We attended the Comcast Business analyst event in Philadelphia.  We find the Business Services part of Comcast is interesting, and so do customers, because it is growing rapidly.  It installs a “new Ethernet every four minutes,” and has “40-45K installs per month.”  The company shared with the audience that it is expanding the breadth of its services to grow its potential revenue it can get from each customer, and in many cases is either acquiring or developing this technology itself.  We see these development efforts as moving up the technology stack.
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To understand Comcast Business, you have to know that it has unique approaches to its different customer segments.  The organization addresses customers of different sizes, and it does not use the same terminology as some others do: SMB (<20 employees), Mid-market (20+ employees), Enterprise (Fortune 1000).  We think it is more common that small is considered 100 employees and smaller, which would include SMB and Comcast’s Mid-Market, and that mid would be 101 employees or greater.  Here are the Comcast Business market views:

More details about customer segments.  In addition to attacking three customer size groups with distinct approaches, it also serves two verticals (carriers and government) segments with different strategies and recently acquired Deep Blue (May 2019) that serves WiFi to venues and hospitality verticals.  Each served customer type uses different combinations of third-party developed technology and Comcast in-house developed technology.  The company has 4,000 people developing in-house technology.  As a mix of total systems sold to customers, today, Comcast Business uses a higher mix of in-house developed technology when serving its small and mid-market customers than it does when serving large enterprises.  The group that serves Enterprise Solutions serves large enterprises using mostly using third-party technology from vendors like Cisco, Fortinet, and HPE.
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On the other hand, the company serves smaller-sized customers using fully or partially in-house developed technology.  Comcast Business’s SVP Product Management, Bob Victor, summed up its approach to working with third-party vendors by saying, “We want to totally commoditize hardware.”  We assume he means this is a long-term goal because, during the event, the company told us of new hardware and software relationships announced with new vendors. 
For small and mid businesses, the company has developed several in-house technology systems that compete with vendor-supplied technology.  One such example is its WiFi Pro service, which combines internet connection and WiFi service.  In WiFi Pro, which was introduced a couple of years ago to small businesses and is available at up to four Access Points, the company sources WLAN access points from a non-branded access point.  Based on our discussions at this conference, we would not rule out that at least some of the in-house developed technology may be supplanted by vendor-supplied technology if there is a compelling reason.  However, on multiple occasions, we learned that the direction the Comcast Business is going is to develop in-house technologies and bring these directly to customers, first with smaller customers, and perhaps very long term to large enterprises.

Managed Services.  The company delivers both transport/network services and transport bundled with other services; there is a case to be made that Comcast Business’ bundled services could be called Managed Services.  However, even Comcast says there is some confusion about using the terminology “Managed Services,” because of customer expectations; some customers see it as a very high level of services, where customers do nothing, while others see it as Comcast Business is “working with” the customer to deliver the service.

Playing to Strengths.  On an overall basis, Bill Stemper, who runs Comcast Business, says the company’s strategy is to focus on serving the wireline needs of businesses in the US.  He says, “this is where we invest.  We expect to focus this way for decades.” 

Small Business details.  Stemper said that the company would bring “mobile to small business.”  It will bring mobile to this segment when “all the systems are squared away, and when sales reps are capable of selling this additional service without slowing down customer purchasing decisions on the existing suite of services.”  It is currently offering mobile in selected markets to learn more about selling this new service.  We expect mobile to small business to be offered sometime in 2020.

Growth Avenues in Mid-Market.  The company made it clear that it believes the mid-market is an enormous growth opportunity.  And, starting in 2020 and beyond, the company says, it is putting more investment into it to improve coverage, its focus, and its reach.  Today, the company has 800 reps targeting the in mid-market and plays to strengths in certain verticals such as government, education, and healthcare.  

Large Enterprise Opportunities.  Approaching the Fortune 1000, the company has its most meaningful exposure in finance, healthcare, restaurants, retail, hospitality verticals.  The company is finding customers who, according to Comcast, are replacing MPLS service with broadband and getting a 50% cost reduction and an order of magnitude speed improvement.  Comcast introduced a leader from a large finance company to the audience, and though we cannot name the customer, the company shared that it had moved initially to use Comcast transport, and is currently doing a proof of concept for voice and Comcast’s ActiveCore SD-WAN service.  Comcast reiterated its plans to use Cisco, Fortinet, and HPE at large enterprise (Fortune 1000), though implied it is entering another phase that it internally calls Enterprise 2.0 for its Enterprise Solutions group.  In Enterprise 2.0, the company hinted it might develop more in-house technology and further implied its ActiveCore (SD-WAN is one service it offers in ActiveCore) might find a home in some large enterprises.  Comcast’s customer endorsed the idea of using white box universal CPE loaded with “best of breed services” instead of buying vendor-supplied routers so it will not have to replace 15,000 routers when it comes to upgrading time or transitioning. 

