Mapping the Future of Optical Deployments Andrew Schmitt

Mapping the Future of Optical Deployments Andrew Schmitt Lead Analyst September 19 th 2017 ECOC Gothenburg, Sweden PAGE www. cignal. ai

MY NETWORK IS A BEAUTIFUL, UNIQUE SNOWFLAKE • Customer network designs vary widely across markets • Vendors face conflicting requests • IP over DWDM • Advanced Packet-OTN Switching (L 1+L 2) • Maximum Spectral Efficiency • Open Line Systems • Open Hardware Interfaces • Whitebox Pricing SHARE OF GLOBAL SPEND ON OPTICAL TRANSPORT (2016) 2 H 16 OPTICAL CUSTOMER MARKETS REPORT PAGE 2 www. cignal. ai

CLOUD & COLO IS EATING THE NETWORK 2 H 16 OPTICAL CUSTOMER MARKETS REPORT PAGE 3 www. cignal. ai

HISTORY OF THE WEBCO WHITEBOX • COMPUTING: Blade servers designed for general purpose compute were vastly inefficient ? • SWITCHING: Ethernet Switches had too many features, or not enough customization • WDM TRANSPORT: • What problem needs solving? PAGE 4 www. cignal. ai

THE MARKET RESPONDS: COMPACT MODULAR Infinera CX/CX 2 Ciena Waveserver AI PAGE 5 Huawei OSN 902 Cisco NCS 1000 ADVA Cloudconnect Coriant Groove G 30 Fujitsu 1 FINITY T 100/T 200 Nokia PSI-2 T www. cignal. ai

COMPACT MODULAR HW SIZE & FORECAST • Forecast increased due to adoption outside Cloud & Colo customers • Incumbents and others will use equipment in this category for hardware disaggregation • Revenue recognized in North America is often for Cloud and Colo equipment which is used overseas 1 H 17 OPTICAL APPLICATIONS REPORT PAGE 6 www. cignal. ai

NOT THE SAME REQUIREMENTS TELCO PAGE WEBCO o Many customers o One customer; me o Unpredictable - flexibility important o More predictable network design o Transport & Services separate o Centralized management o Outage = customer pain o More graceful network failure o Minimize stranded bandwidth o Manage application priorities o Capex growing 5% per year o Capex growing way faster 7 www. cignal. ai

ADVANCED PACKET-OTN SWITCHING SYSTEMS WHAT: Unified hardware that collapses all OTN and Ethernet switching into a single chassis E. g. Verizon Next Gen Metro HOW MUCH: About $2 B ($1 B ex. China) in 2017. Market growing 15% per year, faster growth in 2017/8. PAGE 8 WHO: Incumbents who want converged OTN and Ethernet networks for delivery of myriad services via a single platform CHALLENGE: Requires big R&D commitment to win a bigger share of a shrinking customer market ADVANCED SWITCHING: Hardware with a centralized OTN switch fabric and layer-2 switching functions; includes distributed switching architectures that can support 4+ cards; does not include line-card muxponders. www. cignal. ai

ADVANCED SWITCHING SYSTEMS - DEFINED 2016 Revenue & Regional Splits Vendor Notes Systems Huawei OSN 9800 Ciena 5430, 6500 (% w/ L 2 fabric) Nokia 1830 PSS (% w/ L 2 fabric) ZTE ZXONE 9700 Fujitsu 9500 (% w/ L 2 fabric) Coriant m. Tera, 7100 (% w/ L 2 fabric) Cisco NCS 4000 ECI NPT Series PAGE 9 $MM NA EMEA APAC CALA Almost all Chinese customers, limited adoption outside China $550 M 0% 23% 74% 3% Increasing adoption by Ciena customers across all markets $296 M 71% 10% 14% 5% About 30% of 1830 PSS sales use Advanced Switching Fabric $269 M 18% 42% 22% 18% Only a factor in China $133 M 0% 9% 91% 0% Sold to both Verizon and AT&T, legacy Verizon metro uses Advanced Switching $29 M 100% 0% Legacy Tellabs 7100, m. Tera ramping slowly $61 M 73% 10% 7% 10% Only major announced win is Verizon $10 M 100% 0% Sales concentrated in Middle East, India and in utility sector $64 M 3% 45% 48% 4% www. cignal. ai

OPTICAL NETWORK SUPPLY MODELS Issue RFP and select one vendor. Repeat in a few years and build overlay network. Smaller operators with simple networks Issue RFP and deploy several vendors in isolated domains or in overlay networks. VERTICAL INTEGRATION Every operator until a few years ago Use open line systems & decouple terminal investment from common equipment. Submarine systems, large cloud & colo vendors today Integrate standalone components from multiple vendors: Amps, ROADMS, transponders, Ethernet/MPLS switches. Hardware includes northbound interface and control plane interoperability. AT&T Domain 2. 0 DIS-AGGREGATED HARDWARE Purchase off the shelf whitebox with proven hardware design and specifications. May also have open source software for operation and northbound interface. Facebook Voyager, TIP Project Design hardware, manage contract manufacturer, write and/or find software, manage end-toend equipment lifecycle. WHITEBOX Facebook, Google, Microsoft etc. compute & switching PAGE 10 www. cignal. ai

PROS & CONS OF OPTICAL DEPLOYMENT MODELS VERTICAL INTEGRATION DIS-AGGREGATED WHITEBOX • • • One throat to choke Less opex - more capex Best performance Simplified supply chain Easiest operational model • • • Supply chain flexibility Less capex - more opex Choose latest technology Agile deployment culture Operational leverage • • Buy exactly what you want Maximum opex Maximum control Something Fun to Do • • Tied to a supplier Creates culture of vendor dependence Reduced pricing leverage • • Over-engineered network Must transition to complex operational model Requires invention of new network management • Not solving any apparent engineering problems Maximum supply chain risk • Network Performance Operational Simplicity PAGE 11 • Service and Technology Speed Operational Agility • THE CULT OF OPEN www. cignal. ai

WHAT HAPPENS NEXT Equipment and component vendors continue to open up access to their hardware and software Some operators may pursue optical white box but this is not an economically rational decision for almost everyone Also find ways to add value in order to build superior vertically integrated network systems Operator business models are changing rapidly, they determine network deployment models The Cult of Open PAGE 12 www. cignal. ai

THANK YOU sales@cignal. ai PAGE +1 617 299 3354 /cignalai www. cignal. ai