Dell'Oro: Market prospect of broadband access and home network in 2003

ICC News (translated: Nina) In the past two years, it has been difficult for you to find a service provider in the network field that has received more investment and attention than broadband access networks. For mature markets, there are few consecutive years of double-digit revenue growth. But this is indeed the case, as the market's revenue growth rate in 2021 is 16%, while it is currently expected to be around 12% in 2022, with global revenue growing to slightly over $18 billion.

From a historical perspective, after experiencing similar periods of strong growth, as service providers focus on lighting up all new devices and generate recurring revenue in the form of new and upgraded broadband subscriptions, the market typically shows a significant slowdown. Considering higher interest rates and increased debt costs for financing large-scale infrastructure projects, including fiber optic construction, the likelihood of a market slowdown in 2023 seems even greater.

However, even if there is no final confirmation of how the fourth quarter will perform, all signs indicate that broadband equipment spending will increase again in 2023, although it is far from the double-digit percentage growth we have seen in the past two years. At this point, it can be confirmed that there is a greater possibility of a 5-7% increase in income this year. Although revenue growth has slowed down this year, it indicates that operators, as well as state and national governments, continue to attach importance to expanding and improving broadband network capacity.

Here are our predictions for the new year:

1. The speed of replacing DSLs will accelerate

Among all the hype about fiber optic network construction, one of the biggest driving factors for these investments has not been mentioned, perhaps because it is only assumed that a large part of the revenue growth of PON equipment is directly at the cost of DSLAM ports and corresponding CPE expenses. Although this substitution is obvious, the amount of revenue transferred from DSL to PON equipment over the past two years helps to understand how much of the revenue growth of PON equipment is due to Greenfield expansion, how much is due to excessive construction, and the actual retirement of copper and DSL assets.

As a reference, global DSL equipment revenue decreased by nearly $1.8 billion from 2019 to 2022. During the same period, global PON equipment revenue increased by $4 billion. Although the correlation between the two is not exact, it can be confirmed that a portion of 45% of revenue transfer is due to excessive fiber optic construction and DSL replacement.

With both BT Openreach and Deutsche Telekom increasing their fiber optic expansion and expansion projects this year, this trend will only accelerate. In the second half of 2022, the two operators jointly drove quarterly shipments of 2.5Gbps and XGS-PON OLT ports to record levels. These deployments will be carried out outside the ongoing projects of AT&T, Frontier, Lumen, Bell Canada, Telus, Orange, Telefonica, Saudi Telecom, Türkiye Telecom and Morocco Telecom.

2. Subsidies offset the increase in infrastructure construction costs - but user growth will slow down

There are now signs that the interest rate hikes of the world's largest economy are having their expected effect of reducing blazing inflation. Of course, on the other hand, economists expect overall growth to slow down this year, as more and more companies that have expanded significantly during the pandemic are coping with layoffs.

It would be foolish to think that these measures will not have an impact on service providers and users. In fact, we do anticipate a slowdown in new user growth, resulting in only flat or low single digit growth in ONT shipments this year. The slowdown in the construction of new houses and the purchase of existing houses will also drag down overall user growth this year.

At the same time, we do not expect any slowdown in the purchase of new PON infrastructure, as national and federal subsidies from the United States, several EU countries, Thailand, the Philippines, China, and others will reduce the effective cost of fiber optic construction, and more importantly, offset any additional costs of assumed debt arising from rising interest rates. Service providers have gone through a historic period of investment in their broadband networks. Although the macroeconomic environment has slightly dampened their interest, the available promised subsidies will help maintain a high level of investment as they hope to restore user growth in the second half of the year and 2024.

3. Consensus on the Cable architecture, but obstacles still exist

With both Charter and Comcast now firmly choosing DAA architecture based on virtual CMTS and remote PHY platforms, the supplier industry can breathe a sigh of relief. Now, the focus can shift to supplying short-term projects, using existing DOCSIS 3.1 technology for mid and high split frequency band upgrades to increase upstream bandwidth, while also preparing for the upcoming 1.2GHz or 1.8GHz spectrum upgrade plan to deploy full duplex or extended spectrum DOCSIS 4.0 later this year.

In addition, as operators use these modules to expand their FTTH services to select service groups and commercial customers, the adoption and deployment of remote OLT in the cable television industry will also accelerate. The consensus on remote PHY for DOCSIS also opens the door for R-OLT modules to be deployed together with RPDs in selected node shells, which R-MACPHY cannot achieve due to power limitations.

But the biggest challenge faced by cable TV operators this year and beyond is to respond to consumer perceptions. Consumers clearly equate 'fiber optic' with the future. Therefore, if the service prices are roughly the same, and consumers value the latest technology, they may choose fiber broadband over cable television. On the other hand, if they value value, service providers like T-Mobile have already done a remarkable job positioning themselves as another option, considering your budget while still providing you with a novel technology - fixed wireless.

Therefore, cable TV operators find themselves struggling with the notion that they provide inferior technology and are not flexible in providing plans that meet consumer budgets. In this case, the choice of DAA technology and whether they deploy full duplex or extended spectrum DOCSIS 4.0 are irrelevant. From a technical perspective, the focus of cable TV operators must be on how they are leading the way in providing secure and customizable home experiences. The discussion topic must shift from speed to how consumers can derive value from these speeds.

We see that cable TV operators have made efforts to provide users with gateway types. They are promoting the integration of Wi Fi 6E units, mesh networks, parental control, and Thread, as well as other evolving IoT technologies, allowing users to add sensors and other IoT devices without worrying about their integration being difficult.

Cable TV operators will continue to resist new fiber optic and FWA competitors by highlighting their speed comparable to fiber optic (at least downstream) and their years of experience surpassing rising stars. Only time can prove whether these can resonate with consumers.

About the author: Jeff Heynen joined Dell'Oro Group in 2018, responsible for broadband access and home network market research projects

Source: http://www.iccsz.com/site/cn/News/2023/01/17/20230117055033530746.htm