In many ways, things could hardly be better in the fiber to the premises (FTTP) market. The pandemic and the resultant rise of people working from home put significant pressure on broadband networks that service providers had to accommodate quickly. While in some cases operators (particularly cable MSOs) merely “turned up the dials” on their existing infrastructure, that option is now exhausted in many instances and capacity reserves must be replenished. Meanwhile, with operators looking to add this capacity, competitive pressures have created an increasing interest in 10G PON infrastructures.
At the same time, governments globally have taken notice of the importance of high-speed broadband and have earmarked funds to ensure that currently unserved and underserved citizens will have access. In the U.S. alone, the government has devoted $20 billion to the Rural Digital Opportunity Fund (RDOF) and is attempting to provide billions of dollars more as part of a major infrastructure improvement bill. These tranches come on top of such funding as the $125 million earmarked in the Coronavirus Aid Relief and Economic Security (CARES) Act, a potential $7.5 billion in the December 2020 Consolidated Appropriations Act, and potential funding via the March 2021 American Rescue Plan Act (ARPA).
The combination of network operators with a demand for their products and governments willing to help foot the bill is music to the ears of FTTP technology developers. Yet there are a few sour notes in these songs. The pandemic increased the demand for broadband but it also put constraints on supply chains. Semiconductors shortages are not limited to automobiles; even materials one normally wouldn’t worry about, such as resins, are also in shorter supply.
Put all these factors together and the industry faces a scenario where there is more demand for FTTP technology than suppliers can support. This may be the proverbial problem suppliers would love to have. But it’s still a problem.
(Almost) Everybody Wants FTTP
The momentum behind increased FTTP infrastructure deployments has grown significantly, say analysts. In a blog posted in July describing the latest update of his five-year forecast, Dell’Oro Group head of Broadband Access and Home Networking market research programs Jeff Heynen wrote that he’s improved his outlook on worldwide broadband network infrastructure demand from a compound annual growth rate (CAGR) 0% to 3%. This growth comes despite the fact that demand in China, by far the world’s largest market, has peaked.
“The spending slump we had expected to see in 2021 after the increased investment levels of 2020 is not going to materialize. In fact, spending will continue to grow this year as operators deal with continued subscribers additions, as well as competitors increasing their investments in fiber, HFC, and fixed wireless networks,” Heynen wrote.
Yet Heynen is well aware that behind such demand lie concerns. He notes in the blog that he raised his forecast for broadband in general to 3% CAGR despite “the negative impacts of component shortages and labor limitations.” Such limitations could be particularly acute for network operators, who face the challenge of finding enough trained technicians to enable them to meet their deployment timelines.
Heynen expressed concerns about such limitations in a blog published this past April titled “Too Much of a Good Thing?” “Despite all the funding options and demand from network operators, equipment suppliers, and subscribers alike, the bigger problem in the short-term isn’t one of demand, but of supply. Instead of ‘if you build it, they will come,’ supply chain and labor market constraints might prevent operators from building it in the first place,” he wrote
“Shortages in semiconductors and other vital components, including capacitors and flash memory, have been well-documented, impacting not only networking equipment, but also consumer electronics, automobiles, and other industrial equipment,” Heynen continued. “Meanwhile, demand for fiber cables, conduit, and other ODN infrastructure has pushed lead times for these components to anywhere from 12-18 months. Lead times for OLTs and other active equipment used in FTTH deployments have remained fairly stable despite the disruptions but have been sneaking up recently.”
The Shortages Are Real
Conversations with suppliers at the Fiber Connect 2021 conference and exhibition held July 26-28 in Nashville backed up Heynen’s assertions. For example, Cheri Beranek, president and CEO of network connectivity technology provider Clearfield Inc., said that her company had made fast delivery a point of differentiation versus her larger competitors. But while Clearfield has been able to keep delivery times under two weeks in the past, that figure has risen to six to eight weeks in the current environment.
Beranek says the reasons for the delays split evenly between increased demand and supply chain issues. Several of Clearfield’s products rely on resins – 50,000 lbs. a month, she said. Clearfield typically maintains a six-month supply as a result. But that reservoir dipped to a six-week supply recently thanks to such factors as the power blackout in Texas, where some of the resin suppliers are located, this past winter. And if resins aren’t something one normally has to think about as a supply chain issue, consider also the matter of…screwdrivers. Some of Clearfield’s products require particularly long screwdrivers, which the company typically supplies. Beranek said that getting enough of such screwdrivers also has been a problem.
Of course, problems for some present opportunities for others. Representatives of several smaller connectivity technology firms on the show floor reported that large customers who would previously ignore them were now much friendlier. Others who specialize in data center and central office enclosures said they were being asked to look into outside plant versions.
Vendors at the systems level appear to be in better shape. Sources at the show from Nokia and DZS reported they have yet to see a significant squeeze from semiconductor shortages. The Nokia sources did acknowledge that it had become more important than ever to actively manage the supply chain and sharpen sales forecasts. The fact that their high-speed optical line terminals are based on the company’s own Quillion chipset provides a bit of assurance, they noted. Meanwhile, Charlie Vogt, president and CEO of DZS, said he could see semiconductor supply becoming a bit more of a problem in 2022, based on conversations he’s had with his main chip supplier, Broadcom. And while there haven’t been enough issues yet to retard the company’s growth, he noted that prices in general – from shipping to the secondary markets – have risen.
Geoff Burke, chief marketing officer at DZS, added that network operators know what’s going on and are adjusting their equipment ordering accordingly. And it seems that they will continue to have to do so for a while longer in the current feast and famine environment.
STEPHEN HARDY is editorial director of Lightwave.