FTTH Deployments Could be Slowed By Supply Chain Issues

“If you build it, they will come” has been the guiding mantra for network operators for decades now, especially when it comes to their broadband access networks, which have seen accelerated subscriber growth over the last year and consistently contribute margins ranging from 55-70%.

 

As I recently pointed out in another blog, the global trend for building out new broadband networks is to do so with fiber, as the importance of premium residential broadband connections was made abundantly clear during the lockdowns of the COVID-19 pandemic.

The emphasis on fiber broadband shows no signs of slowing

Building networks and doing so with fiber has made the path clearer for operators and regulators alike. Twin national goals of bridging the digital divide and getting all citizens connected along with the desire to provide gigabit speeds to everyone have merged and are driving a renewed cycle of subsidization and investment in broadband access networks and equipment, especially in the US.

In the US, the aggregate amount of loans, grants, and other subsidies that has already been approved to connect rural, unserved and underserved communities will nearly double current subsidy levels to over $8B per year. These funds include the $9.23B approved through phase 1 of the RDOF (Rural Digital Opportunity Fund) auction, $125M through the $2.2T CARES (Coronavirus Aid Relief and Economic Security Act) legislation passed in March, 2020, a potential $7.5B through the CAA (Consolidated Appropriations Act) passed in December 2020, as well as additional funds eligible for broadband projects through the ARPA (American Rescue Plan Act) passed in March 2021.

 

Government subsidies to expand fiber connectivity, particularly in the US, will reach historical heights soon

These funds don’t even include proposed legislation which includes $15B in the American Broadband Buildout Act, $94B in the AAIA (Accessible, Affordable Internet for All Act), $109B in the LIFT (Leading Infrastructure for Tomorrow’s America Act), and $100B in the American Jobs Plan.

Combined, the amount of money available via legislation that has already been passed along with proposed legislation could push total subsidies available for broadband network buildouts to over $16B in 2022, declining gradually to $12B in 2025 as programs are phased out. That represents a 4x increase in the amount of money intended to bridge the digital divide and connect millions of American homes with reliable broadband Internet.

Of course, these projects aren’t going to be completed overnight. In fact, recent history with the American Recovery and Reinvestment Act of 2009, which earmarked $7.2B for broadband expansion and improvement, as well as the Connect America Fund (CAF and CAF II), shows that these projects, from approval to funding to deployment can take years. Many of the programs (RDOF is one) allocate money over the course of 10 years.

We can debate the vehicles for funding the rollout and expansion of broadband networks, but we can’t debate the merits. There is no question that there is a significant percentage of the US household population that remains unserved (roughly 22-25M homes) along with a millions more homes that are classified as underserved. Combined, those households could range from 35M-40M. If we assume that operators add roughly 2.7-3.2M new broadband subscribers annually, then the 10-year timeline to connect everyone and provide respectable broadband speeds and service seems particularly aggressive.

 

Though there is clear demand, shortages in components and labor will delay the full achievement of connectivity goals

Despite all the funding options and demand from network operators, equipment suppliers, and subscribers alike, the bigger problem in the short-term isn’t one of demand, but of supply. Instead of “if you build it, they will come” supply chain and labor market constraints might prevent operators from building it in the first place.

Shortages in semiconductors and other vital components, including capacitors and flash memory, have been well-documented, impacting not only networking equipment, but also consumer electronics, automobiles, and other industrial equipment. Meanwhile, demand for fiber cables, conduit, and other ODN infrastructure has pushed lead times for these components to anywhere from 12-18 months. Lead times for OLTs and other active equipment used in FTTH deployments have remained fairly stable despite the disruptions, but have been sneaking up recently as demand has increased, particularly from larger operators who have major strategic initiatives in place to accelerate their home passings.

 

Delays will open the doors for wider usage of alternative technologies, including fixed wireless and satellite

Delays and higher costs to ship finished goods from overseas could also slow FTTH network rollouts, though the bigger challenge there will be managing the higher costs to ship goods.

