Dell’Oro on telecom market trends for 2020

Dell'Oro Group is a leading independent market analysis and research firm that covers telecommunications, enterprise networks, and data center IT infrastructure. Dell’Oro’s main focus started out as networking and telecommunications, before expanding into servers and storage systems, including providing detailed analyses on data center cloud providers.  

Overall telecom trends

Communicate: What can we expect to see in 2020’s telecom market?

Dell'Oro: With the overall telecom equipment market growing by around 2 percent in 2019, the second consecutive year of healthy growth, we can expect multiple technology shifts to unfold across telecom networks in 2020. Now’s the time to review some of the more important near-term market and technology drivers. 

We’re optimistic about how the overall telecom equipment and services market will develop in 2020. Another year of growth in the wireless and wireline markets will be propelled by ongoing shifts from 4G to 5G, 802.11ac to 802.11ax, 100 Gbps to 200 Gbps and 400 Gbps wavelengths, and 100 GE to 400 GE. Technology splits between wireless and wireline are expected to remain fairly stable, with wireless investments expected to outperform wireline both sequentially and in absolute  terms. We expect wireless equipment and service CAPEX to account for 55 percent to 60 percent of 2020 revenues. 

While upside and downside risks to the medium-term outlook are broadly balanced, short-term risks lean to the downside, reflecting supply chain and macro-economic uncertainties due to  COVID-19. 

Trends in wireless

Communicate: What will happen in the wireless market in 2020?

Dell'Oro: Thanks to large-scale deployment in China, Korea, and the US, 5G NR continued to accelerate at a rapid pace throughout 2019, much faster than expected four or five years ago, and even as recently as a few months ago. This will continue in 2020.

LTE will remain an important technology for many years to come. It will support emerging markets, manage mobile data traffic growth, and ensure an optimal LTE+5G NR experience for outdoor urban, indoor, and rural settings. Weak revenue growth for operators will limit total CAPEX, and service providers are expected to continue to shift CAPEX from 4G to 5G. The upside from 5G NR will be more than enough to offset declining LTE investments, propelling the overall RAN (2G-5G) market for the third consecutive year of growth.

The Massive MIMO business case has changed significantly over the past two to three years, with the technology now regarded as a basic building block of mid-band NR deployment. We recently revised the 2020 Massive MIMO outlook upward, driven by surging shipments and improved market sentiment for 2020. The overall 5G NR transceiver installed base – Massive MIMO plus Non-Massive MIMO for sub 6 GHz and Millimeter (mmW) macros and small cells – is projected to exceed 100 million by 2020.

Suppliers and operators are accelerating their dynamic spectrum sharing (DSS) roadmaps, although some operators have voiced that the transition will probably take longer than expected. However, we remain optimistic that DSS will be pivotal for upgrading low-band LTE sites to NR in the second half of 2020. DSS timing for operators will depend on their overall 5G strategies, as well as device availability. Is DSS a 5G logo, an improved experience, or a stepping stone towards something bigger?

The interest in non-public networks (NPN) is also increasing, and we remain optimistic of small IoT growth in the area of Industrial IoT and Industry 4.0 in 2020 spurred by (1) Suppliers reporting healthy vertical traction; (2) More countries exploring how to allocate spectrum for verticals; (3) The expanding ecosystem of industrial devices; (4) Emerging use cases that require cellular QoS.

The path to 5G became clearer during the second quarter of 2019 as the options narrowed to two: Option 3: 5G NSA, which utilizes EPC, and Option 2: 5G SA, which utilizes the 5G core. In 2020, we will see the first 5G Standalone (5G SA) networks emerge from service providers in China, Korea, the Middle East, and the US. Even with 5G core investments in 2020, NSA using EPC is dominating the deployment mix, so the 5G core/RAN ratio will be significantly smaller than the typical LTE core/RAN ratio over the near-term.

Communicate: What are the main drivers of the shift from 4G to 5G?

Dell'Oro: The main growth drivers haven’t changed and include: (1) The rapid shift towards 5G NR for mobile broadband (MBB) applications, which in turn shortens the deployment phase. (2) New CAPEX in IoT, Fixed Wireless Access (FWA), In-building, and Public Safety for both private and public deployment scenarios. (3) The shift from passive to advanced antenna systems, which will shift CAPEX from the antenna to the RAN market. 

While the shift from 4G to 5G is much faster than anyone expected, the migration from EPC to 5G core EPC is more gradual. This means the 5G core/RAN ratio will underperform compared with the typical LTE core/RAN ratio.

Communicate: What major 5G use cases do you expect to emerge?

Dell'Oro: The long-term 5G vision will take time to materialize, but we’re extremely optimistic about near-term opportunities. Our forecast that 5G NR will be deployed at a faster pace than LTE and surpass LTE in 2021 hinges on certain assumptions: (1) Compelling business cases will arise for MBB applications via 5G NR mid-band. (2) 5G midband spectrum will be available sooner than LTE spectrum was during 3G to 4G transition. (3) New dynamic spectrum-sharing (DSS) technologies will simplify and accelerate migration from LTE to 5G NR. (4) 5G will initially be just another G. Long-term 5G will be more than another G, but it will take time to reach the full potential of 5G. (5) Complete 5G systems to address new use cases will be deployed gradually, at a slower pace than sub 6 GHz MBB 5G NR.

