650 Group Blog
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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.
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Today's big news from the FCC is that it will open up 6 GHz to Wi-Fi and other unlicensed uses. The FCC authorizes "1,200 megahertz of spectrum in the 6 GHz band (5.925–7.125 GHz) available for unlicensed use," and further explains that it authorizes "standard-power devices in 850 megahertz in the 6 GHz band. An automated frequency coordination system will prevent standard power access points from operating where they could cause interference to incumbent services." We see that this vote is very beneficial to Wi-Fi chip and systems companies that serve both consumer and enterprise markets. We also expect that outdoor systems that take advantage of this new spectrum may benefit wireless ISPs (WISPs) and their equipment suppliers. And, also, the FCC's statement that an automated frequency coordination (AFC) system will be used to prevent interference from existing microwave transmission systems. With that background, we have compiled a list of companies that will benefit from the FCC's vote.
WLAN Semiconductor companies Broadcom, Qualcomm, ON Semi, Celeno, and Intel. In our research of the WLAN Infrastructure semiconductor market, these are the vendors we expect to sell Wi-Fi radio chips to devices such as Access Points, Broadband Customer Premises Equipment (CPE) with WLAN, and Consumer Routers. A new class of Wi-Fi that takes advantage of 6 GHz is now called Wi-Fi 6E. Broadcom and Qualcomm have already made statements about Wi-Fi 6E in the past month or two, and others somewhat more recently. Historically, Broadcom and Qualcomm have enjoyed significant market shares of the enterprise WLAN Access Point market, while players in the consumer AP/router/CPE have included a wider list of players including Broadcom, Qualcomm, ON Semi (formerly Quantenna), Celeno, Intel, Realtek, Mediatek and others. Enterprise WLAN companies Cisco, HPE Aruba, Commscope, Extreme Networks and Juniper. While each of these companies has launched Wi-Fi 6 products over the past couple of years that operate in 2.4 GHz and 5 GHz, we expect this group of companies to release Wi-Fi 6E products that connect over 6 GHz over the next year. We expect initially that 6E enterprise products will sit at the high end of product portfolios, selling at higher prices than 5 GHz and lower products. The FCC commented in today's press release that "The notice also seeks comment on increasing the power at which low-power indoor access points may operate," which means that there is still some work to do in figuring out whether these Wi-Fi 6E devices can operate at powers levels more common in enterprises without needing to connect to an AFC. We are sure there is more to come on this topic. Consumer WLAN Infrastructure companies NETGEAR, Commscope, Technicolor, Amazon and Google. We expect NETGEAR to be an aggressive player in Wi-Fi 6E, just as it released super high-end Wi-Fi 6 products in its Nighthawk product line. We expect Broadband CPE vendors such as Commscope (through its Arris brand), Technicolor and others to benefit as they seek to capitalize on the new spectrum, which should allow the delivery of Wi-Fi at higher speeds and to more devices in the home. We wouldn't be surprised to see consumer mesh vendors such as Amazon (through its eero acquisition) and Google to offer Wi-Fi 6E products, but these probably come a bit later than traditional router and Broadband CPE devices. Wireless ISPs such as Etheric Networks and Common Networks (both located near the 650 area code that we used to name our company, 650 Group) will likely benefit as they will be able to offer new WISP services over the new 6 GHz spectrum. Since the spectrum is new, essentially unused and there's lots of it, we expect that these, and other WISPs in the US market, can benefit by expanding beyond the current unlicensed spectrums commonly used today, such as 60 GHz, 5 GHz, 2.4 GHz and 900 MHz spectrums. We think it might take a year or two before the WISPs can capitalize on these spectrums, but we see it as a windfall. WISP suppliers such as Ubiquiti Networks, Cambium Networks, Airspan, and others will be likely beneficiaries. These suppliers sell to WISPs and other operators to enable "last mile" services that compete with fixed-line broadband services such as cable modem, DSL and PON. As we alluded to above, the 5 GHz spectrum is quite crowded, and thus, as 6 GHz becomes available for outdoor use, we expect that a new class of equipment will take advantage of this ample spectrum to deliver broadband to a more significant number of business and consumers. The FCC has a "goal of making broadband connectivity available to all