Carrier opportunity.  Bill Stemper, who leads Comcast Business explained that, since 2009, it has served carrier Ethernet to the mobile industry and it will pursue 5G opportunistically.  Elaborating further, Stemper said it would decide whether we can get leverage on new builds to serve 5G simultaneously with other customer types.  So, it sounds like building new plant to serve only 5G backhaul is not in the cards. 

Deep Blue WLAN.  In May 2019, the company acquired a Troy, NY-based WiFi services company.  We understand from the presentations that Deep Blue was growing at least 30%/year for several years before the acquisition and that its revenues may have hit around $40M.  The company designs/installs third-party WLAN and associated systems, then operates the networks for a recurring fee mainly in verticals such hospitality and large venues.  The wholly-owned subsidiary has developed advanced software and services capabilities that could easily be leveraged across the other parts of Comcast Business, but from what we learned, there has been no cross-fertilization as of yet.

Products.  The company is expanding the number of services it can deliver to customers, thereby increasing its possible revenues to each customer.  It began offering SD-WAN services three years ago.  It plans to expand beyond SD-WAN.  In its mid-market customer focus, the company will soon offer security (Advanced Firewall and UTM, for instance), routing, and a bit later on, voice gateway (SBC) and WiFi.  For premises-based VNFs, these are run on a universal CPE (uCPE) that today costs about $1,000 to Comcast and it will be launching a $500 uCPE with similar capabilities soon.  The company is updating the cable plant that serves business users, where 4 M businesses are passed, towards a “mid split” architecture that allows for greater upstream speeds so that initially 50 Mbps up and down will be possible, and then over time 100/100, 300/300 and longer-term 1 Gbps up and down.  The company also uses EPON for more demanding needs and places like multiple dwelling units; it won’t be moving to XG PON (10 Gbps) for the foreseeable future.

The company has a multi-vendor approach with these VNFs.  This week, it announced Fortinet UTM/security.  We expect the company could announce other security, routing and perhaps longer-term, other SD-WAN vendor options.  We think the company will stick with a single WiFi cloud controller for at least the next year or so, but indicated it could introduce at least one more vendor’s technology afterward.  The $500 uCPE device is capable of 1 Gbps SD-WAN throughput, as well as advanced firewall at 1 Gbps and has UTM at 600 Mbps. These are impressive throughput numbers, we think, especially because similar throughput capabilities are available on proprietary boxes from vendors that cost much more.

Additionally, the product called CBR2, a new version of its Comcast business router, will be coming soon.  Both the original CBR and CBR2 have WLAN as a built-in feature.  But, neither the CBR nor the CBR2 has sufficient WLAN coverage capabilities to satisfy a mid-sized business, so Comcast thinks its soon-to-be-launched WLAN plans to mid-sized businesses allow it to serve more customers.  One such new target from these added WLAN capabilities will be the E-Rate program, which is a partial funding mechanism for K-12 schools overseen by the US FCC, is one such target.


Comcast emphasized that it has spent significant time and resources developing software capabilities that allow it to orchestrate VNFs, to remotely administer customer networks, and to allow multiple VNFs from different vendors, or to allow VNFs that are developedin-house by its customers.
 

On August 8, 2019, publicly-traded Cambium announced that it had completed the acquisition of the Xirrus products and cloud services from privately-held Riverbed Technology, Inc.  Xirrus has been a vendor in the Enterprise WLAN market for a while now and has been associated with its high-performance enterprise-class WLAN products as well as its cloud-managed services.  In our research, we find Xirrus has done well in the large venues, the education, government, and retail markets.

