Equipment vendors that serve Tier 2 and Tier 3 ISPs are seeing some tailwinds as service providers scramble to provide better broadband to homebound customers during the pandemic. And this trend is set to accelerate as the U.S. government allocates billions of dollars to rural broadband through the Rural Digital Opportunity Fund.
"We're talking about $20 billion of total money that will be destined primarily to fiber-to-the-home networks in rural areas," said Jeff Heynen, who covers broadband access and home networking as a senior research director at Dell'Oro Group. He said companies like Adtran, Calix and Nokia should benefit from the RDOF funding because they sell fiber termination points and/or in-home equipment to ISPs.
“Calix and Adtran have their own CPE systems, and the benefit that they provide to these smaller third-party operators is a fully automated end-to-end system,” Heynen said. Single-vendor solutions are popular with smaller operators, he said.
Gary Bolton, Adtran’s VP of global marketing, confirmed that the RDOF funding represents a big opportunity for his company. He said Adtran has invested time in helping regional ISPs join bidding consortiums in order to facilitate their applications for federal RDOF money. ISPs are likely to wait until money is allocated to sign contracts with vendors.
"The RDOF is going to take a while," said Heynen. "The benefits are only going to accrue over an extended period of time as those contracts get rolled out."
The RDOF auction does not give a right of first refusal to the so-called price-cap carriers like AT&T and Verizon. Instead, it creates more opportunity for smaller players, and comes at a time when electric utilities and even municipalities are trying to become broadband providers in some areas.
"A lot of them don't want to be in the broadband business, but they know that to have jobs and to have healthcare and to be able to have virtual school ... they have to do something, because these price-cap carriers are not giving it to them,” said Bolton. “So they are basically setting up shop. They will be perfect candidates for the RDOF money because they're going to be building gigabit networks. If you're a community provider ... you're going to build a network that your neighbors will be proud of."
Community ISPs are used to hearing directly from customers if their internet service is poor, and they are starting to take responsibility for the total customer experience, including in-home Wi-Fi.
"More and more the trend is the operators will contract with their ONT (optical network terminal) provider or their Gfast CPE supplier to provide them the mesh satellites (Wi-Fi mesh system) in addition to the broadband gateway in the home,” Heynen said. He is forecasting that sales of customer premise equipment that can support mesh Wi-Fi will skyrocket from 1.3 million units in 2019 to more than 46 million units by 2024. He said the highest level of growth will come from units provided to customers by their service providers.
Vendors are trying to differentiate their Wi-Fi solutions as they market them to service providers. Many are adding software to support features like parental controls, security, analytics, traffic monitoring and support for smart home solutions. Adtran's Bolton said his company added 31 new customers in the second quarter and 28 of those service providers subscribed to the company's software applications, such as home analytics.