ACG Research

ACG Research
We focus on the Why before the What

Wednesday, April 20, 2016

It’s about APPU and QoE, not ARPU

Traditionally, average revenue per user  has been one of the key metrics used to measure service providers’ financial performance. Increased competition has been putting downward pressure on ARPU, resulting in declining earnings before interest, taxes, depreciation and amortization. In parallel, the volume of data traffic transmitted over wireless networks is increasing exponentially. Global mobile data traffic grew 74 percent in 2015, reaching 3.7 Exabytes per month at the end of 2015, up from 2.1 Exabytes per month at the end of 2014 . This is driven not only by the increase of new mobile applications, but also by the sheer number of connected devices. Smartphone subscriptions passed the billion mark in 2012; the four billion mark is expected to be reached by 2016. There will be more than 20 billion mobile-connected devices by 2020, including machine to machine modules, which will exceed the projected global population of 7.8 billion.

Current cellular networks may not have the capacity to meet this demand and the further expansion of coverage and densification will only add additional capital expense and operation expense without improving ARPU. To improve financial results, SPs must focus on the average profit per user  and look for ways to reduce operating costs while providing additional network coverage.

ACG Research conducted a business study of different technology penetrations on SPs’ networks. The scenario integrated untrusted Wi-Fi, trusted Wi-Fi, and small cell into the cellular network, which includes 2G, 3G and VoLTE voice traffic. The scenario compares different penetrations to identify the optimum plan that will optimize SPs’ APPU. The study found that this is only possible by increasing the amount of trusted Wi-Fi traffic and VoWi-Fi penetration, resulting in higher EBITDA margins and APPU, up to 9 percent, saving $3.83 billion for a 35.5 percent monthly increase of APPU over five years.

Read the entire article at RCRWireless News.

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Monday, April 18, 2016

PAM-4 or Coherent DWDM for DCI?

At the March 2016 OFC conference, Inphi announced its delivery of a 100G, QSFP28, PAM-4, pluggable transceiver with 80km reach. PAM technology has been utilized for 100G transmissions (Inphi is a specialist in this area) before but at much shorter distances. Pulse-amplitude modulation (PAM) is an analog transmission scheme similar to NRZ but with multi-level signaling, with PAM-4 utilizing four levels to signal one of four possible symbols (2 bits per symbol). During the announcement, Microsoft also publicly announced that it will begin sourcing the pluggable PAM-4 technology from Inphi for interconnection of its regional, metro-distributed data centers, which by definition are within 70km of each other. Coherent technology will continue to be used elsewhere. The metro-distributed data center deployment model builds and interconnects a number of smaller data centers within a metropolitan area instead of deploying a single hyperscale data center in the region. Microsoft also divulged that it was their intention to turn up all 40, 100G wavelengths at one time (4Tb/s with each carrier occupying 100GHz channel spacing) on a fiber pair, utilizing all available colors in the fixed-wavelength portfolio. 

Some at the conference reacted to the Inphi/Microsoft announcement by declaring the obsolescence of existing optical DCI/coherent DWDM solutions. Although the Inphi/Microsoft announcement is exciting news, ACG thinks the PAM-4 technology is far more complementary to existing coherent DWDM solutions than competitive for multiple reasons. 

Figure 1. Optical Reach for 100G Technologies 

Reach. The PAM-4 solution covers a portion of the optical reach needed to interconnect data centers. Below 10km, IEEE 802.3ba 100G pluggable optics are readily available with 100GBASE-LR4 supporting 10km reach in a QSFP28 package for cost-effective point-to-point connectivity. The 100GBASE-ER4 specification for 40km reach has been more challenging for optics suppliers to deliver and remains either in larger packages (example, CFP, CFP2) or in nonstandard formats, meaning non-interoperable across vendors. So where does the PAM-4 technology fit? In general, its initial fit appears to be in the <40km range as an alternative to existing, suboptimal pluggable solutions. We believe there is limited overlap with coherent DWDM solutions in this range. The solution also plays in the 40–80km range as an alternative to optical DCI/coherent DWDM solutions for some deployment scenarios. 

So, based solely upon reach, a logical question is how much of the optical DCI/coherent DWDM market is covered by 40–80km? ACG Research recently completed a worldwide survey of data center service providers, including network service providers, cloud service providers, Internet content providers and Internet eXchange providers. This research will be available in a published report later this month (April). One of the questions we asked the service providers was the proportion of optical reach needed to cover their data center interconnections today and in 2019. What we found is that service providers on average believe that 30–80km optical reach is needed for approximately 30% of their data center interconnections. The results indicate a modest increase between today and 2019. Based upon this preliminary research, we have a sense of the addressable optical DCI market for this technology. However, we also believe that service providers will consider at least three other factors in making their DCI deployment decisions.

