Telecommunications Infrastructure Archives - Page 7 of 38

While visiting China and Taiwan, I still felt connected to the cable broadband industry in Denver via all the stream of announcements made during the show. I anticipated DOCSIS 4.0 advancements with a focus on new components, products, and partnerships to assist cable operators in transitioning from DOCSIS 3.1. In recent weeks, there have been inquiries about a single chipset supporting both DOCSIS 4.0 variants: Extended Spectrum (ESD) and Full Duplex (FDX).

As usual, where there is smoke, there is fire, as Comcast and Broadcom announced at the show silicon combines both flavors. The chips can be used in CPE, as well as in nodes, amplifiers, and Remote PHY Devices (RPDs). The new silicon is expected to be ready for trials in early 2024, with commercial deployments expected before the end of 2024.

Both Comcast and Broadcom emphasized that the unified silicon would provide operators “optionality,” allowing them to mix and match technologies based on the condition of their outside plant, the length of amplifier cascades, the overall cost to upgrade a particular system and, most importantly, the impact of competition. In theory, if an operator is facing competition from fiber overbuilders that have had success in stealing away subscribers based on the ability to deliver symmetric speeds, the cable operator could respond in targeted areas with FDX, while still pursuing a strategy of delivering ESD across the bulk of its footprint.

Unified FDX/ESD Chip Ideal for CPE, Though Questions Remain About Infrastructure

This type of optionality is a great fit for CPE, as it allows CPE vendors to reduce the number of individual products they have to develop and maintain, which is critical in the lower-margin business of consumer electronics. It also simplifies the inventory management process for operators, an important way for them to manage capex costs, particularly since CPE refresh cycles tend to occupy a significant portion of capital expenditures as they build up inventory.

But outside of CPE, it is difficult to see how the additional costs associated with supporting both DOCSIS 4.0 variants make sense. We are already expecting North American cable operators to shell out $5.8B on 1.2GHz, 1.2GHz FDX, and 1.8GHz amplifiers from 2023-2030. Those totals include our estimates for FDX amplifiers, which we expect will carry a $150 price premium over 1.8GHz amplifiers, due to the integration of DSPs (Digital Signal Processors). It is hard to imagine an operator who has committed to one DOCSIS 4.0 technology being willing to spend additional money on optionality it likely will never use in significant volumes.

Comcast reiterated that it is moving forward with FDX exclusively, so the added costs of supporting ESD across amplifiers, nodes, and RPDs makes little sense for the company, especially when the cost of FDX amplifiers already carries a significant premium over 1.8GHz ESD amps.

Although Charter, Cox, Liberty Global, and Rogers Communications have all signed on to a JDA (Joint Development Agreement) with Broadcom that includes some volume commitments and a certain level of funding for the unified silicon, it is very hard to believe that these operators, who have publicly stated a preference for ESD, would want to bear the additional cost of including FDX support across all of their outside plant when it would likely only be a deployed on a limited, case-by-case basis.

Of course, these operators haven’t ruled out FDX explicitly, so it is more likely that they are making some commitment to Broadcom so that the semiconductor company will go ahead and proceed with development. This has very much become Broadcom’s standard operating procedure when it comes to the cable infrastructure market. Broadcom had a similar JDA in place with nearly the same group of operators to commit to volume purchases of Remote MACPHY equipment and a second-generation R-MACPHY chipset from Broadcom. However, once Charter changed its technology strategy from R-MACPHY to Remote PHY, the JDA essentially dissolved, with the other operators also opting for R-PHY.

Operational Improvements a Goal For Unified Chip

The only way it makes sense for the ESD-focused operators to absorb the costs associated with a unified chipset is if they believe that the addition of an SoC (System on a Chip) which combines a DSP for echo cancellation as well as the downstream and upstream equalizers, provides them with enhanced telemetry and performance metrics that might improve overall reliability and uptime, as well as reducing the amount of money they spend on truck rolls and handheld test and measurement equipment. The FDX SoC also includes an embedded cable modem (eCM) function which can communicate with a centralized controller in the headend or data center to help automate the setup and topology of the amplifiers within a cascade—again without having to roll a truck.

