Telecommunications Infrastructure Archives - Page 8 of 39

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.

Chinese operators are moving quickly to the next phase of residential fiber deployments by extending fiber inside homes and into individual rooms through a unique combination of a centralized ONT (Optical Network Terminal) and subtended ONT access points designed to ensure advertised speeds with the option of wired and Wi-Fi connections in each room of a home. The net result of this surge in FTTR deployments has been a steady increase in FTTR-optimized ONT shipments.

Through the first half of 2023, more than 6M FTTR ONT units have been purchased by the three major operators. To provide some perspective, this total is less than 20% of the total ONT shipments in China in that same time frame. However, that growth has come in just a little over a year and a half, which signals the strategic importance of the application to the operators. Further, that growth comes from just a handful of major regional branches of China Mobile and China Unicom. China Telecom is just now getting underway with FTTR, having set forth its plan to purchase 500K FTTR ONTs earlier this year.

The three operators are expected to rapidly expand the availability of FTTR services and packages throughout the rest of this year and into 2024, as the application is viewed as a critical driver of four overarching business goals for their fixed broadband business units:

Increasing ARPU (Average Revenue Per User)
Reducing subscriber churn
Reducing energy consumption in the home and throughout the network
Reducing service and support costs by improving the quality of service

From Gigabit Cities to Gigabit Homes

Back in 2013, the Chinese Government set an ambitious goal of delivering gigabit speeds to 400M households in China’s largest cities by 2020. The project reach approximately 200M homes before the COVID-19 pandemic delayed further expansion. In 2021, the Government re-issued its objectives and set a goal of achieving the 400M home goal by the end of 2023. At this point, it is believed the total number of gigabit homes is nearing that 400M mark, as over 100 cities have now been designated as Gigabit Cities.

Historically, though, operators delivered fiber to the floor of a building and then connected each apartment via DSL or Ethernet or dropped fiber to a single ONT or ONT gateway inside the home. To expand Wi-Fi coverage in the home, subscribers could either purchase their own access points or could use those supplied by the operator. Nevertheless, in very densely-populated cities, subscribers often ran into channel contention issues, reducing the throughput of their Wi-Fi connections and reducing the overall quality of service, particularly during peak hours.

These challenges became more acute during the pandemic when cities and buildings were locked down and service provider technicians could not access residences to diagnose and troubleshoot Wi-Fi and other connectivity issues. So, even in China’s showcase Gigabit Cities, subscribers were getting far slower speeds than what was being touted by their service providers.

To solve these issues, the three major operators realized that the only way they could guarantee consistent throughput throughout the home was to extend fiber to each room. The most economical way to do this was to use the same architecture as their PON access networks, but just on a smaller scale, using a passive splitter in front of the primary ONT gateway. From there, the operators worked with domestic equipment manufacturers and cabling and component suppliers to develop solutions that would allow technicians to easily install flat fiber or fiber electric composite cables to each room, depending on whether the ONT access point required an external power supply.

Flat fiber installation tools were developed that allowed a technician to run fiber along baseboards, doors, and window frames, minimizing the obtrusiveness as much as possible. Additionally, software tools were developed to allow the technician to quickly determine the shortest route and quickest installation approach before commencing the work. The net result is that the average installation time is reported to be around 30 minutes or less.

Even before the technician arrives, the upfront work of determining demarcation between building owners and the service provider is completed, so that the FTTR service can be marketed throughout the building and installations can be scheduled and completed as quickly as possible.

Up-Front Costs, Long-Term Benefits

In a competitive environment like China, where broadband ARPU tends to be low and fairly static, FTTR has turned out to be a source of new revenue for the operators, as well as a way to get subscribers to commit to longer-term contracts. Subscribers can choose to pay 2000 RMB (US$277) up-front to cover the costs of the installation, as well as the additional ONTs, or they can commit to a multi-year contract, paying 30-40 RMB (US$4-$5) per month for a minimum of 2-3 years. Historically, broadband service contracts were limited to one year. Because of the additional labor and equipment costs associated with FTTR, operators were allowed to extend the contracts. With the additional costs of the ONTs bundled in, the operators have anecdotally said that the ARPU uplift for FTTR is around 30%. With mobile ARPUs getting squeezed, FTTR is seen as a way to recoup some of those lost margins while also ensuring improved QoS.

