Optical Networks Booming in India

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1 Major build cycle in India to support a rapidly modernizing mobile network infrastructure Publication Date: 13 Nov 2017 Product code: SPT Don Frey

2 Summary Catalyst India has been the best-performing optical networking (ON) market in Reliance Jio's disruptive pricing for 4G LTE mobile broadband has led to massive bandwidth growth and thus India's ON growth. Other carriers are responding to Jio's aggressive pricing and will be driving additional optical investment as they work to catch up. With this in mind, in this report we will highlight the ON market share leaders in this fast-growing market. Ovum forecasts this market to grow 11.4% between 2016 and 2022, representing the strongest regional growth. The India market has 1.2 billion wireless subscribers and only 300 million mobile broadband users. Ovum expects that by 2021 India will reach 1 billion mobile broadband users at a 32.8% CAGR, which will drive the need for investment. During 2020, Ovum expects carriers in India to begin 5G deployment to support enterprise and higher-speed broadband. Addressing the mobile broadband 4G growth and preparing for 5G will be important if network equipment manufacturers want to grow in this market. Ovum view Through 2Q17, India has been the fastest-growing market. India grew 11.8% on a rolling four-quarter (4Q) basis in 2Q17 over 2Q16. Ciena is number one in WDM and ON in India. Ciena has been working with multiple carriers to address their bandwidth needs for 4G LTE/mobile broadband. Tejas Networks is number one in aggregation. Tejas, the only ON vendor that is headquartered in India, addresses carrier, government, and enterprise applications with its offerings. Mobile broadband growth will drive India to be the fastest-growing market through Ovum is forecasting a 11.4% CAGR driven by 4G and future 5G growth. Growth is more focused on WDM. Carriers need to address the exploding bandwidth growth in India, and WDM products best address this need. Recommendations Network equipment vendors with R&D sites in India need to take advantage of their presence within the country. These vendors should leverage these investments and sites to expand opportunities in India. Component companies need to track India: Component vendors need to diversify beyond the China market. Component vendors need to understand the India ecosystem: This can be achieved by focusing on CSP target network architectures and their own positioning with the leading systems vendors. Tejas and ECI Telecom are two systems vendors that have a large share in India, but smaller positions in other regions. All players need to be patient. India has never had consistent year-over-year growth. Expect growth that follows a start-and-stop pattern. Those players that stick with the market will be rewarded. Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 2

3 Market status India growth Figure 1 shows that India's ON market has grown faster than any other region in the world. The growth has been driven by Reliance Jio's aggressive 4G LTE pricing, which is stimulating fast mobile broadband growth. On October 13, 2017, Jio reported 139 million broadband subscribers with data consumption greater than 10GB/user/month since the launch of Jio's 4G LTE service in September Other carriers in India are working to respond, and currently can offer faster 4G LTE, but with higher pricing and less coverage. Jio also reported that it has the first exabyte network in the world to support this traffic. The growth in 4G mobile broadband data in India has driven 11.8% growth in optical. Figure 1: Rolling 2Q17 vs. 2Q16 comparison by region and subregion Optical networking share As of 2Q17, Ciena has captured a rolling 4Q market share of 22%, making it the leading optical vendor in India due in part to the growth at Jio. Ciena has business with multiple carriers and is involved in government contracts. Nokia is also involved in the Jio network build, which helped drive its market share to 18%. Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 3

4 Figure 2: India ON total rolling 4Q, 2Q17 Optical aggregation market Ovum has analyzed the overall India ON market by product segment to identify the leaders in key technology areas. Figure 3 shows that Tejas Networks leads the optical aggregation market with a 36% share, driven by its business with the Indian government, of which its work on the Bharat Broadband Network is part, but also its business with carriers within the country. The Bharat Broadband Network provides wireline broadband access across rural India where investment continues to grow. ECI Telecom has grown its share to 35% based on the Neptune product family and its success at Bharti Airtel for 4G LTE wireless backhaul. Unlike in India, Tejas and ECI Telecom hold smaller positions in other regions. Figure 3: India aggregation subtotal rolling 4Q, 2Q17 Optical WDM market As shown in Figure 4, Ciena leads the WDM market with a 30% share, followed by Nokia with 25% share. Ciena's growth has been powered by multiple carriers and government customers in India. Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 4

