Brazil
Q&A

5G amid the pandemic: between boom and doom

Bnamericas Published: Monday, November 02, 2020
5G amid the pandemic: between boom and doom

The arrival of 5G technology, the first spectrum auctions for which are expected to begin in the coming weeks in Latin America, promises to boost various forms of connectivity, such as industry 4.0, video content and connected cities.

The new mobile broadband technology will also require even more robust data transport infrastructure, which should be fruitful for providers of networking equipment such as US optical solutions and software firm Ciena.

But this positive outlook could yet be undermined by adverse macroeconomic effects caused by the pandemic.

Several telecom service providers and corporates have decided to cut or reduce their spending and, in the third quarter, COVID-related market dynamics have already resulted in a slowdown in orders for Ciena, although its revenues have resisted the shock.

BNamericas spoke to Fabio Medina (pictured) and Fernando Capella, respectively head for Latin America and country manager for Brazil at Ciena, about the future in this uncertain context and what to expect from neutral networks, submarine cables and more.

BNamericas: 5G is just around the corner, with many Latin American regulators now preparing spectrum tenders. How does a provider like Ciena expect to get a slice of this pie?

Medina: We’ve been preparing ourselves for the arrival of 5G for some years already. It was very clear to us that there would be a significantly long transition period between 4G and 5G. 

GSMA estimates, if I’m not mistaken, are that by the end of 2025 we will have a 5G penetration of less than 20% in the region. 4G will continue to grow. So it’s a long road ahead and the technology need to help carriers adapt to both, hence our adaptive IP technology, which is aimed at supporting carriers to have their infrastructure ready for 5G.

We see a lot of opportunities in 5G, particularly in mid-haul and front-haul connectivity. In 5G, the number of antennas will increase significantly, which means that components connected to the networks and the bandwidth for the applications will also increase significantly. Furthermore, with 5G we expect latency [time for information to get to its destination] to be 10% of the latency in current networks.

Next year will be a very active one for 5G auctions. Argentina is planning its own auction for the end of the year, but I guess Brazil will be there at the beginning, then Colombia, Mexico.

The success of these processes will depend on the governments concentrating on securing well-distributed bands and focusing on expanding access rather than on collecting revenues. This is important because the amount of investments required to deploy infrastructure will be huge.

So far we’ve seen pilots and tests of the technology, but this is all just the beginning. 2021 will be the year of accommodation, with some centralized launches in major cities, while 2022 should be a much more transformational year for 5G.

Capella: The expectation for the 5G auction in Brazil, as we know, is that it will take place in the first half of next year. And to allow the arrival of 5G, there’s a lot of investment that has to be made in networks. In addition, there’s very good dynamism expected for the Brazilian market next year with the possible entry of new players, the sale of Oi's assets, operators announcing partnerships to build neutral networks

We’re paying close attention to all of that and the expectation is that it will be a positive year for us in the country.

BNamericas: There are different plans for neutral, wholesale fiber networks in Brazil. Is there demand for all of them?

Capella: I think there’s room for some providers of neutral networks, but obviously not for lots of competing projects. The telecom business is capital-intensive and needs to provide a return on investments. We’ve been following this movement very closely and we hope to seize the opportunities once they’re more concrete.

Medina: Infra-sharing and neutral networks will be crucial for the telecom industry.

Operators have no clarity on how they will be able to recover investments in 5G and this is the biggest problem they have today. They haven’t even been able to fully recover their investments in 4G. 

BNamericas: How about the ongoing launches using DSS [dynamic spectrum sharing] technology? Do you consider them 5G, as they’re being branded by operators, or are they more a middle-ground solution?

Medina: It’s a preparatory step. I think in the end 5G won’t be much different from what we saw happening with the move from 3G to 4G, when we had different stages and launches, gradually increasing speeds by 30%, 40%. DSS is one of the initial stages for 5G, but certainly not the endgame.

Capella: Yes, I agree. DSS is a transitional technology. It first enhances the offering of bandwidth to the end user, but 5G promises to bring a change in the network architecture that we won’t see in the first launches.

[Brazil has spearheaded the launches of 5G DSS, with announcements by Telefónica’s Vivo, TIM and América Móvil’s Claro].