Speaking of QoS, the operators have reported that the combination of FTTR plus Wi-Fi 6 improves overall speeds by up to 80% over previous-generation Wi-Fi 5 access points. Much of the gain is in the improved rates and reach of Wi-Fi 6. But using fiber as a backhaul technology from the local access point to the primary ONT gateway also helps to improve speeds and reduce latency by up to 30%. More importantly, operators know that each home will have full Wi-Fi coverage, rather than assuming the subscriber has correctly placed the access points to eliminate dead zones. That helps to reduce support and troubleshooting calls.

Finally, from an environmental perspective, the use of passive splitters and components in the home offsets the increased number of powered ONT access points. But these units are also more power-efficient than previous generations of access points. When combined with the reduced power needs of PON access networks, in general, the FTTR architecture is a net reduction in carbon footprint.

Global Opportunities

Nearly all FTTR deployments have occurred in China, though there are already signs of international expansion in Hong Kong, UAE, and Brazil. Certainly, countries with high fiber penetration combined with a high percentage of MDU-based residences are the low-hanging fruit for FTTR. This is why we expect to see increased FTTR activity in markets such as Hong Kong, Singapore, the UAE, and Korea over the next two years.

In addition to high fiber penetration, regulations clearly defining the demarcation between building owners and service providers must be in place, as well as updates to building codes that clarify approved installation methods for flat fiber and best practices for fiber maintenance. In countries with low fiber penetration, these standards have yet been developed due to the need has not been there. Or in countries with FTTH deployments, standards, and demarcations have been defined for a single drop point to the customer’s residence—simply updating architectures that have been in place for decades with twisted pair and coaxial cable.

Time will tell whether an increase in fiber ISPs’ results in those ISPs differentiating their service with an FTTR offering. ISPS may offer FTTR as a premium service. At this point, however, all eyes are fixed on Wi-Fi 7 gateways and access points as the cure-all for spotty coverage and capacity issues.

Growing interest among operators to use PON technologies to offer enterprise customers an alternative to traditional Ethernet services is increasing 25GS-PON-capable OLT ports being deployed into service provider networks. Because of the increase in total 25GS-ready ports, as well as the consensus that a growing percentage of those ports will be used to deliver enterprise and leased line services, we have increased our forecasts for 25GS-PON equipment revenue (both OLT ports and ONTs).

In our most recent forecast, published in July, we increased cumulative 25GS-PON equipment revenue between 2022 and 2025 from $315M to $588M worldwide, with the majority of revenue coming from the North American and Western European markets. While that increase is significant by itself, it’s important to bear in mind that cumulative XGS-PON equipment spent during that same period will easily push $7.7B. But XGS-PON will be the dominant technology across residential FTTH networks, whereas 25G-PON will be used strategically by operators for high-end residential services, enterprises, campus environments, access network aggregation, and wholesale connections.

Through the end of 1Q23, a total of 550K 25Gbps-Capable OLT ports have been delivered to the market, largely via combo cards and optics that can support 2.5Gbps GPON, XGS-PON, and 25GS-PON from the same hardware and using the same ODN. If we assume that an average of 100-200K 25GS-capable OLT ports are purchased by service providers every quarter, by the end of 2023, there will be >1M 25GS-capable OLT ports. Continuing that incremental increase through 2025 yields over 2 million 25GS-capable OLT ports purchased by service providers. Further, let’s assume that a low single-digit percentage of those total ports are turned up to deliver enterprise services. The potential net result is anywhere from 500k-700k OLT ports in service delivering enterprise, wholesale, and mobile transport services.

That is the relatively modest strategy behind 25GS-PON: To finally expand the applicability of PON technologies beyond residential networks. Though it has been discussed by vendors and operators for years, we are finally seeing that many operators have earmarked PON as a network-flattening technology across their residential, enterprise, mobile transport, and wholesale networks. Though there certainly have been instances of operators using GPON for mobile backhaul and business-class Internet access, those use cases have been relatively limited. The combination of XGS-PON and 25GS-PON is really the first to give operators the flexibility they require to be able to address many customers and applications across the shared infrastructure. While some operators envision sharing an ODN across these use cases, others prefer to separate their ODNs because of concerns around security and significantly different SLAs. Nevertheless, PON technologies beyond XGS-PON are already central components of a larger discussion around simplifying access and edge network connectivity.

Though the ITU has determined that single channel 50G PON as defined in its G.hsp.50pmd specification is the next generation technology it will move forward with, the increasing use cases for PON combined with those use case requirements for additional speeds beyond what XGS-PON can provide have opened the door for 25GS PON as a potentially important tool in operators’ toolboxes. The current strength in fiber buildouts and the need to address new use cases today has resulted in a list of operators who simply can’t wait for 50G PON to be fully standardized, tested, and productized. As such, other industry standards group, including the Broadband Forum, are working with 25GS-PON and looking at developing testing and interoperability standards for the technology.