Americans, especially those in rural and underserved areas," according to its 6 GHz press release today, and we see WISPs as one of the main constituents of serving this goal. Mobile network operators AT&T, Verizon, T-Mobile, and US Cellular. Similar to WISPs, we expect that mobile operators will eventually leverage 6 GHz to deliver Fixed Wireless Access (FWA) services (and potentially mobile services) to consumers and businesses. In suburban and rural areas, we have already seen some operators, notably Verizon, deploy FWA in licensed mmWave spectrum (in 20 GHz and 40 GHz ranges) - we have seen operators pare back on plans to deliver services, though they haven't stopped deployments or anything. But, we see 6 GHz could puff some new life into FWA plans because this is a lot of new frequency and since it is lower frequency than mmWave, does not suffer as much from immovable obstacles such as tree leaves, windows and precipitation. Additionally, we see mobile services could benefit as well, as we have already seen operators such as AT&T leverage 5 GHz unlicensed spectrum in delivering mobile service on its small cells in locations such as New York City, so we would expect mobile operators to eventually take advantage of 6 GHz in a similar fashion. But, incumbent services (point to point microwave systems) are more likely to interfere with mobile operators' plans in urban areas, where paradoxically, there is more need for this extra bandwidth, so we think operators will take some time to sort this interference out. AFC services operators such as Federated Wireless. Given that the FCC announced a specific need for AFC services in its media blitz today (see above), we point out that Federated Wireless has already announced an AFC service. Just as Federated has competition in its CBRS SAS service from players such as Commscope, we would not be surprised to see new competition in AFC services. We attended the CBRS Alliance event in Washington DC today, and by our rough estimate, about 350-400 people were in attendance representing groups such as regulators, legislators, lawyers, technology vendors, property owners, service providers, investors, media and analysts. We were impressed with the widespread interest in the new shared spectrum technology and services running in the 3.5 GHz band that is now called “OnGo.” We have researched CBRS for many years and found several acronyms and CBRS-specific terminology to be blossoming. We found several themes at the CBRS Alliance event and a follow-on event at Federated Wireless, a SAS service provider, of special note: a) the OnGo experience will serve as a mold for regulators, operators and other interested parties not just in the US, but also the rest of the world, b) Tier 1 operators and WISPs appear focused on Fixed Wireless Access (FWA) deployments in CBRS spectrum, at least initially, c) many presenters focused on the “OnGo backhaul to gateways” use-case, at least as an initial opportunity, d) interested parties have a concern that PAL licenses may become very expensive when the auctions occur, and e) there were a very large number of devices supporting OnGo at this event. Acronym soup. The CBRS Alliance did its best to explain the various acronyms and how the various players work together. It would take at least six pages to cover just the top-level details. The idea here is that the 150 MHz of spectrum in the 3.5 GHz range was previously used exclusively by the US Department of Defense and is now going to be shared using a three-tier process, where the military (the incumbent) will have use of it when it needs, then private license holders will get next dibs (PAL), followed by general users (GAA). Starting today, GAA users will begin use of the spectrum in the Initial Commercial Deployment (ICD) that was announced today, starting at 9 AM Eastern. A group of service providers called Spectrum Access System (SAS) providers have been authorized to install radios on the US coastline that sense when the military is using the spectrum and send channel-use information to equipment that is operating in the CBRS spectrum. These SAS providers will, therefore, coordinate the frequencies between incumbent, PAL, and GAA users. Our view on why OnGo and “Shared spectrum” matters. We expect that by sharing spectrum amongst various parties, more traffic can move across a smaller range of frequency than by using the more common method of auctioning off frequency bands to be used exclusively by one entity. We estimate that shared frequency will carry ten-times more traffic than frequency bands licensed for the exclusive use of single entities. Thus, it is for the greater good that this OnGo / CBRS experience go the distance and allow a public demonstration of whether multi-tiered shared spectrum can succeed