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On December 6th, Adtran announced that it had acquired broadband and virtual customer premises equipment (CPE) supplier SmartRG for an undisclosed sum. The move provides Adtran with an infusion of tier 2 and 3 customers in the Americas, along with a line of broadband CPE hardware running the gamut from ADSL2+ to GPON to DOCSIS.

More importantly, SmartRG gives Adtran a comprehensive and well-regarded SDN and NFV platform for the delivery of vCPE functions that can be integrated into Adtran’s Mosaic SD-Access platform. With SmartRG’s SmartOS, Adtran can now extend its microservices architecture from the access network all the way into the home, something that rival Calix has been touting via its Gigaspire series of CPE and EXOS SDN architecture.

For Adtran, the acquisition was a necessary move to keep pace with its chief broadband access rival in North America.

The addition of SmartRG is also reflective of the need tier 2 and tier 3 operators have for remote and software-defined provisioning, monitoring, and troubleshooting of broadband CPE and home networking devices in an age of growing interest in IoT. These smaller, often rural operators, absolutely require solutions that will both reduce their overall operating costs while also positioning them to increase top-line broadband revenue through the addition of new services, including managed WiFi and home automation services.

If you take a look at SmartRG’s customer base and where the company has excelled to date, it is among tier 3 RLECs, co-ops, and ISPs who service areas where the average truck roll could be 2x-3x the cost of a truck roll for an operator in a more urban area. These are the operators who provide an immediate business case for remote provisioning of residential CPE. For them, there is simply no room to send a truck whenever a client has connectivity issues. If 80% of those issues can be diagnosed from the main office, then that dramatically improves the margin profile for these operators’ broadband services.

Remote provisioning and troubleshooting is where SmartRG cut its teeth.

SmartRG was spun out of ClearAccess, a provider of TR-069 software, when the company was acquired by Cisco in 2012. At the time, Cisco was one of the leading suppliers of broadband CPE, particularly to cable operators. Cisco had acquired Scientific-Atlanta back in 2005 and Linksys in 2003. Cable operators around the world were in the process of moving to a TR-069-based architecture for managing their increasingly complex DOCSIS gateways and EMTAs. TR-069 would allow MSOs to offer self-installation and remote provisioning of CPE for new and existing subscribers, thereby eliminating the need to roll a truck for each new customer.

Meanwhile, SmartRG had combined its existing hardware design along with the knowledge of how to deliver TR-069-based architectures to address the needs of smaller ISPs in the North American market, where it found considerable traction.

Flash forward to today, where the tenets and efficiency goals of TR-069 have been encapsulated and reborn as a small part of the overarching NFV and vCPE concepts. When combined with its Mosaic-based SD-Access solution, Adtran can now provide its customers with visibility from the access network all the way into the home, regardless the physical WAN interface. If a customer is experiencing connectivity issues, the service provider can diagnose whether the underlying problem is a fiber cut, interference, or routing table issue in the access network, or whether it is due to channel interference, the addition of a new peripheral, or a DHCP issue in the home or small office. Again, diagnosing and troubleshooting these issues without needing to roll a truck is a critically important money-saving feature all broadband providers, both small and large, are demanding for their networks.

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Below is a shortened version of some RAN related key takeaways from Huawei’s Mobile Broadband Backhaul (MBB) event, Ericsson’s Capital Market Day, and Nokia Global Analyst Forum. For access to the full blog, please contact Daisy@delloro.com

Forecasts are being adjusted upward

Based on some of the findings below, revised vendor projections, and the fact that the market recovery has become broader and stronger (RAN revenues accelerated at the fastest pace in 3Q18 since 2014), it is increasingly likely we will adjust total RAN (2G+3G+4G+5G) and 5G NR projections upward in conjunction with the January 5-Year RAN Forecast Report.

5G MBB business case is clear

With mobile data traffic still growing at an unabated pace—per Ericsson’s latest Mobility Report, mobile data traffic increased close to 79% YoY in 3Q18, recording the strongest growth since 2013—one of the overarching themes from multiple analyst events is that the 5G NR eMBB business case is obvious. Even the more conservative operators are now on board with regard to the 5G business case for eMBB applications—no one is asking anymore whether there is a business case for using more spectrum and utilizing it more efficiently.

