2019 is the year NGPON2 becomes almost real.
NGPON2, with its 10G symmetrical rates on multiple wavelengths and wavelength mobility, is arguably the next big thing in access.
Operators have identified use cases these capabilities enable and have made it a key part of their technology roadmaps. Like any sophisticated evolutionary technology, NGPON2 took time to mature. Since it's "the next big thing" in broadband access, vendors, operators and trade media use it as fodder for the industry hype machine. Proponents have claimed it will be "real in just one more year" for each of the past three years. However, there is "actual real" and there is "marketing real." Except to those looking to score me-first points, actual real is far more relevant.
The meaning of "real"
My criteria for getting "real" in telecom systems are:
- Stable, implementable standards: The industry has not just agreed on detailed specifications of the architecture, interfaces, protocols, management models and conformance test suites but also implemented and updated them based on lessons learned in product development and testing.
- Fully functioning supply chain: Fully qualified components, modules and systems are in volume manufacturing, with acceptable yields, in general availability (GA) status, and shipping in mass-quantity, from multiple vendors.
- Fully tested: Commercially available components, modules and systems are lab tested and work to spec. Plugfests between multiple vendors demonstrate interoperability. Tier-1 operators have completed lab testing, field trials and market trials.
- Critical mass for volume: The technology meets a high-priority need and enough operators adopt it that vendors see a path to profitability.
- Roadmap to cost reductions: Hardware cost declines at double-digit compound annual growth rate (CAGR) with sales volume. Since vendors and large operators aggressively negotiate prices as part of the sales/procurement process, unit prices are only loosely related to the vendor's manufacturing cost, with gross margin as a dependent variable. Vendors must bet they can predictably reduce material and labor costs to achieve target margins with competitive pricing. Pressure on material cost flows from system to module to component vendors. Operators, in turn, count on price compression to accelerate break-even on new equipment. This dynamic means each player in the food chain has a clear roadmap to reducing their costs that support their respective business cases.
- Operationalized: Lifecycle operations are business as usual for operations teams and technology teams are no longer involved in day-to-day issues. This milestone requires a lengthy punch-list of deliverables, such as documentation, operating procedures, work flows, training, database extensions and tools. The most significant item is integration of new equipment into the provider's operations and business support systems (OSS/BSS).
- Mass pre-deployment: Operators have installed NGPON2-capable OLT chassis and wavelength co-existence filters across a substantial part of their footprints. This enables business as usual installations of NGPON2 OLT line cards.
- Commercial service: Providers actively sell, install and provision new and existing services using NGPON2 to significant numbers of customers. Operators bill customers, and meet any applicable service level agreements (SLAs).
State of play
I cannot overemphasize this point: Verizon is the driving force behind NGPON2. Verizon's influence and purchasing power motivate vendors to invest in developing products that might otherwise not interest them. Verizon Labs drove the standards, enforced interoperability between its OLT and ONT vendors, and tested its vendors' equipment against its own strict requirements. NGPON2 is fully operationalized in Verizon's network. NGPON2 is a cornerstone of its new Intelligent Edge Network (iEN) access architecture, which converges 5G small cell transport, residential access and business services onto common network infrastructure. iEN deployments started in late 2018, with 20 US cities targeted for the end of 2019. Current offerings on NGPON2 are business services in a few cities, with 5G transport in field trials. In 2020, Verizon expects to start deploying NGPON2 into consumer applications, ultimately upgrading customers (including me!) presently served with BPON.
Leading the Charge to NGPON2
Now Verizon and CityFibre are deploying NGPON2, some other tier ones are widely anticipated to follow suit if their business models, NGPON2-product pricing and related infrastructure plans add up. Others though, like all China's major operators, say they will avoid this next-gen PON. (Photo Source: Elien Smid from Pixabay)
We can expect other operators to follow Verizon’s leadership.
