RESEARCH STRATEGY REPORT HARNESSING THE VALUE OF TWDM-PON RUPERT WOOD analysysmason.com
About this report This report examines the next-generation PON technology, TWDM- PON, and its commercial potential. The report also provides recommendations for operators that are considering how to maximise the monetisation of FTTP. It is based on several sources: Analysys Mason s internal research and forecasts on the scale of opportunity in various network services interviews of stakeholders from the vendor side. GEOGRAPHICAL COVERAGE Worldwide Focuses on highly developed economies, where GPON is already in place VENDOR COVERAGE Adtran Alcatel-Lucent Huawei Technologies ZTE KEY QUESTIONS ANSWERED IN THIS REPORT How much will TWDM-PON cost and what are the implementation barriers? How far should TWDM-PON influence the network strategy decisions that established players and new entrants are taking today? How much additional revenue (over GPON/EPON) could the implementation of TWDM-PON bring from: fixed broadband and backhaul, mobile backhaul and fronthaul, and enterprise services? What are the synergies between TWDM-PON and cloud-ran (C-RAN) or 5G? What are the financial risks for operators? What sort of operators will roll out TWDM-PON first and why? WHO NEEDS TO READ THIS REPORT Executives in operator CTO offices who responsible for strategic planning of networks, especially those that have rolled out FTTP or FTTB, or are in the process of doing so. Executives in wholesale divisions of major operators, because TWDM- PON represents a way to re-establish themselves as major players in the market for backhaul services. Vendors for an independent view of the potential of TWDM-PON. 2
CONTENTS EXECUTIVE SUMMARY TWDM-PON: MATURITY AND COSTS TWDM-PON: NEW SERVICE OPPORTUNITIES TWDM-PON: ECONOMIC BENEFITS APPENDIX ABOUT THE AUTHOR AND ANALYSYS MASON 3
Distance Distance Harnessing the value of TWDM-PON Executive summary TWDM-PON is not just about supplying the bandwidth needs of some distant point in the future it is an opportunity for operators to create a pivotal role in fostering the digital economy of the future. Figure 1: Convergence of fibre access and mobile Data centre FTTP for broadband is gaining ground, but its full revenue potential is not met by GPON alone, and payback times are typically over 10 years. TWDM-PON is an emerging technology/standard, the central benefit of which is that it can enable operators to provide ultrahigh-volume clear bandwidth at something closer to shared bandwidth costs by re-utilising the FTTP network to support enterprise and wireless. TWDM-PON should deliver faster payback on connectivity than GPON, although this will not be dramatic. However, this misses the strategic importance of the technology. TWDM-PON s maturity will coincide with a number of telecomsrelated trends: virtualisation, software-defined networking (SDN) and cloud delivery; 5G mobile; the Internet of Things and new B2B2C business models. Thus TWDM-PON will enable fibre operators to support and be in a crucial position to change the economics of, and thereby foster, many parts of the emerging digital economy. LTE VDSL LTE-A GPON Small cells FTTB/FTTdp and G.fast C-RAN 2015 2020s Virtualised COs, pooled BBUs 5G TWDM-PON Source: Analysys Mason 4
TWDM-PON media access control Splitter(s) Harnessing the value of TWDM-PON TWDM-PONs are about service flexibility more than capacity, and new opportunities outweigh the risk of service revenue cannibalisation Building out full optical distribution networks is slow and extremely capital-intensive, and building up subscribers can be a slow process. TWDM-PON promises more flexibility than GPON or EPON, enabling operators to provide more enterprise and wholesale services. The synergies between new fibre access and wireless and enterprise are too great to ignore, but will require a change of mindset among established operators. TWDM-PON boosts capacity (typically shared between up to 64 access lines) from 2.5/1.25Gbps to potentially 40/10Gbps. Broadband alone will require this enhanced level of capacity only in the very long term. Much more importantly, TWDM-PON will enable operators to offer, in addition to retail broadband, symmetrical and synchronous services based on discrete optical wavelengths to enterprises and/or datacentres, wireless operators and service providers. These offer new sources of revenue that could bring forward the pay-back period for the network. However, established operators will worry