We interviewed the team at Cambium today and learned that the company is committed to using channels as a distribution strategy for the combined portfolio.  Additionally, the team told us it will be supporting both Cambium WLAN customers as well as Xirrus customers, and that, over time, the products and services will be converged.  We think it makes sense to rationalize the products, which will allow future customers to take advantage of developments made at each of the organizations.  The team explained that Cambium will be focusing primarily on medium and small-sized customers and that it will not be pursuing large enterprises associated with the Fortune 1000, instance.

The timing of Cambium’s acquisition makes sense on several counts.  First, it just completed its Initial Public Offering and is more well-capitalized than when it was a privately-held company. Second, during its IPO, Cambium identified that it expects its exposure to the enterprise market is key to its growth, so getting more exposure here will increase it further.  Third, several other companies have acquired enterprise WLAN vendors, and Cambium is part of this greater trend.  For instance, Arista Networks completed its acquisition of Mojo Networks in late 2018 and Juniper Networks closed its acquisition of Mist Systems at the end of 1Q19.
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Juniper Networks announced plans to acquire Mist Systems for approximately $405M in cash.  We think this deal makes sense for Juniper, who can now sell a key technology - WLAN - into its customer base of large and medium enterprises.  Valuation of the deal probably fell a bit short of the expectations of some, but the vendor landscape has already seen significant consolidation between Ethernet Switch and Enterprise-class WLAN vendors, with now just a few potential buyers and sellers.

The companies just had a call to discuss the announcement and share the following messages:

• Slightly dilutive to non gaap F19, accretive F20. 
• Verticals discussed on the call: h/c, retail, mfg and distribution segments
• Key wins discussed:  Large healthcare organization, Verizon Mgd SP, Walt Disney Orlando, Dartmouth College
• Business model will remain as current (60% hardware; 40% services at time of acquisition)
• No revenue numbers share
• $405M in cash; closes F2Q for JNPR
• Avoided saying who Mist competes with, other than to say Mist sees “the usual suspects”
• Mist should continue to grow because its channels will expand when Juniper acquires it
• Juniper will expand the “AI for IT” technology from Mist across the Juniper portfolio of campus switch, security and SD-WAN
• Will imminently begin 802.11ax pilots
• Last time new technology was developed for WLAN industry was over a decade ago; Mist is microservices / container based; all new
• Juniper has seen its campus switch business grow in recent times
• Will share more numbers in the future

Fast-growing Ethernet Switch vendor Arista Networks announced plans to acquire Mojo Networks, an Enterprise-class WLAN vendor today.  The deal is expected to close in C3Q18.  This deal douses hopes that Arista may buy other WLAN vendors, in our view.  Mojo Networks is unique in the WLAN industry: (a) it has a different business model from competitors, and (b) as of Aug 2018, it manages more Enterprise-class Access Points using Artificial Intelligence than other vendors.  Arista says that it plans to use Mojo AI in its Cognitive Cloud Networking for Campus initiative.  

Mojo Networks has taken revenue for cloud-managed services and has not taken revenue from the sale of Access Points.  The Access Points are sold by distributors who make a small margin and drop ship them to Mojo Networks customers.  The Mojo Networks revenue from cloud-managed services is significant when compared to other vendors in the Enterprise-class WLAN market.  Additionally, because Mojo's Access Point selling partners charge only a small premium for the hardware, Mojo customers benefit with a lower total cost for the Access Points, than, say, Cisco or HPE Aruba Access Points.

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Earlier this year, Aerohive issued a press release about its A3 software system.  A3 is what we categorize as an Enhanced Network Access Control (ENAC) system; we calculate market share statistics on this market in our Security report series.  The company is now getting ready to bring the product to market and is blitzing the media, so to speak.  We were briefed and learned more about the product. To summarize, it checks the boxes necessary for us to include it in our ENAC report and we like that it has a common user interface to allow customers to perform device profiling, authentication / registration, compliance / remediation, device management, billing integration and network access control.

Our outlook for ENAC is positive and, today, three main vendors consist of the majority of share: Cisco (with ICE), Aruba (with Clearpass) and ForeScout.  We learned that company has more aggressive pricing than these market leaders.  If you look at why a product like A3 is important to Aerohive, recall that back when Aruba introduced Clearpass back in 2012/2013, it used it as a selling tool to get into its competitors' accounts (it also got high margin sales from Clearpass, too).  Aerohive's A3 is positioned similarly - it operates with its competitors' equipment (including those from Cisco, Ruckus, Extreme and others).  So, Aerohive has developed another means of selling to customers, by offering A3 to customers using non-Aerohive equipment.  