Finally, the biggest impediment to getting fiber networks rolled out within a realistic time frame is likely to be a lack of trained workers in the fields of professional services and installation. Nearly all job functions are likely to be short-handed, given the potential demand coming from subsidized projects: Network engineers, surveyors, fiber technicians, all the way to individuals handling permitting and right of way applications both for operators and individual municipalities. Many of these functions require specialized training through community colleges and trade schools. In other words, the workers can’t be added fast enough to be able to match the demand expected from ongoing and potential fiber projects.

The net result is that fiber broadband deployments in rural and underserved communities are likely going to take considerably longer to complete, potentially pushing the goal of connectivity out past 10 years. Potential—and arguably necessary—changes to how the FCC and individual states map and classify broadband services will also slow down the process by likely increasing the total number of homes classified as unserved or underserved. For example, individual states have completed their own mapping exercises and found unserved and underserved totals being 2x-3x what the FCC has reported via its own maps.

These exercises lead us to our conclusion that total unserved and underserved homes in the US are likely closer to 40M. Even this number could be conservative. But until the FCC or states conduct a revised process of mapping, the totals will likely be less than that 40M estimate.

In upcoming blogs, I will explore in more detail the implications not only for fiber broadband deployments and equipment providers, but also for fixed wireless providers and emerging satellite broadband players, such as Starlink. With so much money on the table, along with a commitment across the board to finally bridge the digital divide, driven largely by the recent pandemic, I expect there to be an ongoing push-and-pull between legislators, network operators, and the industry lobbying groups representing them (e.g. WISPA, Fiber Broadband Association) to either expedite rollouts in the name of achieving goals faster or slowing rollouts to make sure they are done right the first time. There has already been considerable debate regarding the inclusion of fixed wireless solutions and whether they will truly be able to provide the gigabit speeds and services legislators are requesting or whether those speeds take a backseat to the primary goal of getting everyone connected.

In the world of communications and networking, the year 2020 marked a turning point for communications service providers, as well as consumers and subscribers around the globe. 2020 was the year that fiber cemented itself as the preferred access technology of the future for a majority of operators. The catalyst for this strategic shift was the impact COVID-19 had on residential broadband network utilization rates, along with the dramatic increase in premium broadband subscribers around the world.

According to many operators around the world with cable, DSL, and fiber broadband networks, upstream peak traffic growth throughout 2020 increased over 50%, while downstream peak traffic growth increased 30%. In the early days of lockdown, operators reported staggering 125% increases in peak upstream and downstream growth, which ultimately leveled off as software adjustments were made to network platforms, and new capacity in the form of line cards and upgraded CPE was added.

Although the world is gradually returning to normal, with teleworkers moving slowly back into their offices, there is simply no turning back now for broadband subscribers who either upgraded or switched to FTTH services. The near-symmetric speeds pushing 1Gbps and beyond, the resulting elimination of buffering for streaming video, and the near-flawless performance of online and VR gaming, and video conference calls are more than enough to warrant holding on to their premium broadband.

As a result, we expect global FTTH subscribers to continue to expand on a global basis, with the highest growth (by percentage) to come from Europe, North America, and CALA, where fiber penetration rates remain below 50% for most countries in each region (Figure 1).

Related blog: 5-Year Forecast—Broadband Spending to Remain Strong Through 2025

 

Fiber expansion will rely on a wide range of technologies

The fiber expansion in 2020, which saw total spending on PON equipment jump 8%, involved multiple technologies—from 1G EPON and 2.5G GPON to XG-PON and XGS-PON. While the clear trend among operators is to expand their fiber services using 10G technologies, there are still hundreds of operators who will continue to rely on 2.5G GPON as the workhorse for their fiber networks for years to come.

The diversity in PON technology choices specifically reflects the fact that fiber networks are no longer being considered for just residential applications. Instead, the same fiber networks that deliver residential services are now also being used for business and wholesale access. Additionally, the global expansion of 5G networks and continued small cell densification are opening up opportunities for 10G technologies to be used in both mid-haul and backhaul applications.

