Ovum: 10-Gig Era Demands Business Innovation for Max Margins

The gigabit era has well and truly landed. Now the debate has moved beyond 1Gbit/s, 2Gbit/s and even 5Gbit/s services. Indeed, fixed broadband front-runners -- including those in Japan, Hong Kong and Singapore -- already have deployed 10Gbit/s services.

Ovum data finds 29 operators have either deployed or announced deployment plans for 10Gbit/s services. Of these, 12 are in commercial operation. In competitive markets, operators now offer gigabit services (or trials or planned deployments) over next-gen PON technologies such as 10G-EPON, XG-PON, XGS-PON and NG-PON2, which can support even higher speeds -- up to 40 Gbit/s -- and a greater number of households. Next-gen PON equipment remains costly compared with the current generation, but the costs per gig are dropping quickly.

Market competition rather than consumer demand drives the trend toward gigabit services. There is a sense of urgency among operators in mature markets where fixed broadband revenue is under pressure due to slower growth. In markets such as the US and Singapore, some consumers are even cutting the cord on fixed broadband services. For all operators, a gigabit upgrade offers the opportunity to appeal to tech-savvy, high-spending customers and earn a premium over lower-speed tiers. After all, the premium for 10 Gbit/s is significantly high. Ovum's research of select countries, found 10 Gbit/s commands a very high premium -- in the region of 215% to 327%, compared with 1 Gbit/s. As you can tell, that is very attractive for margin-squeezed service providers.

Who, then, is the target market for 10 Gbit/s? Well, that depends on the market.

---

The fundamentals of network security are being redefined -- don't get left in the dark by a DDoS attack! Join us in Austin from May 14-16 at the fifth annual Big Communications Event. There's still time to register and communications service providers get in free!

---

In the competitive market of Japan, the 10Gbit/s battle focuses around the consumer. Fiber disrupters -- including KDDI, Tokai Cable Net, Sonet (Sony Networks) and NCT -- challenge the incumbent with competitive 10Gbit/s pricing for consumers.

However, elsewhere, the battle has more breadth. In the US, for example, Verizon is deploying NG-PON2, which offers support for up to 40 Gbit/s downstream, with the ability to add and support multiple wavelengths or assign them to different customers as needed (for example, one for residential, one for businesses and one for mobile backhaul). Serving both consumers and businesses on a single unified network is an efficient way to maximize capacity. (See Verizon, Calix Deploy Commercial NG-PON2 .)

Globally, operators will continue to target 10Gbit/s services to enterprises and businesses that are more likely to pay higher premiums. Having such network bandwidth will also provide new wholesale opportunities -- such as connecting 5G basestations (see figure).

On the consumer front, meanwhile, there is still no generic user application that is bandwidth-hungry enough to truly drive customer demand to gigabit services -- and that isn't going to change any time soon. Over the next five years, due to a lack of demand-drivers for 10 Gbit/s by consumers, we do not see 10Gbit/s services becoming mass-market. It will be a niche but more lucrative market than 1 Gbit/s, however. The most obvious 10Gbit/s niches for consumers are high-end virtual reality and augmented reality gamers, and to a lesser extent, home workers with large data-volume requirements (such as sending medical images).

The 10Gbit/s gigabit era will command business model innovation. Segmentation of different services for different use groups will become more paramount, and that requires operators to think outside the box on charging for these different groups. Consumer segmentation by mobile operators today is more pronounced than in the fixed broadband world. Mobile operators have become better at segmentation in the past couple of years, particularly around mobile bundles aimed at students and kids. However, segmentation is not synonymous with fixed broadband, but that must change as operators grapple with more expensive offers for real-time VR gamers versus the typical broadband user.

Although Ovum expects adoption of 4K video services and other such bandwidth-intensive applications to grow fast, it will remain difficult to convince the mass-market consumer to pay a premium for 10 Gbit/s over lower-speed tiers such 1 Gbit/s. Consumers want higher quality (especially for video), but most will not even need a 1Gbit/s pipe within the next five years, since a 50Mbit/s to 100Mbit/s throughput will suffice for most consumers' Internet apps to work and work well. Therefore, we urge fixed broadband operators not to erode the value of the 10Gbit/s pipe and avoid intense tariff wars. Hopefully, Japan will remain the exception.

Related posts:

• ADTRAN Buys Cable Market Share With Sumitomo EPON Acquisition
• NG-PON2 Success Depends on Dropping Price of Tunable Optics: Ovum
• Altice Backs NG-PON2 to Enable 5G

— Nicole McCormick, Practice Leader, Broadband and Multiplay, Ovum. Follow on Twitter @Ovum or @NicoleMc_Ovum.