NG-PON2: The Case for 5G Trumps Lackluster Equipment Volumes
Chinese mobile operators are unlikely to create the volume necessary to decrease NG-PON2 prices, but could 5G generate enough shipments to hit a price point more in line with operators' budgets?
Perhaps. However, perhaps it doesn't matter if service providers value NG-PON2's benefits above the cost of entry.
"NG-PON2 will never have the volumes that other types of PON have in China," Julie Kunstler, principal consultant for broadband access at Informa sister company Ovum told Broadband World News. "Typically China has consumed 80% of the worldwide PON market, in terms of equipment units. Without them behind a certain standard, you're not going to get the volume. If you don't get the volume, it's very hard to get the opex down."
Chinese Carrier Plans Could Sway Worldwide PON Pricing and China's Telcos Spark PON Revenue Rebound.)
One reason these and other analysts are bullish on Chinese operators' disinterest in extensive NG-PON2 adoption lies in sub-components OEMs' inactivity. Given NG-PON2 transceivers' many parts, vendors of lasers and optics should be busy working on next-generation PON devices if they predicted huge upticks in demand from China's operators, Kunstler said.
"The major sub-components companies are not involved in NG-PON2. A lot of lasers and optics come from Mitsubishi. And from Sumitomo," she added. "They have not been involved in NGPON2 lasers and that's because they don't see the volumes in the millions upon millions the way they've seen it for GPON and EPON and certainly they expect for XGS-PON."
In March, ADTRAN acquired Sumitomo Electric Industries' EPON technologies and resources and inked a distribution deal that opens up the Asian market to ADTRAN's vast family of access solutions. ADTRAN and Sumitomo are working together on R&D, product roadmaps and feature prioritization, Jay Wilson, senior vice president of Technology and Strategy at ADTRAN told BBWN at the time. ADTRAN stressed how different the two continents are, noting customers in both regions have their own roadmaps and product strategies. (See ADTRAN Buys Cable Market Share With Sumitomo EPON Acquisition.)
Where's the growth? As invaluable as China is and as important as Chinese operators are in helping shape product and standards direction, a growing number of operators are adopting or investigating NG-PON2. Not all their names start with V, either.
Sure, Verizon is the service provider most commonly associated with NG-PON2. It was the first major operator to explore this optical network -- and share a lot of its work, via B2B media, events and workshops, as well as closed-door sessions with network engineers. Verizon, in partnership with ADTRAN and Calix, continues to push hard to achieve specific goals within specific timeframes, Vincent O'Byrne, Verizon's director of technology, has said.
Verizon -- and a growing roster of publicly identified operators, including Altice and Portugal Telecom -- chose NG-PON2 (aka TWDM PON) is because it uses tunable optics. While making NG-PON2 more expensive, its multi-wavelength approach allows operators to assign different subscriber types to different wavelengths -- the path forward for Verizon, as it converges its residential, business and mobile networks onto a universal network, O'Byrne said.
Also, operators can use multiple wavelengths to support wholesaling of access networks, Kunstler said. For examples, they can assign one wavelength to a virtual network operator or another service provider. Bundling multiple wavelengths also enables operators to expand bandwidth to support MBH and fronthaul, something Verizon is doing, she said.
In fact, MKM Partners' Michael Genovese, who has a "buy" recommendation for ADTRAN stock, is so bullish on NG-PON2's role in 5G backhaul and fronthaul that he believes ADTRAN is positioned to profit from the next-gen mobile network infrastructure, according to a Light Reading article today. In March, Genovese said pretty much the same about Calix.
"Companies, which will play instrumental roles in 5G backhaul and fronthaul, are under-appreciated," he said.
Noted Mark Lutkowitz, principal at independent consulting and market research firm fibeReality:
We fully anticipate that Verizon will make the necessary huge investments off-budget to ensure that the optics food chain from the lowest level components, such as chips and transceivers, to the full systems are in place in order to pull off the most ambitious project in the history of telecommunications. Nevertheless, there is at least a small minority of well-paid, high-level investors on the Street with big staffs, who still do not get that Verizon is much different from other incumbent ISPs.
Without Chinese telcos' purchases the path to volume discounts will take longer, the pricing perhaps a little higher than initially desired, but service providers eager to reap the benefits of NG-PON2 will figure out how to cut costs enough to make NG-PON2 affordable enough to deliver the invaluable benefits of a universal network, once something unimaginable and now a matter of budget, tests and trials.
— Alison Diana, Editor, Broadband World News. Follow us on Twitter or @alisoncdiana.
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