The big ideas unveiled at the conference were twofold. First, Huawei is promoting worldwide open standards as a counter to the likelihood that if it gets cut off from US-influenced technology, it may have to create its own, non-standard technology. Second, the company is promoting “F5G,” which is “fixed 5G,” or a global standard for Passive Optical Network (PON) technology that operates at as high as 50 Gbps and can be used for fixed broadband, optical LAN (Campus Networks), cellular backhaul/fronthaul, and even optical Access uses. The company also discussed evolutions or themes discussed at previous events like HAS2019, such as mmWave, FDD+TDD integration, Control User Plane Separation (CUPS), and more generally, 5G. Much to our surprise, the opening keynotes differed significantly from the previous year’s themes in that there was no discussion of the advancements the company was making in developing in-house semiconductors and optical subsystems.
First of all, the company’s keynote, presented by Rotating Chairman, Guo Ping, was focused on Huawei’s views towards the US efforts to thwart Huawei. The Chairman complained about the year-ago Entity List actions, and then more about this week’s escalation of prohibitions against Huawei. Huawei expects these US actions will negatively impact Huawei in the future. It said it is ramping up R&D and is focusing on open standards. It says US’s efforts will hurt US interests. In the past year, Huawei says it has redesigned over 1,000 circuit boards and that it grew R&D 30% last year. Huawei’s supply chain is not “closed off, but open than ever,” and it “will continue to diversify” its base of suppliers. As a result of US restrictions, the company fell $12B short of its plan in 2019. Huawei’s view is that it simply hopes to “survive” in 2020. One key message from the keynote was that Huawei does not want to see a world with two standards and two supply chains for the communications industry.
The company’s big news, in our view, was that it is advocating for F5G, which is a variant on PON technology that could be used in nearly all parts of networks, from indoor enterprise, to residential and business last mile, to cellular backhaul/fronthaul, and so on. The vision, which was shared by co-sponsor, ETSI, a standards body in the telecom marketplace. We think Huawei’s goal of creating a single technology platform that can be used in various markets where today multiple standards exist could be a good one. For instance, in campus LAN environments, one could certainly argue that copper-based Ethernet has run its course (our forecasts are for declining revenue), and in the “last mile,” 1G-class PON and its currently shipping successor, 10G PON will need to be replaced by something. F5G, which would operate at 10 Gbps and 50 Gbps speeds, differs from another consortium’s approach to a 10G PON successor, which operates at 25G. So, on the one hand, Huawei is entering the market with a big idea – to put the same kind of fiber system “everywhere” (to the home, in the business, to the cellular towers, for instance) – at a time when many of these markets are currently, or soon will be, undergoing a transition, is a good idea. On the other hand, there are already other standards bodies working to create accepted approaches for “to the home” fiber at 25 Gbps, for “in the business” at 2.5/5 Gbps, 10 Gbps, 25 Gbps and 100 Gbps (some copper, some fiber), and “to the towers” at 25 Gbps, 50 Gbps and 100 Gbps. If Huawei gets it way, and F5G succeeds to become a standards, while at the same time the other standards continue to progress as they are today, then we’ll end up with two standards, the Huawei/ETSI approach, and the other approaches used by BBF, IEEE, etc. This is what Huawei said it is trying to avoid in the keynote.
We enjoyed Huawei’s perspectives about its experience in the Chinese mobile and fixed market, where we see increasingly Chinese vendors are serving an increasing portion of capital equipment needs, while at the same time, it was interesting to hear about how the company is taking its experiences to other markets like Europe, Middle East, Asia and Latin America. Several topics it discussed that were important, in our view, were the importance of mmWave, FDD+TDD integration, and CUPS. To review each, we thought it was interesting that Huawei continues to view that the mmWave frequency as being limited to a US-only 5G market implementation; it views the C-band (which is mid-band) as the main spectrum where 5G will be deployed around the world, and it thinks this is sufficient to achieve 5G’s goals. Next, the company spent ample time discussing its RAN technology that allows both TDD and FDD to operate simultaneously, explaining that FDD is best suited for lower frequencies and allows for superior uplink capabilities, while TDD is best for mid-band and is well-suited for MU-MIMO, high capacity throughput radios. The company also shared that its CUPS technology has been adopted by 60 customers, which represents significant progress.
We are eager to see the standards “battle” resolved, whether that means Huawei works closely with existing standards bodies, or whether other players worldwide, get on board with F5G, so that the communications industry will benefit from volume shipments and consumers may benefit with lower prices and new technology getting deployed sooner.
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).