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.

New technology improves E-Band reach and performance

After attending Huawei’s 2021 virtual analyst summit, I started to wonder whether my forecast for E-band shipments was wrong.

Over the past decade, E-band has been steadily growing out of its early-era use as a technology for simple Ethernet bridges on a campus into the wider and more sophisticated world of mobile backhaul. In our market study at Dell’Oro Group, we estimate that E-band radio shipments that took place over a decade ago were used solely for enterprise campus interconnects, but now, about 80 percent of new E-band radios are purchased with the intent to use it for mobile backhaul. Of course, this change was not a coincidence; it was very much driven by the rising level of mobile broadband speeds enabled with 4G mobile radios that increased the requirements for mobile backhaul capacity.

Furthermore, because of the increasing capacity requirements, operators needed a better solution for when fiber was not available. So for wireless backhaul, the question was whether to continue using traditional microwave bands that are designed for up to 500 Mbps of link capacity or future proof with E-band designed for 20 Gbps links (using XPIC). In many cases, the decision seemed to favor future-proofing with E-band, especially in regions where spectrum license fees for E-band was low. Looking back five years, while the shipment volume of traditional microwave systems declined at an average annual rate of 5 percent, the shipment volume of E-band radios increased at an annual rate of 24 percent (Figure 1).

I do not think this trend will stop here. Rather, I think it will only grow as 5G mobile radio installations continue and backhaul capacity requirements increase further. There have already been very successful deployments of E-band radios for 5G backhaul in places like Saudi Arabia by major operators Saudi Telecom Company and Zain, strengthening the applicability of E-band technology for 5G backhaul. Hence in the January 2021 Microwave Transmission Five-Year forecast report, we projected E-Band radio shipments to grow at a 27 percent compounded annual growth rate (CAGR) and comprise nearly 30 percent of all microwave point-to-point radio shipments by 2025 (Figure 2). But can it be higher?

In developing the five-year forecast, I already considered that 5G will require a much higher backhaul capacity that will favor a single E-band radio over multiple bands of traditional microwave links, especially when considering the cost of equipment, spectrum license fees, and operational expenses such as tower lease and power. I even, to a degree, accounted for smaller antennas that will benefit its use in urban areas, empowering operators to install E-band radios in a smaller form factor that can be closer to street level thereby easing the use of wireless backhaul for cell site densification initiatives. However, I always considered E-Band to be limited by a couple of its technical features (restrictions): span lengths below 2 kilometers and higher rain fade. So, what happens if these two features that are inherent in E-band radios can be overcome?

“How many more cell sites can use E-band radios if span lengths are increased to 5 kilometers or if E-band link availability can be increased in geographic areas with high rain fall?”

Those were some of the questions floating through my mind as Huawei presented a longer reach E-band solution that included a higher power E-band radio and larger active antenna with intelligent beam tracking (IBT) technology to ensure site-to-site alignment. (Note: one issue with a very small beam angle and longer span is that the microwave radio alignment can be easily disturbed by high winds and temperature if the microwave radio is not mounted on a very stable structure. Hence, active alignment widens the mounting options and number of deployable sites). Also, another dimension that adds to the greater usability of E-band is that with better radio performance, the link availability can be increased in short spans. Therefore, E-Band radios that were often not used when link spans exceeded 2 kilometers or when locations had historically high rain fall can now be considered.

While I have always had a positive outlook for E-band, claiming it to be the highest growth segment in the point-to-point Microwave Transmission market for many years to come, it is nearly impossible for me to not increase my optimism for this market when we consider the recent technology innovations that reinforce the future of E-band and further expand its market applicability:

• Multiband systems that carry both traditional bands and millimeter bands over a single antenna, reducing footprint and increasing performance
• Higher powered radios to extend reach and improve link availability
• New small form factor antennas for urban densification
• Larger antennas for use in longer reach applications
• Active antennas for alignment to improve performance

In summary, E-band systems have come a long way from only providing short building-to-building links on a campus as the technology matured. As such, E-band has already proven it can meet the higher capacity and lower latency requirements of 5G mobile radios, and we believe the opportunity for E-band will only go in one direction from here—up and to the right—with new technologies that improve its reach and performance.

