Tag Archives: Nokia

Manufacturing Returning to the U.S.

The other day I watched an online announcement by Nokia of a partnership with Sanmina in Pleasant Prairie, Wisconsin to rehab and expand an existing factory. The factory will create over two hundred new jobs and will manufacture fiber electronics like OLTs and ONTs that are used for fiber-to-the-premise. Vice President Kamala Harris was on hand for the announcement since the impetus to build a factory in the country was partially driven by Buy America provisions in the upcoming BEAD grants.

Nokia is not the only fiber-related manufacturer to expand production in the U.S. Corning announced the construction of a new fiber optic cable plant near Hickory, North Carolina. CommScope is building a new factory in Catawba, North Carolina.  Prysmian announced the conversion of a factory in Jackson, Tennessee from building copper cables to fiber cables.

A recent press release from the U.S. Department of the Treasury documents the big burst of investments in new factories. This is being funded, at least in part by infrastructure spending that came from the Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the CHIPS Act.

The following chart comes from that Treasury press release and shows how 2023 spending for manufacturing facilities has doubled the average spending for 2005 – 2022. Most of the new spending is on computers, electrical, and electronic factories. The Treasury press release notes that 18 new chipmaking factories were started in the country in 2021 and 2022. But since the announcement of the CHIPs Act there are over 50 new chipmaking facilities underway.

This can only be good news for the broadband industry. First, it increases the chance to buy American electronics as part of fulfilling grants. But the real benefit is over the longer run. This means that a lot of U.S. electronics manufacturing will be able to rely on U.S. factories manned by U.S. employees.

I’m sure many of you join me in being dismayed for decades as U.S. manufacturing jobs were shifted overseas. We’ve seen a steady erosion of good-paying factory jobs and a decrease in households in the middle class.

Many of these new and repurposed factories don’t require as many new workers as older factories due to automation. But every new U.S. manufacturing job created is a win for the economy. This is a needed shot in the arm for the economy. We can’t run an economy where everybody is doing service jobs – although it looked at one time like that is where we were headed.

Slowdown of Cellular Expansion

The broadband industry has always been cyclical. The industry has repeatedly gone through periods of booms and busts that have typically been exaggerated by the manufacturers of telecom equipment. When something new comes along, vendors jump on the new idea and drive up expectations for future sales. The stock prices of the vendors rise on the announced future expectations. But inevitably, the wave of enthusiasm comes back to earth, and the market returns to normal and vendor stock prices drop.

We’re now seeing the beginnings of the end of the boom of the big cellular upgrades to 5G. One indicator that the boom is slowing is that Ericsson and Nokia both recently lowered expectations for future equipment sales, and the stock of both companies instantly dipped around 10%.

For the last four years, the cellular industry has been in a boom as the big cellular carriers upgraded around 70% of their cell sites nationwide while also building new small cell sites. These upgrades meant huge sales for Ericsson and Nokia. It meant a big boom for tower climbers and crews who work on upgrading new cell sites. It has also meant a boom in fiber construction when carriers like Verizon and AT&T constructed fiber to replace costly leased transport for cell sites.

The improvement to the nationwide cellular networks has been impressive. The median cellular download speed nationwide measured by Ookla in 2017 was 22.6 Mbps, and at the end of 2022 had climbed to 193.7 Mbps. Most people think that fast cellular speeds are primarily for the benefit of customers. While this is an important issue, faster speeds are even more important for the best functioning of cell sites. Faster speeds mean a given customer uses the spectrum resources for a shorter time, thus freeing the network for other customers. Faster speeds alone have stretched the capability of cell sites to be able to handle a lot more traffic.

A slow-down of 5G construction will have a lot of repercussions around the industry. It will most immediately negatively affect firms and crews who have been working on upgrading cell sites for the last several years.

But there is an upside for the industry as a whole since some of the technicians who have been working on cellular projects can transition to the giant workload currently coming from building fiber. This won’t help technicians who only climb towers, but many of the other technicians already have fiber experience in their background.

