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? 
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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.

​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.
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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

• China Mobile: radio access, core, passive optical networks, IP routing and optical transport, SDN, network management and professional services.
• China Telecom to improve country-wide 4G LTE coverage and hot spot capacity. Nokia will provide its end-to-end portfolio and solutions for China Telecom including FDD-LTE radio access, home CPE solutions, core routers, multi-service edge routers and optics as well as its services expertise.
• China Unicom deploy technologies across the country including Nokia FDD-LTE radio access, Multi-access Edge Computing, virtualized IMS, SDN, IP routing and optical transport, and fixed network equipment.

The company also emphasized its multi-billion dollar deal recently signed with T-Mobile US.  Neville Ray, CTO of T-Mobile US presented at the event.  Additionally, AT&T’s Chris Penrose, SVP IoT, discussed its relationship with Nokia using the WING service; this is a global IoT service that uses revenue co-sharing between AT&T, Nokia and the many regional service providers in non-AT&T locations.  AT&T made the point that IoT is a business service.  Telia, headquartered in Nokia rival’s Ericsson’s home country, Sweden, made a compelling presentation at the meeting, as well.

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.
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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).

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). 
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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.

• Verizon.  Will launch 5G Fixed Wireless Access (FWA) on October 1 in four markets: Houston, Indianapolis, Los Angeles and Sacramento.
• AT&T.  The company reiterated its own 5G plans (mobile 5G by year-end 2018 in cities such as Atlanta, Charlotte, Dallas, Indianapolis, Oklahoma City, Raleigh, Waco, Houston, Jacksonville, Lousville, New Orleans and San Antonia), plus it made some announcements like that it is beginning 5G-ready CBRS equipment testing (using Samsung CBRS equipment and CommScope as SAS provider).  Also, at the Spark event on Monday, the company announced three strategic telecom equipment suppliers, Ericsson, Nokia and Samsung. 
• T-Mobile.  Announced that it had completed a Cisco vEPC system (upgradeable to 5G Core) carrying traffic for 70M users that was from Cisco.  It also announced that it signed a $3.5B 5G agreement with Ericsson.  This is in addition to the July 30 announcement made earlier with Nokia for $3.5B, as well.  Generally, the company has set expectations as recently as September 10 that it will provide nationwide 5G by the year 2020.
• Sprint.  Announced that it had demonstrated a 5G NR connection of Massive MIMO with Nokia equipment.

Additionally, discussions about spectrum in the US market were very active discussions.  Some points we picked up on:

• No new mid-band auctions will occur in the US market for another 2-3 years, so this means that new capacity is going to come from LAA (just announced on the iPhone Xs this week, as well) and from CBRS (discussed above).
• The "who has the fastest 5G throughput" battle will be won at the millimeter wave.  In other words, using millimeter was, speeds as high as 10 Gbps are possible, but with mid-band (1-6 Ghz), where LTE is currently deployed, cannot go much over 2 Gbps.  So, to beat the Ookla Speed Test, the mobile operators who deploy mmWave early will get a leg up.  However, in order to deploy mmWave, these have to be small-cells that are within 100 meters of users.  Since it is so difficult to get real-estate rights and backhaul for small cells, this is going to be a big challenge.  Nevertheless, this is how the battle will be won.
• T-Mobile's 600 Mhz rollout is now in 1,250 cities.  The company will eventually enable 600 Mhz 5G.  600 Mhz should dramatically improve T-Mobile coverage because it is low-band spectrum.

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.

• Cable.  Admits that it took a year longer for DAA to develop.  In deployment phase at WOW! And we get the sense that there are some significant wins that Nokia could announce in the future.  It claims to be the only vendor with DAA available today.
• Fixed Wireless Access (FWA).  The company is offering two versions of FWA: The company is offering two versions of FWA: (a) 3GPP radio access network based and (d) unlicensed WiGig (60 Ghz WiFi-based).  The company expects 5G-based solutions to hit the market in 2019.  The company’s first FWA customer is an enterprise, using WiGig.  But, the main focus is on large Service Providers.  The company is not focusing on Wireless ISPs (WISPs).    
• WiFi.  Nokia is making a push to enhance its Broadband CPE portfolio to include more advanced WiFi capabilities.  It is launching a “mesh” capability that will become popular across its broadband CPE product line.  Mesh is a very popular router category that has been propelling growth for vendors such as eero and Google.

