Dell’Oro Group published an update to its research on Network Equipment (NE) Services. The following are some of the key takeaways from the report.

Network Equipment Services Market Returning to Growth

Following five consecutive years of market contraction, the NE Services market began to reverse direction, growing slightly in 2019 due to positive developments with Network Rollout Services and Consulting Services offsetting reduced demand for Managed Services. We expect the improved market sentiment in 2019 will extend through the forecast period, resulting in the market registering $46 billion in 2024.

Near Term Challenges with Managed Services

Managed Services is expected to weigh on the market in the near term as vendors continue to exit contracts that are unprofitable and non-strategic. However, we are optimistic about the role of managed services in the future as networks continue to increase in complexity and vendors deliver a greater amount of automation to proactively maintain networks, reducing the number of costly alarms.

Network Equipment Services is Evolving

While “plan, build, operate, and maintain/transfer” remains a critical aspect of the services market, it is not expected to be the dominating driver for services in the future. The reason for this change in drivers is that the next network generation is not just about installing the newest hardware, expanding network coverage, or reducing the number of network layers. While these will still be part of the next network solution, we believe that network complexity will dramatically increase in the future as service providers strive to incorporate SDN/NFV, IoT, 5G real time services, along with exploring new architectures such as Open RAN. As a result, we believe Service offerings in the future will increase in sophistication often incorporating a higher amount of software and consulting.

Vendor Landscape is Stabilizing

Following five years of dynamic share shifts, the top three vendors—Huawei, Ericsson, and Nokia—have held their market share for the past three years. Together these three vendors accounted for about 75 percent of the NE Services market in 2019.

Click here to learn more about the report coverage or contact us for a sample report, please contact us at dgsales@delloro.com.

 

About the Network Equipment Service Advanced Research Report:

Dell’Oro Group’s Network Equipment Services report covers the service offerings by select network equipment manufacturers (vendors) that supply service providers. The network equipment we are referring to includes such equipment as broadband access, optical transport, routers, and mobile radio infrastructure. Network Equipment Services are reported in three segments: Rollout Service, Managed Service, and Consulting Service.

Balancing Broadband Subscriber Growth with Supply Chain Constraints

Global home networking unit shipments are only expected to decline by 1% in 2020, dipping from 193.9 M worldwide to 192.1 M. Included devices are residential access points, residential WiFi routers, including mesh routers, as well as broadband CPE with integrated WiFi capabilities. Supply chain constraints and reductions in manufacturing capacity seen in the first quarter of the year, due to plant closings in China, Taiwan, Malaysia, and the Philippines, will quickly give way to shipments increases to support growth in new broadband subscribers as well as consumers upgrading their in-home WiFi devices to better handle telework and remote education requirements.

WiFi 6 unit shipments across all product categories are expected to increase to 1.5 M units this year, and then skyrocket in 2021 and beyond, as broadband service providers begin taking shipments of cable, fiber, and DSL gateways with integrated WiFi 6 capabilities. Until then, the bulk of WiFi 6 units will be premium WiFi routers and mesh systems sold via retail outlets.

WiFi 6 adoption combined with the increased rollout of higher-end broadband CPE, including GPON and XGS-PON ONTs, along with DOCSIS 3.1, VDSL, and G.fast units will result in an increase in overall home networking unit shipments through 2022. The adoption of mesh router systems in the North American and Western European markets will also help to drive overall growth, before a period of market saturation sets in beginning in 2023 and 2024. 802.11ac (WiFi 5) units will continue to hold the largest share of overall units through 2022. Beginning in 2023, WiFi 6 will dominate overall shipments. Transitions to new WiFI technologies take time, especially when considered on a global basis. Specifically, high-ARPU regions, such as North America and select markets of Western Europe and APAC make these transitions much faster than other regions, including China and CALA, where operators generally wait until volume shipments have ushered in unit price reductions that better match their ARPU profiles.

Mesh and WiFi 6 Ushering In a New Era of Home Networking

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. It is the first WiFI standard developed specifically for a world defined by the IoT and the consistent proliferation of connected devices.
WiFi 6 also can 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. As subscribers become savvier about broadband and WiFi, and as they become more reliant on broadband to enable multiple services in their home, they will demand uninterrupted service. With WiFi 6, service providers will finally have the power to deliver on those expectations.

Perhaps the most important feature of WiFi 6 is OFDMA (Orthogonal Frequency Division Multiple Access.) OFDMA allows WiFi routers and access points to divide multiple channels—on either the 2.4GHz or 5GHz frequency band—into smaller allocations called resource units (RUs.) Each RU can then be divided into yet smaller channels, with that traffic earmarked simultaneously for multiple devices. Each of those devices can have dramatically different traffic profiles (e.g., a TV that is streaming an 8k movie and a connected thermostat communicating with a cloud-based analytics engine).