For operators considering a fiber deployment or network expansion, the key decision points used to be “how many homes can I pass?” and “what percentage of those homes will become subscribers?” While those remain critical metrics, the ROI equation for fiber networks has become increasingly easier given that the additional revenue potential from wholesale and business services, in addition to providing mid-haul and backhaul functions for a growing network of 5G small cells. The application and technology roadmap for PON networks and technologies has become much clearer, making it much easier for operators to justify the initial construction and buildout costs of their fiber networks.

Adding more incentive for operators to expand their PON networks has been the growing commercial availability of combo cards and optics, which can support 2.5G GPON, XG-PON, or XGS-PON from the same platform. These multi-technology options allow operators with existing PON deployments to begin the process of upgrading their networks to 10G on a gradual basis, without having to do a flash cut of entire service areas. Instead, operators can continue to deliver 2.5G GPON services to the bulk of their residential subscribers, while allocating XGS-PON wavelengths to business or high-end residential subscribers. Operators can then spread out the costs of more expensive 10G ONTs across a longer period of time.

More importantly, combo cards and optics don’t force operators to change any aspects of their existing ODN (Optical Distribution Network), allowing them to continue amortizing those initial construction and equipment costs over a longer period of time. From feeder and distribution cables to ducts, poles, and splitters, the co-existence of multiple PON technologies and re-use of the existing ODN is critical for operators around the world.

Related video: Cable and FTTH Subscriber Growth Pushes Q4 Broadband Access Equipment Spend Up 3 Percent Y/Y

 

Ensuring the fiber experience in the home, not just to the home

With more operators spending the time and money to roll out or expand their fiber networks and with competitive threats from other broadband providers not slowing down, operators are increasingly pushing fiber inside homes, not just to the front door. In cases where it is not feasible to run fiber throughout the home, operators are moving quickly to provide residential gateways that support WiFi 6 speeds and services and complementing those with additional mesh satellites when homes have WiFi dead spots.

By extending service into homes, operators can now remotely monitor the performance of in-home WiFi networks while also offering subscribers additional services, such as parental controls, bandwidth-on-demand, as well as bandwidth boosts by device or by application. As more IoT devices and sensors are introduced in homes, the combination of gateway software platforms, such as OpenWRT, prpl, EasyMesh, and RDK-B plus WiFi 6 gives operators an advanced set of features and options to package for their subscribers so that they can better manage and monitor the performance of all these new IoT devices.

Specifically in the case of providing bandwidth-on-demand services, fiber networks provide the most flexibility for scaling upstream and downstream bandwidth based on individual subscriber requests. Cable networks are limited in how much upstream bandwidth can be allocated, unless they move to a full-duplex architecture, which is both costly and time-consuming.

In a growing number of cases, operators are eliminating any concerns they might have about in-home wiring and WiFi performance by offering to extend fiber directly to multiple locations within the home. China Telecom and China Mobile are expanding their in-home ONT projects to ensure near-gigabit speeds to all devices in the home. Though not all fiber providers around the world will follow these operators’ lead due to higher labor costs, there are more operators considering the move as it truly future-proofs their networks and services and further cements their relationship with subscribers.

 

Sharing best practices to move the industry forward

Over the last decade, operators have been benefitting from the lessons they’ve learned during their own fiber deployments and sharing those lessons with the industry. From securing right-of-way and building access to micro-trenching techniques to the optimal deployment of ODN infrastructure and components, the cost and complexity of deploying fiber networks have been significantly reduced. The sharing of best practices among operators has resulted in the identification of consistent problem areas that can add unnecessary costs or delays to a fiber network rollout. For example, a major portion of the time and cost of last-drop fiber deployments is around digging trenches and burying new ducts within those trenches. Over time, operators have learned to identify ducts or trenches that are already in place so they can re-use that existing infrastructure rather than starting from scratch. This situation is becoming more common as multiple operators roll out fiber to new small cell locations, business parks, or extend feeder fibers into neighborhoods for cable node splits.