Additionally, Nokia emphasized an enabling technology to allow fixed network wholesaling - slicing.  The company has begun discussing Altiplano, an SDAN (Software Defined Access Network) system.  This allows multiple service providers to share the same fiber and equipment installed base.  The company’s view is that just like mobile network tower sharing happened to reduce capital spending, the same will happen with Fixed Broadband networks – but this requires a virtualization technology such as SDAN.

Keynotes at the NFV World & Zero-Touch Congress in San Jose, California were very interesting today.  We share our observations and view of the main themes from these interesting presentations by Nokia, NEC/Netcracker, Google, CenturyTel.  The main theme of these presentations, we think, is this:  NFV/SDN is now deeply in the deployment and commercial phase, where compared to 3-4 years ago, it was just a concept.  

Nokia.  The company announced that its Airframe server platform, which is an OCP based design, comes available with either embedded acceleration or pluggable acceleration.  This comment includes its software acceleration.  The company explained that its Reefshark chipset can be equipped on the Airframe server and can perform better than a non-accelerated server:

• Layer 1 and 2 offloading - 100% better
• Content acceleration - 30x better
• Machine Learning / video recognition - 10x better
• Crypto acceleration

In explaining functions that an Airframe with Reefshark can perform, the company gave a good example: massive MIMO beamforming can be assisted by the machine learning capabilities.  

NEC/Netcracker.  Enrique Gracia presented several uses cases of the NEC/Netcracker customers that related to NFV/SDN.  He explained that 16 customers have deployed one or more of these uses cases.

Full Stack OSS/BSS/MANO.  A customer deployed this system in 12 weeks to launch a VNF.  The system managed both physical and virtual devices.

Expand to a new territory using VNFs from home region.  A customer now delivers services to a customer outside the home territory by deploying the software and service from the network location at the home location.  In this particular case, NEC/Netcracker and its customer do revenue sharing and VNFs include SD-WAN, virtual firewall and others.  The service provider is expected to expand its customer addressable base by 40%, mainly targeting small/medium businesses in this non-home region.  This system uses MANO, OSS, BSS and the marketplace.  The company says in this case, time to revenue is expected to take 50% less time to deploy new VNFs in the future.

uCPE (Universal Customer Premises Equipment) deployment instead of branded hardware.  The company worked with a service provider company to enable uCPE to be deployed as an alternative to Cisco, Juniper and others' gear. 

Google Cloud.  Vijoy Pandey, who represented Google Cloud, presented on the topic of using AI/ML to reconfigure its data center system.  The company's cloud data center architecture has been evolving continuously since it was first introduced.  Currently, the company is using its own AI/ML system to learn from current network traffic patterns in order to design its future network architecture.  

CenturyTel.  The company has deployed Broadcom based Ethernet switches using its own Network OS.  These switches do their own packet forwarding.  Additionally, the company has built its own orchestration system called VICTOR.  It draws upon Ansible, NetCONF, uses the service logic interpreter from ONAP and uses parts of Open Daylight.  The company plans to open source this development and the spokesperson Adam Dunstan said, perhaps jokingly, that this might be called ONAP-lite.

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).  

Apple Inc. announced plans to accelerate spending in the United States, citing $350 billion of spending over the next five years.  The company has cited recent tax rules and its status as being the largest US taxpayer.  The company specifically earmarked "over $10 billion" for "investments in data centers across the US."  We estimate that this will add about $2 billion more per year than the company was already spending, which the company says has resulted in datacenters in seven US states, including North Carolina, Oregon, Nevada, Arizona and a planned project in Iowa.  Based on these estimates, we believe Apple's US datacenter spending rate will now challenge the capital spending rates of Facebook.  The company also announced plans to build a Reno, Nevada datacenter.

This capital spending acceleration on datacenters has been timed with the completion of its Cupertino-based mega-campus, which was a significant capital expenditure.  

With Apple's datacenter plans are clearly accelerating, it is poised to tap suppliers for more datacenter equipment.  We expect that the main suppliers of network equipment will be fighting hard for Apple's business. Examples of such suppliers competing for the new capital spending plan will likely be, in optical equipment, Nokia, Ciena, Finisar, in routing, Nokia, Cisco, and in switching, Cisco, Broadcom, and Arista.  It is possible that with Apple's increasing scope of datcenter building, it may seek to bring more equipment design in-house, more similar to larger datacenters, including Facebook, Microsoft, Amazon and Google.  Additionally, as the datacenters become more numerous and larger, it will almost certainly require that Apple will implement different network architectures.

