Global Headwinds in 2020 Give Way to 2021 Expansion

Global spending on broadband access equipment and CPE is expected to drop 7% in 2020, dipping to $11.4 B, before increasing 5% in 2021. Our forecast from January 2020 anticipated a 5% decline in total revenue in 2020.

More interestingly, we have increased our five-year CAGR (2019-2024) from -2% from our January forecast to -0.9%. This improvement might seem counterintuitive, given the worldwide impact of the COVID-19 pandemic. However, the pandemic and its resulting orders to stay at home for work and education, have shown the world just how critical adequate broadband access is to the global economy. As a result, global initiatives to expand and improve broadband access are either underway or will be shortly. Nearly all service providers have said that they have reached their planned capacity utilization rates for the entire year in the first half of 2020. Thus, they will need to expand this capacity to maintain comfortable operating levels. However, operators will do so judiciously, as subscriber growth might be short-lived and the pressure to preserve to capital, or to ensure capital is balanced in the midst of expanding RAN investments, becomes fundamentally more important than overall expansion.

PON Equipment Spending Expected to Remain Solid

Our five-year CAGR for PON equipment has been increased from 0% to 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. This is especially the case beginning this year, when all three major operators begin purchasing 10 G units, based on either 10G EPON or the asymmetric XG-PON1 technologies. The 10 G upgrade cycle in China for ONTs will be extended over a longer period of time than the initial 1G EPON and 2.5 G GPON rollouts, as individual systems announce gigabit city initiatives.

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. 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.

After 2019-2020 Trough, Cable Equipment Spending Expected to Rebound

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

But all those investments in existing CCAP platforms have resulted in postponements of strategic DAA projects, for the time being. We have no doubt these projects will resume, but it won’t likely be until the latter part of this year or 2021 before they do.

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.

To get a copy of  the Broadband Access July 2020 5-Year Forecast Report, please email us at dgsales@delloro.com.

About the Broadband Access 5-Year Forecast Report:

The Dell’Oro Group Broadband Access 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] by technology ADSL/ADSL2+, G.SHDSL, VDSL, VDSL Profile 35b, G.FAST), PON Optical Line Terminals (OLTs), Customer Premises Equipment ([CPE] for Cable, DSL, and PON), along with SOHO WLAN Equipment, including Mesh Routers.

Related video to the Broadband Access Forecast:

Two weeks ago, the Dell’Oro Group and Huawei jointly hosted a webinar focused on how the integration of Artificial Intelligence and machine learning into home broadband devices can help service providers globally deliver more powerful, customized broadband services to their subscribers. I had the opportunity to provide some market statistics and overall trends in the areas of home networking, while my co-presenters from Huawei and Russia’s Rostelecom, provide more insight into the technical requirements as well as new business opportunities these technologies can deliver.

A major part of recent and ongoing upgrades to home networking devices has been the integration of centralized, cloud-based management, along with machine learning and Artificial Intelligence (AI) capabilities to more efficiently understand home networking requirements and consumption and optimize services within the home to ensure consistent user experience.

At the same time as machine learning and cloud-based management of CPE are being introduced, Wi-Fi 6 is quickly being integrated into the next generation of home gateways and routers to improve physical layer throughput for the gigabit age. With a focus on providing a theoretical maximum of 10 Gbps of throughput, one of the primary goals of Wi-Fi 6 is to ensure that a customer’s Wi-Fi network will not impede the delivery of high-bandwidth, latency-sensitive services such as cloud gaming, 8k video, and cloud VR services.

This combination of machine learning, AI, and Wi-Fi 6 is giving service providers a toolset they’ve never had before to not only improve how they deliver Wi-Fi services to home broadband subscribers but also how they can tailor and customize their broadband and Wi-Fi offerings to each user, based on their consumption requirements. The net result is a powerful new revolution in-home Wi-Fi.

Using AI to Reduce Latency and Increase Revenue

One of the areas where the combination of machine learning, AI, and Wi-Fi 6 is most effective is in reducing latency throughout home Wi-Fi networks, thereby enabling high-value services such as cloud gaming and cloud VR services.

