I often draw a straight line from the COVID-19 pandemic through an explosion in work-from-home/telecommuting and distance learning, to the urgency of closing the "broadband divide", to government initiatives to do so, resulting in funding, to broadband network deployments, especially Fiber-to-the-Home (and Business -- FTTH). Add in efforts by Tier-1 and Tier-2 operators to retire their aging, expensive-to-maintain, energy inefficient and noncompetitive copper networks with fiber, and recognition of FTTH as an investable asset, and we have a boom in new FTTH deployments.These will peak in 2024-26 and continue throughout the decade. It seems that not a single business day passes without yet another announcement from some operator that it is beginning construction of an FTTH network in one of its communities. Incidentally, this boom does not include those countries in East Asia -- especially China -- which have already extended fiber to the overwhelming majority of their populations.

A quick perusal of Q2 earnings reports verifies that the boom is well underway.  I follow the quarterly earnings calls of the main Western FTTH equipment vendors: Adtran, Calix, DZS and Nokia. All report significant increases in sales year-over-year and some report quarter-over-quarter sales increases (the second quarter is typically slow in the telecom equipment business, so quarter-over-quarter declines are expected). I'm not going to go into the numbers in a short blog post, but overall, it was a blow-out quarter!

One thing that stands out is the uptake of XGS-PON (10 Gbps symmetric Passive Optical Network). All of the vendors report sharp increases in both Optical Line Terminating equipment (OLTs) and Optical Network Terminating Units (ONTs) (OLTs are the infrastructure boxes that go into central offices, hubs, huts, cabinets etc., and ONTs are the boxes that go into the home). For example, one vendor reported a 93 percent increase in XGS-PON ports shipped year-over-year, and a 58 percent increase in ONTs. The price of XGS-PON equipment has come down the learning curve and now is close enough to parity with GPON (2.5/1.2 Gbps PON) that it makes no sense to use the older technology in new builds. Operators tend not to want to upgrade existing networks, while using XGS-PON for new deployments, so numbers of XGS-PON OLT ports shipped is a pretty good proxy for numbers of homes and businesses newly passed by PON.

The other thing that is striking is how the equipment vendors are weathering global supply chain issues. The problems are not with the key parts that make an OLT or an ONT -- complex PON interface and switching chips, principally from Broadcom -- but rather with generic parts like capacitors, voltage regulator chips and mechanical items.The issues are important enough that all the vendors addressed them in their quarterly earnings reports. The shortages have created a backlog of orders, taking their toll on revenues and pushing delivery times out by months or even years. However, all of the vendors claim to be working around them. The work-arounds include asking customers for extended forecasts of their needs a year or two in advance, using that data to place advanced orders with component vendors,re-engineering to replace unobtainable components with available ones, extending their supplier networks and raising prices to meet higher component costs. As the supply crisis starts to ease around the end of this year or early next, vendors will be be able to work through their backlogs, shipments will go up correspondingly for a few quarters and lead times will start to return to normal. 

This is only the beginning. As big injections of government money -- particularly a 42.5 Billion dollar grant program in the US -- kick in, new FTTH projects will take off at an accelerating pace. For PON equipment vendors, these are happy days.