Additionally, reducing labor costs and rollout delays by using pre-connectorized fiber is an industry best practice that has evolved over time. Using pre-connectorized fiber eliminates the need for on-site splicing and also expands the labor pool of technicians who can complete a subscriber connection.

As an increasing number of operators deploy fiber in different countries with various topography, regulatory restrictions, and labor pools, the industry as a whole will benefit, further providing operators with more knowledge and more incentive to take the plunge and deploy their own fiber networks.

 

Fiber Everywhere

The global trend toward the deployment and expansion of fiber networks has never been clearer. What began in a handful of countries just a decade ago has proliferated to hundreds of countries and thousands of network operators globally. Fueled by new applications, new subscriber requirements, and new competition, operators clearly see their networks of today and tomorrow relying on fiber. The road map for fiber technologies and use cases continues to expand, along with the knowledge and implementation of best practices. Those two trends alone will continue to provide operators with strong incentives to deploy fiber and future-proof their networks for decades to come.

Finally, network equipment vendors are expanding their product and service portfolios to become more comprehensive partners to fiber providers. From in-home networking equipment to ODN infrastructure and central office equipment, these suppliers are adding network design and consulting capabilities to help their service provider customers reduce the cost of deploying fiber networks and speed their time to market.

Related blog: Predictions 2021– Broadband Access and Home Networking Market

Subscriber and Bandwidth Growth Will Remain Key Catalysts

Global spending on broadband access equipment and CPE is expected to drop only 2% in 2020, a significant improvement from our July 2020 forecast, which anticipated spending dropping by 7% in 2020. The combination of significant residential subscriber growth and increased capacity utilization rates noted by global broadband providers nearly offset the negative impacts of trade tussles, component shortages, and labor limitations.

In the first half of 2020, we heard from countless service providers that their projected capacity utilization rates for the entire year were reached by March or April. A second surge in consumption in the fall, driven by children returning back to school and attempts at re-opening economies forced many operators to add even more capacity. With much of the world still dealing with the impacts of the COVID-19 pandemic and with remote work and online education continuing well into 2021, we see no slowdown in broadband capacity utilization, forcing service providers to once again balance accommodating traffic growth with managing overall spending. Continuing RAN investments will force service providers to spend judiciously on their broadband networks. In certain cases, this will mean delaying longer-term strategic projects and focusing on addressing immediate capacity upgrades and onboarding a higher-than-average volume of new subscribers.

PON Equipment Spending Expected to Remain Solid

Our five-year CAGR for PON equipment has been increased to 3% from just under 1%. China, which has historically accounted for anywhere from 65-80% of total PON spending, has peaked in terms of total ONT units consumed on an annual basis. The Chinese FTTH market has matured, with broadband penetration in the country reportedly nearing 80%. Though subscriber growth is slowing, there is still a tremendous installed base of subscribers that will continue to require new ONTs.

Although China’s ONT volumes are coming down from the peak years of 2017 and 2018, additional growth is expected from the rest of the world—particularly North America and Western Europe. In North America, the FCC’s $20B RDOF (Rural Digital Opportunity Fund) program will help transition a significant number of rural areas to fiber over the next 5-7 years. In Western Europe, major operators including Orange, DT, BT OpenReach, and Proximus are all expanding their fiber rollouts and even moving quickly to XGS-PON for symmetric 10 G services.

Finally in Asia, India, Indonesia, and Malaysia, along with a 10 G upgrade cycle in Japan and South Korea should also help sustain the market.

Cable Infrastructure Spending Set for Growth

The glut of DOCSIS channel capacity that helped push down cable equipment revenue in 2018 and 2019 was actually beneficial to operators in 2020 as they were able to address significant increases in both upstream and downstream traffic during the pandemic with minimal increases in spending. In most cases, cable operators used the software tools available as part of DOCSIS 3.1 to ensure adequate bandwidth for all subscribers. In other cases, operators purchased additional DOCSIS licenses as part of accelerated node split programs to address systems with the greatest need.