Figure 2. Data Center Interconnect Optical Reach 

Operations. Every data center deployment is not like Microsoft’s plan for metro-distributed data centers, which is to turn up all 4Tb/s of connectivity in a point-to-point fashion on day one of data center activation. By deploying all 40 wavelengths at once, Microsoft could reduce the incremental cost per wavelength of deploying dispersion compensation on the fiber, which is required for PAM but not for coherent DWDM solutions. Dispersion compensation costs include both the capital equipment as well as the operational costs associated with installing and tuning the compensators. Microsoft also avoids the operational complexity of deploying fixed wavelength pluggable optics incrementally, where inventory and on-site resources are required every time a change or a wavelength addition is needed. 

Other service providers that have existing metro optical networks may not want to deploy in this manner. They may not want the added complexity of dealing with dispersion compensation for PAM deployments. Some may want to utilize existing metro optical infrastructure and/or deploy in a mesh architecture. Still other service providers may not have the same visibility as Microsoft with regard to their data center connectivity needs. They may need to be more agile and utilize a pay-as-you-go/pay-as-you-grow deployment model where they add interconnection capacity over time and in alignment with their data center compute/storage capacity and revenue generation. An incremental deployment model is just more operationally complex with fixed-wavelength pluggable optics. 

Fiber Scarcity. When fiber is scarce or expensive, fiber optic transmission efficiency (bits per Hz) increases in importance. The PAM-4 solution delivers an efficiency ratio of 1 with 100Gb/s transmission occupying 100GHz channel spacing. 16-QAM coherent DWDM modulation offers 200Gb/s in 50GHz channels or an efficiency ratio of 4. Recent flexible grid implementations have an even greater efficiency ratio approaching 7. If more than 4Tb/s of connectivity is needed and incremental fiber is scarce or expensive, service providers may need to utilize the more efficient coherent DWDM system to squeeze more bandwidth through their limited fiber resources.

Programmability. Fixed-wavelength pluggable optics do not advance the broader drive toward a programmable, agile, SDN enabled optical underlay. SDN and NFV are changing all aspects of the ICT industry, including optical solutions. Service providers are looking to utilize intelligence, automation and programmability to reduce operational costs and ensure that network resources adapt to changing business and networking conditions across protocol layers, including optics and IP. Many demonstrations at OFC utilized SDN control and service automation combined with a programmable optical layer to showcase network efficiency and adaptability. The ONS 2016 conference had similar demonstrations with ONOS and ODL controllers programming in near real-time optical and IP networking infrastructure. 

Figure 3. Example of a Mixed Technology DCI Deployment 

The Inphi PAM-4, QSFP28 solution is an exciting achievement and addresses a very real need in the sub-80km 100G market. We believe the solution is actually far more complementary than competitive to existing optical DCI/coherent DWDM solutions. Most service providers will utilize an all-of-the-above approach to their 100G DCI deployments just as they did before with dark fiber, IEEE pluggables and coherent DWDM options. PAM-4 meets the needs of data center operators, such as Microsoft, that intend to turn up 4Tb/s of transmission capacity in a point-to-point fashion between data centers in a ~70km metro-distributed network. However, if a provider needs longer reach or more than 4Tb/s per fiber pair or an incremental growth operational model or if a service provider is looking to advance its programmable, SDN enabled network, then a tunable, coherent DWDM solution is a better fit. PAM-4 or coherent DWDM for data center interconnections? Yes!

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     Tim Doiron

Friday, April 8, 2016

Infinera Delivers the Multi-Terabit Infinite Capacity Engine

Infinera revolutionized optical integration with the introduction of its industry leading 100G Photonic Integrated Circuit (PIC) in 2005.

In 2011 the company followed with the introduction of a 500G PIC and coherent digital signal processing (DSP) technology.

At the OFC Conference in March 2016, Infinera once again pushed the limits of optical integration with the debut of its multi-terabit Infinite Capacity Engine.

The Infinite Capacity Engine is a family of next-generation optical subsystems consisting of fourth-generation photonic integration with advanced coherent signal processing, software defined networking-enabled sliceable photonics architecture and Layer 1 encryption.