BNamericas: How has 2020 been for Ciena in Latin America so far? In the end, what will have the greatest effect: the drive for digitization or the macroeconomic woes stemming from the pandemic?

Medina: In the company’s Q3 financials we emphasized our investment in infrastructure, in health and in ensuring people remain connected. Our contingency plans from a manufacturing perspective worked very well and at no time during the pandemic have we faced supply or manufacturing disruptions.

We’ve also made a very strong financial push to allow us to continue investing in this very complicated period. [Global] Q3 revenues were US$970mn, which was a 1.7% year-on-year increase, and our margins have increased significantly, going from 44.5% to almost 49%.

We expect the pandemic to bring some sort of impact from a macroeconomic perspective and, considering that, we’ve already announced in our 2021 outlook that our forecast for next year is for flat revenue. Overall, this has been a pretty stable year for us in terms of operations and business. 

To me it was a surprise that, despite the fact that Latin American countries endured much more severe lockdowns compared to the US, for example, our clients managed to work through it and sought to increase their video capabilities. In addition, many critical projects continued being carried out.  

BNamericas: But many telecom operators have moved to reduce their capital expenditure.

Medina: Yes, this was part of the warning we issued in Q3. We have to see how things will evolve, because now there’s an economic effect coming and we need to know how companies will absorb it. 

However, our business is very diversified. A good part of our operations are related to cable operators, which represented around 9% of our revenues in Q3. We also have relationships with over-the-top (OTT) players, large content providers, government. 

There was an impact on the businesses of our customers, as people are now working from home. We’ve heard from some clients that the sale of new services to their clients dropped by some 35%. So we’re working on the basis of seeing some cuts as a result of that.

In terms of Latin American geographies, Brazil has fared better than other countries in the last 12 months, but it’s too soon to come to any conclusions.

Capella: Building on what Fabio was saying, we’ve been intensifying the diversification of our business in Brazil. In recent quarters we added over 20 clients from different segments – submarine cables, datacenter providers, regional internet service providers. 

This diversification also helps us to get through these rough times, because although some service providers have revised their plans, others have had to accelerate their investments due to increased network traffic. 2020 has been a positive year for us in Brazil.

BNamericas: How about Ciena? Is the company reviewing investments planned for the year?

Medina: No. We haven’t changed anything at all regarding investments. We’re continuing to invest a large amount in R&D, more than US$500mn annually. 

Proof of that is that we recently launched our latest chipset family, Wavelogic 5 extreme, which is the first commercial chipset in the market with 800GHz capacity for fiber transmission. We now have 30 clients adopting this product, many of which are in Latin America. One of them is public and is TI Sparkle [the international services arm of the Telecom Italia Group], which has fiber pairs on Google’s Curie cable connecting the US to Chile.

We also launched the Wavelogic nano for datacenters, among others.

We’re financially healthy and we believe it’s important to keep investing now so that when the situation becomes more normalized we’ll have a much stronger advantage over our main competitors [Infinera and Juniper].

BNamericas: You mentioned Google’s Curie. Latin America has several submarine cables in the pipeline that are expected to be activated in the coming months. Will you also be providing capacity for any of them?

Medina: I can’t give specifics on what hasn’t yet been made public. But we have around 50% of this market worldwide and our presence in this segment in Latin America is very, very strong. 

BNamericas: OpenRAN is gaining ground across Latin America. Is Ciena taking part in any implementation or pilot in the region?

Medina: Ciena has been a strong advocate that networks of the future should be open and founded on the disaggregation of the software and the hardware parts. With the arrival of new technologies, edge computing and all these applications on the edge of the networks and all the requirements that are going to come with IoT and 5G, that means that this disaggregation will become much more relevant. 

We’ve been taking part in several pilots with service providers in Latin America. I can’t give details because these are things that our clients haven’t made public, but what I can say is that these tests are taking place with providers that have architectures covering different countries in Latin America.

Capella: I think everybody now understands that this is the way to go, especially from a cost perspective, as open formats allow for a diversification of equipment providers, greater competition and, therefore, lower costs for service providers.

What remains open is how to get there. It can be done through different models and with traditional suppliers or non-traditional, new, providers.

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