about cannibalising legacy Ethernet revenue. We believe operators should be bold and embrace the opportunities, becoming part of an ecosystem that fosters rather than merely supplies the services based on ultra-dense networks of the future. Payback on connectivity alone is only marginally better than simple GPON, but the upside is that the service layer has great potential, and inertia will lead only to erosion of value. Figure 2: TWDM-PON system overlaid on GPON or EPON TWDM-PON OLT 10Gbps 10Gbps 10Gbps 10Gbps 2.5Gbps 2.5Gbps 2.5Gbps 2.5Gbps T 1 T 2 T 3 T 4 R 5 R 6 R 7 R 8 λ 1 λ 2 λ 3 λ 4 λ 5 λ 6 λ 7 λ 8 GPON OLT λ 1 λ 2 λ 3 λ 4 + GPON/ EPON DS λ 5 λ 6 λ 7 λ 8 + GPON/ EPON US TWDM-PON ONU TWDM-PON ONU TWDM-PON ONU TWDM-PON ONU GPON ONU Source: Analysys Mason 5
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Revenue (USD million) Harnessing the value of TWDM-PON This report assesses the value of implementing TWDM-PON to support fixed and mobile services Section 1 assesses the status, maturity, rationale and costs of TWDM-PON. Section 2 qualitatively assesses the upside and downside of TWDM-PON for each of these possible service groups: additional capacity for fixed broadband access and backhaul; new enterprise connectivity streams; the potential to support future wireless services, including small-cell/hetnet backhaul, C-RAN fronthaul and the opportunities associated with 5G. Section 3 takes a brief look at the economics of TWDM-PON in a large urban deployment. We have used a simple net present value (NPV) model to assess its value and compare it with simple GPON. The section also explores the strategic benefits of TWDM-PON for established wholesale players. Figure 3: Potential basic wholesale connectivity revenue for TWDM-PON by service type, TWDM-PON capex, and NPV for TWDM-PON and GPON only, hypothetical urban deployment, 2015 2030 550 500 450 400 350 300 250 200 150 100 50 0 Additional capex on TWDM-PON Incumbent retail upside Incumbent wholesale downside Broadband Wireless Enterprise Capex NPV NPV GPON only Note: See the appendix for details of the assumptions used for this forecast. Source: Analysys Mason 6
Recommendations 1 Incumbent operators must exploit the many synergies between fibre access and other service lines. Rolling out optical distribution networks (ODNs) is a time-consuming and costly process. TWDM-PONs offer a way to build up the revenue base faster than first-generation PONs, and the value will be substantially greater in the long term. Operators need to think proactively about the location of ODN deployments in order to maximise usage and revenue. ODN roll-out should target street furniture, high-footfall public spaces and buildings. 2 Operators should dovetail their investment in fibre with that in 5G. The case for TWDM-PON will really take off when 5G arrives. This will coincide with the roll-out of more virtualised C-RAN networks, especially small-cell-based C-RAN. 5G will support services that require ultra-low latency and massive highly localised clear bandwidth, but it will also need lower cost points than dedicated fibre. 3 TWDM-PON offers a long-term possibility for incumbent operators to reposition wholesale services for growth. Incumbent operators have wholesale divisions that are generally shrinking as their traditional sources of revenue dry up. TWDM-PON will enable operators to re-establish themselves in wholesale connectivity in a higher-volume, lower price-point business. Through optical grooming, TWDM-PON keeps some of the value associated with managed wholesale services, but avoids the downward spiral of managed wholesale services based on bandwidth pricing. 7
CONTENTS EXECUTIVE SUMMARY TWDM-PON: MATURITY AND COSTS NEW SERVICE OPPORTUNITIES ECONOMIC BENEFITS APPENDIX ABOUT THE AUTHOR AND ANALYSYS MASON 31
About the author Rupert Wood (Principal Analyst) is lead analyst for Analysys Mason s Fixed Networks and Wireless Networks research programmes. His primary areas of specialisation include next-generation networks, long-term industry strategy and forecasting the dynamics of convergence and substitution across fixed and mobile networks. Rupert regularly contributes to the international press on a wide range of telecoms subjects and has been quoted by The Times, The Economist, Business Week, Telecommunications Online and La Tribune. Rupert has a PhD from the University of Cambridge, where he was a Lecturer before joining Analysys Mason. 32
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