So, there is potential value in paying upfront for a device that will likely be an integral part of an operator’s network for 10 years, if not more. There is also the potential for significant savings in operational costs by reducing truck rolls and technician visits to determine which amplifier in a cascade might be incorrectly configured or underperforming.

But, with Comcast having developed so much FDX technology alongside its vendor partners, other operators have to be concerned about whether Comcast would prefer to license elements of the FDX ecosystem—from RPDs to vCMTS platforms to amplifiers. Speculation on Comcast’s ambitions regarding the licensing of its broadband technologies has existed ever since it announced its warrant agreement and subsequent enterprise licensing expansion with Harmonic in 2016 and 2019. Its X1 video platform has been licensed by Cox, Shaw, and others. So, Comcast certainly has experience in this regard. Broadband is a different story, however. Unlike linear TV, which is seeing continued subscriber losses, broadband subscriptions and revenue continue to grow. Because of this, operators have been more reluctant to hand over any level of control via a similar licensing arrangement.

So, it will be interesting to see whether any of the ESD-committed operators adopt the more expensive, unified chipset from Broadcom. The operators that are part of the JDA will get first dibs on the chips when they become available, leaving those operators that aren’t part of the JDA on the outside looking in. That includes a substantial number of tier 2 and tier 3 operators all trying to determine their path forward from DOCSIS 3.1

Unlike Broadcom, MaxLinear also introduced its own Puma 8 chipset supporting only ESD that will not require a JDA. The chip is expected to reach production in the second half of 2024. At the show, MaxLinear announced that Askey, CommScope, and Sercomm are the initial CPE partners for the Puma 8. These vendors have historically maintained DOCSIS CPE lines that incorporate both MaxLinear and Broadcom chips and are likely to eventually do so to support the DOCSIS 4.0 evolution. Vantiva, which is in the process of acquiring the CommScope Connected Home division, has historically been a Broadcom-only supplier. But it remains to be seen how the vendor will move forward given CommScope’s historic support of both Broadcom and MaxLinear.

After initially considering skipping MWC Vegas due to declining attendance, we are pleased with our decision to attend this event in person. We had a rather productive day, with about ten meetings and various demos, mostly focusing on non-traditional suppliers and opportunities. Although we may not be the best source to capture all the announcements timed with this event, we want to share some high-level takeaways related to Fixed Wireless Access (FWA), neutral host, Open RAN, and private wireless, which could potentially impact the RAN market.

Interest in mmWave FWA is on the rise

The narrative around millimeter-wave (mmWave) technology has evolved since its initial commercial deployments in 2018. Currently, mmWave accounts for approximately 2% of the RAN market. While we maintain optimism about its long-term growth potential, short-term prospects have been adjusted downward due to slower activity in the first half of 2023.

There are currently two main tracks aimed at advancing the mmWave business case for both MBB and FWA use cases. These tracks involve boosting the RF output power and improving economics through repeaters and Reconfigurable Intelligent Surfaces (RIS). At the MWC event, the focus was primarily on the FWA opportunity. Verizon and T-Mobile announced that the average FWA user consumes 300 GB and 450 GB of data per month, respectively. This raises the question of how many subscribers the operators can target while maximizing profitability and whether mmWave spectrum can be an economically viable option in areas where the upper mid-band is exhausted. Operators still have some time, but it’s the right moment to start planning for the next steps.

The problem statement remains the same, but discussions at both MWC Vegas and the 5GAmericas event suggest reasons for optimism regarding near-term FWA RAN growth prospects.

Neutral Host – This time is different!

Those who aren’t jumping out of their chairs with excitement after reading neutral host-related press releases can be forgiven. After all, discussions about the win-win scenario with neutral host deployments have been ongoing for as long as I’ve been an analyst (I joined Dell’Oro in 2010).

One of the key differences this time is the target market and the potential TAM expansion. It’s no longer just about larger public venues. The improved economics, simplicity, scalability, and deployment times associated with recently announced neutral host offerings are expected to open up opportunities beyond the traditional DAS footprint. For example, Celona recently announced a neutral host-based partnership with a major US retailer with 4 K stores. It will be interesting to follow the progress and learn more about the value derived from improved indoor coverage and performance.