The reduction in latency allows service providers to tailor their broadband service offerings to specific customer types, especially those who are willing to pay for premium performance for applications such as cloud gaming, which is very sensitive to the impacts of latency.

These same operators are also delivering constant improvements to the performance of their gaming service through the use of machine learning. As bandwidth consumption ebbs and flows throughout the day or during specific hours of the day, the operator can re-route the high priority traffic automatically and dynamically. This can occur both within their own network and also within the home, where less-congested Wi-Fi channels can be quickly identified and used to deliver the latency-sensitive traffic.

Rostelecom has introduced a cloud gaming service in conjunction with gaming platform providers throughout Russia. The service takes advantage of network enhancements Rostelecom has made to offer a premium broadband service tier specifically for online gamers. The service offers near-symmetric speeds and reduced latency to give online gamers an edge over their competitors. Rostelecom expects to take the principle of customized bandwidth tiers to other applications, potentially addressing subscribers who work from home exclusively and need additional throughput and reductions in latency to support HD videoconferencing, for example.

This is but one of the very early examples of AI and machine learning changing the business model of home broadband in positive ways for service providers. We are already seeing operators offer parental controls, device, and user profile controls, as well as new service tiers, tailored specifically to how subscribers actually use bandwidth. Ultimately, just providing a pipe and reliable connectivity won’t be enough for broadband subscribers. Instead, they’ll be asking providers for personalized bandwidth and services. Those services require more intelligence in the home, as well as throughout the access network. Those services will also require end-to-end automation and provisioning so that they can be turned on and off instantly. The integration of AI and machine learning capabilities from the home all the way into the access network will be key enablers of those services going forward.

Click here to watch the on-demand webinar – AI Reshapes Home Networks Experience (pre-registration is required)

The global upswing that began in the second half of 2018 has become deeper and stronger. Even with the higher-than-usual degree of uncertainty around the economy, we forecast that the RAN market will grow at a healthy pace over the next three years, before growth tapers off in the outer part of the forecast period, resulting in a mid-single digit CAGR between 2018 and 2022. Cumulative investments over the 2019 to 2024 period are expected to eclipse $200 B.

The main growth drivers have not changed. They include:

(1) A rapid shift toward 5G NR for mobile broadband (MBB) applications, resulting in a condensed deployment phase;

(2) New capex to address IoT, Fixed Wireless Access (FWA), In-building, and Public Safety opportunities for both private and public deployments;

(3) The shift from passive to advanced antenna systems, which will shift capex from the antenna to the RAN market.

The expected impact of these growth drivers has changed. Cumulative revenue projections for the 2019 to 2024 period have been adjusted upward, reflecting more upbeat expectations in China and North America. This in combination with a more favorable outlook for FWA is expected to outweigh downward risks associated with COVID-19 and a pickup in Open RAN—we have adjusted the Open RAN projections upward, with Open RAN now approaching a double-digit share of the overall RAN capex by the outer part of the forecast period. Within the technology mix, cumulative 5G NR RAN revenues for the 2019 to 2024 period have been revised upward while the equivalent LTE capex has been adjusted downward.

Our forecast that 5G NR will be deployed at a faster pace than LTE and surpass LTE in 2021 hinges on a set of key assumptions, including:

(1) The 5G NR mid-band business case for MBB applications remains compelling;

(2) 5G mid-band spectrum will be available sooner than LTE spectrum was made available in the 3G to 4G transition;

(3) New dynamic spectrum sharing technologies will simplify and accelerate the migration from LTE to 5G NR;

(4) Initially 5G will be just another G, but long-term it will be more than another G, even if it takes time to reach the full potential of 5G;

(5) Complete 5G systems to address new use cases will be deployed gradually, at a slower pace than Sub 6 GHz MBB 5G NR.