5 Nokia and Ciena won the Jio business for optical and this has led to them passing Huawei, which was number one at the end of Vodafone and Idea, the top two wireless carriers, are merging and this is impacting Huawei and ZTE. We expect that Ciena, Nokia, Huawei, and Tejas will be the key vendors in the region. Figure 4: India WDM subtotal rolling 4Q, 2Q17 India market dynamics India mobile market The India mobile market will have nearly 1.2 billion mobile connections by the end of 2017, as shown in Figure 5. However, mobile broadband connections have had a lower penetration rate, accounting for only 31% of total connections by year end. Mobile broadband penetration has been lower primarily for two reasons: tariffs maintained high margins for voice services and smartphones are out of reach for most of the population. Jio has changed the market by giving away voice and data for seven months and its plan to come out with a 4G feature phone that has a lower price point. In addition, Jio is reporting that it transports more bits per month over its mobile network than many other players. Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 5

Figure 5: India mobile broadband growth India's leading mobile carriers lag behind Jio in terms of download speeds based on data from the Telecom Regulatory Authority of India (TRAI).

The other carriers are using carrier aggregation to deliver greater bandwidth.

6 Figure 5: India mobile broadband growth India's leading mobile carriers lag behind Jio in terms of download speeds based on data from the Telecom Regulatory Authority of India (TRAI). Upload speeds show that Idea and Vodafone are better on average compared to Jio. Jio's download speed can range from 30Mbps to 5Mbps based on availability of carrier aggregation of multiple bands. The other carriers are using carrier aggregation to deliver greater bandwidth. Jio's 5Mbps band (850MHz) provides coverage, while Jio's other bands (1850MHz and 2300MHz) provide additional bandwidth due to their channel size. The final impediment to 4G growth in India is availability of a low-priced phone that includes all the radios needed to deliver high-speed broadband. In November 2017, Jio will release its own Android-based feature phone supporting the higher-bandwidth band at a low price point. Figure 6: 4G LTE mobile broadband speed Source: Telecom Regulatory Authority of India (TRAI), Ovum India optical network spenders India's market has been spread across multiple players and the government. Jio has been a big investor in 2017 because it has to support all the bandwidth growth. Jio is expecting less investment Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 6

going forward, but as it grows its user base, we expect it will need to augment its available bandwidth and cell sites. Figure 7 shows the 2017 ON spending share for the top five carriers in India.

7 going forward, but as it grows its user base, we expect it will need to augment its available bandwidth and cell sites. Figure 7 shows the 2017 ON spending share for the top five carriers in India. Consolidation will impact the market in 2018 as Vodafone and Idea Cellular complete their merger. These carriers should be cautious not to let their merger activities lead to them falling too far behind Airtel and Jio. They are still expecting to merge their networks with Vodafone's more urban-focused network combined with Idea's more rural-focused network. The combined Vodafone and Idea will be a stronger player moving forward to better compete with Jio, which has a nationwide network. Overall, we expect investments to be focused on both fixed and mobile broadband, with Bharti, Jio, and Vodafone/Idea driving the growth. Figure 7: ON spending share India ON market outlook As shown in Figure 8, Ovum is forecasting strong growth across all WDM segments based on the growth in mobile broadband. In 2018 and 2019, we expect the other carriers to catch up with Jio's offers and augment their networks to support the speeds. Metro WDM and backbone WDM are driven by greater broadband and mobile data to support increased video and audio streaming. 4G densification and 5G will drive access WDM because it supports wireless fronthaul including CPRI (Common Public Radio Interface) and ecpri (Ethernet CPRI). Access WDM also supports enterprise and government applications below 50km. Jio has been a big optical investor in 2017, mainly to support bandwidth growth. We expect other carriers to address the competitive challenge posed by Jio and will see their own bandwidth needs grow. Network equipment vendors will need to address these new customers. Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 7

Figure 8: India ON forecast, 2017 22 India fiber-based fronthaul and backhaul market outlook As shown in Figure 9, Ovum is forecasting steady growth in the fronthaul and backhaul networks across all

The equipment in Figure 9 includes PON, service provider switching & routing and switching, and ON equipment. Longer term, the jump in 2020 21 is driven by 5G network needs.