For more information about ACG's market impact service, contact

     Tim Doiron

Thursday, April 7, 2016

ACG HotSeat with HPE’s Nachman Shelef on Dynamic Network Transformation, Part 1 & 2

Nachman Shelef, vice president and general manager at HPE ConteXtream, Hewlett Packard Enterprise, and Ray Mota, CEO of ACG Research, discuss why customers should look to HPE as they transition their infrastructures to meet rapidly changing service demands. HPE is positioning itself as a thought leader in network evolution, not only by addressing infrastructure requirements, but also by focusing on next-generation requirements in both the wireless and fixed line space to enable service providers to deal effectively with existing and virtualized network functions. Listen to how HPE addresses service providers' infrastructure needs as they migrate their networks to enable dynamic changes in their functions, as well as about the uses cases that meet the current and future requirements. 

In Part 2 Nachman Shelef, vice president and general manager at HPE ConteXtream, Hewlett Packard Enterprise, and Ray Mota, CEO of ACG Research, continue their discussion of NFV to meet rapidly changing service demands. They focus on how HPE approach their customers, discuss how and why providers need to look beyond just the traditional function approach when transitioning their networks, and point out the differences between a fat and fit VNF. They also discuss the emerging hardware, software and ecosystems that will define and support current as well as future functions. 

Contact for more information or to schedule your HotSeat video.

Monday, April 4, 2016

Optical Infrastructure and Optical DCI Finish Strong in 4Q-2015 and Look to Future Growth

Optical DCI contributed over $1B in 2015 with total Optical infrastructure finishing the year at $13.3 billion

ACG Research has released its 2H-2015 worldwide Optical infrastructure and worldwide Optical Data Center Interconnect (DCI) forecast. The forecast period runs through 2020.  The worldwide Optical infrastructure market is predicted to grow from $13.2 billion in 2015 to $17.8 billion by 2020. Purchases of Optical DCI equipment are expected to grow from $1.03 billion in 2015 to $4.3 billion in 2020. ACG Research predicts growth in all geographic regions including EMEA where total optical networking revenues have been flat to down over the past several years.   

Optical infrastructure demonstrated its usual seasonality throughout 2015 with Q2 and Q4 being the strongest calendar quarters.  After a down Q3, Q4-2015 saw growth in both Metro (POTS + Metro DWDM) and Long Haul optical segments at robust 17.5% and 19.5% q-q rates, respectively.  For the year, Metro optical produced 5.2% growth while Long Haul delivered 7.9% for a combined High Speed Optical (HSO) annual growth of 6.4%.  When combined with the 14.3% decline in legacy optical infrastructure spending, total optical infrastructure managed positive 1.2% growth in 2015 to finish at $13.3B.  Looking forward, ACG Research anticipates 6.6% Long Haul optical CAGR and more than 10% Metro optical CAGR over the forecast period. 

Optical DCI equipment revenue exceeded $300m for the first time in 4Q-2015 to contribute more than $1B to the Optical infrastructure market for the year with an annual growth rate in excess of 40%.  Optical DCI revenue is projected to grow at a 33.1% CAGR from 2015 to 2020. The fundamental underpinnings of DCI growth remain strong:  annual data center bandwidth growth, increasing service requirements for data center interconnectivity and increases in the total number of data centers worldwide.  Over the forecast period, ACG predicts the Metro Optical DCI growth rate will exceed Long Haul Optical DCI and SFF Optical DCI appliances will grow at a faster rate than multi-slot Optical DCI chassis-based solutions, although multi-slot chassis solutions will remain slightly dominant throughout the forecast period.  A series of publicly announced new entrants to the SFF Optical DCI appliance market including Ciena Waveserver, Fujitsu 1Fininity, Adva CloundConnect, Cisco NCS 1002, Coriant Groove G30 will join the market leading Infinera CloudXpress in 2016 and keep downward pressure on prices. 

Additional growth drivers beyond DCI for Optical infrastructure over the forecast: accelerating 100G/200G+ coherent optical upgrades, mobile front-haul, 5G mobile backhaul and bandwidth expansions, multi-layer encryption/security and transport/multi-layer SDN.  

     Tim Doiron

Friday, April 1, 2016

5G: The Efficient Engine to Virtual Infrastructure Optimization

Ahead of his participation at TM Forum Live!, ACG Research’s Elias Aravantinos looks at how 5G technology can be the engine to optimize the different parts of the network to enable new, faster and more profitable services.

Infrastructure optimization
In an effort to address the demand for capacity and average revenue per user (ARPU) pressures, service providers are looking at 5G technology as the engine to optimize the different parts of their networks and deliver faster, new and more profitable services. In many cases, they realize that upgrading their physical infrastructure has limitations because of costs and inefficient time to market constraints, and they are looking for solutions, specifically virtualization, that scale their networks to meet the capacity demand while simultaneously delivering business value – savings.