or not. Already, we have the experience of shared spectrum in the 2.4 GHz and 5 GHz bands used by WiFi – there is no doubt this has been successful; in fact, most public estimates show about 80% of smartphone traffic is carried by WiFi rather than cellular systems, all of which as of yesterday was carried on licensed spectrum. At the CBRS Alliance event, guest speaker, US FCC Commissioner Michael P. O’Reilly said that based on the success of OnGo, he expects similar models could be applied to additional spectrum (and he implied this might the sequential order of launch): C-band (3.7-4.2 GHz), 3.45-3.55 GHz, 3.1-3.45 GHz and 7 GHz (which we understand is meant to be the same thing as what is being discussed at 6 GHz by the WiFi community). FWA opportunity is front and center. Charter and AT&T focused their comments on their plans to deploy fixed broadband systems. AT&T shared some impressive statistics about the performance of recent trials using Massive MIMO cell sites using distributed RAN over CBRS spectrum, which is connected to indoor baseband over fiber optics to the radio sites and then connects wirelessly to customer premises equipment mounted at the roofline: it said it achieved 140x12 Mbps at slightly over one mile over line of sight using 20 Mhz channels. Charter discussed it had deployed its first commercial FWA in Davidson City, NC to rural locations. It also discussed how it uses dual SIM systems to allow customer coverage to Verizon’s cellular network. Charter also discussed private LTE, neutral host, and Industrial IoT use cases. The Wireless Internet Service Provider’s Association (WISPA) President spoke about its members’ enthusiasm for OnGo and explained that 100’s of WISPs used the 3.65 GHz spectrum and expects more will use the 3.5 GHz / CBRS spectrum. Currently, WISPA says WISPS in the US have 6 million customers. OnGo as a backhaul. We detected a theme that seems durable: CBRS spectrum can be used by enterprises with far-flung operations to save costs by reducing the installation of wired / optical cables and associated infrastructure. There was an impressive list of vendors who had equipment at the show, a number of which were gateway devices that made connections between CBRS and other well-known protocols such as Ethernet and WiFi, to name a couple. While OnGo/CBRS support is not as widespread on devices today, IoT devices supporting other wired and wireless systems certainly are, the list of which includes WiFi, Zigbee, Bluetooth, Ethernet and more. We were taken by how compelling some presenters made a case for using CBRS simply assuming a reduction in new cabling to enable new systems such as kiosks, surveillance, digital signage, farming, and so on. Many of these examples would increase the deployment of existing protocols like WiFi, Zigbee, Bluetooth, and Ethernet, instead of reducing their demand. The idea that OnGo/CBRS competes with existing systems may be incorrect. PAL auctions. Commissioner O’Reilly said PAL auctions are scheduled for June 25, 2020. In our formal and informal interviews, we understand there is a growing concern that CBRS spectrum auctions could be aggressively pursued not only by existing Tier 1 mobile operators but also by other players, not least of which could include MSOs and maybe even “Big Tech” companies. Since the 3.5 GHz spectrum is where many countries besides the US have begun deploying 5G services, making equipment in these frequency bands commonplace, there is ample reason to want to use this spectrum in the US. Bidders may raise the price high enough that enterprises will choose not to compete, and won’t view the CBRS spectrum as attractive as they had hoped. In this case, PAL would look quite a bit more like a typical licensed spectrum, similar to other auctions. OnGo devices abound. At the show, the following vendors had devices on show (see pictures): Sercomm, MultiTech, Sierra WIreless, Zyxel, Encore, Cradlepoint, AMIT Wireless, Commscope / Ruckus, Accelleran, Bai Cells, Cambium, Samsung, Google, LG Electronics, Sequans, Telit, JMA Wireless, Motorola Solutions, Cisco, BEC Technologies, Ericsson, ip access, BLINQ, Comba Telecom, and Westell.   We attended media briefings at the Keysight World conference held near San Francisco, California, yesterday. Keysight World San Francisco showed a more integrated Ixia as well as a further push towards 5G, automotive and energy, and data center and telecom. Much of the companies conversations during the event related to synergies between these technologies. Such as how to push the automotive industry forward using 5G and the need for edge computing in 5G. As Keysight is involved at the beginning of the launches of many new cellular technologies, it has good insights into the timeline and progress of the 5G market.
