Harmonic's grip on cable's network virtualization market is reaching beyond simple domination after the company announced Monday that it has bagged another big "CableOS" customer. Charter Communications will use Harmonic's CableOS platform to power the rollout of a virtual cable modem termination system (vCMTS) that will underpin the operator's next-gen broadband access network.
Financial terms of the deal weren't announced, but Harmonic said Charter selected it as a "strategic technology partner" for the operator's vCMTS technology for next-gen broadband services. The Charter announcement made no mention of whether Harmonic's fiber nodes will play a role in Charter's deployment.
Figure 1: (Source: Kristoffer Tripplaar/Alamy Stock Photo)
Update: Harmonic shares were up $1.61 (+12.30%) to $14.70 each in morning trading Tuesday.
CableOS will be used to in Charter's rollout of a distributed access architecture (DAA) for its widely deployed hybrid fiber/coax (HFC) network. Charter's general plan is to beef up its HFC network to deliver multi-gigabit downstream speeds alongside a "high-split" upgrade that initially will enable up to 1-Gig upstream speeds. In addition to enhancing its existing DOCSIS 3.1 networks, Charter's multi-phase network evolution plan also calls for a fuller upgrade to DOCSIS 4.0 in a portion of its HFC footprint.
Charter is also using its distributed architecture to deploy PON in greenfields (for organic edge-outs as well as for government-subsidized network deployments in rural areas) and in brownfields on a targeted "fiber-on-demand" basis. Importantly, Harmonic has adapted CableOS to operate on fiber-to-the-premises (FTTP) networks, including those based on 10G EPON and 10G XGS-PON technology.
'Significantly material win' for Harmonic
Raymond James, which has long viewed Harmonic as a front-runner for the vCCAP piece of Charter's rollout, took a stab at sizing the financial opportunity for Harmonic, viewing it as a "significantly material win" for the vendor.
In a research note, analyst Simon Leopold recalled that Comcast's selection of Harmonic's CableOS platform called for an initial commitment for $175 million over three years. But, since that 2019 announcement, Leopold estimates that Comcast has spent more than $450 million with Harmonic, with that spend going toward CableOS tech as well as remote PHY nodes. Like Comcast, Charter is pursuing the remote PHY option of DAA paired with a vCMTS.
"We could envision a similar sized opportunity for Harmonic at Charter as well," Leopold wrote. And while much of the first phase of Charter's spending will go to high-split upgrades involving DAA and remote PHY investments, Leopold expects Charter's vCCAP deployment to start as early as 2023 and ramp through 2024.
Harmonic's vCCAP win at Charter cements its leadership in that piece of the market and should help to diversify Harmonic's revenue streams. In addition to Comcast, which represented 39% of Harmonic's revenues for full-year 2022, Harmonic has also notched CableOS wins with several other large and midsized operators, including Rogers Communications, GCI, Buckeye Broadband and Vodafone. Harmonic ended 2022 with 91 CableOS customers, up 24.7% year-over-year.
Can anyone challenge Harmonic's vCMTS dominance?
Harmonic's vCMTS win at Charter has evidently elbowed out Casa Systems, which announced last week that one of its top customers, presumed to be Charter, passed on using Casa for the initial phases of a cable infrastructure upgrade.
Casa's still in the game, announcing last week it had secured a vCMTS deal with a major-but-unnamed European cable operator. Among other suppliers, Cisco has put its vCMTS product on hold and CommScope is reenergizing its vCMTS work. Vecima Networks, which is believed to be getting a piece of Charter's new network action, might toss its hat into the vCMTS ring.
Update: Vecima confirmed today that Charter will use the company's remote PHY devices for its coming HFC network upgrade program.
Despite Harmonic's dominance, the vCMTS market window could be large and diverse enough for a second player to make a true run at it. A Dell'Oro Group survey of 50 cable operators around the world conducted in the first quarter of 2022 found that an astounding 100% of respondents said they have either deployed or are planning to deploy a vCMTS architecture in their networks within the next 24 months.
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— Jeff Baumgartner, Senior Editor, Light Reading