imagination used for these potential use cases. Ericsson had brought in folks from the industry to demonstrate potential applications with trucks and automation among other things.

AT&T recently suggested that 5G will likely be driven by IoT, 4K video, and virtual reality. I will probably not be one of the early adopters when it comes to virtual reality. However, after trying several times unsuccessfully to get on to the virtual reality roller coaster ride during the show because of the lines, I was simply amazed by the interest in this “ride”, and this was a bit of a wake-up call – this is not just a toy for kids, this is real.

I spent a good portion of the flight home thinking about my kids and how different their future will be with virtual reality and self-driving cars. What would all of this mean for the mobile infrastructure market? Will my models support this type of data consumption? The only conclusion I came up with at the time was that surely there must still be a lot of work left to ensure a more consistent user experience throughout the network. Fresh in mind was my recent visit to IKEA in Palo Alto over the holidays for a delicious meatball lunch and the difficulties I had communicating with my wife because T-Mobile’s network did not provide enough signal strength to send a good old fashioned text message.

In summary, behind those flattish infrastructure revenue trends, there is an awful lot of opportunities as well. But one step at a time…

I was fortunate enough to attend Mobile World Congress (MWC), a conference held in Barcelona, Spain the week of February 22nd. Like previous years, it was by far the busiest show I have ever attended. In three days, I met with over 20 companies, mainly in the area of Microwave Transmission, which is one of the technology areas I cover.

When it comes to microwave technology, the themes were very similar among the microwave manufacturers (with a few exceptions): increasing microwave transmission capacity, utilizing different spectrum, and reducing time to install.

The technologies to support these efforts included:

  • 4096 QAM
  • V-band (60 GHz), E-band (70/80 GHz), W-band (90 to 110 GHz), and D-band (140 to 175 GHz)
  • Multi-band radio frequency bonding
  • Signal beam-forming
  • Antenna auto-alignment

However, with nearly all the manufacturers moving towards the same grouping of technology, how will these vendors differentiate themselves? How will they break away from an overcrowded pool of 28+ microwave transmission vendors and stand out?

The bad news is that it’s not easy. For many of the vendors, future sales will come down to channels of sales, pricing, and luck.

The good news is that a number of vendors have plans to remain above the herd and differentiate based on either being first to market with leading edge technology, targeting the requirements of a select set of customers by application, developing tools to reduce the time to install a microwave link, or enhancing a customer’s experience with the aid of software applications.

I was fortunate to attend MWC this year: Where else could I of had such rich conversations with over 20 companies in only three days while walking a total of fifteen miles between the booths?