With the right ownership and partnership models, the differing ROIs between operators and building owners could change the likelihood of 5G proliferating indoors. WiredScore, an expert in property digitalization, estimates that well-connected buildings, such as the ones Ericsson and Proptivity launched in Stockholm in collaboration with Fastpartner, have the potential to increase rent levels by about 3%. Proptivity also announced plans to invest 3 billion SEK in the coming years to improve 5G connectivity across Nordic properties.

InfiniG unveiled its Neutral Host as a Service offering at MWC. The company believes that its “collaboration with the mobile operators, enterprises, commercial real estate owners, and partners has birthed an innovative new model.” According to InfiniG, the market opportunity spans 40 B+ sq ft of untapped commercial space.

The incumbents are now committing to Open RAN

Open RAN has come a long way in just a few years but at the same time, brownfields beyond the early adopters are still more comfortable with traditional RAN architectures. In addition to cost, timing, and performance parity, operators are waiting for “approval” from the established suppliers.

Although MWC Vegas had limited attendance from the top four RAN suppliers, Ericsson’s confirmation of its Cloud RAN/Open RAN fronthaul commitments was a major focus at the event. This was followed by Nokia’s recently announced paper clarifying its CloudRAN/Open RAN solution roadmap, validating the message we have communicated for some time, namely that Open RAN is here to stay and it is an architecture for both legacy and new suppliers. Importantly, with the top five suppliers still comprising around 95% of the RAN market, the incumbents are needed to accelerate O-RAN brownfield deployments.

Open RAN may not be as disruptive as some initially envisioned. But Ericsson and Nokia’s recent announcements taken together with Samsung’s Open RAN/vRAN portfolio readiness are significant validations of this movement and will help catalyze O-RAN-compatible brownfield deployments.

Private wireless goes smaller

As with most new opportunities, it always takes a while to figure out the right path. After initially trying to sell cellular connectivity as a Wi-Fi+ complement to enterprises with existing Wi-Fi, the focus over the past year shifted towards selling cellular connectivity to industrial sites where there is limited or no Wi-Fi/cellular connectivity. This pivot is accelerating the private wireless market, with preliminary findings suggesting that private RAN revenues increased around 60% YoY in the second quarter of 2023.

While the non-industrial market remains an essential part of the potential TAM, the focus is currently on low-hanging fruit. Nokia’s recently announced private wireless compact DAC, targeting “small” industrial sites, will likely expand the overlap with Wi-Fi. The focus remains on industrial sites such as warehouses, but it is also returning to selling Wi-Fi+ to places that may already have Wi-Fi.

Cost will be crucial for SMEs and Nokia estimates that its compact DAC PW can save enterprises 20% in TCO compared to Wi-Fi.

In summary, we are not adjusting any projections at this time based on these announcements/activities, but we see them as important validations of our RAN projections, especially for the upcoming growth engines. It will be key to monitor the progress with all of these potential revenue boosters, including neutral host, private wireless, and FWA (Open RAN is not a revenue booster).

5G Standalone and the 5G Core

The 5G Core is used in 5G Standalone (5G SA) networks as opposed to the 4G Evolved Packet Core (EPC) employed in 5G Non-Standalone (5G NSA) networks. Through 3Q 2023, 45 Mobile Network Operators (MNOs) have commercially launched 5G SA networks for consumers (Figure 1). Utilizing Artificial Intelligence/Machine Learning (AI/ML) becomes imperative for the 5G Core to operate efficiently. The same is true for many applications offered by MNOs; AI/ML brings these applications to reality. This blog will review an example of each.

**Figure 1: MNO 5G SA eMBB Networks Commercially Deployed**

Artificial Intelligence/Machine Learning (AI/ML) for 5G Core Data Analytics

AI/ML are the engines behind the Data Analytics required to automate real-time and near real-time decision-making based on raw data from consumer traffic activity, IoT sensors, and other devices. In the case of the 5G Core, the data will be generated by events coming from all of the network functions for network data analytics performed by the Network Data Analytics Function (NWDAF) (Figure 2). The sheer volume of data that may need to be analyzed—on the scale of petabytes—could never be handled manually.

