Telecommunications Infrastructure Archives - Page 6 of 38

“Inventory Correction,”“Inventory Realignment,” Or whatever term you prefer to call the root cause of 2023’s broadband spending slowdown will likely persist well into 2024. Without the benefit of fourth quarter numbers, total spending on broadband equipment in 2023 is expected to show a decline of around 10%. Early projections for 2024 indicate an additional 5% year-over-year decrease, as the lagging impact of interest rate increases to curb inflation will be felt more acutely. This additional 5% decrease would put total spending to around $16.5 B—roughly equal to 2021 spending levels.

The expected declines in 2023 and 2024 follow three straight years of white-hot growth in broadband network and service investments from 2020 to 2022. During this period, year-over-year growth rates reached 9%, 15%, and 17%, respectively. Similar periods of growth from 2003-2006 and 2010-2014 were both followed by two subsequent years of reduced spending, as operators—particularly in China—shifted their capital expenditure focus from broadband to mobile RAN.

The silver lining here is that very early signals regarding 2025 show a return to growth, as BEAD and other subsidization efforts begin to trickle down to broadband equipment suppliers. Well before that, pockets of growth in fixed wireless CPE, cable DAA equipment and CPE, and continued spending on PON equipment by tier 2 and tier 3 operators should make the broadband market one in which the headlines might communicate malaise, but a peek under the hood shows clear signs of resilience powering an inevitable return to growth.

Here is what we are expecting in this coming year:

Cable Operators Travel Different Paths to Fend off Fixed Wireless and Fiber

Just like last year, in the minds of cable consumers, cable operators find themselves stuck battling against the perception that they are the provider with inferior copper technology that can’t be flexible when it comes to offering plans that meet a consumer’s budget, like fixed wireless currently can. As a result of this situation, larger cable operators are seeing increased broadband subscriber churn and quarters of net subscriber losses.

Comcast is pushing hard to counter those perceptions and is already offering its X-Class Internet tiers, which offer symmetrical speeds of 2 Gbps in Atlanta, Colorado Springs, and Philadelphia. Additional cities are expected to roll out these service tiers in 2024. Comcast’s use of full-duplex DOCSIS 4.0 (FDX), including brand new CPE using Broadcom’s D4.0 silicon in a two-box configuration. Later this year, we expect to see a combined gateway that also incorporates Wi-Fi 7, as Comcast looks to battle back against FTTH providers by providing the most advanced residential gateway to customers.

Meanwhile, in 2024, Charter’s Remote PHY and vCMTS rollouts will kick into high gear. (At the time of this publication, we are awaiting fourth quarter earnings from both Harmonic and Vecima, the announced RPD partners for Charter’s buildout to determine how much equipment the operator purchased in advance of this significant deployment.) For Charter, which is employing Extended Spectrum DOCSIS 4.0, 2024 will also bring much wider availability of 1.8 GHz amplifiers and taps, as well as a choice of CPE with dedicated silicon for ESD, as well as silicon that combines both FDX and ESD variants.

Charter will likely also announce additional vendors for its upgrade efforts, as the operator has been public about its desire for a multi-vendor environment.

Cox will also begin rolling out 1.8 GHz amplifiers this year but, like Charter, will likely run those at 1.2 GHz until taps and CPE become more widely available.

Meanwhile, for those operators that weren’t part of the initial DOCSIS 4.0 Joint Development Agreement (JDA) with Broadcom (and for some of those who were), DOCSIS 3.1 Plus is quickly becoming an important stopgap measure to help increase throughput within the existing DOCSIS 3.1 framework by leveraging additional OFDM channels. Operators can either use existing integrated CCAP chassis (with either legacy line cards supporting 3 OFDM blocks or newer cards supporting 4 OFDM blocks) or vCMTS platforms. This can be combined with either DOCSIS 4.0 modems or modems designed specifically for D3.1 Plus deployments, which won’t require the additional gain amplifier (and cost) needed for full DOCSIS 4.0.

While it remains to be seen which type of CPE operators deploying DOCSIS 3.1 Plus will move forward with, the fact that there is significant interest in the technology means that there will now be additional operators who will likely move on from DOCSIS 4.0 and instead buy themselves time with DOCSIS 3.1 Plus before moving forward with fiber overbuilds. The biggest question here is just how many operators will do so.

Speaking of fiber, we expect to see additional FTTH deployments—both greenfield and overbuild—by cable operators around the world. Whether using Remote OLT platforms or more traditional OLT platforms, cable operators will take advantage of work being done at CabeLabs to standardize the integration of ITU PON into existing DOCSIS management frameworks. This will make it far easier for MSOs to deploy XGS-PON, as well as 25GS-PON and, potentially 50G- and 100G-PON.