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

With 5G coverage rapidly expanding around the globe and 5G eMBB driving the lion’s share of the 5G capex, the time is right to start looking beyond the typical MBB connectivity scenario. One of the technologies that is slowly making a bit of a comeback and is expected to play a growing role in the 5G evolution roadmap is positioning. While the concept of using positioning with wide-area cellular or low-power unlicensed technologies to improve location accuracy is far from new and has been around for decades, the combination of the performance and reliability improvements with NR and the growing enthusiasm with vertical opportunities for both IoT and MBB applications that could benefit from precision level accuracy forms the basis for the renewed interest with 5G positioning.

What is so exciting about 5G positioning? The enhancements available with 5G NR Release 16  will deliver significant performance improvements relative to previous cellular technologies and meet the initial baseline requirements of 3 meters and 10 meters for indoor and outdoor horizontal accuracy (80% of the time), respectively.  Vertical accuracy is also improved.

 

And while we don’t know what the world will look like ten years from now, we do know that the requirements for many of the industrial and manufacturing use cases will vary widely in terms of accuracy, reliability and latency. Taking into consideration that the RF carrier bandwidth and the subcarrier spacing impact the overall accuracy, the inherent flexibility with both the 5G NR bandwidth (≤100 MHz vs. ≤ 20 MHz with LTE) and the subcarrier spacing (15 kHz, 30 kHz, 60 kHz, 120 kHz with NR vs 15 kHz with LTE) provides the right foundation and agility to address diverse end user requirements beyond the baseline criteria.

In addition, 5G positioning technologies will address energy improvements to ensure support for a wide range of terminal form factors with differing battery capacity requirements. Per 3GPP service 1, 5G systems with positioning technologies should be able to allow the UE to operate for at least 12 years using less than 1800 mWh of battery capacity, assuming multiple position updates per hour.

Another important component with 5G positioning is the accuracy improvements with moving objects. The value with 5G positioning when combined with GNSS systems could be compelling for vehicle management and V2X applications, to name a few use cases. The 3GPP specification suggests 5G systems shall support a mechanism to determine the UE’s velocity with an accuracy that is better than 0.5 m/s for the speed, with a positioning service availability of 99%.

 

5G Positioning Roadmap towards LPHAP

The 3GPP roadmap is continuously evolving to fulfil the overall 5G vision. The schedule for 3GPP Release 15 included three separate steps: early drop focusing on NSA option 3, main drop focusing on SA option 2, and late drop focusing on completion of 4G to 5G migration architectures.

While MBB is dominating the capex mix in this initial 5G phase, the 3GPP roadmap is evolving to address opportunities beyond MBB.

Release 16, also known as 5G Phase 2, was completed in July 2020. The high level vision is that Release 16 will provide the initial foundation to take 5G to the next level beyond the MBB phase, targeting broad-based enhancements for 5G V2X, Industrial IoT / URLLC, and NR-U, including 5G positioning. Though positioning was addressed using LTE overlay with Release 15, Release 16 defines a new dedicated positioning reference signal leveraging various techniques involving both multi-cell and single-cell positioning.

Release 17 is currently slated for early-2022 and will provide more enhancements to realize the full 5G vision, extending operations up to 71 GHz and include enhancements to IoT, Massive MIMO, and DSS, and positioning, with precise indoor positioning providing accuracy in the sub-meter level combined with battery life improvements. LPHAP, known as Low Power High Accuracy Positioning, is the latest work item accepted by 3GPP to specify requirements and standardize low power high accuracy technologies for positioning terminals and services in industrial IoT scenarios.

 

5G Positioning Architecture

In order to improve the performance with 3GPP Release 16, new positioning reference signals (PRS) and a new location management function (LMF) were added to the specification.