The net result is a reduction in latency for connected devices and an increase in the aggregate throughput across the wireless network. WiFi 6 adds both uplink and downlink OFDMA, meaning that routers and CPE can intelligently allocate different levels of transmitting and receiving power per connected device, depending on variables such as distance, noise, and other signal impediments.

As for mesh capabilities, consumer mesh routers have been growing at a fast pace over the last year, with total units expected 23 M this year. Operators are becoming smarter about identifying when mesh routers are required by means of delivering apps that allow new subscribers to describe their homes, the placement of their routers, and the types of devices throughout the home that might require closer proximity to a mesh base station or satellite. As such, they are either re-selling mesh routers or integrating mesh capabilities directly into their higher-end gateways.

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

About the Broadband Access and Home Networking 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.

 

In yet another sign of a re-shuffling of the deck among cable equipment vendors, Vecima Networks announced an agreement to acquire the Nokia DOCSIS DAA and EPON/DPoE product portfolio. The agreement comes on the heels of ATX Networks’ acquisition of Cisco’s cable amplifier business and continues the trend we have seen of larger equipment vendors divesting business units to smaller companies focused squarely on global cable operators.

For the original Gainspeed team, this also marks their second transaction, after Nokia acquired the start-up back in 2016 with the hope of extending market share gains made in the routing segment to cable access networks. Likely, the return to a smaller, exclusively cable-focused business will pay dividends for the group that was—and remains—at the forefront of remote MACPHY and flexible MAC architectures.

Meanwhile, for Nokia, this puts an end to the pursuit of DOCSIS access business, though the company is likely to continue selling its own GPON and XGS-PON platforms into the cable vertical, as some operators have expressed an interest in these options, as opposed to deploying 10G EPON or DPoE (DOCSIS Provisioning over EPON).

Though the Nokia/Gainspeed combination had netted some customer wins and trials, there was obvious concern about just how long it would take for the business unit to generate meaningful and sustained revenue. As we have noted before, 2019 was a difficult year for cable access equipment vendors, with total revenue dropping 36% from the year before. A glut of DOCSIS channel capacity, the lack of significant competitive threats, and indecision around DAA technologies and timing all contributed to the spending slowdown in 2019.

2020 isn’t expected to fare much better, with operators focused in the short-term on expanding capacity via existing CCAP platforms and node splits. Some new DAA projects have been shelved for the time being, though R-PHY deployments at Comcast, Cox, and others will continue. The uncertainty around when cable operators would return to their DAA projects, combined with general uncertainty around the macroeconomic environment, were likely the reasons behind Nokia’s divestment.

Vecima’s Gain

For Vecima, the acquisition of Nokia’s cable unit fills a few key product gaps. The company was already finding success with its Entra R-PHY node, having deployed with ANsome North American operators and interoperating with MAC cores from Harmonic, Cisco, and ARRIS. But the company did not have an R-MACPHY solution in its portfolio, though the company had been extremely active in the standards working groups for both R-MACPHY and FMA. It’s likely the company was working on an R-MACPHY solution in-house. Either way, the addition of the Gainspeed platforms certainly accelerates the general availability of a proven platform. That availability is critical for potential large customers such as Charter, J:COM, and Australia’s NBN, which are known to favor R-MACPHY as their DAA solution of choice.

Beyond R-MACPHY, the acquisition also gives Vecima a revenue stream from Nokia’s 10G EPON and DPoE deployments. Comcast, Charter, BrightHouse, J:COM, and others have all deployed this platform, either in a standard OLT form factor or as a hardened, remote OLT in a node. With Charter’s recent announcement that it would apply for RDOF (Rural Digital Opportunity Fund) grants, likely to expand its serving areas in rural areas of Nebraska, Utah, Iowa, and other states, there is a strong possibility that it will expand using the 10G EPON platform from either Vecima or Adtran, the only other vendor supporting complete DPoE OLT platforms and ongoing development.

With the addition of the Gainspeed platforms, Vecima can now offer customers a range of access technology options and architectures which, for operators such as Charter and J:COM, is critical as they look to redesign their access network architectures.

Vecima Brings IP Video Expertise to the Table

One of the recognized challenges for both DAA options is how to handle legacy, QAM-based video. Although major cable operators continue to lose multichannel video subscribers, there remains a significant installed base of subscribers who will maintain their subscriptions and will expect to receive service without interruption.

To maximize the signal quality and bandwidth improvements delivered by DAA, operators will deploy video platforms that allow them to convert existing QAM-based video to IP for transport purposes between the headend or hub site and optical nodes. Gainspeed had developed a video engine for specifically this purpose. But Vecima has already been guiding operators through the QAM-to-IP conversion process via its Entra Video QAM Manager and Legacy QAM Adapter products. The Entra video products have been designed to support RPDs and RMDs from multiple vendors, giving operators a way to onboard new nodes and shelves without having to be concerned that legacy video service would be disrupted. These products will be critical for potential customers as they look to deploy either R-PHY or R-MACPHY architectures.