XGS-PON to Dominate Fiber Spend This Year

The PON equipment market will be the most dynamic this year, with tier 1 operators outside of BT OpenReach and Deutsche Telekom, all continuing to better align their inventories with anticipated subscriber growth, as well as reduced homes passed goals. For larger tier 1s, the short-term reduction in homes passed goals will ultimately give way to a renewed construction phase beginning in 2025 that should propel the overall PON market through the end of the decade.

But while the tier 1s slow, there will be no slowing the continued efforts by tier 2 and tier 3 operators in both North America and Europe to both upgrade and expand their fiber networks. In fact, the same dynamic that played out in North America in 2023 will likely repeat in 2024, as tier 2, tier 3, utilities, municipalities, and co-ops all continue their buildouts.

The technology beneficiary will be XGS-PON, which already surpassed 2.5 Gbps GPON revenue back in 2022, but will more than double it in 2024. And in markets where operators are beginning to see cable operators deliver symmetric 2 Gbps services, there is a strong chance they will also sprinkle in some 25GS-PON to comfortably deliver symmetric 5-10 Gbps services.

Meanwhile in China, which is expected to show a marked decline in new OLT port shipments in 2023, will likely see another decline until 50G-PON rollouts begin in earnest later this decade. On the flip side, ONT unit shipments in China are expected to increase as FTTR (Fiber to the Room) deployments expand, delivering 2-3 ONTs per home as opposed to the traditional architecture of using a single ONT to terminate fiber.

Wi-Fi 7 Progress Will Accelerate

With the Wi-Fi Alliance recently announcing the opening of certification testing for Wi-Fi 7 products, don’t be surprised to see dozens of Wi-Fi 7 residential routers and broadband CPE models being deployed by operators by the end of this year. Early gateway models, though pricey, have already been introduced to the market and will become much more widely available this Spring, and then well before the Holiday season. As of our July 2023 forecast, we expect over 2.5 million residential Wi-Fi routers and broadband gateways to ship in 2024, though we are undoubtedly increasing this forecast based on the certification testing opening up.

Operators can’t wait to deploy Wi-Fi 7 products to help differentiate themselves in increasingly crowded broadband markets and to eliminate much of the confusion in the market with the coexistence of Wi-Fi 6 and Wi-Fi 6E.

Where is the 5G Core heading in 2024, and what happened with 5G Standalone deployments in 2023?

The short answer for what happened in 2023 concerning new 5G Standalone (5G SA) deployments for eMBB networks is ‘not much.’ We witnessed only 12 new 5G SA deployments in 2023, compared to the 18 in 2022. The biggest surprise for 2023 was the lack of 5G SA deployments by AT&T, Verizon, British Telecom EE, Deutsche Telekom, and other Mobile Network Operators (MNOs) around the globe.

Fifty 5G Standalone enhanced Mobile Broadband (eMBB) networks commercially deployed (2020 – 2023)

However, beneath the surface, these MNOs were building cloud-native dual-mode or converged 5G Cores. The primary focus was migrating their 4G and 5G non-standalone (5G NSA) subscribers to their new respective modern Telco Clouds based on the 5G Core Service-Based Architecture. Much of the heavy lifting was done in 2023, preparing for 5G SA launches in 2024. Some MNOs have already introduced 5G SA Fixed Wireless Access (FWA) services and 5G SA services to enterprises. The next step is to open up the MNOs networks to 5G SA services for the consumer market.

There are many benefits for end users when MNOs provide 5G SA services. While all 5G vendors promote these benefits, the following graphic from Ericsson succinctly illustrates the benefits of 5G SA for FWA, the enterprise, and the consumer customer base.

Why 5G Standalone? Unique benefits vs. 5G Non-standalone

In the blog “Building 5G – what is your best path to the future?” Ericsson summarizes that “Standalone unlocks more use cases for consumers and enterprises. 5G SA will also speed up network slicing opportunities for multiple customer segments, offering an infrastructure for businesses to enable solutions such as smart manufacturing and IoT-driven innovation, while giving consumers a better and more consistent service experience. It is a big step forward for communications service providers, as it enables a more flexible approach to service creation and provision for subscribers.”

