We attended the Mobile World Congress last week in Barcelona along with an estimated 104,00 others from nearly every country in the world. We met with over 42 companies and nearly 200 people at the show and attended many press announcements. While most of the MWC19 headlines were about 5G, we were struck that much of the hyped growth will in fact be the result of deployments in enterprises and could be served using unlicensed (or lightly licensed) spectrum. Many of the presentations and product announcements suggested as much, if you read between the lines. We'll step through these two, enterprise and unlicensed next.
The Enterprise opportunity. A major theme we picked up at the Mobile World Congress show is simple: that for the mobile telecom market to grow, 5G must expand to the enterprise. We see ample evidence that without an expansion to the enterprise, the cellular market as we know it will likely experience declines as consumers expect more bandwidth for less in the future. The 5G narrative at the MWC19 show was straightforward: German & Chinese robots, trucks and drones need 5G to unlock the potential for future growth. There were robots, drones and trucks bleeping and whirring to make the point for visitors. We wouldn't argue with the contention that robots and very fast moving vehicles that are controlled remotely need very low latency; yet, there are so many use cases that don't actually need such low latencies.
Wireless is just a small part of "Enterprise." Enterprise 5G use cases being presented at MWC, including the wirelessly controlled robot, involved far more than just a wireless connection to succeed. To automate a workplace with robots, there is far more technology that has to be brought to market, including software, integration, wireline networking and the list goes on. None of these capabilities have traditionally been delivered by telecom equipment vendors; they have been delivered by vendors who have served the enterprise market (examples would be Cisco, IBM, Oracle, etc.).
Unlicensed Opportunity is Robust. In both the enterprise market and the outdoor market, unlicensed spectrum has tremendous potential. This goes for a) WiFi, which is already immensely popular, b) for in-building 'lightly licensed' CBRS (a US-only market), c) the soon-to-be released 6 Ghz spectrum, as well as d) outdoor mid-band spectrum like 5 Ghz (already very popular), e) outdoor 60 Ghz (like the kind relating to the Facebook Terragraph project) and f) 900 Mhz LoRa. While each of these unlicensed (or lightly licensed) frequencies was discussed at the show, 5G licensed was so overwhelmingly promoted it was hard for these exciting unlicensed markets to get any airtime. We think this lack coverage relatively speaking is a dis-service and we'll touch on just a few of them in this post.
Wi-Fi isn't going away. Related to the enterprise 5G topic, we found points and counterpoints about 5G versus WiFi interesting. Huawei's Enterprise group issued a press release about its 802.11ax (WiFi-6) expectations and how important WiFi is for the enterprise market. On the other hand, Huawei's telecom group was pursuing a press agenda about partnering with Operators to pursue the 5G market. Few companies on earth possess as broad a produt portfolio as Huawei, who has ample expertise, market share and credibility in both the mobile wireless market and the enterprise wireless market. We felt this dual-message (5g AND WiFi) was well-balanced. On the other hand, vendors and operators who have historically focused on cellular-only were pushing a "5G will displace WiFi" or at least a "5G is the only solution for mission critical enterprise" agenda. We feel that 5G-only in the enterprise message is to broad-based; we think 5G in the enterprise is far more nuanced because:
802.11ax/WiFi-6 is cellular-like. 802.11ax, which was launched commercially in 4Q18, incorporates many cellular-like capabilities. Many of the technical merits debates presented at MWC compared older 802.11ac WiFi against LTE and 5G NR. This is not a fair comparison because both 5G NR and 802.11ax actually began shipping commercially generally at the same time (4Q18 and 1Q19).
There is very little overlap between the Wi-Fi opportunity and that for cellular. The overlap in opportunities being discussed as the 5G enterprise opportunity at MWC have surprisingly little overlap with the vertical industries currently being served by Enterprise-class WiFi. Take manufacturing, which represents 9% of the Enterprise WLAN market by units in 4Q18. Or the outdoor WLAN market, which is only 3% of total Enterprise-class market in 4Q18 by shipments. The point is, there is very little overlap between the Enterprise WLAN market and the 5G enterprise market being discussed at MWC.
LTE will be the workhorse for many years. Additionally, let's consider the fact that many of the use-cases being discussed at MWC will initially be served by LTE, not 5G. In the enterprise market, the use of LTE in unlicensed (or lightly licensed, like the US's CBRS) bands is often called private LTE. The main difference between unlicensed LTE and licensed LTE is that with unlicensed, the enterprise can work directly with enterprise-focused VARs, resllers, solutions providers and complementary equipment suppliers, while with licensed LTE, the enterprise will need to work directly with its local mobile service provider who owns the spectrum, likely ensuring that the operators becomes the prime integrator of the project, or at least part of it. Private LTE will therefore have fewer parties involved (no operator), lower monthly costs (no operator) and will likely get the project to completion faster (fewer parties and a prime vendor/contractor/solutions-provider with expertise in the enterprise's vertical market). So, why not consider unlicensed/lightly-licensed LTE instead of licensed 5G to achieve the goals illustrated in many of the 5G use cases at MWC?