Nokia was bullish on its technology developments and cautious on telco capex.  CEO Rajeev Suri described the telecom market as having tough market conditions and expects telco equipment market revenues down in 2018.  He said the Swedish competitor pricing aggressively and that it will be difficult to keep share in China with 5G ramp.  He said Nokia is executing on plan to grow non telco verticals – and it will take 3+ years before it is sizable enough to potentially offset telco challenges.  He emphasized a key strength is its focus on cost reductions.  He highlighted success in cable MSO market and that its FP4-based router will ship in a few days.  Suri thinks 5G could roll out in China first, maybe tied with US.  Nokia CEO's comments were quite similar about 5G rollout timing expectations compared to comments made at Huawei’s recent conference (2019 initial deployments; chipsets 2019; broadening deployments in 2020).

Some more details from Rajeev Suri's presentation:
Ericsson.  We were surprised that the CEO of Nokia took the opportunity to take some digs at Ericsson.  He said that Ericsson is pricing aggressively; it also shared some quantitative statistics about competitive take-outs of Ericsson installed base. He argued that it has broadest portfolio in industry (fixed, software are examples).  

China.  Two interesting comments about China – a) will be difficult to maintain share in China as 5G rolls out, b) China might be first to deploy 5G.  
Emphasized that Amazon Web Services is making a presentation at this conference.  Said its new FP4-based routers are more efficient than any competitor and will be so for at least the next year.

Other presenters made comments about 5G mainly.  Here are some interesting comments:
Artificial Intelligence.  The company has a lot of network automation technology that is it working on but would not share details about this technology.  We guess Nokia is more open with its customers and that it'll make announcements at MWC '18 in Barcelona.
5G Radio.  Beamforming is a key technology that will be highlighted in 5G.  Also, the company's separation of Stage 1 and Stage 2 MIMO processing makes the bandwidth needs from baseband to array be much less than competitors.  Additionally, the company explains that its expected systems will have dramatically higher efficiency than competitors - again, the company kept its secrets here under wraps.  Late 2018 will see first 5G deployments, going into 2019.
IP/Optical.  Basil Alwan, President IP/Optical division said the first FP4-based product went to production end of the last week.  Major customers will take shipment before the end of this quarter.  The company will ship its 57 Terabit router during 1Q18.  SD-WAN will replace MPLS VPNs over time, perhaps at a rapid pace.  

Service Provider presentations:
Amazon Web Services IoT.  Satyam Yadav, GM of AWS IoT made a presentation at this meeting.  The presentation focused on how Amazon's IoT software and its services would be used in a partnership with Nokia to deliver Amazon IoT services.  
Sprint.  Ron Marquardt, CTO.  He is not sure how much customers might pay for lower-latency connections available from 5G.  Now that the uncertainty of the T-Mobile US acquisition is beyond us, Sprint says it is rapidly focusing on spending to upgrade its network.  Sprint also said it plans to deal with fewer vendors in the future.
Elisa. The Finnish operator presented data about its extraordinary data traffic growth and its per-subscriber data usage being far above competitors as well as other service providers in the world. 
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Today Nokia announced its new FP4 ASIC and 7750 SR Router.  Playing the leapfrogging game on speeds, we saw 36  400 Gbs ports in a 2RU box that looks awfully similar to a spine switch and the further blurring of what a next gen router and switch really look like, especially in the Cloud.  

We heard continued confusion over winning Cloud scale accounts.  We note that a customer like Apple buys from multiple vendors and for multiple reasons.  What Apple builds for their own consumption is not what they will deploy in a telco provider or peering location.  

The debate between merchant silicon and custom ASICs continues to come up.  While we are slightly in favor of merchant silicon, we note that the Cloud providers do not fear custom ASICs, they merely want to have standard APIs to control that equipment.

We note the Nokia ports are DDQSFP and not OSFP so we do not have a clear answer on form factor either.  We now wait for the next product announcement with the only clear answer that we are in a phase of rapid innovation in order to keep up with the network traffic demands of the Cloud.