Global spending on broadband access equipment and CPE is expected to drop 7 per cent in 2020, dipping to $11.4 billion, before increasing 5 per cent in 2021 according to market research firm Dell’Oro Group. Their forecast from January 2020 anticipated a 5 per cent decline in total revenue in 2020.
Dell’Oro Group has, however, increased its five-year CAGR (2019-2024) from -2 per cent from its January forecast to -0.9 per cent. This improvement might seem counterintuitive, given the worldwide impact of the Covid-19 pandemic. However, the pandemic and its resulting orders to stay at home for work and education, have shown the world just how critical adequate broadband access is to the global economy. As a result, global initiatives to expand and improve broadband access are either underway or will be shortly.
Nearly all service providers have said that they have reached their planned capacity utilisation rates for the entire year in the first half of 2020. Thus, they will need to expand this capacity to maintain comfortable operating levels. However, operators will do so judiciously, as subscriber growth might be short-lived and the pressure to preserve to capital or to ensure capital is balanced in the midst of expanding RAN investments, becomes fundamentally more important than overall expansion.
PON Equipment Spending Expected to Remain Solid
Dell’Oro Group’s five-year CAGR for PON equipment has been increased from 0 per cent to just under 1 per cent. China, which has historically accounted for anywhere from 65-80 per cent of total PON spending, has peaked in terms of total ONT units consumed on an annual basis. The Chinese FTTH market has matured, with broadband penetration in the country reportedly nearing 80 per cent. Though subscriber growth is slowing, there is still a tremendous installed base of subscribers that will continue to require new ONTs. This is especially the case beginning this year when all three major operators begin purchasing 10 G units, based on either 10G EPON or the asymmetric XG-PON1 technologies. The 10 G upgrade cycle in China for ONTs will be extended over a longer period of time than the initial 1G EPON and 2.5 G GPON rollouts, as individual systems announce gigabit city initiatives.
Although China’s ONT volumes are coming down from the peak years of 2017 and 2018, additional growth is expected from the rest of the world – particularly North America and Western Europe. In North America, the FCC’s $20B RDOF (Rural Digital Opportunity Fund) programme will help transition a significant number of rural areas to fiber. In Western Europe, major operators including Orange, DT, BT OpenReach, and Proximus are all expanding their fibre rollouts and even moving quickly to XGS-PON for symmetric 10 G services.
Finally, in Asia, India, Indonesia, and Malaysia, along with a 10 G upgrade cycle in Japan and South Korea should also help sustain the market.
Cable Equipment Spending Expected to Rebound
The glut of DOCSIS channel capacity that helped push down cable equipment revenue in 2019 has actually been beneficial to operators this year as they have been able to address significant increases in both upstream and downstream traffic during the pandemic with minimal increases in spending. In most cases, cable operators have used the software tools available as part of DOCSIS 3.1 to ensure adequate bandwidth for all subscribers. In other cases, operators have purchased additional DOCSIS licenses as part of accelerated node split programmes to address systems with the greatest need.
But all those investments in existing CCAP platforms have resulted in postponements of strategic DAA projects, for the time being. Dell’Oro Group has no doubt these projects will resume, but it won’t likely be until the latter part of this year or 2021 before they do.
Regardless, after two years of under-investing in infrastructure, the overall cable infrastructure market will see a steady increase in revenue throughout our forecast period, as of mid- and high-split projects in North America and Western Europe, designed to increase upstream capacity, are accelerated.