One of our key takeaways from the show is the increased pervasiveness of Ethernet in the telecom and automotive industry as well as the significant increase in constant data creation. All this data will need robust, and more intelligent networks to transport it. We were also impressed that Keysight World will actually take place in 10 cities around the world, with San Francisco being the first. Another interesting observation was just how global Keysight was in looking at products, for example in one session that we attended, much of the automotive effort in the company was located in Germany. Our big takeaway from its recent global analyst meeting was that Nokia is formalizing its enterprise business. Of course, the company’s primary business, which focuses on telecom service providers, is undergoing major product updates, including towards 5G, Fixed Wireless Access and towards network slicing. We have published about these topics in other posts relating to Nokia in the past several months, having attended other Nokia events, so we focus on topics we haven’t discussed recently. The company acknowledges that telco capex is expected to be unexciting and is redoubling efforts to gather enterprise customers. In 3Q18, Enterprise represented 5% of revenues. The company expects 8% CAGR for Enterprise Networking. Of course, the company covered many topics beyond enterprise, including its view on megatrends, the importance of spectrum instead of differentiation between 4G and 5G, residential WiFi and Fixed Wireless Access, its recent wins at major telcos, the impact of the recent re-organization, the impact of the trade war and other topics. Enterprise market, Private cellular and WiFi. The company’s view is that private LTE will challenge WiFi for certain applications in its “strategic” enterprise markets, including for verticals such as logistics and transportation. Considering the Nokia view, we expect private LTE and WiFi will co-exist in the future. We think that Nokia can succeed with its private LTE strategy, because this is mostly a “greenfield” opportunity. Many of the cases Nokia explains it is seeing success are outdoor, not indoor, where WiFi is so popular. A number of industries are likely to adopt private LTE (mining, logistics are good examples), and later 5G, but we expect most every industry will maintain their reliance on WiFi. We keep in mind that in light of the fact that 802.11ax (which began shipping 3Q18) incorporates many more cellular-like capabilities, WiFi will have a seat at the table for some time to come even in these critical industries. Interestingly, by leveraging service provider channels, the company has plans to enter the “branch” enterprise network market, using SD-WAN as its “Trojan horse” to enter. Megatrends. From a strategy standpoint, Nokia sees megatrends: Ubiquitous connectivity, multi-cloud, deep analytics, industrial IoT and regulatory. Spectrum takes on new importance. On mobile radio, the company focuses on spectrum differences as much as the difference between 4G and 5G. The company’s view is all macro basestations should have mmWave. Describing its 5G ramp, Nokia’s factory capacity related to 5G infrastructure has quadrupled this most recent quarter; and the company “went to volume shipments” on its new, in-house Reefshark chips in 3Q18. Residential WiFi and Fixed Wireless Access. The company’s new mesh WiFi will be made available at its first service provider customer’s stores in the month of November. This mesh technology is from the recent acquisition of Unium. The company’s first Fixed Wireless Access (FWA) customers have begun deployments, for both 4G cellular and WiGig (60 Ghz 802.11ad). We understand that the 4G cellular projects are largely at mobile service providers working to leverage existing investments in their mobile infrastructure, while WiGig is in demand at enterprises and traditionally fixed-line service providers. The company expects 5G FWA infrastructure will be ready to ship in 2019. Recent wins at service providers. New wins announced €2B around this event include “frame wins” at major Chinese service providers
The impact of the recent re-organization. On the day of its recent earnings call, the company announced a planned re-organization, along with some reductions in force, to reduce spending so the company can hit its year 2020 financial targets. The importance of this re-org, from our standpoint, is that the Software division of the company will be in charge of managing several products that used to be part of the Mobile division beginning Jan 1, 2019. Products moving from Mobile to Software include IMS CSCF and TAS. We have verified that Packet Core (including EPC/4G and 5G Core) will remain in the ION (IP and Optical Networks) division, where it has been for years. Trade war. According to Rajeev Suri, CEO of Nokia, Australia, UK, Korea, Japan, possibly Canada all may ban Chinese telecom gear. Suri expects that Nokia’s “working assumptions” are that: (a) around 20-25% Chinese market share is available for foreign vendors, and (b) potentially, ZTE will take more share in China, and that (c) foreigners (like Nokia) will still be able to play. Suri explained that Nokia hasn’t seen Chinese vendors get more aggressive in Middle East and Africa (MEA). 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:
We attended the Nokia Fixed Broadband group analyst meeting in Tokyo last week and found that the company’s portfolio is expanding rapidly. The company’s view is that capital spending at its customers will be flat in future, and therefore the company is taking the approach to grow its portfolio beyond its core DSL and Optical core to potentially allow it grow revenues. It has expanded its product line to include cable (from Gainspeed acquisition), more recently home WiFi (augmented through acquisitions) and is rolling out Fixed Wireless Access (FWA). The company is also predicting that the Indian subcontinent and fixed network wholesaling will become significant opportunities for the Nokia Fixed Network group.
This week, we attended the Global Mobile Broadband Forum, held in London, and found several interesting points we thought we would share. Much of the focus of the conference was about 5G wireless networks, and since the show was in London, many of the service providers who we met with and listened to were European. The sponsor of this event was Huawei.
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CHRIS DePUY
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