While standards bodies have traditionally defined which technologies get adopted and when there are certainly cases where operators have placed their thumbs on the scales in favor of a preferred option. These choices don’t generally go against what the standards bodies recommend or are working towards. Instead, they satisfy a more immediate internal requirement that doesn’t mesh with the proposed standardization, certification, and product availability timeline defined by the standards bodies and participating equipment suppliers.

Larger operators, including AT&T, BT Openreach, Comcast, and Deutsche Telekom, have also become far more comfortable over the last few years defining standards and pushing them through other industry organizations, such as ONF and the Broadband Forum. These operators know they have the scale, market potential, and, most importantly, internal technology and product development engineering teams to drive standards and thereby influence the product roadmaps of their incumbent equipment suppliers.

And that’s what appears to be happening with 25GS-PON. The growing list of service providers taking part in the 25GS-PON MSA has a general consensus around their PON technology choices: Use GPON and XGS-PON today for the bulk of your residential FTTH deployments, and then add in 25GS-PON using the same equipment and ODN where it makes strategic sense.

This strategy is no different from other access technology strategies and deployment models seen in the past. From ADSL to ADSL2+, VDSL to G.fast, and GPON to XGS-PON, broadband access networks are in a constant state of upgrade. It just so happens that they are now being extended to support other use cases and other end customers. The PON market, as well, has always been one offering different technology options to suit each operator’s unique use case requirements and competitive dynamics. That flexibility is proving to be particularly beneficial in today’s hypercompetitive broadband environment, in which each operator might have a different starting point when it comes to fiber deployments, but likely has similar goals when it comes to subscriber acquisition and revenue generation. In this environment, many operators have clearly said that they simply can’t wait on a promising technology when they need to establish their market presence today. And so, the vendor ecosystem has responded again with options that can steer them down a path to success.

As analysts, we are increasingly asked to speculate on how Artificial Intelligence will impact various segments of enterprise and service provider networks. My colleague, Stefan Pongratz, began our collective responses to these requests with an excellent piece on how AI will impact mobile RAN investments.

For my piece on how AI will impact broadband networks, I thought I would start by posing the question to ChatGPT, the generative AI platform, to see what it would suggest as AI’s impact on broadband networks and services. My specific query was “How will artificial intelligence impact broadband networks and services?” Here are the verbatim results:

Artificial Intelligence (AI) is poised to have a significant impact on broadband networks and services in several ways. Some of the key impacts include:

Network Optimization: AI can be used to optimize the performance of broadband networks by analyzing data in real-time and making adjustments to network configurations. This can lead to better utilization of network resources, reduced congestion, and improved overall network efficiency.
Predictive Maintenance: AI-powered analytics can help predict potential network failures or issues before they happen. By analyzing data from various network components, AI can identify patterns that indicate impending problems, allowing for proactive maintenance and reducing downtime.
Enhanced Customer Service: AI can be employed in customer service applications to provide personalized support, answer customer queries, and troubleshoot common issues. AI chatbots can handle a significant portion of customer interactions, improving response times and overall customer satisfaction.
Quality of Service (QoS) Improvement: AI can monitor network performance and prioritize certain types of traffic based on user demands. This can ensure that critical services, such as video conferencing or online gaming receive higher priority and a better quality of service.
Network Security: AI can play a crucial role in identifying and mitigating cybersecurity threats on broadband networks. By analyzing vast amounts of network data, AI can detect unusual patterns, potential attacks, and vulnerabilities, helping to enhance network security.
Network Traffic Management: AI can optimize network traffic routing, especially in scenarios with dynamic traffic patterns. It can analyze real-time data to redirect traffic through the most efficient paths, reducing latency and improving user experience.
Content Optimization: AI can analyze user behavior and preferences to personalize content delivery. By understanding individual preferences, AI can recommend content, advertisements, and services that are more likely to resonate with specific users.
Network Planning and Expansion: AI can assist in planning and expanding broadband networks by analyzing demographic and usage data. This can help service providers determine where to invest in network infrastructure, ensuring that resources are allocated efficiently.
Resource Allocation: AI can help allocate network resources based on demand and usage patterns, dynamically adjusting bandwidth to accommodate peak periods and preventing network congestion.
Network Virtualization: AI can be utilized in software-defined networking (SDN) and network function virtualization (NFV) to optimize the allocation of virtual resources, making networks more flexible, scalable, and cost-effective.