What to expect for 2024

We project more 5G SA eMMB networks will launch in 2024 than in 2022, which is greater than 18 new networks. We will see network slicing being more utilized as it matures, lower cost IoT devices as RedCap NR comes to market, 5G VoNR (Voice of NR) will enhance voice communications, and we will see the beginning phases of 5G Advanced based on 3GPP Release 18 being implemented in the second half of 2024. (See our blog, “5G Advanced—what does it mean for the 5G Core market?”). These new services will enable more applications and enrich the communication experience for all users of 5G SA networks.

During a presentation at SCTE’s Cable-Tec Expo, Comcast’s VP Network Architecture Rob Howald provided details on the pace of Comcast’s Distributed Access Architecture (DAA) deployments, stating that the operator has already deployed over 120,000 Remote PHY nodes along with 1,000 PPODs, or physical vCMTS servers. The number of Remote PHY nodes deployed is up from 83,000 nodes Comcast’s Elad Nafshi reported around seven months ago, and 50,000 nodes reported just one year ago at the 2022 Cable-Tec Expo in Philadelphia.

With Comcast having a total node base of around 200,000, the operator is a little over halfway done with its overall DAA upgrade program for its existing node base. The 200,000 nodes do not include nodes that will be added as part of network expansions or continued efforts to push fiber deeper and replace amplifiers with additional node-based RPDs.

As of 2Q23, Dell’Oro Group estimates that total RPD shipments (either as nodes or modules in R-PHY shelves) on a global basis are in the neighborhood of 350,000 units. That means that Comcast alone accounts for almost one-third of all RPD shipments. Cox Communications is estimated to have upgraded “tens of thousands” of nodes over a five-year span to Remote PHY. We estimate those totals to be in the 12-15,000 node range, covering roughly 50% of the operator’s overall footprint. Together, Comcast and Cox alone account for roughly 38% of the total RPD market.

This is why we frequently have to reiterate that the DAA upgrade cycle is truly in its very early stages, with the vast majority of upgrades expected to happen beginning in 2024 and continuing through 2027. Certainly, Charter Communications is going to drive a significant amount of RPD purchases, with an installed base that exceeds 200,000, and will continue to increase by a few thousand annually through network expansions and continued fiber extensions. But beyond Charter, the combined Rogers and Shaw, Mediacom, Midcontinent, Astound, Videotron, Cable One, and others will all initiate or continue their DAA upgrades, largely through the deployment of RPDs.

These operators’ mid- and high-split DOCSIS 3.1 upgrades and subsequent evolutions to DOCSIS 4.0 will largely be based on the deployment of DAA, which provides immediate signal quality and reliability improvements that operators require today to remain competitive with fiber overbuilders.

Additionally, these operators will take advantage of improvements in RPD density and efficiency, as well as similar improvements in vCMTS density. Elad Nafshi, EVP and Chief Network Officer at Comcast said as much during this year’s Cable-Tec Expo, stating that the operator was now rolling out a third generation of its vCMTS platform that allows for one rack to cover about 100,000 households passed, which is an increase from the second-generation platform that supported about 60,000 homes passed per rack.

The original vision of taking advantage of improvements in the core processing capabilities of servers rather than waiting on a vendor’ release schedule for new line cards and processor cards is being fulfilled. This DAA upgrade cycle—the bulk of which remains ahead—will be interesting to watch as operators learn how to operationalize these new elements while reaping the benefits of improved signal quality, increased reliability, and reduced power consumption.

During its third-quarter earnings call, Harmonic’s CEO Patrick Harshman described having initiated a formal strategic review of its video business and has already received interest from potential buyers of the business. The video business, which represents about 40% of Harmonic’s total revenue, is seeing solid growth in its software-as-a-service (SaaS) segment, but declines in its traditional hardware business, which includes broadcast and contribution encoders, and other products designed to process and play out video.

While the video segment is growing more modestly, Harmonic’s broadband segment has grown considerably and is poised for even stronger growth in the next few years as major cable operators, including Charter Communications, begin their transition to Distributed Access Architectures (DAA) and FTTH. During the third quarter earnings call, Harmonic noted that its broadband products are now commercially deployed with 104 operators, which is up 21% year-over-year.