Regional projections have been adjusted to reflect some COVID-19 related near-term slowdown in late majority MBB regions, including Europe, Latin America, parts of Asia Pacific (APAC), and parts of Middle East & Africa (MEA). While the CAGR is fairly flat in most regions, the capex envelope within the forecast period is expected to vary across the regions.

Risks are broadly balanced. The geopolitical uncertainty could trigger more government stimulus than we have currently considered to support network swaps and other forms of tax policies to improve the staying power of non-Chinese vendors.

Taking into consideration that significant changes in GDP resulted in material RAN changes with a roughly one-year lag in the 2001 and 2008 recessions, and that we are modeling 2021 to be a growth year, the baseline projections rest on the assumption that there will be some downward push over the short-term in the less advanced MBB markets. At the same time, we anticipate the upside driven by the 5G rollouts in the advanced markets will ultimately outweigh the downward adjustments, implying that the extent of the projected growth will appear disconnected from the underlying economy.

Other takeaways from the July 5-Year RAN Forecast include:

• The Millimeter Wave outlook has been revised upward driven by improved momentum in the Asia Pacific region.
• The pickup in mid-band deployments has propelled the demand for Massive MIMO. In this forecast, 5G NR Massive MIMO is projected to comprise more than half of the cumulative 5G NR capex.
• The underlying assumptions driving the regional projections remain fairly unchanged, with the APAC region being the main near-term growth vehicle.
• With more clarity about the 5G rollout plans in the North America region, we have adjusted the near-term outlook upward and now forecast the North American RAN market to continue advancing over the near-term.
• Global macro base station (BTS) shipments are projected to remain elevated between 2020 and 2022, underpinning projections that 5G activity is set for an upturn. This positive momentum will eventually slow, resulting in some softness in the outer part of the forecast period.
• The high level small cell vision has not changed. We expect unlicensed WiFi systems to coexist with cellular technologies. For upper mid-band deployments, operators will need to accelerate indoor deployments rapidly while the sub 6 GHz micro adoption phase will be more gradual.
• Since the last forecast, we have adjusted the outdoor small cell outlook upward, driven primarily by a more favorable Millimeter Wave forecast.
• Fixed Wireless Access (FWA) Radio Access Network (RAN) investments, including mobile network and dedicated fixed networks, are projected to comprise a growing share of the overall RAN capex envelope over the next five years, reflecting the size of the potential upside, various technology advancements, and improving market sentiment for both basic and high performance connectivity

About the Report

Dell’Oro Group’s Mobile RAN 5-Year Forecast Report offers a complete overview of the Mobile RAN industry by region – North America, Europe, Middle East & Africa, Asia Pacific, China, and Caribbean & Latin America, with tables covering manufacturers’ revenue, transceivers or RF carrier shipments, unit shipments for 5GNR, 5G NR Sub 6 GHz, 5G NR mmW, LTE, LTE FDD, LTE TDD, WCDMA, and GSM pico, micro, and macro transceiver base stations. The report also include splits for macro and non-residential small cells and Massive MIMO. Click here to learn more about the report or contact us (dgsales@delloro.com) for the full report.

 

Optical Transport Market to Expand for many more Years, Reaching nearly $18 Billion

The world experienced a global pandemic in 2020 that ushered in a global economic recession. It is still unknown how much longer the coronavirus, COVID-19, will spread and cause economic disruptions, and at what rate the global economy will recover following massive shutdowns in the first half of the year. That being said, while in past macro-economic recessions the Optical Transport market would contract, we believe that in this recession, the demand for Optical Transport will increase as a large number of people shift to remote learning and working.

We believe the fundamental driver for the optical market—bandwidth—persists and that its value has been amplified by the recent pandemic. As a result, we forecast the Optical Transport market, largely comprised of DWDM systems, to expand in 2020 and for the next five years, reaching nearly $18 billion. However, there are near term challenges related to supply, distribution, and installation.

Shift to 800 Gbps-Capable Line Cards will be Rapid in DWDM

The first 800 Gbps-capable line cards started to ship in early 2020. We expect volumes to ramp during this year, as additional vendors introduce their products. We forecast that by 2024, nearly 30 percent of wavelength shipments will be from an 800 Gbps-capable line card. More than half of these line cards are expected to be used at 400 Gbps.