These boom and bust cycles raise some interesting questions for the industry. The ones most harmed by the busts are the smaller construction and support companies that gear up to meet a specific industry demand – and these are usually the first ones cut when that demand slows.

I have to wonder what will happen to all of the cell sites that haven’t been upgraded. A lot of the remaining cell sites are rural, and I still see a lot of rural cell sites where carriers have not upgraded to FWA broadband. I recently cited the CEO of T-Mobile who described how the company rates rural markets. His rating system hinted that upgrades might not be coming soon for markets that the company rates low where the population is scattered.

I’ve worked in a dozen counties recently where 30% or more of residents told us on surveys that cellular coverage doesn’t work at their homes. This blog has largely concentrated on the lack of good broadband, but it’s just as devastating for a community when cell phones don’t function well. I’m not sure that DC policymakers fully grasp the hardships that come from lack of cellular coverage. One of my blogs earlier this year talked about a family killed by a tornado since they couldn’t be reached by cellular or broadband to warn about the coming storm. That’s an extreme example of problems that come from lack of cellular coverage – but the bigger tragedy comes in folks that can’t communicate in ways that the rest of us take for granted.

A Year of Mergers

Bell_logo_1969Our industry has seen many mergers over the years between the biggest companies in the sector. But for the most part big mergers that change the face of the industry have been sporadic. We had AOL buying Time Warner in 2000, Alcatel buying Lucent in 2006 and CenturyLink buying Qwest in 2011.

But now it seems like I can’t read industry news without seeing discussions of a new merger. During the last year or so we saw AT&T gobble up DirecTV, saw Alcatel-Lucent grabbed by Nokia and saw Charter buy Time Warner Cable and Bright House Networks. And we are now watching the regulators sorting out mergers with Verizon trying to buy both XO Communications and Yahoo, with CenturyLink wanting to buy Level 3 Communications and AT&T wanting to acquire Time Warner.

From reading Wall Street speculation it seems like the current merger mania in our industry is not over. The rumors are strong that CBS and Viacom will soon announce a merger. There is rampant speculation that several companies might try to outbid CenturyLink for Level 3. There are rumors that Comcast, Charter and Altice are interested in buying T-Mobile or Sprint. There are continuing rumors that Verizon wants to buy Dish Networks to get permanent access to the huge swatch of spectrum they own. And there have been rumors for the last year that somebody ought to buy Netflix.

And these giant mergers aren’t just happening in telecom. We see Bayer buying Monsanto, Microsoft buying Linked-In, Marriott buying Starwood, Tyco buying Johnson Control, Protection 1 buying ADT, Sherwin-Williams buying Valspar and Fortis buying ITC Holdings.

It’s really hard in the telecom world to know if mergers are good or bad for the industry. Some mergers are clearly bad because they eliminate competition and create oligopolies at the top of the market. The rumored merger between CBS and Viacom is one such merger. Today there are only five major programmers in the country and this reduces that to four. A lot of the woes in the industry today are due to the greed of programmers and consolidation at the top of the industry can’t mean anything good.

But other mergers might be beneficial. Consider the impact of Comcast or Charter buying T-Mobile or Sprint. I just saw an article this week that showed that the wireless operations of AT&T and Verizon are still showing a gross margin of over 50%. It’s been clear to every consumer that cellular service is overpriced due to lack of meaningful competition. Perhaps one of the big cable companies could drive down cellular prices in an attempt to grab market share.

But on the flip side, letting these huge cable companies develop a quad play product is bad for anybody else that tries to compete with them for broadband. A new fiber overbuilder in a city would have an even bigger challenge if they try to displace a cable competitor that offers cellphone service bundled with their broadband. It’s been clear for a long time that lack of broadband competition is bad for consumers.

The underlying theme driving all of these mergers is that Wall Street has a never-ending appetite for increased earnings. That alone is often a good thing. Many times the companies being acquired are underperforming for some reason and mergers sometimes wake them up to do better. Many mergers promise improvement earnings due to the effects of consolidation and a reduction in the management and overhead drags.