8 Figure 8: India ON forecast, India fiber-based fronthaul and backhaul market outlook As shown in Figure 9, Ovum is forecasting steady growth in the fronthaul and backhaul networks across all WDM segments based on growth in mobile broadband. The near-term drivers are the growth in 4G to support consumer adoption of 4G and video streaming. The equipment in Figure 9 includes PON, service provider switching & routing and switching, and ON equipment. Longer term, the jump in is driven by 5G network needs. 5G applications will require enhanced mobile broadband (embb), ultra-reliable low-latency communication (URLLC), and massive machine type communication (mmtc). These applications in turn will drive the network to support higher-speed solutions in the access (fronthaul) and backhaul, which also supports low latency, synchronization, high reliability. The fronthaul link between the remote radio unit and the central or cloud radio access node will move from a max of 10G to 25G based on the new ecpri standard. Finally, 5G applications will require new levels of network slicing, which will drive the deployment of SDN controllers and the need for SDN-controlled equipment. Vendors need to showcase their solutions during 2018 so that trials can begin in to meet the deployment needs of these carriers. Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 8

Figure 9: India fiber-based fronthaul and backhaul market forecast, 2017 22 Appendix Methodology The data for this report came from multiple sources plus additional research by Ovum.

In addition, this report used data from the mobile subscription and revenue forecast by circles for the analysis of mobile broadband versus total mobile subscriptions.

9 Figure 9: India fiber-based fronthaul and backhaul market forecast, Appendix Methodology The data for this report came from multiple sources plus additional research by Ovum. The data includes optical market share data, optical forecast spreadsheet, and the mobile backhaul and fronthaul forecast. In addition, this report used data from the mobile subscription and revenue forecast by circles for the analysis of mobile broadband versus total mobile subscriptions. We have used this data and the methodologies from each report to create a better view of the overall Indian market. Further reading Global ON market share spreadsheet: Market Share Spreadsheet: 2Q17 ON Global, TE (August 2017) Subregional ON market share spreadsheet: Market Share Spreadsheet: 2Q17 ON EMEA and AP Subregional, TE (August 2017) Optical forecast spreadsheet: Optical Networks Forecast Spreadsheet: , TE (October 2017) Mobile Backhaul and Fronthaul Forecast: , TE (June 2017) Mobile Subscription and Revenue Forecast: India by Circle, , TE (July 2017) "India Mobile Congress 2017: India to be 5G-ready by 2020," TE (September 2017) Author Don Frey, Principal Analyst, Service Provider Technology Optical and Routing don.frey@ovum.com Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 9

10 Ovum Consulting We hope that this analysis will help you make informed and imaginative business decisions. If you have further requirements, Ovum s consulting team may be able to help you. For more information about Ovum s consulting capabilities, please contact us directly at consulting@ovum.com. Copyright notice and disclaimer The contents of this product are protected by international copyright laws, database rights and other intellectual property rights. The owner of these rights is Informa Telecoms and Media Limited, our affiliates or other third party licensors. All product and company names and logos contained within or appearing on this product are the trademarks, service marks or trading names of their respective owners, including Informa Telecoms and Media Limited. This product may not be copied, reproduced, distributed or transmitted in any form or by any means without the prior permission of Informa Telecoms and Media Limited. Whilst reasonable efforts have been made to ensure that the information and content of this product was correct as at the date of first publication, neither Informa Telecoms and Media Limited nor any person engaged or employed by Informa Telecoms and Media Limited accepts any liability for any errors, omissions or other inaccuracies. Readers should independently verify any facts and figures as no liability can be accepted in this regard readers assume full responsibility and risk accordingly for their use of such information and content. Any views and/or opinions expressed in this product by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Informa Telecoms and Media Limited. Ovum. All rights reserved. Unauthorized reproduction prohibited. Page 10

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