While AI offers numerous benefits to broadband networks and services, it also presents challenges, such as ensuring data privacy, addressing ethical concerns, and maintaining transparency in decision-making algorithms. As AI continues to evolve, its impact on broadband networks and services is likely to become even more profound.

This might be dangerous to say, but I couldn’t have said it any better myself. All of the network impacts ChatGPT identified are definitely aligned with what we hear from broadband service providers around the world. This is especially true when it comes to proactive network and infrastructure management.

We are already seeing a small, but growing list of operators using machine learning tools as a first step in improving the overall reliability of their broadband access networks. Comprehensive, active monitoring of fiber broadband networks and optical assets has generally been reserved for long-haul and metro Ethernet networks. But for broadband access networks, fiber monitoring has generally been limited to identifying physical fiber cuts or bends and then rolling a truck so a technician can use a handheld OTDR or PON power meter to determine the location of the physical issues. Broadband network operators have always struggled with balancing cost and reliability, which is why they have typically relied on reactive toolsets as opposed to proactive ones.

But with the increased investment levels and long-term strategic significance of fiber broadband networks for both enterprise and residential applications, service providers are increasingly introducing machine learning and AI platforms to help them anticipate and correct network issues before they are impactful. Self-healing broadband networks are the goal.

Beyond ChatGPT’s fairly astute responses, there are also other impacts that AI will have on broadband network spending and services:

AI will Result in Additional Subsidies to Expand Broadband Accessibility and Affordability

COVID-19 was the first of a two-part wave of governments understanding the need for their citizens to have access to broadband and, in many cases, subsidizing the expansion of broadband networks to reach previously unserved locations as well as subsidizing the affordability of those services to learn, work, and engage in commerce from home.

AI—particularly generative AI—is the second part of that wave that will keep governments investing in the broadband networks and services of the future. Somewhat lost amidst all the speculation of how transformative generative AI will be to GDP, as well as how individuals even interact with the Internet and each other, is the fact that no government and no service provider, for that matter, wants to be known as the entity that left its citizens or its subscribers behind.

Therefore, we expect legislators in many countries will push for additional investments to be made to expand the availability and affordability of broadband services. Along those lines, AI tools will prove very useful in the critical task of mapping and identifying locations and communities that lack necessary broadband speeds. In the US, for example, AI tools are being used throughout the BEAD (Broadband Equity Access and Deployment) process to get the most accurate determination of broadband availability at the census block level to start. Ultimately, these datasets can be further parsed so that availability and performance can be determined at a per-street level. The goal, of course, is to ensure that the capital is used as efficiently as possible to eliminate broadband deserts. But AI tools will eventually help governments and service providers determine where their speeds and service levels might not be evolving quickly enough to support the needs of their communities and ensure that a broadband divide doesn’t become an AI divide.

The combination of AI and the Metaverse will Drive Increasing Traffic Requirements

The metaverse is often cited as a reason why service providers need to deploy fiber networks despite today’s applications and content generally not taxing those connections. Though the metaverse will ultimately have an impact on broadband service requirements in both enterprise and residential networks, it is the combination of generative AI and the metaverse that will really be a catalyst for speed growth and continued latency and reliability improvements.

In gaming, VR, and AR applications, the combination of generative AI and the metaverse will dramatically improve how users interact with their environments. The ability to use natural language to create new worlds or to navigate those worlds while also being able to request statistics about those environments in real-time will result in a whole new universe of content creators, and game and application designers. Their ability to successfully create and interact with their 3D and immersive environments will depend largely on their connectivity.

Obviously, the data centers running the real-time engines powering these immersive environments will experience the biggest demand. But there is expected to be some distribution of processing at the device level and at the edge of networks, which means that broadband capacity and throughput will also have to scale up based on users’ requirements.

The impact of using natural language to search, shop, and interact online, as well as to control in-home or in-building IoT sensors, for example, will have a significant impact on overall traffic growth. Where online searches used to be fairly-static requests for particular URLs, using natural language to make similar requests, while a convenience for users, requires significantly more language model processing and broadband connections that can support high downstream and upstream speeds.

And it goes without saying that securing these interactions will be critical, which will also introduce additional bandwidth requirements as well as SLAs and service tiers that match subscribers’ levels of risk tolerance.

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