The gigabit era has well and truly landed. The debate has moved beyond 1Gbps, 2Gbps and even 5Gbps services. Fixed broadband front-runners, including in Japan, Hong Kong and Singapore, have already deployed 10Gbps services. Ovum data shows that 29 operators have either deployed or have announcement deployment plans for 10Gbps services. Of these, 12 are in commercial operation. In competitive markets, operators are now offering gigabit services (or trialing or deploying) over next-gen PON technologies such as 10G-EPON, XG-PON, XGS-PON, and NG-PON2, which can support even higher speeds – up to 40Gbps – and a greater number of households. Next-gen PON equipment remains costly compared to the current generation, but the costs per gig are dropping quickly.
Market competition rather than consumer demand is driving the trend toward gigabit services. There is a sense of urgency among operators in mature markets with fixed broadband revenues 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 the tech-savvy, high-spending customer and earn a premium over lower-speed tiers. The premium for 10Gbps is significant high. Ovum’s research of select countries, found that 10Gbps commands very high premium – in the region of 215–327%, compared with 1Gbps.
Who is the target market for 10Gbps? That depends on the market.
In the competitive market of Japan, the battle for the 10Gbps is focused around the consumer. Fiber disrupters, including KDDI, Tokai Cable Net, Sonet (Sony Networks) and NCT are challenging the incumbent with competitive 10Gbps pricing for consumers.
However, elsewhere, the battle has more breadth. For example, in the US, Verizon is deploying NG-PON2 which offers support for up to 40Gbps 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, one for mobile backhaul). Serving both consumers and businesses on a single unified network is an efficient way to maximize capacity.
Globally, operators will continue to target 10Gbps services to enterprises and businesses who are more likely to pay higher premiums. Having such network bandwidth will also provide new wholesale opportunities – such as connecting 5G base stations (see figure).
Figure: 10Gbps gigabit broadband use cases
Meanwhile, on the consumer front, there is still no consumer 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 10Gbps by consumers, we do not see 10Gbps services becoming mass-market. It will be a niche but more lucrative market than 1Gbps, however. The most obvious 10Gbps niches for consumers are high-end VR/AR gamers, and to a lesser extent, home workers with large data-volume requirements (e.g. sending medical images).
The 10Gbps 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 of 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 will need to 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 10Gbps over lower-speed tiers such 1Gbps. Consumers do want higher quality (especially for video), but most consumers will not even need a 1Gbps pipe within the next five years, since a 50–100Mbps throughput will be sufficient for most consumers' internet apps to work and work well. Therefore, we urge fixed broadband operators not to erode the value of the 10Gbps pipe and avoid intense tariff wars. Hopefully, Japan will remain the exception.
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