The second phase of CAF (Connect America Fund) funding will benefit Adtran and Calix, both US-centric, tier-2 communications equipment vendors. While there are concerns about whether CAF II funding will be fully utilized, dollars will flow to Adtran and Calix, providing a boost as they face challenges growing their respective revenue bases internationally.
Adtran and Calix have home-field advantage with CAF II
More than $9bn of new CAF funding has been allocated for use over the next five to seven years. In late 2014, the FCC announced funding-award guidelines, including a new broadband goal of 10/1Mbps (downstream/upstream), an increase from the previous threshold of 4/1Mbps. The subsidies are available to large operators and to small players, but the operator has to deliver the minimum speeds throughout the whole area, e.g. no subscriber cherry-picking. While there has been much criticism regarding the guidelines and process, many operators will accept their support allocations.
CAF II will help Adtran and Calix, both tier-2 wireline broadband equipment vendors with strong customer relationships among tier-2 and -3 telco operator customers in the US. In 1Q15, Adtran and Calix held a mere market share of 5% and 2% (based on rolling 4 quarters), respectively, of the worldwide wireline broadband equipment market, but within North America those figures jump to 9% and 8%, respectively. For Adtran, its sales of xDSL equipment to DT in Germany is important, leading to 11% market share for EMEA.
Customer and geographic market expansions have been difficult for both Adtran and Calix. In the US, Alcatel-Lucent remains the top vendor for tier-1 operators such as AT&T and Verizon. In most countries outside of North America, Adtran and Calix compete with Huawei and ZTE in addition to Alcatel-Lucent.
While CAF II awards may not significantly increase planned capital spending by the likes of CenturyLink, Frontier, and Windstream, these awards ensure home-field advantage for both Adtran and Calix, vendors that already supply equipment to these operators.
Market Share Report: 1Q15 FTTx, DSL, and CMTS, TE0006-001076 (June 2015)
Market Share Spreadsheet: 1Q15 FTTx, DSL, and CMTS (Revenues), TE0006-001073 (May 2015)
Market Share Spreadsheet: 1Q15 FTTx, DSL, and CMTS (Units), TE0006-001072 (May 2015)
Julie Kunstler, Principal Analyst, Intelligent Networks and Components