Regardless, after two years of under-investing in infrastructure, the overall cable infrastructure market will see a steady increase in revenue throughout our forecast period, as mid- and high-split projects in North America and Western Europe, designed to increase upstream capacity, are accelerated. Investments in outside plant equipment, particularly new amplifiers and taps, will also continue as operators begin the multi-year process of preparing their networks for DOCSIS 4.0 and its ability to enable extended spectrum DOCSIS (ESD), low-latency DOCSIS, and full-duplex DOCSIS (FDD).

 

About the Report The Dell’Oro Group Broadband Access  and Home Networking 5-Year Forecast Report provides a complete overview of the Broadband Access market with tables covering manufacturers’ revenue, average selling prices, and port/unit shipments for Cable, DSL, and PON equipment. Covered equipment includes Converged Cable Access Platforms (CCAP), Distributed Access Architectures (DAA), DSL Access Multiplexers (DSLAMs), PON Optical Line Terminals (OLTs), Customer Premises Equipment ([CPE] for Cable, DSL, and PON), along with SOHO WLAN Equipment, including Mesh Routers. For more information about the report, please contact dgsales@delloro.com.

Broadband Spotlight Will Continue to Shine in 2021

At the close of each year, we analysts like to simultaneously look forward and look backward, reviewing the predictions we got right or wrong from the previous year and then putting forth our best bets for which technology trends will define our coverage areas in the coming year.

I just re-read my post from last year, which was full of optimism for WiFi 6, mesh networking, and zero-touch provisioning for home networking, as well as XGS-PON, mid-, and high-split upgrade projects on the infrastructure side of things. While most of those predictions came true, the context surrounding them could not have been any more unexpected.

In the world of broadband access and home networking, the COVID-19 pandemic has changed everything. Before the pandemic, fixed broadband network traffic was growing annually at a pretty predictable clip. But with the transition to teleworking and virtual education combined with a significant increase in video traffic related to streaming and online gaming, overall traffic and bandwidth surged by anywhere from 50-150% in just a matter of weeks. More importantly, the surge wasn’t just limited to peak busy-hour traffic. It extended throughout the entire day, putting a strain even on oversubscribed networks that forced network operators to reach quickly into their toolboxes to accommodate the consistent demand.

Cable operators responded to the increased traffic demands by segmenting their existing nodes and pulling forward mid- and high-split upgrade projects to increase upstream bandwidth. Those efforts will continue in 2021, resulting in continued increases in upstream channel license purchases. In particular, cable operators are expected to ramp up their purchases of OFDM-A licenses (Orthogonal Frequency-Division Multiple Access) for their DOCSIS 3.1 networks. OFDMA improves spectral efficiencies for upstream traffic, providing significantly more upstream bandwidth for subscribers without necessarily having to move to a full high-split architecture.

Sticking with cable, 2021 will see a steady increase in operators adopting distributed access architectures (DAA), including both remote PHY and remote MACPHY products. As operators continue to look across their existing node base, they are going to run into situations where they have already segmented their nodes as much as they can. These nodes are the first ones that will be swapped out with DAA nodes or augmented by R-PHY shelves in order to continue to meet growing capacity demands among those service groups. Those R-PHY deployments will also result in a corresponding increase in vCCAP server and license purchases this coming year.

2021 will also see an increase in the deployment of vCCAP platforms for cap and grow applications not directly tied to DAA deployments. There are plenty of projects underway with multiple vendors to cap investments in traditional CCAP platforms to either reduce headend rack space or power consumption or, more practically, because operators have maxed out the switch fabric or line card capacity of their current platforms.

Fiber Expansion Will Continue

The switch from copper to fiber among the world’s largest telcos really became clear in 2020. That trend will accelerate in 2021, in particular, because of the investments made this year in new optical line terminal (OLT) ports. Operators throughout North America, EMEA, and CALA switched more of their capex towards expanding their fiber networks than sustaining their DSL networks. This was clear at Telmex, BT OpenReach, and others. Major projects at Deutsche Telekom, Orange, Proximus, and elsewhere will drive not only more fiber expansion but 10 Gbps deployments using XGS-PON.