5G MBB momentum is accelerating

Not only is 5G ready sooner than anyone expected, the momentum is still accelerating. In addition to the early adopters in Australia, China, Japan, Korea, U.S., and the Nordic countries, there are multiple signs that even the larger European carriers are planning to deploy 5G NR at a faster pace than originally envisioned. And with the trials in China being so large already, the Chinese operators will be able to accelerate commercial deployments rapidly when they are given the green light.

To be clear, 5G NR for MBB is materializing at a faster pace than most everyone expected. At the same time, 5G for Critical IoT / Ultra-Reliable Low Latency Communications (URLLC) is progressing in line with or at a slower pace than initial expectations.

Mid-band to drive MBB, mmW is on the rise

C-band and the 2.6 band are emerging as the global mid-bands.

Millimeter wave (mmW) technology has gone through different phases, with the general industry sentiment shifting from being very optimistic about 5G mmW four to five years ago, followed by increased skepticism and dampened projections for a couple of years, and now in 2018 it appears that the expectations for mmW are rising again. We also adjusted our mmW projections upward in conjunction with the July 5-year forecast update. There is a confluence of factors behind the renewed mmW optimism…

The business case for mid-band Massive MIMO is improving

Deploying 5G NR in the mid-band spectrum using the existing macro grid will yield the best ROI for operators seeking to increase the capacity and improve the average speeds for MBB applications. Given the different…

FWA RAN is growing—but still small relative to total RAN

With more than 200 networks worldwide using LTE to connect the unconnected, Huawei estimates about…

People are needed to deploy the equipment

While AI and automation will play an important role in managing the increased site complexity, a human being still has to climb the tower and install the equipment. According to Ericsson…

Excitement for IoT is growing

Massive IoT (mMTC) is driving the lion’s share of the IoT market today. But there is excitement forming over the Critical IoT (URLLC) use case which includes Industry 4.0. Vendors are forming partnerships and creating special BUs to prepare for this opportunity.

While there is no shortage of IoT and URLLC skeptics, vendors and operators are excited about the fact that the industry is moving from talking about various use cases to solving real problems. Nokia recently announced that it is working with ABB to demonstrate how URLLC can help to clear faults quickly for medium-voltage distribution networks. The leading suppliers are teaming up with operators and car manufacturers to carry out C-V2X demonstrations. The list of course goes on—Ericsson estimates there are more than…

Build it and they will come

This was a phrase Huawei used during its MBB summit, and since we agree with the general concept we thought it is appropriate to reuse. The underlying premise here is that we have now talked about the various 5G use cases for some time. And as much fun as it is to use Excel and PowerPoint to model the business cases for the unknown IoT use cases that are nearly impossible to predict, the technology is now ready and the time has come for action. Just like the operators are able to use their LTE MBB networks to minimize and justify the investments for NB-IoT and LTE-M, operators can leverage their NR MBB networks to minimize URLLC investments. One of the challenges with the URLLC networks is…

RAN product announcements to accelerate rapidly in 2019

There is no one-size-fits-all solution. On the contrary, the sites are getting more complicated because they not only need to support the new 5G NR systems, but they also need to coexist with existing legacy base stations. The C-band spectrum will vary by country. Site and load requirements will also vary depending on the country, but in general it is safe to assume that operators will need more capacity, wider bandwidth radios, smaller form factors, lighter products, and more energy efficient systems. Based on various announcements, the accelerating shift toward 5G, and the fact that the existing macro site will yield the best ROI, it is safe to conclude that RAN product announcements will accelerate at an explosive pace in 2019:

  • During Huawei‘s MBB Summit, the vendor announced a massive number of new products, spanning across its entire RAN portfolio, aimed at giving customers the capacity and RF performance they need while at the same time addressing the site challenges discussed above.
  • Ericsson announced during its capital market day that it is planning to introduce more than 100 radio products in 2019—that is not a typo, more than 100 radios.
  • Nokia’s ReefShark chipset remains on track for the Massive MIMO antennas, digital front ends, and the baseband resulting in smaller antennas, improved power and cost optimization, and flexible baseband.
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Below are some RAN highlights from the MWC-LA 2018 event. For full access to this blog, please contact Daisy Kwok (Daisy@delloro.com).

FWA and eMBB will dominate the 5G NR capex over the near-term

There were no major changes to the timeline we communicated during the July 5-year RAN Forecast — Fixed Wireless Access (FWA) and enhanced mobile broadband (eMBB) are expected to characterize the 5G NR market over the near-term (Figure 1). From a 3GPP standards perspective, low-latency IoT will be addressed in R16 and should be a reality by the 2020 time-frame. But from an adoption perspective, the URLLC use case will likely not be a reality until the 2022 time period.

