Originally, I anticipated that the Microwave Transmission market would enter a multi-year growth phase beginning in 2020 driven by the rollout of 5G. Instead, however, the market is on pace to decline 5 percent in the year due to precautions put in place to reduce the spread of COVID-19, slowing down the start of 5G in some countries and making it increasingly difficult to deliver and install microwave equipment in many others. Then in 3Q20, when many countries lifted their lockdowns or eased travel restrictions, the demand for Microwave Transmission equipment grew 7 percent year-over-year, recovering some of the lost market revenue in 1H20. We think this positive momentum will continue through the remainder of this year and the next. So, while the start of 2020 was painful and the middle of 2020 difficult, the end of 2020 brings some hope for a better 2021.
Of course, there will be a number of head winds in 2021—the biggest ones being additional lockdowns to control the spread of COVID-19 and the slow economic recovery. Both of these will negatively influence the revenue and confidence of mobile operators in spending capital on equipment.
That all said, we believe that COVID-19 has taught the world the critical importance of network connectivity. Whether it is fixed broadband or mobile broadband, there will be a need for “more”—more connections and more bandwidth. Therefore, while COVID-19 may have caused delays in starting new 5G roll outs in 2020, we find it difficult to believe there will be additional delays in 2021 since 5G is a crucial technology for the future.
Hence, we predict that the Microwave Transmission market will return to growth in 2021 (one year later than we had originally predicted). We believe 5G and preparation for 5G mobile radio installations will create a growing demand for Microwave equipment in 2021 and project the market to grow at a low single digit percentage rate. Furthermore, we think this is just the beginning of a multi-year growth cycle.
Since 5G will require more backhaul capacity, we expect the demand for E-band microwave systems (capable of up to 20 Gbps transmission) will accelerate, increasing more than 30 percent next year. While sales of E-band has been escalating for many years, largely driven by its use in Eastern European countries, we think that next year the level of interest and number of deployments will geographically widen across many other regions of the world.
Also, we think multiband systems and links combining E-band with at least one carrier frequency below 30 GHz will grow in importance. Demand for multiband systems using a mix of millimeter wave and lower microwave frequencies has already started in 2020, but we think usage will widen in 2021 along with 5G backhaul deployments. Not only will this solution provide more capacity per link, but it will also increase the link resiliency and performance with the same outdoor footprint (keeping tower lease costs unchanged). Therefore, we cannot help but think that the adoption of multiband links will be more mainstream than niche in the coming year.
Although we have a positive outlook for 2021, we do think the market will be more volatile. This is not to say that the demand for Microwave Transmission equipment will swing up and down quarter-to-quarter (which it might), but rather that the level of uncertainty in 2021 is still very high. And that while we are hopeful the worst of the pandemic is behind us and the COVID-19 vaccine will be widely distributed next year, it is still difficult for us to discern what will happen because when it comes to this pandemic (the first in my history of doing market research) we simply do not know what we do not know.
