Will spending on cable network upgrades take off this year? George Notter certainly thinks so.
In a new report sent to investment clients this morning, Notter, managing director of equity research for Jefferies & Company Inc. , predicts that 2017 will be "the year of cable access network spending." He expects North American and European MSOs to invest "aggressively" in their networks this year as they upgrade their aging access infrastructure for greater bandwidth capacity; higher broadband speeds; and new, more advanced video and other services.
Contending that the cable industry is still in "the early innings of a major network upgrade," Notter noted that "at least several major MSOs" are "starting the 'Deep Fiber' transformations of their HFC networks right now." Instead of merely carrying out in-place node splits and capacity additions in the headend that require little redesign of the access network as they have in previous years, cable operators will now be adding new optical nodes to their networks, laying fiber closer to the home and shrinking the size of their service groups further. "We understand that MSOs are now entering a much more disruptive phase of network transformation," he writes.
Citing one prime example, Notter notes that Comcast Corp. (Nasdaq: CMCSA, CMCSK) plans to deploy an additional 1 million optical nodes in its networks over the next four to five years as part of the giant US MSO's multi-billion-dollar "Fiber Deep" initiative. That represents a huge increase over the 250,000 to 300,000 optical nodes that Comcast currently has installed. (See also Why Cable Is Upgrading Networks Now.)
In similar fashion, Notter relates that Cox Communications Inc. , the third-largest MSO is the US, intends to overhaul its HFC plant over the next decade. He said Cox's plans call for deploying 200,000 optical nodes in is networks by the end of that span, up from a relatively paltry 25,000 nodes today.
Other major large MSOs, such as Liberty Global Inc. (Nasdaq: LBTY) and Altice , have embarked on major plant upgrade programs as well. Liberty Global plans to pass an additional 4 million homes in the UK under its "Project Lightning" initiative, while Altice has committed to going fully FTTP in the US over the next few years. Notter predicts that others will follow their lead. (See Virgin Media Plots £3B Invasion of BT Turf and Altice Plans FTTH for Entire US Footprint.)
Turning his gaze to DOCSIS 3.1, Notter predicts that the new cable broadband spec will spur the replacement cycle of customer premises equipment (CPE) over the next few years, but only "modestly." He noted that while such leading MSOs as Comcast and Liberty Global are moving ahead quickly with D3.1 upgrades, other cable operators will make the switch more gradually.
"For the 3.1 upgrade, not all operators will be as aggressive as the early movers," he writes. "Also, operators will take a success-based/opportunistic approach with DOCSIS 3.1. In the early stages, DOCSIS 3.1 CPE sales will be limited to users opting for the highest speed tiers."
In good news for cable equipment vendors, Notter projects that DOCSIS 3.1 cable modems, gateways and other products will command a "meaningful" price premium of at least 10% over comparable DOCSIS 3.0 products, at least in the short run. But, he notes, that price differential will likely come down over time as production and shipment volumes rise and more products flood the market.
Notter also predicts that strong FTTP spending by service providers will continue in the New Year as gigabit deployments continue to spread. He also sees spending on data centers remaining strong and wireless carrier capex picking up in 2017.
— Alan Breznick, Cable/Video Practice Leader, Light Reading