Where will WiFi lose out? If it has wheels or wings on it, Wi-Fi is not your friend - look to cellular.
To conclude, yes, 5G will fit some very exciting use-cases, especially those for low-latency applications. These are indeed exciting and deserve attention. We see it this way for the wireless industry: if the things involved have wheels or wings, or are of such high value that you must use cellular, there's a good chance LTE will cut it. And next, it makes sense to consider using unlicensed spectrum - which is just emerging as viable for many uses.
Mid-band spectrum shortages in the US was the main thrust of the 5G Americas sponsors. The idea is that the rest of the world has lots of mid-band spectrum available and service providers in countries that could be considered economic leaders (Japan, Korea, China, Western European countries) have plenty of available mid-band spectrum that is ideal for 5G, while the US does not. This group at 5G Americas, which includes service providers, vendors and standards bodies, is saying that US leadership in cellular infrastructure and the entire app economy that relies upon it may be at risk as 5G get deployed.
Other topics discussed: AT&T is currently out for bid on its 5GC infrastructure, and this caused some interesting posturing by the vendor attendees (like Ericsson, Nokia, Cisco, Mavenir) at this conference, with each trying to identifying their strengths. It seems the consensus is that all mobile operators in the US market are using Option 3X, an EPC anchoring system. And, the consensus seems to be that US operators will need to move to 5GC once most traffic is coming over 5G Radio (“New Radio”). Vendor selection appears an open field, once again, as 5GC has 13 different microservices, each which could theoretically be parsed out to different vendors. Operators are saying, though, that while this multi-vendor selection may lead to savings on purchasing, it will increase integration spending, so these two have to be balanced out.
Mobile Edge Computing: The consensus is that a 50 mile radius (or others are saying 100 km) is considered the ‘edge,’ or the ‘low latency’ zone. We expect, however, that the data forwarding plane (‘user plane’) will be distributed to, say, 100 locations within a territory like the US market, while the control plane will be much more centralized (perhaps as centralized as it is currently, where it might be considered to be like 1/4th the number of locations).
CBRS. The consensus is that testing will be done by mid November 2018 and Initial Commercial Deployment by 1Q19, potentially spilling into 2Q19. PAL auctions are expected by attendees to be a 2019 event, with 2020 traffic running on PAL spectrum. Commscope represented the views from a SAS standpoint for this discussion.There were discussions about the C-Band (6 Ghz) potentially using the same type of Automatic Frequency Coordination system, but the consensus is that it is too early to declare that the path forward.
We attended Mobile World Congress Americas (MWCa) in Los Angeles, CA this week, as well as the AT&T Spark event in San Francisco. Since 5G is launching first the US, these two events became the public events where significant 5G-related announcements happened.
Additionally, discussions about spectrum in the US market were very active discussions. Some points we picked up on:
Mavenir held a 'virtual' analyst meeting - essentially a webinar - that conveyed the company's efforts on several new initiatives: (a) SMB UCaaS - small business unified communications, (b) Messaging as a Platform (MaaP), (c) Monetization of messaging, (d) Security Solutions (relating to toll fraud, for instance), and (d) xRAN/Open RAN/Cloud RAN. Pardeep Kohli, CEO of Mavenir explained that the company is at a $450M revenue rate.
Small Business Unified Communications - its mobile UCC service can be deployed as a service or on premise. The company sells through its service provider partners. Messaging as a Platform - the company sees its capabilities in RCS messaging as a means to enabling branding, chatbots, sale of digital goods, and enriched calling. A month ago, at Mobile World Congress in Barcelona, we saw the Mavenir MaaP system in work - it looks nothing like what is available from traditional telecom equipment vendors. Mavenir, it its re-imagined MaaP offering, looks more like an "OTT" company than a traditional telecom supplier. We hear the refrain from service providers - show us new sources of revenue; well, this system from Mavenir looks to us like a new source of revenue. On a secondary basis, to the extent Mavenir is successful in getting its MaaP system deployed at service providers, we think this can help the company grow its presence with other products.
Mavenir recently acquired Acuto, a monetization specialist company for messaging. Susie Kim Riley, Aquto's founder and CEO, now part of Mavenir, presented the company's offerings. Riley showed off the Sponsored Data system of enabling brands to provide mobile data connectivity to smartphone consumers. She explained how Facebook, Google, Alibaba and Baidu offers free access to consumers in various countries to consumers who don't pay for cellular data. The company discussed that its customers typically pay for data using Zero-Rating (where a marketer can enable users to download/use apps or browse specific sites without using any of their data plan) or Data Rewards (where a marketer can reward users with additional data buckets for taking a specific action like downloading an app). Mavenir showed how Banko Azteca offered both Zero-Rating and Data Rewards to engage with customers and had strong results. We asked the company how long it takes to get a SP up and running and Mavenir said it takes a couple months, depending on the billing system integration.