5G NR eMBB is coming in faster than expected

The overarching takeaway from the show was that the 5G NR eMBB use case is happening at a faster pace than what was originally envisioned. Even with the improved visibility a year ago, the momentum has accelerated. To be clear, the shortened deployment scheduled was already factored into our July 5-year forecast — commercial 5G NR eMBB RAN revenues are still slated for 2H18 and projections are not being revised upward at this juncture. However, feedback from both the supply and demand side during the MWC Americas event added confidence to the forecast we had previously communicated.

The eMBB business case will be driven by cost, capacity, and marketing

The general sentiment at the show was that the 5G NR business case is straight forward from a capacity and cost perspective. From a capacity point of view, there is room left in the tank with LTE utilizing existing resources including carrier aggregation, higher order QAM, Massive MIMO, CBRS, and LAA. The amount of spare capacity will differ from operator to operator depending on the state and utilization of the network and the corresponding spectrum assets.

Nokia presented some rather detailed and interesting models during the MWC event suggesting the average LTE network in the US will run out of capacity by 2022. This is relatively consistent to our own internal findings. Per the July 5-year RAN forecast, we are modeling 5G NR capex in the North America region to be material in 2019 already — 5G NR is expected to account for a significant portion of the 2018-2022 capex in the NA region. In addition to the cost and capacity drivers, the forecast assumes marketing will play an important role accelerating the 5G momentum.

There are multiple aspects to consider from a marketing perspective, including: 1) timing of the first commercial 5G network, 2) timing of nationwide 5G coverage, and 3) advertised data throughputs. As all the Tier 1 operators in the US now have plans to ensure the 5G logo will show up on smartphones nationwide by 2020/2021 using the 600 MHz, 2.5 GHz, Band 5, and Band 66, the focus is increasingly shifting towards the speed component.

mmW and CBRS stimulating enthusiasm for FWA

Consumer mobile is the cash cow but the upside is also limited spurring carriers to balance their investments between the known and unknown opportunities. Not surprisingly, FWA was a hot topic during the MWC event reflecting progress with both the CBRS and mmW spectrum. Factoring in the general industry sentiment towards mmW solutions, Verizon’s 300 Mbit/s announcement for home applications was a positive surprise. Admittedly the advertised speeds were a bit higher than we expected as well. There are still multiple technical and business related hurdles before Verizon can consume a large portion of the fixed home/enterprise market. In addition to propagation challenges as a result of obstacles in the path, technicians are still required to install the home CPE -– a significant cost and time burden.

In addition to providing fiber-like speeds using the mmW spectrum, the CBRS band will play an important role connecting the unconnected and improving the competitive landscape for DSL type services. Federated Wireless recently announced that FWA applications is one of the main drivers of the 16 K CBRS ICDs (Initial Commercial Deployment). And during MWC, AT&T outlined plans to leverage the CBRS spectrum with possible commercial FWA deployments in late 2019.

Competitive landscape will vary depending on the frequency range and country

There is a confluence of variables that could impact the competitive dynamics in the US and globally. There are now more signs that ZTE ban and increased security concerns will impact the 5G NR landscape. Discussions at the show suggest at least one major European operator is looking into phasing out ZTE. Regardless of what the motivations were behind the ZTE ban, one of the implications is that the global 5G NR aspirations for all the vendors need to be aligned with the current geopolitical climate.

Please contact Daisy Kwok (daisy@delloro.com) for full access to this blog.

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The blog is about my insight on the global small cells market, challenges and the changing ecosystem I shared with SCWS 2018.

Q: How has the global small cells market changed in the last 6-12 months and what are your predictions for the next 6 months?

While the overall mobile infrastructure market recorded a third consecutive year of declining revenues in 2017, the global upswing in small cell activity is strengthening and continues to be one of the bright spots. Preliminary data suggest that small cell unit shipments advanced 70% to 80% in 2017 – now accounting for 5% to 10% of the total radio access network (RAN) market.

More importantly, the 10x to 15x growth over the past four years is slightly greater than we originally anticipated, and we have revised our near-term projections upward. The results during 1Q18 were encouraging both from an indoor and outdoor perspective and support our previously communicated thesis that small cells will play an increasingly important role in the ongoing shift from coverage to capacity.

Q: What factors are driving this?

