Nokia reiterated its commitment to 25G PON in its two-day briefing with industry researchers this week. It also shared some interesting commentary about is progress with Fixed Wireless Access (FWA) and its consumer Wi-Fi devices. But, what makes Nokia’s 25G announcement so interesting is that there is significant controversy associated with the 25G standardization process; 50G PON is also in the race for standardization, too. It seems that the world will split into two purchasing groups: Chinese and Western. We think the fact that two purchasing groups will emerge is a material negative for the telecommunications industry and is a sign of things to come. Nokia has decided to chart its own path, find partners, and make the best of this controversy. Our view is that Nokia’s 25G PON offerings will see more demand than 50G PON in the upcoming years, and when 50G finally becomes necessary, Nokia can move to support it.
For background, in May 2020, Huawei announced to analysts that it is backing a 50G standards process, in cooperation with the ETSI. Huawei calls its 50G development “F5G,” which stands for Fixed 5G. It demonstrated over a video presentation an FPGA-based prototype, and it and explained that it expects this technology to be adopted first by the mobile infrastructure market for connecting RAN radio systems to baseband systems and for backhaul. Then Huawei expects the market will develop for residential PON, and later for enterprise campus connectivity (to replace Ethernet switches). Huawei explained that in February 2020, it has the support of Chinese operators, ETSI members in Switzerland, a European operator, Altice Portugal, and Chinese operators.
On the other hand, Nokia had developed a chipset that specifically supports both GPON and next generation PON technologies; it is called Quillion and has been available for nine months. Nokia had consistently explained on several occasions in the past several months that during a February 2020 ITU meeting relating to 25G PON, 18 members of the ITU were in favor of initiating the 25G standardization project (including ATT, BT, Korea Telecom, nbn Co, Telecom Italy, SK Telecom, Telus etc). However, there was a minority coalition led by operators and vendors from China that objected to the proposal on the grounds that 25G PON would pre-empt their futuristic vision of 50G PON. This in turn resulted in no consensus being met.
In response, Nokia has worked with operators and suppliers interested in pursuing 25G PON in the near-term, which we interpret as the next 1-2 years. This MSA (multi-source agreement) strategy is used by various groups in the technology industry when there is sufficient buying power to move ahead of (or in this case, without) standards ratification; we see if used frequently by hyperscalers when building their bleeding-edge data center infrastructures. We understand that there are a handful of operators, including Chorus (New Zealand), Chungwa Telecom (Taiwan), and NBN (Australia) and several technology suppliers including AOI, MACOM, MaxLinear, Ciena, Tibit and others. The MSA has a website with more information.
Nokia explains that 25G PON shares the same optical technologies as those used in Ethernet Switches that are common and used by data centers and campus switching environments. Sharing common optical technologies with high volume data center deployments will reduce costs . Our view is that in a few years, data center switching demand for 25G optics will continue to rise, and this is perfect timing for Nokia and others who are going to use 25G for PON because the supply will be there and this technology will be mature and lower cost.
There’s one other thing to consider that pits Nokia against others. It decided to develop its own semiconductors to power its infrastructure PON systems (OLTs). Nokia’s chip system is called Quillion, and its introduction means it won’t be dependent upon OLT chip vendors.
What’s even more interesting about this whole debate is just how future-looking it is. PON has moved through two main generations, GPON (2.5 Gbps), 10 GPON (XGS and XGPON), and now we are talking about two different generations, 25G and 50G. Huawei’s 50G “F5G” approach is a “if you can’t join ‘em, beat em” strategy, where Huawei will leverage its home market telecom operators’ volume and a few others to work outside its home territory. Huawei will leverage this technology to three markets over time: 5G backhaul, residential PON and enterprise networking. On the other hand, Nokia is taking matters into its own hands in that it has developed its own chips. What’s happening now is not uncharted waters, but it is rare for the telecommunications industry to splinter into multiple buying groups – usually standards are developed and followed for the benefit of the industry. This time, in the absence of standards, Nokia has forged on ahead on its own and its headstrong ways are likely to benefit it because many Western operators and now actively seeking to diversify away from Huawei in their procurement of fixed network equipment.
We attended the #OFC18 show and found the major theme to be the emergence of 400 Gbps modules. The next most noteworthy theme, we though, was that made by a single company, Nokia, which made its PSE-3 engine announcement. Juniper also caused a buzz with the introduction of its ACX6360 router/packet optical product announcement (paired with other announcements, too). There were countless other announcements at the show that we will touch on in our reports, but these struck us a quite noteworthy.
400 Gbps optical modules, generally, are expected to be ready for sampling in the next couple months, and then be ready for volume shipments in 1H19. Most every module vendor is planning to introduce DD-QSFP. A subset of the same vendors was demonstrating OSFP modules, suggesting it was less popular at this time. We recognized a sub-theme of the 400 Gbps theme was that vendors, including Cisco and Juniper were both demonstrating hardware designs that are capable of operating at 15 Watts, which appears to be the heat that will be generated for some of the 400 Gbps modules. At the time of the show, module companies reported to us that the DSPs that would power 400 Gbps modules were unavailable, and the way it was represented to us on multiple occassions was that there is no clear indication which DSP maker would introduce the first working part.
Nokia made its PSE-3 chip announcement in support of its Optical Transport product line. It was standing room only, with lots of customers involved in the presentation (not just a bunch of analysts and competitors). We were impressed with the marketing aspect of this announcement, but also with the the statement, "we have reached the economic Shannon's limit" with the introduction of the PSE-3 engine. The implication of economic Shannon's limit is that to achieve an even more efficient design that would asymptote even closer to the theoretical Shannon's limit would be too costly. The company is claiming 25% improvement in capacity and reach, 70% increased network capacity, 60% reduction in power per bit. Chungwa Telecom and Facebook were live, on stage, serving as references for Nokia's launch. We expect full fledged PSE-3 based products will be available in about 9-12 months based on discussions at the show.
Juniper announced its ACX6360 system (as well the announcement of the ACX5448 Universal Metro Router and the PTX10002 Packet Transport Router). The ACX6360 can operate as a packet optical device, and with a software update, can also operate as a router. The general idea behind the introduction of this product is it can serve in either the packet optical transport role or as a IP/MPLS router, thereby collapsing multiple networking layers into a single platform operating at speeds up to 200 Gbps. For many uses cases, it could reduce the number of boxes from two (packet optical plus router) to one (ACX6360).