But consider what mega-mergers in the telecom space more often mean. They mean that fewer and fewer companies control the vast majority of the market. And those giant companies are driven by Wall Street to increase earnings quarter after quarter forever – and at a pace and level that exceeds general inflation. You only have to do the math on that basic concept to realize that this means price increases for residential and business customers year after year to keep meeting higher earnings targets.

Years ago we had Ma Bell that controlled 95% of the phone business in the country. AT&T would have acted like any other commercial company except for the fact that their prices were heavily restricted by regulators. But stockholders of these big companies today do just the opposite and they pressure management to increase profits no matter the consequences. It is the chase for bigger earnings that has seen programming costs and cable TV rates climb much faster than inflation for the last decade to the point where the cable TV product costs more than many households are willing to pay.

I doubt we will see the end to these mergers, but if we don’t find a way to curb them the inevitable results will be a tiny number of companies controlling the whole sector, but with none of the restrictions in the past that were put on companies like Ma Bell. It scares me sometimes to think that broadband rates are going to increase in the same manner that cable rates increased in the past. But when you look at what the big ISPs have to sell it’s hard to not picture a scenario where earnings pressures are going to do the same thing to broadband that has been done to cable rates. That is going to do great harm the country to the benefit of the stockholders of a few big companies.

Technology and Telecom Jobs

PoleIn case you haven’t noticed, the big companies in the industry are cutting a lot of jobs – maybe the biggest job cuts ever in the industry. These cuts are due to a variety of reasons, but technology change is a big contributor.

There have been a number of announced staff cuts by the big telecom vendors. Cisco recently announced it would cut back as many as 5,500 jobs, or about 7% of its global workforce. Cisco’s job cuts are mostly due to the Open Compute Project where the big data center owners like Facebook, Amazon, Google, Microsoft and others have turned to a model of developing and directly manufacturing their own routers and switches and data center gear. Cloud data services are meanwhile wiping out the need for corporate data centers as companies are moving most of their computing processes to the much more efficient cloud. Even customers that are still buying Cisco boxes are cutting back since the technology now provides a huge increase of capacity over older technology and they need fewer routers and switches.

Ericsson has laid off around 3,000 employees due to falling business. The biggest culprit for them is SDNs (Software Defined Networks). Most of the layoffs are related to cell site electronics. The big cellular companies are actively converting their cell sites to centralized control with the brains in the core. This will enable these companies to make one change and have it instantly implemented in tens of thousands of cell sites. Today that process requires upgrading the brains at each cell site and also involves a horde of technicians to travel to and update each site.

Nokia plans to layoff at least 3,000 employees and maybe more. Part of these layoffs are due to final integration with the purchase of Alcatel-Lucent, but the layoffs also have to do with the technology changes that are affecting every vendor.

Cuts at operating carriers are likely to be a lot larger. A recent article published in the New York Times reported that internal projections from inside AT&T had the company planning to eliminate as many as 30% of their jobs over the next few years, which would be 80,000 people and the biggest telco layoff ever. The company has never officially mentioned a number but top AT&T officials have been warning all year that many of the job functions at the company are going to disappear and that only nimble employees willing to retrain have any hope of retaining a long-term job.

AT&T will be shedding jobs for several reasons. One is the big reduction is technicians needed to upgrade cell sites. But an even bigger reason is the company’s plans to decommission and walk away from huge amounts of its copper network. There is no way to know if the 80,000 number is valid, but even a reduction half that size would be gigantic.

And vendor and carrier cuts are only a small piece of the cuts that are going to be seen across the industry. Consider some of the following trends:

  • Corporate IT staffs are downsizing quickly from the move of computer functions to the cloud. There have been huge number of technicians with Cisco certifications, for example, that are finding themselves out of work as their companies eliminate the data centers at their companies.
  • On the flip side of that, huge data centers are being built to take over these same IT functions with only a tiny handful of technicians. I’ve seen reports where cities and counties gave big tax breaks to data centers because they expected them to bring jobs, but instead a lot of huge data centers are operating with fewer than ten employees.
  • In addition to employees there are fleets full of contractor technicians that do things like updating cell sites and these opportunities are going to dry up over the next few years. There will always be opportunities for technicians brave enough to climb cell towers, but that is not a giant work demand.