The company discussed its Radio Access Network and Telecom Core products, too. Mavenir is making "Whitebox LTE" available by integrating its Cloud RAN technology with a Universal Customer Premises Equipment (uCPE) offering, which allows enterprise-deployment of CBRS and LTE Licensed frequencies. We asked the company after the analyst meeting whether its 5G Core (5GC) is available today, and management said, in fact, it is. We think this means a pre-standard version of its 5G Core is ready for customers to take delivery of today, and architecturally, it is similar to its control user plane separated system that performs EPC for customers. Additionally, the company highlighted a new capability that it has made available to the market that is calling its breakout gateway - the goal of this product (technically, a vSAEGW) is to allow mobile operators who carry lots of video traffic for mobile customers to offload this traffic to other operators, thereby reducing carrying costs. I'm not sure how this impacts the quality of video traffic and what is effect on churn might be, but the company claims that by using this breakout gateway, it calculates that it can reduce spending on EPC/5GC by as much as two years.
Arris held its annual investor day late last week on March 28, 2018. It was interesting: the company said "Everything is going wireless," which is an interesting admission for a company that, until about a year ago, was essentially a pureplay on wired broadband. To be sure, the company has diversified into wireless with its acquisition of Ruckus and has benefitted from the inclusion of Wi-Fi capabilities to its broadband CPE. The company sees this wireless future - and is pivoting towards it.
Arris management highlighted that it expect its future to include the following growth avenues:
Additionally, the company discussed its expectations for each division, which using its 2017 mix and various projections, calculates to a 4.7% CAGR from '17 to '21.
Enterprise Networking (Ruckus). Overall, the company's Enterprise Networking division, also known as Ruckus Networking, includes its Enterprise WLAN business (formerly Ruckus Wireless), the Brocade ICX Ethernet Switch product line (referred to by the company as Campus Switching), and other revenue streams such as CBRS 3.5 Ghz LTE Small Cells, as well as IoT radio modules that plug into the Ruckus Access Points like Bluetooth, LoRa and Zigbee. The company is targeting 20%+ growth for the Ruckus Networking group, which is far above the industry growth rates we expect for Enterprise plus Outdoor WLAN and Campus switching. This aggressive growth rate either implies share-taking, or growth in other products such as CBRS, Bluetooth, LoRa and Zigbee, or the the non-WLAN parts of what used to be Ruckus Wireless, such as Cloud-managed Wireless LAN services (that, for instance compete with Cisco's Meraki, Aerohive services and Mojo Networks). The company cited an expected Enterprise WLAN revenue growth projection slightly above our projection for the period '17 to '21, even if cloud-managed WiFi services were included.
Network and Cloud Segment. The company said this market is growing 5% annually, and described the market generally as the Cable Modem Infrastructure, optical nodes and cable video networks market. The company generally expects to take share, compared to this market viewpoint, projecting a 4-7% long-term annual growth expectation for this business segment. It was interesting that the company said that the "mobile device explosion [is] driving offload demand," because it has been several years since "Wi-Fi offload" was a growth driver, but dissecting the comment a bit more, the company is pointing to cable operators as being "well positioned to handle [the] offload." We think Arris' strong supplier position with the major Cable MSOs in the US, especially, may indicate that there should be a strong build up of WiFi and cable infrastructure coming in the future. And, this corroborates with our own research and statements from MSOs such as Comcast. In fact, the company showed a "future" network diagram that indicates it expects its MSO customers will be delivering 5G radio, Remote OLTs (PON) and Fixed Wireless Access instead the of cable modem (DOCSIS) equipment that was indicated in the "now" chart. This implied shift from DOCSIS to PON/5G/FWA would be a dramatic shift in the company's product portfolio. Very interesting, indeed.
Customer Premises Equipment (CPE) Segment. The company claims a #1 Set Top Box (STB) market share, and #2 Broadband CPE market share, with a mix of 60% video CPE and 40% broadband revenues in 2017. The company expects to grow broadband CPE to a mix of 50%+ by the year 2021, consistent with the market growth rates it cites - 4% CAGR for broadband and -.8% for video. Generally, the company is projecting long term sales trend of -5% to +1%, indicating that it lacks the direct to market exposure that would get it to a growth expectation in this segment. The company confirmed it is using NBASE-T (Multi-Gigabit Ethernet) interfaces on its home networking devices and it is planning to release 802.11ax capabilities on its portfolio, as well. Arris CPE will also include Extenders / Adapters to, at least partially, address the growth now occurring in the Consumer Mesh market.