 

5G IoT Market Status

With IoT accounting for about 1% to 2% of total mobile operator revenues, it is still early days in the broader IoT transition. At the same time, IoT revenues are now growing at a faster pace than non-IoT revenues, reflecting improved adoption over the past couple of years since 3GPP started addressing low-power technologies.

The 5G IoT market is even more nascent but with standards evolving to support new features such as 5G positioning including precise indoor positioning, 5G and private spectrum becoming available, an ecosystem that is accelerating, and signs of activity picking up pace as new use cases are emerging, future prospects remain favorable.

And more importantly, we don’t need to wait for the future to prove this thesis. Preliminary feedback from trials is positive, bolstering the narrative that low power technologies coupled with high accuracy positioning (LPHAP) could play a growing role in the broader 5G IoT market supporting a wide range of applications including hospital asset management, airport equipment scheduling, and manufacturing AGV and material management, to name a few.

In short, the typical eMBB use case is driving the capex today. Vertical activity remains subdued but is on the rise and new enhancements to the 5G roadmap including improved location accuracy with precise indoor functionality and improved energy characteristics could play a role expanding the opportunities with new use cases.

We recently updated the 2020 Telecom Capex Report. In contrast to the standard Dell’Oro equipment reports that track manufacturing revenue for telecommunications infrastructure, the capex report analyzes the investment plans for around ~50 operators, accounting for approximately 80% of worldwide capex and revenue. Now given that the sum of the SP telecom equipment programs we closely track – including Broadband Access, Microwave & Optical Transport, Mobile Core & Radio Access Network, SP Router & Switch – accounts for about a third of the overall capex, it can be inferred that small changes in non-equipment related capex can impact the relationship between the overall capex and equipment rather materially. Having said that, the correlation between the equipment programs and telecom capital intensities remain significant over time. And even if the tracking is not always perfect and capex is just one piece of the forecasting puzzle, we believe there is value to analyzing these trends.

Some of the highlights from the 2020 Capex report are shown below. For more information or if you need full access to the report, please contact Daisy@delloro.com.

• Following three years of declining capex trends between 2015 and 2017 and flat trends in 2018, preliminary readings suggest that worldwide telecom capex—the sum of wireless and wireline telecom investments—advanced at a low single-digit rate in 2020, recording a second year of consecutive growth.
• Preliminary equipment vendor report estimates indicate that the combined revenues of the carrier-related equipment programs tracked by the Dell’Oro Group (Broadband Access, Microwave Transport, Mobile Core Network, Mobile RAN, Optical Transport, and SP Routers & Switches) increased approximately 7% Y/Y in 2020, suggesting that the relationship between carrier capex and supplier infrastructure equipment revenues decoupled somewhat, partly reflecting the site utilization reuse rate with 5G.
• Following the 3% Y/Y revenue contraction for the 1H20 period, preliminary readings indicate that worldwide telecom revenues bounced back in 2H20.
• We have revised our short-term and near-term capex outlook upward, reflecting a more favorable outlook in Europe, Japan, and the US. Total wirelines plus wireless telecom capex is now projected to advance more than 5% in 2021.

• Even as the 5G BTS installed base in China approached 0.8 M in 2020, preliminary guidance for the top 3 operators combined with initial estimates for CBN suggests the positive momentum that has characterized the Chinese market over the past two years, following steep declines between 2015 and 2018, will extend into 2021.
• With capex projected to outpace revenue growth over the near-term, the combined capital intensity is expected to increase in 2021 and 2022, before stabilizing and improving in the outer part of the forecast period

About the Report:

The Dell’Oro Group Telecom Capex Report provides in-depth coverage of more than 50 telecom operators highlighting carrier revenue, capital expenditure, and capital intensity trends.  The report provides actual and 3-year forecast details by carrier, by region by country (United States, Canada, China, India, Japan, and South Korea), and by technology (wireless/wireline).  To purchase this report, please contact by email at dgsales@delloro.com.