It looks like over the next few years that there are going to be a whole lot of unemployed technicians. Technology companies have always been cyclical and it’s never been unusual for engineers and technicians to have worked for a number of different vendors or carriers during a career, yet mostly in the past when there was a downsizing in one part of the industry the slack was picked up somewhere else. But we might be looking at a permanent downsizing this time. Once SDN networks are in place the jobs for those networks are not coming back. Once most IT functions are in the cloud those jobs aren’t coming back. And once the rural copper networks are replaced with 5G cellular those jobs aren’t coming back.

An Upgrade to G.fast

Speed_Street_SignNokia has announced the lab trial of the next generation of G.fast, the technology that can pump more bandwidth through telephone copper. They ae calling the technology XG.fast.

In a recent trial the equipment was able to send a 5 Gbps signal over copper for 100 meters and 8 Gbps for 30 meters. This is much faster than the G.fast top speed in trials of about 700 Mbps. In a real life situation using older copper the speeds will not be nearly this fast. G.fast in real life trials has gotten about half of the speeds seen in labs, and it would be impressive if that can also be achieved for XG.fast.

The technology works by utilizing higher-band frequencies on the copper. Traditional VDSL uses frequencies up to about 17 MHz. G.fast uses frequencies between 106 MHz and 212 MHz. XG.fast climbs the spectrum even further and adds on spectrum between 350 MHz and 500 MHz.

There are a lot of issues involved in using all of this frequency on a small-gauge copper. The main problem is crosstalk interference – when adjoining copper wires interfere with each other, and this degrades the signal and drastically cuts down on the distance the signal can be transmitted.

Nokia mitigates the crosstalk using vectoring, the same as is done with VDSL and other DSL technologies. Vectoring generates an –out of-phase signal that can cancel out some of the interference. But there is so much interference at thise frequencies that vectoring can only keep the signal coherent for the short distances seen the trial.

To date there has not been a lot of interest in G.fast. Adtran, the other competitor in the G.fast space claims to have now conducted ninety field trials of the technology worldwide. That’s an extraordinarily low number for a technology that can add speed to existing copper. But it looks like most phone companies are not interested in the technology, and they have some good reasons.

The short distances make G.fast and its new successor impractically expensive in the copper plant. In order to use the technology the telco would have to mount an XG.Fast transmitter at the pole outside each home, or in dense neighborhoods to perhaps serve a few homes. But if the telco wants to take advantage of the faster speeds that XG.Fast can get into the home they also would need to string fiber to feed the XG.Fast transmitters.

XG.Fast is largely a fiber-to-the-curb technology and the cost of the building fiber up and down streets is the big hurdle to using the technology. Any company willing to spend the money to build that much fiber probably isn’t willing to trust copper for the last 100 feet.

There is one application where XG.fast makes good economic sense. It can be extremely costly to rewire older apartment buildings with fiber. But every apartment building has existing telephone wiring and XG.fast can be used to move data from a telephone closet to the apartment units. This sounds to be far less costly than trying to snake fiber through older buildings. Since a lot of companies have avoided older apartment buildings this might offer a relatively inexpensive way to bring broadband.

You can’t fault Nokia for continuing to pursue the technology. There is a huge amount of copper still hanging on poles and the world keeps shouting for more broadband. But I get nervous about recommending any technology that isn’t widely accepted. I can picture a telco deploying this technology and then seeing support dropped for the product line.

But I can’t see this ever being much more than a niche technology. Telcos in the US seem to be looking for reasons to tear down copper and don’t seem willing to take one more shot at a copper technology. There might be a good business case for using the technology to extend broadband inside older buildings. But US telcos seem completely uninterested in using this in older copper networks.