The majority of the small cell deployments to date have actually been to address coverage holes. This is one of the reasons it has been so difficult to predict the development of small cells simply because it has not been possible to model the uptake based on data traffic trends. But over the past 6 to 9 months, the ratio between coverage and capacity deployments started changing and operators are increasingly turning to small cells to address capacity shortages, reflecting to some degree the robust adoption of larger data buckets and increased utilization on the macros.

In addition, the demand is spreading and it is no longer only China and the APAC region driving the market. Positive developments in both Europe and the U.S. are also contributing to the improved outlook.

While consumer enabled voice and data traffic for mobile applications continue to characterize the lion share of the small-cell capex,  investments in new verticals including IoT, public safety, and FWA are expected to grow both over the near-term and long-term.

Q: What are the main challenges preventing wide-spread roll out of small cells and connectivity solutions?

The three primary small cell challenges include 1) the business case cannot always be justified, 2) deploying small cells is different than deploying macro cells. It will take time for all the responsible parties and ecosystems to adapt to address a vastly different deployment model, and 3) the ownership model has to change to cross the chasm in the enterprise and stimulate private deployments. Regulators need to think differently about how they allocate and auction spectrum.

Q: How has the provider and supplier ecosystem changed in the last 6-12 months?

The original small cell vision had two key objectives. First, small cell deployments would scale materially. Second, the proliferation of small cells would lower the barrier-to-entry for new entrants.

It is fair to conclude today that the industry has so far only met the first of the two objectives. Small cell deployments are growing rapidly, but the small cell vendor landscape and share positions clearly show that new entrants have failed to shake up the RAN landscape – per our 1Q18 RAN report, the top 5 macro RAN vendors account for around 90% of the non-residential small cell market.

The primary change over the past 6-12 months is that new entrants are slowly coming to life again. But what is interesting is that it is not LTE-A or 5G fueling the renewed interest in small cells, instead it is the CBRS spectrum. One of the more compelling propositions relating to the CBRS band is that if implemented correctly, CBRS can lower the barrier-to-entry and provide opportunities for a wide range of participants to operate a public or private cellular network.

Dell’Oro Group has identified more than 23 vendors that have announced or plan to introduce CBRS small cell products, and the list is growing as we speak…

Q: Why are events like SCWS World so important to the industry?

SCWS is a great event to keep current on all the latest trends, meet all the key players, and discuss the most pressing issues the industry is facing over the next couple of years.

 

 

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We just published our latest Carrier Economics Report – covering the second half of 2017 and detailing capital expenditure (capex), revenue, capital intensity, and subscriber trends by region for the top wireless and wireline telecom carriers. With publication of the report, I wanted to share some key takeaways:

  • After two consecutive years of declining capex trends, we believe there are reasons to be optimistic about the future. We have adjusted our overall three-year capex expectations upward to reflect a more optimistic investment view than we had originally envisioned in both the US and Chinese markets (Figure 1). Worldwide capex growth is now expected to increase at a compound annual growth rate (CAGR) of one percent in constant currency terms between 2017 and 2020.
  • After three consecutive years of declining capex and improving capital intensity trends in the US telecom market, we maintain the view that conditions are stabilizing and that both capex and capital intensity will continue to trend upward. Aggregate US telecom investments are expected to grow at a high-single digit rate in 2018 and advance at a CAGR of two percent between 2017 and 2020. Multiple factors underpin the renewed optimism for capex in the US, including: (1) Sprint is once again investing, (2) larger data plans are propelling capacity investments, (3) FirstNet investments are set to commence in 2018, (4) corporate tax cuts are boosting AT&T’s 2018 capex, and (5) revenue trends are stabilizing.
  • Constrained operator revenue growth is expected to be one of the primary inhibitors of further capex acceleration with 5G. We anticipate that currency adjusted carrier revenues will remain flat between 2017 and 2020. The forecast assumes that operators will struggle to identify new revenue streams, so as to offset slower smartphone revenue growth.
  • We remain optimistic about the long-term possibilities with IoT. At the same time, we believe the upside will remain limited over the next couple of years. Our baseline estimates assume that carrier IoT revenues will grow ~1.75.x between 2017 and 2020, accounting for about two percent of total mobile operator revenues by 2020. Preliminary IoT connection pricing trends for 2017 are cause for concern, with downside risks to the IoT carrier revenue forecast, should price trends prevail (Figure 2).

For more details, please see https://www.delloro.com/products-and-services/carrier-economics-2