With the acquisitions of Alcatel-Lucent and Gainspeed, Nokia has, arguably, the most complete portfolio of fixed-access technologies in the industry.
Nokia has a range of fiber, copper, coaxial cable (via vCCAP) and fixed-wireless solutions, to support any fixed access deployment. However, the company, as with the rest of the industry, is entering a period of slowing growth, which has prompted a strategy shift and portfolio reassessment.
Nokia’s Fixed Networks business is focused on expanding its addressable market as its traditional market slows, pushing the company to diversify into the cable, home customer premises equipment and enterprise markets.
Though Nokia’s R&D machine (Bell Labs) continues to churn out new innovations such as XG-FAST, the company faces customers that are increasingly looking at the economic feasibility of making infrastructure upgrades, which will make it challenging for Nokia to continue growing the business.
Nokia Event
Nokia hosted a select group of analysts at its Fixed Networks-centric event, where the company provided a market overview, strategy and portfolio update and showcased Australia’s National Broadband Network (nbn) program in conjunction with the nbn team.
Day 1 included a range of presentations by key executives from Nokia’s Fixed Networks line of business, including unit president Federico Guillen, who provided assessments on the state of the fixed market as well as an update on Nokia’s strategy and portfolio. The day closed with a feature presentation by Jeff White, co-founder of Gainspeed and now head of Business Development and Strategy for Cable at Nokia, about Gainspeed.
Day 2 was held at the nbn headquarters in Sydney. There, analysts and members of the press were hosted at the nbn Discovery Centre to hear from nbn executives about the nbn program and how it is progressing. Day 3 included a field trip to Redland Bay in the suburbs of Brisbane, where Nokia teamed up with the nbn to show different technologies the nbn is utilizing to bring faster broadband access to all premises in Australia.
During the trip, different configurations of FTTx technologies were showcased along with the economic rationale as to which configuration was selected for different types of environments, such as rural versus suburban.
Impact and opportunities
Fixed wireless: A reality check
The general consensus among Nokia executives is that fixed wireless will serve a purpose in the broadband access market, but it will not radically disrupt the traditional fixed-networks business. Rather, fixed wireless will be relegated to just another tool in the toolbox to deliver broadband access, to be leveraged if the use case warrants.
There are several key reasons why fixed wireless will not trump traditional fixed access technologies. Some of those key reasons are as follows: wireless spectrum is costly to acquire, radios must be actively powered whereas fiber is a passive system, fiber must be rolled out to the antenna to achieve high bandwidth, and propagation issues limit range and quality of service. Taking these challenges together, the cost of delivering fixed-wireless service will usually exceed that of fiber, especially from an Opex perspective.
With all this said, fixed wireless does provide a time-to-market advantage for nimble operators and the cost benefit is more favorable compared to using traditional fixed technologies in certain use cases.
Nothing beats all-fiber
Despite innovations in copper (G.fast), coax (DOCSIS 3.1), fixed wireless (5G) and satellite (Ka Band), fiber still remains the best method to provide fixed access from a cost per bit, speed and future-proof standpoint. The problem is that legacy networks are a sunk cost that operators prefer to extend the life of instead of spending significant capex to build FTTP networks.
It is for this reason Nokia continues to advise its customers that fiber to the most economical point is best practice and the vendor stands ready to support any technology configuration operators opt to pursue.
Copper still has legs
A key takeaway from the event is that copper still has substantial runway as a viable conduit to deliver broadband. Substantial copper infrastructure is already in the field worldwide, particularly in developed countries, from which operators are continually looking to enhance to more cost-effectively provide faster broadband service without moving straight to FTTP.
Vectoring, G.fast and XG-FAST will keep copper alive for some time, but to attain the speeds over copper that these technologies promise, fiber needs to be deployed closer and closer to the premises. The key reason most operators will keep copper around rather than deploy FTTP is that most residential and commercial buildings, particularly in the developed world, are already wired with copper. This last-mile problem of having to run fiber throughout existing buildings is a cost and headache operators prefer not to tackle.
Gainspeed: Disrupting the status quo in cable
Gainspeed’s vCCAP solution promises to upend the status quo in the cable industry. In a market dominated by Cisco and Arris (which combined control over 90 percent of the market for cable access technologies), Nokia is entering the market without a need to support legacy cable technologies and can focus on revolutionizing how cable access networks are architected. Gainspeed’s vCCAP solution addresses a key pain point for cable operators, which is how to reduce the real-estate burden of continually having to add capacity to the network. Employing a virtualized solution will help cable operators not only reduce Capex and Opex over time but also become more agile in their service delivery.
Having the backing of Nokia will enable Gainspeed to stay nimble and scale up, taking its technology worldwide. Already Gainspeed is in active trials with five of the largest cable operators in the world, with commercial deployments slated to begin in 4Q16.
nbn: A test case for government involvement in telecom
The nbn is an ambitious and bold program driven by the government of Australia to bring more and faster internet access across the country, but the initiative has been fraught with political tension. Still, the project is moving forward, with over 3 million premises now covered. At an estimated cost of AUD $49 billion or $37 billion), or over AUD $4,000 or over $3,000) per premises, the nbn epitomizes the substantial cost and resources required to deploy advanced broadband networks and highlights the broad set of challenges associated with building out a next-generation broadband network.
Since its inception in 2009, the nbn has shifted its strategy from building FTTP networks to every premises to employing a mix of technologies, which includes deploying fiber to the most economical point, to more cost effectively and efficiently bring more and faster internet access across the country. This strategy shift encompasses five technology categories: FTTP, copper, coax, fixed wireless and satellite.
The entity is mandated by the government to provide a minimum of 25Mbps to each premises (estimated to be 11.9 million sites) by 2020, which is no easy feat in a country where premises are sprawled across great distances, particularly in the western part of the country (Australia is the sixth-largest country by land area, but only has a population of 24 million people). The challenges faced by the nbn in deploying FTTP and pivoting to a multitechnology approach underscore the challenges faced by the telecom industry, namely the economic consideration.
Conclusion
Though fixed technology innovations continue in earnest, the real questions that need to be asked are how much bandwidth do end users actually use or need, and would they be willing to pay much more for much faster speeds. Though Nokia’s Fixed Networks team believes human impatience is now the killer app in broadband, the reality is that consumers and businesses will only be willing to pay a certain amount for internet access, and that “good enough” has been and will remain a critical consideration end users employ when making broadband service selections.
Currently, 100Mbps is ample broadband to satisfy most consumption patterns by end users, with many more end users surviving on much lower speeds. With tech road maps approaching 10Gbps, the key question is at which point operators will invest in these faster pipes if their core constituency does not have need for and does not want to pay more for that much bandwidth.
The threat of good enough bandwidth could limit how much Nokia is able to continue growing its Fixed Networks business. Most operators will likely abstain from investing in massive fixed upgrades until the cost becomes economically feasible. That inflection point could be years away. In the meantime, if the demand curve for more bandwidth scales faster due to uptake of virtual and augmented reality, Internet of Things, 4K and 8K video, and cloud, operators might be able to justify the investment toward all-fiber architectures.
Chris Antlitz, senior analyst at TBR
