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 Qualcomm Wi-Fi 6 event held in San Francisco today. Representatives from partner companies who attended included HPE Aruba, Cisco, Commscope, Boingo, Netgear, Rivet Networks, AMD, and Microsoft. The principal announcement at the event was that Qualcomm announced its Networking Pro Series Platforms which are focused on Wi-Fi 6 capabilities, semiconductor systems which are in initial stages of availability and expected to be available on systems in coming months and quarters. The new Networking Pro Series chip systems hit four price points generally segmented by the number of antennas (more at the higher end) and are primarily targeted to the enterprise market, though we learned that some of the high-end consumer ("prosumer") vendors plan to use these chips as well. The new Networking Pro products have unique features compared to previous Wi-Fi 6 chips introduced from Qualcomm, including upstream MU-MIMO and upstream OFDMA and the design claim is that these can support 1,500 simultaneous users both upstream and downstream.
In the past, it could be said that Wi-Fi and cellular compete in some markets. We found it interesting that Qualcomm said that it expects that Wi-Fi 6 mesh products will be the way to get 5G millimeter-wave signals indoors. Several Qualcomm executives echoed the message that Wi-Fi and cellular are complementary, even though many Qualcomm service provider and cellular equipment partners do not subscribe to this point of view.
Qualcomm shared some impressive numbers. It ships approximately 1B Wi-Fi device chips per year at a run-rate; it has shipped over 4B Wi-Fi chips since 2015; and by comparison, had shipped 1/2B chips by 2010. It has shipped Wi-Fi chips with MU-MIMO capabilities to a total of 0.75B client devices. Qualcomm claims it has found that Target Wait Time (TWT) can improve cell phone battery life by as much as 60%.
HPE Aruba President, Keerti Melkote, presented and shared with the audience that it had won the Wi-Fi project to the nearby Chase Center, where the NBA's Warriors play and that it should operating soon. Additionally, Melkote emphasized that Aruba had recently begun shipping its price-competitive Instant ON product and the take-up has been strong. Cisco SVP Engineering, Anand Oswal, primarily discussed Cisco's Open Roaming initiative that focuses on seamless and secure public Wi-Fi onboarding. It was interesting that Cisco did not focus its comments on Wi-Fi 6. Morgan Kurk, CTO Commscope and acting President of Ruckus Networks spoke about the benefits of Wi-Fi 6 to venues, primary and secondary educational institutions, including AR & VR, 1:1 and online assessment use cases. Derek Peterson, CTO Boingo, a Wi-Fi/cellular venue services provider shared that it is now serving 1B consumers per year. Its goal is to get 100 MHz to each user, and that it will reach this goal by using all available spectrum, licensed and unlicensed. Peterson also shared its observations of the benefits from using Wi-Fi 6 at its trial that began in April of 2019 at the John Wayne Airport in Irvine, CA. Morgan Teachworth, Head of Hardware Platforms of Cisco Meraki, shared observations of several events it has been involved with, including the US Open Pebble Beach 2019 event, where, to its surprise, upload traffic exceeded downlink traffic. David Henry, SVP Connected Home Products from Netgear, hinted that it plans to introduce its Wi-Fi 6 mesh product, saying wait for details next week. We also learned that Netgear would leverage the highest end Qualcomm Network Pro chips intended for enterprise-class devices.
VK Jones, VP of Technology, Qualcomm Atheros, spoke about future products and standards work. He said by 2020, we should expect 6 GHz, and, by 2022, 802.11ax Release 2 features including scheduling and spatial re-use to improve old device capabilities. 6 GHz requires a third-party service provider to coordinate what frequencies each access point uses.
Today, Amazon announced that it will acquire eero, a consumer mesh WiFi equipment company that as of 3Q18 had 13% revenue share. In 3Q18, the consumer mesh WiFi market measured just over $150M, which was up just over 34% Y/Y. The number one player by revenue was NETGEAR in 3Q18, followed very closely by Google, who had retained the number one spot for the 5 quarters before 3Q18. Now, with Amazon's acquisition of eero, just three players will have well over 3/4th of the consumer mesh WiFi market. What's interesting here is that two Internet titans, Google and Amazon, are attempting to disrupt the consumer networking market that up till 2015 was dominated by hardware players such as NETGEAR, Linksys, TP-Link, D-Link (consumer WiFi vendors) and adjacent players such as Technicolor, Arris, Huawei, ZTE and Nokia (Broadband Customer Premises Equipment vendors).
So, what does it mean that now both Amazon and Google are battling for primacy in the home networking market?
