Broadband Focus Will be Squarely on Fiber and Increased Competition in 2022
The emphasis on and investments in advanced broadband access networks around the world over the last two years shows no signs of abating in 2022. Despite the headwinds of component and labor shortages, inflation, and logistics snafus, broadband network buildouts and upgrades, coupled with net subscriber additions are projected to result in over $15.5 B in equipment spending in 2021. With the sustained influx of new capital from both governments and private equity, 2022 spending should be equally strong.
The 2021 results were somewhat of a surprise to some, as there were expectations that students returning to in-person instruction and workers partially or fully returning to their offices would result in a reduction in home broadband subscriptions that had been added in 2020 at the height of the pandemic. But, net subscriber additions didn’t decline and in fact accelerated throughout 2021. For those of us who have monitored the broadband market for some time, this wasn’t a surprise, as broadband remains one of the stickiest services a provider can offer. Though there is churn, as there is with many services, once broadband is in the home, it more than likely will remain and be integrated into the household budget.
As a result, investments in broadband infrastructure—specifically fiber networks—have skyrocketed, with private equity fueling a growing number of buildouts in North America and Europe. Investing in network infrastructure—which hasn’t been cool since the late 90’s—is suddenly all the rage. As such, the valuations of fiber networks have increased significantly, driven by increased demand for residential broadband, ongoing 5G network buildouts, and an expectation that fiber networks still need hundreds of billions in new investments to keep pace with expected bandwidth demand.
Of course, national Government plans including the RDOF (Rural Digital Opportunity Fund) and Build Back Better programs, as well as tax incentives in the UK and other European countries, intend to cover some of that necessary investment. But that hasn’t pushed private investment to the sidelines. All of this means that 2022—even 2023—should be very strong years for broadband equipment manufacturers.
Changes in the Competitive Landscape Will Force Cable Operators to Move Faster
Before discussing the expected impacts on specific broadband technologies and products, it’s critical to look at how sustained investments in fiber and even fixed wireless networks will dramatically alter the competitive landscape in broadband. The biggest change to the overall market that these investments provide is not only availability where it didn’t exist before, especially in the case of rural and underserved markets, but also the introduction of choice where that didn’t really exist before. In North America and a number of Western European countries, realistic consumer choice among multiple broadband service providers has only recently begun to increase. In most areas, the choice has been between cable and DSL, with cable operators able to offer speeds that satisfy increased subscriber requirements, while DSL languishes at sub-50 Mbps speeds. The net result—especially in the US market—was broadband market dominance to the tune of over 65%.
That dominance has certainly benefited cable operators and kept their subscriber base and margins growing in the face of sustained pay-TV service cancellations. But in some cases, it has also not prepared them adequately for the significant changes that are headed their way in the form of new fiber-based competitors. Some cable operator executives have been downright dismissive of the looming threats—especially those coming from fixed wireless.
Tom Rutledge, CEO of Charter Communications, said back in September 2021 that, “We actually look forward to a higher churn environment…We do well with prospects looking to change their services.” In a world where Charter was competing only with DSL providers, the company clearly did well and has continued to excel in pulling away dissatisfied DSL subscribers who required more speed but couldn’t get it, especially during the pandemic.
But going up against fiber providers with consistent gigabit (and even multi-gigabit speeds) is an entirely different story altogether, one in which the MSOs could find themselves in a similar position to previous DSL providers. We have already seen a slowdown in net new broadband subscribers among some of the largest US cable operators. That slowdown has been attributed to (among other things) an expected decline in subscriber churn from DSL providers largely because there are so few left to poach.
But with AT&T, Verizon, Frontier, Ting, Sonic, and other providers posting increasing fiber subscriber additions, at least some of the subscriber slowdown at Charter and others has to be attributed to these subscriber gains being made at the cable operators’ expense. So much for being successful in high-churn environments.
In this new battle, cable operators are also saddled with the consumer perception that they are not providing value even if they are providing the fastest speeds available in a particular area. Part of this perception is due to the longstanding residue of consumers consistently ranking their cable providers at the bottom of the list for value and customer service. It’s one reason why people have dropped (and continue to drop) their pay-TV subscriptions so quickly. Again, so much for being successful in high-churn environments.
So, what does this mean for cable operators, from the perspective of infrastructure investments and technology rollouts? There are a couple of implications:
- There will be a growing percentage of tier 1 cable operators who increase their investments in fiber infrastructure. We have already seen a decent number of tier 2 and tier 3 operators in North America opt for the complete replacement of their HFC networks with full fiber. While we certainly don’t expect to see a wholesale cutover among any tier 1 cable operators, we believe this year will see an increase in fiber overbuilding in some of the more competitive markets in order to maintain the perception of parity with fiber competitors.
- Tier 1 operators will push very hard to accelerate the DOCSIS 4.0 product availability timeline. We are already seeing hints of this with system vendors pursuing silicon partnerships outside of Broadcom in order to expedite the availability of products, particularly remote-MACPHY devices. We are also already seeing announcements of successful lab trials using both full-duplex DOCSIS and extended-spectrum DOCSIS to deliver multi-gigabit speeds.
In the short term, we fully expect cable operators to continue their current mid- and high-split upgrade projects to increase upstream bandwidth for their DOCSIS 3.1 networks. This will result in sustained DOCSIS channel license purchases through at least the first half of the year and perhaps throughout the year, with a growing percentage of those licenses being supported on vCCAP platforms in support of R-PHY deployments, as well as on R-MACPHY devices.
Speaking of R-MACPHY, the availability of products that adhere to the Flexible MAC Architecture (FMA) specification will accelerate this year, with MAC Manager products moving from the lab to field trials later this year. The availability of these products, while not an absolute requirement for DOCSIS 4.0, are important stepping stones in continuing the further disaggregation of the I-CCAP and vCCAP platforms, which is viewed as an important precursor for many cable operators as they begin their journey to DOCSIS 4.0, either in the form of Extended Spectrum DOCSIS or Full-Duplex DOCSIS. Additionally, some MSOs view FMA as a way to open the door to more fiber deployments, as remote OLTs and ONTs can be managed similarly to cable modems.
Within the home, cable operators are going to move quickly to expand the availability of high-end residential gateways that include both Wi-Fi 6 and, in the US Wi-Fi 6e. Comcast recently announced a new Wi-Fi 6e gateway manufactured by Technicolor that will be reserved initially for those customers taking its gigabit service offering. Comcast’s positioning with the gateway is that it offers the fastest speeds to and within the home. Fiber doesn’t make any difference if the W-iFi gateway in the home is anything less than Wi-Fi 6 or Wi-Fi 6e.
Fiber Expansion Will Accelerate
The switch from copper to fiber among the world’s largest telcos really became clear in 2020 and 2021. That trend will accelerate in 2022, 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 have reached 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 10 Gbps 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 networks upgrades.
The service providers that adopt the combination of 10 Gbps PON and openness will be best prepared to accomplish three major goals:
- Deliver the advanced, 10 Gbps capacity, and multi-gigabit services subscribers will expect and require using a cloud-native infrastructure that treats bandwidth and the delivered applications as workflows.
- Anticipate and whether rapid increases in traffic demand with a highly-targeted and elastic infrastructure that can be activated without a forklift upgrade.
- 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.