The overarching long-term vision for potential 5G use cases hasn’t changed much since the 3GPP Standards RAN Workshop in 2015. The four main use cases are: (1) Enhanced mobile broadband (eMBB), with extremely high data rates and low-latency communication in some areas and reliable broadband access over large coverage areas; (2) Massive Machine Type Communications (mMTC) that supports up to 1 million devices per square kilometer; (3) Ultra-reliable low-latency communications (URLLC) in two sub-segments that reflect the tradeoffs and different opportunities between extreme latency and reliability; and (4) Fixed Wireless Access (FWA). 

Over the long term, 5G has the potential to be a game changer and go far beyond traditional eMBB use cases, paving the way for new applications and use cases that will alter the way humans and machines communicate and heavily impact the wireless-based economy. But clearly the industry has come to terms with the fact that it will take some time to realize 5G’s full potential.

Even as the 5G narrative and near-term technology drivers have evolved with 5G initially being just another G, the long-term vision that 5G will be more than just a faster and bigger pipe still holds. We’re more optimistic about the outlook today than we were in the middle of the 4G rollout, partly because there are so many opportunities independent of the shift from 4G to 5G.

Trends in wireline

Communicate: What can we expect from the wireline market in 2020?

Dell'Oro: The demand for WDM equipment continued to accelerate throughout 2019. Combined with more stable investment trends in PON and SP Core Routers, this was enough to offset the declining cable CAPEX we saw in the overall wireline equipment market – Optical and Microwave Transport (excluding mobile backhaul), Broadband Access, and SP Router & CE Switch – and deliver another stable year. 

We anticipate that a confluence of factors will characterize wireline technology trends in 2020.

Wavelength speeds: First, the business case for higher wavelength speeds will improve in 2020 when vendors, including Huawei, begin shipping 800-Gbps-capable line cards. These cards will use the latest optical components, including 90+ Gbaud and photonic integration, and the most powerful coherent DSPs with probabilistic constellation shaping that will bring wavelength performance to near Shannon’s limit.

The shift from 100 Gbps wavelengths to 200 Gbps and 400 Gbps will accelerate in 2020. The use of 200 Gbps wavelengths has already increased, resulting in a steady price-per-bit decline. With the availability of 800-Gbps-capable line cards, the market will deploy more 400 Gbps wavelengths this year. 

IPoDWDM: The adoption of IPoDWDM will increase. While it’s a decade old, IPoDWDM has never been widely deployed, partly because the target market was core routers deployed in long-haul networks. A better opportunity for IPoDWDM is in metro access applications such as data center interconnect. With the 400G ZR in a QSFP-DD form factor, we should see IPoDWDM more widely deployed in metro applications such as data center interconnect and distributed access architecture (DAA).

Wi-Fi 6: The migration from 802.11ac to 802.11ax will change how service providers think about home networking. In addition to speed, capacity, and range improvements, Wi-Fi 6 also can dramatically improve how service providers provision, manage, troubleshoot, and analyze home networking services. It provides options for remote, zero-touch provisioning of devices and services, and the automatic adjustment of Wi-Fi channels to ensure peak performance.

10G EPON: Cable operators are expected to launch their first 10 Gbps services in 2020, but these will not be tied to the DOCSIS 4.0 specification. Instead, they will rely on 10G EPON from remote OLTs housed in traditional optical nodes. While focused on Full Duplex DOCSIS to support the mass market delivery of 10 Gbps services to existing residential customers, one US operator is also sprinkling in 10G EPON in greenfield deployments, particularly in regions where it competes with fiber-based ISPs. Other cable operators are following a similar path. But instead of Full Duplex DOCSIS, they will rely on Extended Spectrum DOCSIS (ESD). In both cases, outside plant spectrum will increase to 1.8 GHz.

All leading router vendors will roll out a number of new IP router products that support high-density 400 GE interfaces. Commercial deployments will start to ramp in the second half of the year, and large-scale deployments that contribute meaningful growth will begin in 2021.

With the acceleration of 5G NR, service providers will upgrade IP mobile backhaul networks to support higher-capacity requirements, and upgrade their fiber networks from copper. Routers and switches that support 10 GE, 25 GE, 50 GE, and 100 GE interfaces are expected to be deployed at cell sites and aggregation points. These features will help underpin the shift towards seamless connectivity.

In short, 2020 should be an eventful year as operators continue to advance their wireless and wireline networks to cope with increasingly demanding end user needs while balancing investments to ensure relatively stable capital intensity ratios. 

Telecom Capex coverage detailing revenues and investments of over 50 carriers worldwide.