It is complementary to their interactive speaker business. Both Amazon and Google have introduced various hardware products for the home, but most successful have been both of their interactive speaker products, which for Amazon has been the Echo and Dot and for Google Home. These speakers are generally in an "always-on" mode, which allow them to listen to all sounds nearby, and which also means they are generally always connected to the WiFi devices in the home. By always being connected, these speakers consume much of the available WiFi bandwidth in the home, deteriorating the available spectrum for other devices. One obvious solution, which is being made available by wireless chip giant, Qualcomm, is to integrate WiFi chips with speaker chips. That's the direction that both Amazon and Google may pursue - to integrate Home with Google WiFi and Echo with eero. This will mean that multiple WiFi mesh devices will also represent multiple interactive speakers in the home, all while combating the over-use of WiFi spectrum in the home.
These Internet giants can, and probably will, attempt to overwhelm the market with low prices, subsidized by primary businesses. We already see that Google's price for a 3-pack is 37% lower than eero's comparable system. Our working theory is that Google has been selling close to no margin and that eero has been experiencing a 30's percent margin. This is probably not good news for the following companies who either do have gross margins above 30% or we assume do, like NETGEAR, TP-Link, D-Link, and others mentioned above.
We attended the Nokia analyst meeting for its Fixed Access business, where the company explained its priorities for the upcoming year. these include: (a) an expansion to its In-Home WiFi focus, (b) an aggressive push to move all but physical layer functions into the Cloud, and (c) the launch of fixed broadband wireless. Last year's priorities included a push into the Cable broadband market (through the acquisition of Gainspeed) and Internet of Things (IoT). The business leaders seem to be focused on what we'd consider to be the current trends in broadband, and Nokia is taking advantage of the competitive environment as the broadband market is consolidating around a shrinking number of players.
In-Home WiFi. While some of the the company's Passive Optical Network (PON) Optical Network Terminals (ONTs) are currently shipping with Wi-Fi capabilities, it represents a growing trend among operators to offer a full function gateway. The company plans to enhance its In-Home WiFi capabilities to entice its Service Provider customers to purchase these slightly more expensive devices. The company ships something on the order of 3 million ONTs each quarter, generally on par with the number of in-home WiFi devices sold by one of the leaders of in-home WiFi, Netgear. There has been a long-running trend whereby cable modems and DSL modems have incorporated WiFi, which has reduced the market opportunity for stand-alone WiFi routers, mainly in North America and European markets (where cable and DSL are popular). However, where PON is popular, like in Asian countries (China included), PON modems have generally not incorporated WiFi until recently and WiFi capable ONTs represent a small fraction of all ONTs that ship. Nokia plans to introduce a solution that extends and enhances WiFi beyond the gateway at some point - we've seen WiFi Extenders and now WiFi mesh experience significant growth in recent years. What Nokia may be able to bring to the table, though, is WiFi extending products with deeper integration to the Service Provider operations. This is a capability that will likely be embraced by operators in order to reduce the number of customer service calls to the operators themselves. We have seen vendors like Arris make similar pronouncements of enhancing their WiFi strategies to include devices such as Extenders (but mainly for cable and DSL), so Nokia is not alone in being a broadband modem vendor recognizing the 'whole home' trend. From a consumer WiFi perspective, Nokia's move to enhance its WiFi capabilities will put most pressure on standalone WiFi vendors that sell to Asian countries - these include D-Link, TP-Link, Buffalo, and Zyxel.
Broadband to the Cloud. The Network Functions Virtualization (NFV) trend has now hit full steam, with nearly all mobile operator RFPs requiring vendors to offer software-based functions such as EPC, routing, IMS and other functions that can be run in so-called "Telco Clouds." The broadband group at Nokia is expected over time to deliver on a portfolio that, where possible, will be running on these server-based environments. We, similar to Nokia's expectation, expect that most fixed broadband "NFV" systems will be run in separate "clouds" from the mobile "clouds" for the next few years.
Fixed Wireless. We've all heard a lot about fixed wireless broadband trials at telcos in recent months. Yesterday, for instance, AT&T announced an expansion of its trials. Nokia will deliver on Fixed Wireless through its Fixed Broadband business group, an organizational acknowledgment that this is quite different from mobile wireless and will more likely be used to augment wired broadband strategies in difficult-to-reach locations. Generally, Nokia's view is that fixed wireless is relatively more expensive than many wired broadband systems - we share this view. It is hard not to be somewhat skeptical about fixed broadband wireless given the failed attempts to bring it to market going back as far as the early 1990's (AT&T's Project Angel), and then MMDS and LMDS efforts in the early 2000's, and of course WiMAX (more recently). Nonetheless, Nokia is smartly positioning its plans to support fixed wireless as a way to augment wired broadband. And, we know that fixed wireless works - Ubiquiti Networks has shipped tens of millions of fixed broadband wireless links to its customer base of Wireless Internet Service Providers (WISPs).