One other large operator, UK wholesaler CityFibre, plans to roll out NGPON2 by the end of 2019. It is well along in construction, operationalization and commercialization, expecting to roll out 37 cities with GPON for wholesale residential service and NGPON2 for enterprise and small cells. Other Tier-1 operators -- including Altice, SK Telecom, CenturyLink and NTT -- are in various stages of pre-deployment activity, but will not will not deploy this year. Several are deploying XGSPON while waiting for NG-PON2 equipment prices to come down. A few small, cutting edge operators also will have NGPON2 in their networks by year-end. Several other Tier-1 operators -- notably China’s Big-3 -- say they have no interest in NG-PON2.
The base standards, approved by the International Telecommunications Union (ITU) in 2014 and 2015, have had a couple of rounds of addenda and, recently, a second edition. Most changes simplified or relaxed specifications to allow lower-cost implementations. At this point, further changes are unlikely, and future extensions must be backward-compatible. It’s also a sign of maturity that the standards community has moved on to the next generation of PONs.
Current OLT offerings by the major fiber access equipment vendors -- ADTRAN, Calix, Dasan-Zhone, Huawei, Nokia and ZTE -- accept line cards for all 10G PON standards (10GEPON, XG-PON1, XGS-PON and NGPON2). Volume sales of these platforms have created a large footprint that operators can fill with NGPON2 if and when the time is right. NGPON2 OLT optics are not a great challenge for the supply chain. At least two system vendors' NGPON2 line cards are GA; both Verizon and CityFibre have started deploying them.
As the standards community recognized at the outset, NGPON2's greatest challenge has been development and manufacturing of low-cost, standards-compliant, tunable ONT transceivers. Tunability while meeting the stringent optical specifications set in the NGPON2 physical layer standard is a high hurdle for module and component vendors. By year-end, at least three vendors claim they will be able to supply these parts in volume. This is the gating item to GA status for NGPON2 ONTs.
Early production tunable ONT transceivers are still expensive, reputedly selling for about $150 USD (compared with less than $7 for GPON) -- and cost much more to manufacture. While enterprise and small cell transport applications are less price sensitive than consumer markets, they do not drive nearly as much volume. Ordinary manufacturing cost reduction and yield improvement programs -- an organic part any product lifecycle -- have made progress, and will make more with production volume. However, cost to assemble the present generation of tunable ONT transceivers is intrinsically high.
To bring ONT manufacturing costs into a better range for mass-market deployment, the industry must develop a second generation of optical modules. These require cutting-edge technologies, expensive R&D projects, and high manufacturing set-up costs. At least two vendors have taken on in this risky challenge. Various estimates have the price of a NGPON2 ONT transceiver crossing below the $100 threshold between 2020 and 2023.
On the demand side, one of the world's largest and most influential Tier-1 operators is ramping up to scale, and a large, well-capitalized competitive provider will do so by the end of the year. Combined, they should drive orders for ONTs to total mid-tens of thousands of units. On the supply side, two component and module suppliers will produce thousands of units per month, ramping to tens of thousands. However, it would be no surprise if this ramp-up falls behind plan.
Despite this progress, I think NGPON2 will fall just short of the bar at the end of 2019. Low tens of thousands of units in a year do not equal particularly high volume, so costs will remain high and vendor revenue relatively low. Several operators in addition to Verizon and CityFibre have run field trials and are engaged in pre-deployment activities, but have yet to announce roll-out plans. More operators must to start deploying NGPON2 for the industry to reach tens of thousands of ONT units shipped monthly, yet some are waiting for pricing to come down -- the classic chicken-and-the-egg paradox. All but two of the announced equipment vendors and two module vendors still await their first NGPON2 sales. Finally, second generation ONT transceivers will sample toward the end of this year, but won't be anywhere near volume shipment and GA.
Based on my criteria, 2019 is a transition year for NGPON2. I expect it to become truly "real" in 2020, barring unexpected events.
— Dan Grossman is a technology-forward industry analyst and consultant, specializing in fixed broadband access technology and markets. He is Principal at NetAccess Futures, and a Contributing Analyst at Heavy Reading. NetAccess Futures offers research, analysis, strategy consulting and marketing collateral to broadband operators and equipment vendors.