Fiber access networks are on the verge of a major tipping point, driven by the simultaneous catalysts of the shift to next-generation fiber technology and the shift to openness, disaggregation, and automation. The world’s largest broadband providers are quickly realizing that the need for increased throughput is matched by the need for a highly-scalable network that can respond quickly to the changing requirements of the service provider, their subscribers, and their vendor and application partners. The need to provision and deliver new services in a matter of hours, as opposed to weeks or months, holds just as much priority as the ability to deliver up to 10Gbps of PON capacity. Although service providers might have completely different business drivers for the move to open, programmable networks, there is no question that the combination of data center architectural principles and 10G PON technology is fueling a forthcoming wave of next-generation fiber network upgrades.

The service providers that adopt the combination of 10Gbps PON and openness will be best prepared to accomplish three major goals:

1. Deliver the advanced, 10Gbps capacity, and multi-gigabit services subscribers will expect and require using a cloud-native infrastructure that treats bandwidth and the delivered applications as workflows;
2. Anticipate and whether rapid increases in traffic demand with a highly-targeted and elastic infrastructure that can be activated without a forklift upgrade;
3. Develop an access network infrastructure that can process multiple workloads beyond broadband access, including hosted services that can be offered on a wholesale basis, as well as fixed-mobile convergence applications.

WiFi 6 Will Dominate the Home Networking Market

One of the biggest trends we will be talking about is a fundamental shift in how consumers and service providers think about home networking. There is a confluence of technologies all reaching the market at the same time that will positively impact the capabilities and management of home networks:

• WiFi 6: For many years now, the evolution of WiFi has been focused on improving two key technical attributes: speed and range. WiFi 6, however, is the first iteration to take a more holistic view of wireless technology that encompasses not only improvements in speed and range, but also network intelligence, analytics, and power efficiency. WiFi 6 also has the capacity to dramatically improve how service providers will be able to provision, manage, troubleshoot, and analyze their in-home networking services. It provides options for the remote, zero-touch provisioning of devices and services, as well as the automatic adjustment of WiFi channels to ensure peak performance
• 6GHz Spectrum and WiFi 6E: With so many new connected devices competing for available channels and bandwidth on both the 2.4GHz and 5GHz frequency bands, the WiFi Alliance is introducing WiFi 6E, which uses the unlicensed 6GHz band. In 2020, we expect that many countries will provide access to the 6GHz band, which will mean a huge chunk of unused spectrum for the growing number of residential and enterprise WiFi devices. More importantly for cellular operators rolling out 5G networks, the 6GHz spectrum band will allow them to provide seamless handoffs to mobile devices in homes and offices where their networks might have difficulty penetrating walls and treated windows. There has been much discussion around the pending boom in AR (Augmented Reality) and VR (Virtual Reality) applications for a number of years now. With the availability of the 6GHz spectrum, those applications can in theory be delivered without fear of latency due to channel contention. 6GHz will provide 14 additional 80MHz channels and 7 160MHz channels which will be needed for these intense, high-bandwidth applications.
• Simplified Control: If you were to compare the UIs of home gateways and routers from just two years ago to those available today, you’d be hard-pressed to find an area that has seen a more positive evolution. But 2020 will see even more transformation in an effort to give subscribers total and intuitive control over their broadband subscriptions. One of the areas we expect to see the most growth is in voice control of broadband services. Google’s Nest WiFi mesh systems now include voice control and allow users to verbally turn on a guest network, reboot the system, and initiate parental controls and speed tests. Quietly before the end of 2019, Amazon announced Alexa-enabled voice control of its own eero routers, as well as those from ARRIS/Commscope, Asus, Belkin, Netgear, and TP-LINK. The feature is called Alexa WiFi Access and we expect to see this service integrated across a wider range of devices throughout the year, including being integrated into service provider-supplied gateways, particularly from US cable operators.

These technology developments, coupled with a ratcheting up of the competition between service providers and consumer electronics companies for home network dominance will result in consumers receiving substantially better control of their own WiFi networks in 2021.