During an online event last week, Huawei and a select group of 20 chipset, module, and terminal suppliers formally introduced the 4G/5G Fixed Wireless Access (FWA) Technology Forum 2020. The group’s mission is to help service providers adopt and deploy fixed wireless access by ensuring interoperability, sharing business case successes, and providing best practices for deploying and managing fixed wireless services and subscribers.

Although FWA has been a viable technology option for decades, the proliferation of 4G networks and rapid growth of 5G networks makes it an even more promising tool to connect rural, underserved, and emerging markets where copper and fiber infrastructure has never existed. Already, according to the GSA, over 400 mobile operators and WISPs (Wireless ISPs) globally deliver some type of 4G FWA service, while over 35 5G operators have launched FWA service. Additionally, more national broadband plans or broadband expansion efforts include FWA as an important complement to fiber buildouts, especially for rural and underserved areas.

As the COVID-19 pandemic has shown, broadband access is an absolutely critical service, as much of the world continues to work and educate from home. Being connected with a service that can deliver videoconferencing and other high bandwidth applications consistently is just as important. As we have seen in some countries, including Italy, the zero-touch provisioning afforded by FWA can help to deliver broadband connectivity quickly and safely.

FWA Technology Options Abound

One of the primary goals of the newly-created FWA Technology Forum is to help service providers sift through the myriad technology options in front of them to help put together services that match their available spectrum bands, serving areas, data consumption, and subscriber growth expectations.

To be successful and reliable, FWA demand higher throughput and higher spectral efficiency, as well as dedicated QoS and subscriber/device management. To meet those demands, equipment vendors and component suppliers are integrating MIMO (Multiple Input, Multiple Output), carrier aggregation TDD and FDD spectrum, as well as QoS, subscriber, and service provisioning software tools.

The antenna and spectral efficiency tools, including MIMO, beamforming, and carrier aggregation are critical components of both the FWA access networks and CPE to ensure subscribers get as much sustained throughput as possible.

Vendors have shown that providing massive MIMO throughout the RAN (Radio Access Network) can deliver a 3x-5x capacity gain for operators. Coupling this with CPE that can support 4×4 MIMO can also increase an individual user’s throughput by 1.5x-2x.

Chipset and module suppliers are accommodating the various technology options by delivering multi-mode reference designs that support 5G, 4G, and 3G spectrum bands, as well as supporting both standalone and non-standalone 5G architectures in the sub-6GHz band. These chips also deliver 2×2 MIMO in the uplink and 4×4 MIMO in the downlink, with roadmaps to increase the MIMO capabilities in the near future.

Besides, these integrated chipsets also support WiFi 6. The combination of FWA for broadband access to the home, using WiFi 6 to distribute the signal within the home is an ideal combination for operators. Both technologies support very high bandwidth and high concurrency rates, while also delivering the low latency and low power consumption required in today’s homes that are heavy consumers of videoconferencing, online gaming, and cloud VR services, but also have a growing number of IoT sensors and devices that require features such as TWT (Target Wake Time) to preserve their battery life.

Finally, these chipsets and the CPE in which they are integrated can include AI and machine learning capabilities to help them anticipate network or signal quality issues, anticipate increases in consumption based on time of day or user profiles, and even help subscribers identify the best location for the terminal to optimize the FWA signal from the network. These capabilities are critical in helping service providers reduce their operational costs, while also delivering on the promise of zero-touch installation and provisioning. They are also critical in giving service providers the flexibility to provide both indoor and outdoor CPE, depending on their subscriber’s geographic location and dwelling type.

The FWA Technology Forum hopes to streamline the interoperability process and provide a template for FWA providers based on their requirements, matching all the technology options available to their budgets and ROI expectations. Part of the Forum’s efforts is the creation of a catalog of vendor members and their products to make it easier for service providers to piece together FWA solutions based specifically on their needs.

FWA Delivers New Business and Revenue Models

With a wide range of new technology options comes the opportunity for FWA to deliver multiple business cases and help service providers expand their revenue-generating opportunities. First and foremost, FWA is the easiest and most cost-effective method for providing basic broadband access to rural and underserved areas, as well as those areas where fixed infrastructure never existed. From there, service providers can use some of the technologies listed above to deliver broadband on par with today’s DOCSIS and higher-end DSL offerings. Finally, as service providers deploy 5G networks, they can use FWA to deliver services and experiences similar to today’s fiber networks.

Combining the bandwidth and range improvements with emerging edge computing and virtualization efforts also enable FWA providers to move into areas beyond residential broadband into small-to-medium enterprise connectivity, telemedicine, industrial control, remote education and work, and full-fledged VR. Again, the FWA Technology Forum aims to be helpful to service providers here as they work with their vendor partners to deliver FWA services today with an eye to future service revenue growth. The 4G/5G FWA Technology Forum members plan to expand collaboration with service providers by sharing successful business cases of operators, the equipment and architectures they used to deliver multiple types of FWA, and how technology evolutions will give service providers a healthy roadmap for the growth of subscribers, overall connectivity, and revenue.

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.

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