We predict the next wavelength speed following 800 Gbps will be 1200 Gbps (1.2 Tbps). Based on the timing of past coherent DSP introductions and first-line card shipments, we anticipate 1.2 Tbps-capable line cards to enter the market in the 2023-2024 time period (but more likely in 2024).

Other Market Trends

• Demand for Optical Transport gear for data center interconnect (DCI) is expected to take a turn in the near future.
• Disaggregated WDM transponder unit sales are a bright spot of growth, annually growing at a double-digit percentage rate.
• 400ZR will moderate the market’s growth.

About the Report

The Dell’Oro Group Optical Transport 5-Year Forecast Report offers a complete overview of the Optical Transport industry with tables covering manufacturers’ revenue, average selling prices, unit shipments, wavelength shipments (by speed up to 1.2 Tbps). The report tracks DWDM long haul, WDM metro, multiservice multiplexers (SONET/SDH), optical switch, optical packet platforms, data center interconnect (metro and long haul), and disaggregated WDM. Click here to learn more about the report or contact us at dgsales@delloro.com.

We just finished our Mobile Core Network (MCN) five-year forecast (2019 to 2024). The MCN forecast includes 4G and 5G packet core, policy, and subscriber data management network functions, as well as the IMS Core. Here are some of the highlights from the forecast:

• 5G SA networks with 5G Cores are expected to launch during the second half of 2020. Regionally, China and South Korea will lead the way, followed by the US, Western Europe, and the Middle East.
• MCN revenues are projected to grow 8% per year over the next five years with the move to 5G Standalone (5G SA).
• The cumulative revenue investments from 2020 to 2024 in 5G MCN functions are expected to be 20% of the combined investments in 4G and 5G MCN functions.
• 4G MCN revenues are estimated to peak in 2022 and decline thereafter as the move to 5G SA accelerates.
• MCN revenues Y/Y growth rates will fluctuate as different parts of the world deploy 5G SA at various times.
• Technology is beginning to transition from virtual machine servers with virtual network functions, to bare-metal servers with container-based cloud-native network functions. The total cost of ownership savings is expected to be 30% over time, with the added benefit of reduced complexity.
• As expected, the cumulative revenues for 5G MCN in the Asia Pacific will represent the largest regional share, led by service providers in China.

Over 70 SPs are now providing 5G coverage with the 5G NSA architecture. The size of 5G SA deployments in 2020 is uncertain at this time and could impact the forecast. Also, the transition from 5G NSA to 5G SA could affect the product mix between 4G and 5G network functions, though the overall size of the market would be the same.

Other factors that could impact the forecast include further price erosion than assumed, brought on by competition, not only by the incumbents, but by startups trying to break into the market, or by Cloud SPs vying for SPs to host their MCN network functions on their servers; the aggressiveness of MEC (Multi-Access Edge Computing) and FWA (Fixed Wireless Access) deployments; and the number of 5G Cores built per SP, such as dedicated 5G Cores for the consumer market, the enterprise market, and the mission-critical markets, such as public safety. Examples already exist in the LTE world, with numerous private LTE networks for enterprises, dedicated EPCs for public safety by AT&T and Verizon in the US, and separate cores for MVNOs. China Mobile and China Unicom have already awarded vendor contracts to build separate 5G Cores to serve both consumers and enterprises.

To learn more about the options service provider have to transition to the 5G Core, please see my previous blog, 5G Core – Are We Ready?

Dell’Oro Group’s Mobile Core Network 5-Year Forecast Report offers a complete overview of the market for Wireless Packet Core, IMS Core, policy, and subscriber management with historical data, where applicable, to the present. The report provides a comprehensive overview of market trends by network function implementation (Non-NFV and NFV), covering revenue, licenses, average selling price, and regional forecasts for various network functions. Click here to learn more about the report or contact us (dgsales@delloro.com) for the full report.