The potential sale of its video business at this point makes a lot of sense for Harmonic for a number of reasons. The primary reason would be to allow the company to shift 100% of its focus (and capital) on expanding the broadband segment and building on its market leadership position in the vCMTS and remote PHY product segments without having the drag of negative EBITDA coming from the video segment. Another major reason is that the video and broadband business segments aren’t driving the synergies the company was expecting when it figured that a shift in spending on broadband equipment would coincide with a shift in spending on video processing equipment. But here are some other reasons why a transaction makes sense:

Traditional pay-TV providers are moving too slowly in embracing IP-based video delivery: Harmonic’s strength has always been in providing high-quality, hardware-based encoding and video processing platforms to traditional pay-TV providers, such as cable, telco, and satellite operators. As subscriber losses continue to mount, these operators have been less inclined to invest in their video infrastructure, but have also been less enthusiastic about migrating to lower-cost, cloud-based video delivery. They have been sweating their video assets in the hopes that margins would improve despite subscribers continuing to cancel. Unfortunately, rising content costs have eaten into any margins, creating an atmosphere of inertia among the world’s largest pay-TV providers. Commscope has felt the same impact on its video business, which was very heavily focused on service providers and broadcasters.
Growth in video is in AVOD, FAST, and CDNs—areas where Harmonic has not had as much traction: Because Harmonic has historically been focused on the service provider and broadcast market segments, it has not gained traction in the segments that are seeing the fastest consumption growth right now. Specifically, the growth in AVOD (Advertising-based video on demand) and FAST (Free ad-supported streaming TV) channels and content is largely being processed through AWS, or other CDNs or platform providers like Broadpeak and ATEME. Harmonic’s SaaS offering is intended to address these markets, but it is crowded and distributed. To be successful in the long term, scale will be critical. And that scale will likely be achieved more quickly through the acquisition by a competitor or adjacent vendor.
Despite the current inventory correction, the broadband segment is set to boom: There is no question that broadband operators are currently working through purchased inventory as they adjust to a demanding environment and a supply-chain environment that has changed. Subscriber growth at many cable operators has slowed and fiber buildouts by competitors have also slowed, reducing the need for some operators to make significant infrastructure upgrades in the short term. Nevertheless, the expectation is that the inventory digestion—at least for Harmonic’s customers—is ending this quarter. As a result, Harmonic has guided Q4 broadband revenue to be between $105M-$120M. In all likelihood, that will be its biggest quarter on record, with similar quarters set to follow as more operators ramp up their DAA efforts.
Harmonic can potentially consolidate the cable broadband market: Timing is everything. Nowhere is that truer than in the broadband equipment space right now. The impact of inventory digestion and reduced demand has had an incredibly uneven impact on vendors. Nearly all have felt some pain. But the duration of that pain is forcing some equipment vendors to change their short-term strategies. We have already seen layoff announcements and other cost-cutting moves by some vendors who anticipate the spending slowdown to persist well into 2024. Others, like Commscope, are reportedly looking to sell off assets in order to ensure they can pay down debt and focus on their core product segments going forward. If, as reported, CommScope is looking to sell off its Access Networks Solution (ANS) unit, which it acquired when it purchased ARRIS back in 2019, Harmonic becomes a very interesting candidate to acquire the division, especially if Harmonic does sell off the video segment of the company. That additional capital might position Harmonic to take on less debt to acquire the significant cable footprint the former ARRIS would bring.

Beyond a global installed base of CCAP platforms, the ANS division would also give Harmonic a dominant position in the cable outside plant—specifically optical nodes, amplifiers, taps, and passives. A large percentage of these devices are going to be upgraded or replaced by Comcast, Charter, Cox, Rogers/Shaw, and others as they evolve from DOCSIS 3.1 to DOCSIS 4.0. In fact, we estimate that from 2023-2030, cable operators globally will spend a total of $9.9B on this outside plant equipment.

Currently, Harmonic does not focus on cable outside plant equipment. CommScope is estimated to be the global leader in cable outside plant equipment, particularly in the critical North American market. More importantly, CommScope is already working closely with Comcast on both 1.2GHz amplifiers as well as Full Duplex DOCSIS 4.0 amplifiers. Comcast remains Harmonic’s largest customer, representing 41% of Harmonic’s total revenue in the third quarter. For Comcast’s full duplex service to work as advertised, it will take close coordination of the vCMTS, nodes, Remote PHY Devices (RPDs), amplifiers, and CPE. With the current uncertainty around CommScope’s ANS division and where it might potentially land, Comcast undoubtedly has its preference and that is to an organization with whom its procurement department and network engineers are already familiar.

The arguments against Harmonic acquiring CommScope’s ANS division are many. Revenue is declining, as spending on traditional CCAP platforms is dropping faster than RPDs and amplifiers can offset. For many vendors, that declining CCAP market would be an absolute albatross. But if you are Harmonic and can convert a significant portion of that spend to cOS spend while also watching the RPD and amplifier spend increase then perhaps this all makes sense. Even if that legacy CCAP spend never returns because it is being replaced by fiber, Harmonic can recoup some of that revenue via cOS deployed as a vBNG or to simultaneously manage DOCSIS and fiber subscribers.