ALU Sells to Nokia

sculptura phoneIt was just announced that Nokia will be buying Alcatel/Lucent. It seems that this was done so that Nokia can pick up the latest 4G technology from ALU. As one who has been in the industry for a while I have a long memory of the history of Lucent.

Before the Lucent name, the business was a part of AT&T and was the combination of Western Electric and Bell Labs. Bell Labs was always a wonderment for techies like me because they employed some of the smartest minds in the world. The lab was started by Alexander Graham Bell and over the years they developed such things as the transistor, the laser, information theory, and the UNIX and C++ programming languages. There were eight Nobel Prize winners from Bell Labs. I worked in the Bell System for a few years pre-divestiture and it was a point of pride to work for the same company that operated Bell Labs.

There was a time when Western Electric was the sole manufacturer of telephones and telecommunications devices. I recall that when I was a kid the only option for a home phone was the ponderously heavy, black Western Electric phone. These were hard wired and didn’t have long cords and when you talked you had to stand close to the phone. Over the years, Western Electric introduced smaller phones like the Princess phone and introduced longer cords that provided a little more freedom when using the phone. But all of the Western Electric phones were solid and they rarely had problems or broke. They were solid America technology made in America.

The first big change I remember for Western Electric was when AT&T started licensing other companies to make some handsets. I remember when the Mickey Mouse phone, the Sculptura phone (pictured here) and other colorful phones hit the market. Within a few years, the FCC began to widely license handsets made by numerous companies as long as they passed Bell Labs certification, and Western Electric lost their monopoly on handsets.

Western Electric also made the bulk of the electronics used by AT&T. These included voice switches, line repeaters, and various kinds of carriers used to carry more than one call at a time across a piece of copper. But Western Electric never had a total monopoly and companies like Nortel often sold equipment to non-AT&T telcos.

The big change for the companies came during the divestiture of AT&T in 1984. During the divestiture both Western Electric and Bell Labs were placed into the AT&T Technologies subsidiary. The companies went on, largely unchanged, until they were spun off from AT&T as Lucent, a standalone corporation, in 1996. Most of Lucent’s business was still with the various Bell companies, but they were branching out into numerous fields of telephony technology. At that time Lucent was the mostly widely held stock company in the US and had a stock price of $84 and a market capitalization of $258 billion.

Lucent fell onto hard times at the end of 2000 and was one of the first companies to be hurt by the telephony and dot com crash. The industry as a whole had heavily pursued the new competitive telephone companies (CLECs) that had been authorized by Congress and the FCC in 1996. Unfortunately, the large companies like Lucent and Nortel provided significant vendor financing to the fledgling CLEC industry, and when those companies started folding all of the large manufacturers were thrown into financial trouble.

Lucent never fully recovered from that crash (like many other tech companies that disappeared at that time). Their stock lost significant capitalization from the crash, but then really got slammed when it was revealed that the company had been using dubious accounting methods for recognizing sales and revenues. By May of 2001, the company’s stock had fallen to $9. I remember at the time that everybody in the industry could quote the Lucent stock price and we all watched in wonder as the company crashed and burned.

Over the next few years Lucent tried to gain some value by spinning off business units. It spun off its business systems into Avaya and its microelectronics unit unto Agere Systems. By 2003 the Lucent stock price was down to just over $2 per share and the company had shed over 130,000 employees. Lucent merged with Alcatel in 2006 and became Alcatel Lucent (ALU). That company did well for a while but then had a long string of losses until positive profits were recently announced.

And now the business has been absorbed by Nokia, mostly to pick up the division that makes 4G wireless equipment. There is not much of the old company left. Bell Labs is still around and one has to wonder if Nokia will continue to operate it. The Lucent history is not unusual for high tech companies. Western Electric had a near-monopoly for decades, but over time everything made by them changed drastically and newer companies ate away at the old giant. Today we have new giant companies like Apple and Samsung, and if history is any indicator they will someday be supplanted by somebody new as well.