Several types of AI/ML can be employed in NWDAF data analytics including:

Descriptive Analytics answers questions about what happened in the past.
Diagnostic Analytics offers insights into why those events happened.
Real-time Analytics (On-demand Analytics or Streaming Analytics) includes:
Predictive Analytics analyzes current and historical data to provide insights into what might happen in the future.
Prescriptive Analytics suggests actions an organization could take based on those predictions.

AI/ML for 5G Computer Vision Application Data Analytics

Computer Vision is considered a “killer application” use case enabler because of all its capabilities when coupled with the right AI/ML data analytics. Figure 3 lists top industrial use cases enabled by Computer Vision high-performance Artificial Intelligence of Things (AIoT) devices.

**Figure 3: 5G SA High-Performance AIoT Use Cases**

Soon Proofs of Concepts (PoCs) and trials will be completed, and enterprises will start implementing these solutions at scale, all made possible because of AI/ML.

The Impact of Generative AI

Generative AI refers to a category of artificial intelligence (AI) algorithms that generate new outputs based on the data they have been trained on. Unlike traditional AI systems that are designed to recognize patterns and make predictions, generative AI creates new content in the form of images, text, audio, and more.

Generative AI has a wide range of applications, including:

Images: Generative AI can create new images based on existing ones, such as creating a new portrait based on a person’s face or a new landscape based on existing scenery
Text: Generative AI can be used to write news articles, poetry, and even scripts. It can also be used to translate text from one language to another
Audio: Generative AI can generate new music tracks, sound effects, and even voice acting

Generative AI is a powerful tool that has the potential to revolutionize several industries. With its ability to create new content based on existing data, generative AI has the potential to change the way we create and consume content in the future.

Key Takeaway about AI/ML in the 5G Core

Whether creating new content with Generative AI for 5G consumers and enterprises, providing new applications centered around computer vision, or analyzing 5G network data with AI/ML, more computing power and storage will be required in the Telco Cloud Data Centers. If there is a demand to meet specific latency requirements, AI/ML will increase the demand for more computing power and storage at the 5G Core edge for Multi-access Edge Computing (MEC).

A Problem to Solve

For the past couple of decades, the rising demand for optical network capacity has been counter-balanced by the declining price of a Gbps. It was one reason service providers could keep up with customer demand for bandwidth without exponentially growing their Capex spend. However, while bandwidth demand rose, the cost to lower the price-per-Gbps increased. Stated another way, optical companies had to perpetually invest more resources in research and development (R&D) to solve one key problem for their service provider customers: keeping the cost of bandwidth from growing exponentially.

Demand for Bandwidth Grows 30% Annually

The demand for capacity in long distance networks has been growing at an average annual rate of 30% for the past decade and is expected to do the same for the next decade. This means that for every five-year period, the amount of installed network capacity on a Gbps basis needs to grow by roughly 4X. This increase in bandwidth is driven by an increase in applications that consume more capacity.

Access technology: The technology in the access layer increased the speed that end users were able to access the internet from Kbps to Gbps. The latest access technologies include 25G PON and 5G; the future includes 50G PON and 6G.
Densification: More places are being connected with fiber. Over time, fiber connections have moved from central offices to city blocks and now to homes. Smart cities are emerging that integrate communication technology with the infrastructure, further pushing up the number of connected devices, including those for safety and security.
Video: High definition (HD) video has moved beyond the television to handheld devices, surveillance cameras, and even doorbells.
Artificial Intelligence (AI): This is just the start of AI and machine learning (ML). We think ChatGPT was the first of many new applications leveraging AI and ML that will appear in the market. In fact, it is a possibility that AI/ML applications will drive annual bandwidth growth beyond 30% in the future.

Price of a Gbps Declined 20% Annually

Although bandwidth requirements grew exponentially, service provider Capex grew linearly. This is because the price of DWDM equipment on a Gbps basis declined at 20% annually or by half every three years.