The existential question for Harmonic here is whether it wants to address the cable outside plant market. How many Comcasts are out there who are closely tying together their cable outside plant equipment purchases with their headend and control plane purchases? It certainly appears that this is happening at many more operators, as DOCSIS 4.0 roadmaps are closely intertwined like never before.

Back in September, Charter Communications and Disney were locked in a tense renegotiation of their TV redistribution agreement. The ongoing discussions threatened to result in blackouts for Charter’s video subscribers of NFL and college football games, just as both seasons were beginning to ramp up. Fortunately, both sides came to a historic agreement, which now sets a precedent for future re-distribution negotiations for all video service providers by effectively ending the traditional bundling of linear channels and instead giving video providers more flexibility in how they bundle linear and streaming content.

Traditionally, video providers would be forced to take a bundle of linear channels from a content owner. In the case of Disney, that would include the very popular ESPN and FX, along with the far less popular Freeform, Nat Geo Mundo, Baby TV, and FXX, among others. Instead of being forced to take a bundle of channels, only two of which Charter (and its subscriber base) felt were valuable, Charter proposed packaging ESPN and FX along with access to its ad-supported streaming services Disney+ and ESPN+. Charter will pay a wholesale rate of an estimated $3 per month to provide free access to Disney+ to its 9.5M Signature Select customers, as well as ensuring that Charter’s customers will also receive ESPN when it moves to a direct-to-consumer streaming platform.

The deal includes wins and losses for both sides. For Disney, the deal means more subscribers to its Disney+ offering and more value to advertisers. However, it also means that those channels that Charter does not want to carry are now on life support. If, as expected, other video providers follow suit and negotiate similar arrangements, subscriber numbers for those channels will ultimately dwindle to zero.

For Charter, the deal ends the double-dipping by content owners—essentially using the subscription revenue from the linear channels to subsidize the content creation and marketing of direct-to-consumer streaming services. Now, the streaming services are just different channels on the traditional cable TV lineup. It also replaces a group of low-value channels with limited viewership with high-value streaming channels that customers previously paid separately for.

Deal’s Impact on Broadband

For Charter and subsequently for all other cable operators, the deal provides tremendous benefits to their broadband networks and services, as well as their likelihood of retaining broadband customers in the face of increasing competition from fiber overbuilders and fixed wireless providers.

The most obvious benefit is the reduction in the total number of channels Charter has to carry and, thereby, the amount of spectrum and bandwidth it uses to deliver these linear channels. This reclaimed bandwidth can be used in conjunction with its high-split DOCSIS 3.1 and eventual DOCSIS 4.0 upgrades to deliver even more bandwidth to consumers. Imagine if Charter is able to negotiate similar distribution deals with Warner Bros. Discovery, which offers some 30 different channels spanning news, lifestyle, and general entertainment. Further, consider the reclaimed bandwidth through a deal with Paramount Global.

Now, Charter has already likely moved many of the less popular channels onto a switched tier, whereby the channels are only delivered to a set-top box when requested by a user. But there are far more cable operators that never deployed switched digital video (SDV) than did. So, their potential reclaimed bandwidth would be significant.

Beyond just increased bandwidth, by adding more streaming content, delivered via IP, cable operators can also continue their move away from traditional, QAM-based delivery of video. Cable operators (and video providers, in general) have continued to watch their linear subscribers, and revenue declines while overall video consumption continues to increase. For customers who are consuming video via SVOD services like Netflix, Hulu, and Max, AVOD (Advertising-based Video on Demand) and FAST (Free, Ad-Supported Streaming Television), and via Instagram Reels, YouTube Shorts, and TikTok, linear TV just doesn’t have a place, especially with content costs continuing to increase annually.

But cable operators need to find ways to ensure those non-linear video consumers remain broadband customers. They can do this and add value to an increasingly distributed viewing experience by becoming content aggregators and ensurers of high Quality of Experience. This is exactly what Comcast, Charter, and others intend to do through the Xumo platform, and what other operators are doing via their partnerships with TiVo. Instead of always being the middleman and having to pass along price increases to their subscribers due to the increasing cost of content, operators can add value by delivering a unified interface for all SVOD channels, FAST/AVOD channels, and their own IP-based linear TV service, all with flexible pricing packages to match a customer’s budget. The operator can provide content discovery features and multiple viewer profiles through a single interface, among other features.

Ultimately, the goal for operators is to generate as much revenue as possible from a bundled video offering to what were previously broadband-only households. Equally as important as the additional revenue is the higher likelihood of retaining these broadband subscribers.

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