Tomorrow, 650 Group's Alan Weckel will be a featured speaker on the NBASE-T hosted webinar, entitled "Growth of NBASE-T, Market Trends and Forecast."  In this webinar, we will review Ethernet trends that related not only to Campus Switch ports, but also WLAN, computing and other devices.  The NBASE-T ecosystem continues to expand, including most recently with broadband modem devices.  We are excited about this market and hope you will attend.  

There were 3,100 attendees at the Atmosphere show in Las Vegas, most of which appeared in attendance at the keynote.  Artificial Intelligence and Cloud were the main topics.  Specifically new for the show:  cloud-managed SD-WAN, NetInsight, ArubaEdge Partner program, Cape Networks acquisition.  Cloud-managed SD-WAN – June/July ’18 availability (dynamic path selection, VPC direct to AWS or Azure).  NetInsight is a data-collecting and cloud-analysis AI platform that finds anomalies and allows improvements to wireless LAN operation.  Cape Networks acquisition to allow user-experience simulation for cloud-services connection quality measurement. 

Keerti Melkote, President of Aruba, discussed financials: FY17 was up 15% Y/Y, reaching $2.5B, split 49% to wired and 51% to wireless.  (650 note: for C17, we measure WLAN + non Data Center Switch + Enhanced NAC product revenues at $2,260M).

A key message of the presentation was that as enterprises embrace cloud-services applications like dropbox, Salesforce and Office 365, this means enterprises become more focused on edge access than ever.  Citing statistics like that 80% of advanced attacks  use valid credentials, 8 weeks average gestation period of typical attacks, and 84% of those who’ve deployed IoT have been breached, the company said that securing the edge is more important than ever and discussed the Aruba 360 Secure Fabric. 

​Aruba had customers on stage to endorse various products, including Accenture, Ohio State University, and CBRE.  Other customers mentioned on slides included Lufthansa Technik, Purdue University, Rajasthan, Disney, Time Warner, University of Minnesota, University of New Hampshire, University at Buffalo, Northwestern University, University of Washington, Bucks, Virginia Tech, University of Iowa, Illinois, and Lenovo.  

Back on 5/9/17, we discussed how Alcatel-Lucent Enterprise (ALE) had announced its in-house developed enterprise-class WLAN products.  A couple days ago (on 9/20/17), ALE announced further developments to its WLAN product line and now has a broadening product line of Stellar WLAN products.  Initially, ALE announced a lower end Stellar product.  Now, with this 9/20/17 announcement, in Stellar products have moved up-market and include the AP1220, AP1230 and AP1251.  ALE continues to offer the HPE Aruba products to customers, but it is clear, in looking at the amount of space on the WLAN products page at ALE's website, that it is increasingly promoting its in-house Stellar brand - and why not?

It is encouraging to see a new set of products enter the enterprise-class WLAN market with ALE's announcement.  We will be tracking ALE's progress in the coming quarters, but initial results of the Stellar product line have shown it is growing strongly as a proportion of total WLAN revenues.

Last week we attended Huawei Connect conference in Shanghai which is turning into a massive event for Huawei with significant customer attendance.  It was tons of fun to talk to customers, catch up with friends, and the different parts of Huawei while on the show floor.  While there are ton of highlights from the show, here are a few highlights that peaked our interest.

• Huawei became the first vendor to offer an 802.11ax Access Point (AP).  Sampling now and shipping in early 2018.  We ran into quite a few engineers on the show floor that were very proud of being the first vendor to announce a product in this space and learned quite a bit beyond the spec sheet.
• Huawei customers are broad based and growing significantly.  We ran into many large customers, especially from western Europe, that are looking to partner with Huawei beyond just point product purchases.  In some cases, this was campus switching and WLAN, in others it was DC switching and campus.  Huawei is doing a very good job of providing solutions and not just point products and customers are embracing it.
• 1% of customer spend.  Huawei consistently highlighted that it was only targeting 1% of customer spend, leaving the other 99% to its partners.  We found this interesting that as Huawei grows they are trying to assure their partner community that they will not go after the entire software and solution stack and instead focus on the pipes and compute.  In areas of IoT they would integrate deeply with those partners, but the goal was to provide a complete selection directly to the customer.

There were a ton of other highlights, we are happy to discuss, if anything sparks your interest, let us know.

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).