The 20% annual price decline is broadly achieved through the combination of two cost drivers:

Efficiency gains: We believe efficiency gains contribute approximately one-third of the annual price reduction. A few ways to improve efficiencies include improving manufacturing processes, achieving better product yield, and obtaining manufacturing scale.
Innovation: New technologies introduced into the market contribute the remainder of the 20% price reduction. These new technical innovations include coherent DSP and photonics to produce higher wavelength speeds that have better spectral efficiency (SE).

Spectral Efficiency Improvements Slowing

One of the main methods to lower the price-per-Gbps is to increase the SE of a wavelength. When sending more bits in the same amount of spectrum, the service provider amortizes the high cost of the optical line system (comprised of DWDM chassis, amps, ROADMs, and fiber) over more bandwidth. Thereby, lowering the price-per-bit of the network.

But, as we approach Shannon’s Limit, SE improvements are slowing and a problem is emerging.

Beginning in 2008, SE improvements accelerated higher due to the introduction of coherent technology. When a service provider moved from using a 10 Gbps wavelength to a coherent 100 Gbps wavelength, the SE increased 10X.
Although SE improved with the availability of new wavelength speeds, it was not at the same scale because the SE improvement of each generation is less than that of the previous generation as we advance towards Shannon’s Limit.
We believe the SE improvements in the next five years will only be 5%.

The Problem Statement

Increasing SE was the biggest lever to reducing the price-per-Gbps. However, due to Shannon’s Limit, future SE gains are harder to realize. Therefore, new technical innovations must be created. Otherwise, one day, service provider Capex will need to grow exponentially to keep up with user demand for bandwidth.

Telecom holds steady in the first half. According to preliminary findings, worldwide telecom equipment revenues across the six telecom programs tracked at the Dell’Oro Group*, were flat year-over-year (Y/Y) in the quarter and advanced 2% in the first half of 2023.

These results mostly align with expectations on an aggregate level, although performance by region and technology varied. After five years of expansion, during which the North America region advanced by around 50%, the pendulum swung toward the negative in the first half. The decline in North America was anticipated, but the pace of the contraction was slightly faster than expected. Alongside more challenging 5G comparisons and inventory corrections affecting some technology segments, North American Broadband Access equipment spending dropped to its lowest levels in nearly two years in the second quarter.

Stable performance in EMEA, CALA, and China, combined with robust growth in the Asia Pacific region outside of China, offset the weakness in the US market. Worldwide telecom equipment revenues, excluding North America, increased by 7% in the first half, supporting the thesis that the telecom equipment market remains robust outside of the US.

From a technology perspective, RAN declined, but the remaining five programs advanced in the first half. Notably, wireline outperformed wireless. Our analysis indicates that the collective results for the wireline-focused programs (SP Routers & Switches, Optical Transport, and Broadband Access) increased by around 7% in the first six months. This, coupled with the positive trends in Mobile Core Networks and Microwave Transmission, was more than enough to offset the more challenging conditions in RAN.

Vendor dynamics remained mostly stable between 2022 and 1H23, with a few exceptions. Ciena surpassed Samsung, and the gap between Nokia and Ericsson widened, reflecting, to some extent, the technology mix between wireless and wireline. Despite ongoing efforts by the US government to limit Huawei’s addressable market and access to the latest silicon, our analysis shows that Huawei still leads the global telecom equipment market. This is partly because Huawei remains the #1 supplier in five out of the six telecom segments we track, and the vendor continues to dominate the market outside of North America, accounting for 35% to 40% of 1H23 revenues.

The analyst team has not made any significant changes to the collective short-term outlook. Following five consecutive years of growth, worldwide telecom equipment revenues are projected to remain flat in 2023. As always, there are risks in both directions. In addition to currency fluctuations, economic uncertainty, and elevated interest rates, inventory adjustments, new technology rollouts, and the anticipated impact of national subsidization efforts can impact steady-state assumptions for the various regions.

*Telecommunications Infrastructure programs covered at Dell’Oro Group, include Broadband Access, Microwave & Optical Transport, Mobile Core Network (MCN), Radio Access Network (RAN), and SP Router & Switch.

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