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CommScope has long been preparing for the coming of 5G, and we have a strong understanding of the complexity and challenges involved in the transition toward these networks. We have a strong track record of helping customers through every previous technology evolution in wireless; in fact, a significant part of our nearly $200 million annual R&D budget is used to develop new solutions to increase network speed and efficiency and to improve network response time in 5G infrastructures.
Our view is that 5G will be a “network of networks”—a convergence of fixed and mobile with deep fiber penetration to support the variety of 5G use cases. Because today’s evolved 4G network will be a cornerstone for 5G, operators need to continue to bring wireless access closer to their customers, known as densification. Densification requires solutions we specialize in, including metrocells, small cells, fiber, and backhaul capability. CommScope is a global leader in both wireless and fiber, a powerful combination that has been and will continue to be a significant competitive advantage.
Our technology teams are also participants in the standards bodies and advocacy groups responsible for creating and supporting 5G, ensuring we are well-versed in the requirements our customers will face and positioning us to create solutions that meet their needs. CommScope has played a key role in virtually all the world’s premier communication networks, and we are confident that 5G will be no different. Our portfolio of end-to-end solutions includes key components our customers need to build high-performing 5G networks.
As more user-driven information and commerce flows through networks, operators are quickly deploying larger and more complex data centers to support that growth. We believe that multitenant and hyperscale data centers are high-growth markets. We have prioritized our effort to ensure that we are well positioned to take advantage of these opportunities. We are currently developing innovative solutions and capabilities to address these market needs; for example, our new High Speed Migration Platform helps data center managers build faster, more agile, high-density migration plans, allowing them to accelerate the growth of their capacity and speed of their digital transformation initiatives.
To address the significant increase in usage of third-party data centers, we formed the Multi Tenant Data Center (MTDC) Alliance. The MTDC Alliance members can offer optimal network infrastructure solutions for customers who need to deploy this technology in multitenant environments. The MTDC Alliance deepens CommScope’s relationships with our partners and helps enterprise customers transition to cloud computing with CommScope’s trusted partners and leading solutions.
Moreover, our acquisition of Cable Exchange, which we completed in August, provides the fast delivery of fiber optic and copper assemblies, improving our ability to efficiently meet the increased pace of customer requests. This highly complementary acquisition deepens our capabilities in supporting the growing market for high-capacity, multitenant and hyperscale data centers operated by the world’s largest technology and retail companies, allowing us to enhance our service to the data center market.
We remain committed to developing innovative solutions to meet the needs of the market and are confident Cable Exchange’s quick-turn capabilities and the expansion of our High Speed Migration Platform will position us to grow in the multitenant, hyperscale and cloud data center markets in 2018.
There are multiple growth drivers in fiber markets today, whether they be in the data center or in the access layer supporting fixed or mobile networks. Data centers that were deployed centrally are now migrating out of the core and toward the edge to support faster network response time and reduce network congestion. Fixed and mobile networks are converging as the need for high-speed connectivity and cost efficiency become even more pressing. We believe that the development of a unified network for homes, businesses, and wireless locations will be a high priority for many operators.
This network convergence was the thesis around our BNS acquisition in August 2015, which enables us to serve our customers with a global portfolio of leading wireless and fiber solutions. In anticipation of growing demand, we have entered into an eight-year supply commitment with OFS to help ensure our optical fiber supply. So, no matter how our customers deliver gigabit speed to consumers, we have an optimal solution.
In addition to the growing demand for fiber in outdoor fixed and mobile networks, we are excited about the opportunities for fiber in data centers. With the rising demand for bandwidth, data center managers must design their infrastructure to manage both higher speeds and increased density.
To address these needs and position CommScope to take advantage of the future transformation of this infrastructure, we continue to innovate, make strategic investments, and build a portfolio of solutions. We developed our High Speed Migration Platform to help data center managers accelerate the growth of their data center capacity and the speed of their digital transformation initiatives, which is unique in the industry. In addition, we greatly improved our quick-turn delivery capabilities with the acquisition of Cable Exchange. We believe that the addition of Cable Exchange and the expansion of our high speed data center platform will position us for hyperscale and multitenant data center growth in 2018.
Fiber will be the foundation of networks in the future, and we’re excited about CommScope’s ability to support this.
Looking ahead, we are expecting more normalized order patterns and are preparing to capitalize on numerous global developments to ensure we return to growth in 2018. Due to the nature of the markets we serve, the timing of large-project spending is impactful to our results. One of the key wireless projects expected for 2018 is the FirstNet deployment, which is a network dedicated to US public safety. This multiyear network build is a growth driver for our Mobility Solutions segment, and one for which we believe we are well-positioned. We also will be looking at the pace and intensity of deep-fiber builds to homes, businesses, and cell sites. Beyond North America, although we have seen positive trends in some regions, we remain cautious on most international markets.
M&A by our customers and the impact that may have on the timing of spending remains a key variable. Other items we are keeping an eye on include our customers’ reactions to the repeal of net neutrality, which could spur increased network investment, and the transition toward 5G, which is a demand driver in both our Mobility Solutions and Connectivity Solutions segments.
US tax reform is another issue on which we have kept a close eye. Under the recently enacted US tax reform legislation, CommScope expects to benefit with a lower adjusted effective tax rate. In addition to our beneficial tax rates, some of our customers have announced their intent to increase CapEx spending due to the passage of tax reform.
Our markets are changing, and this change is happening faster than ever. Many of our customers are under tremendous pressure to perform more efficiently and are facing increasing sources of competition. Ensuring that we are a critical part of this transformation is part of our goal to be the preferred partner to our customers, our suppliers, our distributors, our channel partners, and even our technology partners.
As we see the proliferation of mobility, cloud, the internet of things, virtual augmentation, and other factors, the world is becoming more connected and CommScope has an opportunity to become a bigger force in helping our customers transform their networks to support a connected lifestyle. We are doing this by helping them solve problems, such as building more network for less money and doing it much faster. The more CommScope can provide simple, elegant, efficient solutions that help our customers to quickly build, optimize, and operate their networks, the more valuable of a partner we will be.
Being a preferred partner starts internally, with our speed, flexibility and responsiveness. We are focused on continued improvement there, knowing it ultimately benefits our customers and partners, enabling us to perform and create value for shareholders.
The BNS acquisition clearly strengthened our capabilities and solutions, particularly in addressing more wired and wireless network challenges with an enhanced fiber portfolio. Since the completion of that transaction, we have made significant progress and have essentially completed this substantial and complex integration effort. This includes our 2017 success in completing the transition of the global BNS team onto CommScope’s business systems, the largest scale and most complex project CommScope has ever undertaken.
While our primary focus, more than ever, is on our customers, we are continuing our internal efforts to improve our speed and responsiveness. Improving velocity will benefit the company and its customers in many ways, from order to shipment, from concept to design, from decision making to response time, from information gathering to communication. We’re also focused on eliminating complexity in our business at every turn in order to remove obstacles and unneeded processes that can hinder our employees as they innovate and deliver great service and solutions to customers.
As we did with Cable Exchange in 2017, we will continue to look at other acquisition possibilities in order to leverage our great platform and build upon our capabilities in helping customers with what’s next.
In addition to executing on our strategy, we will maintain a disciplined approach to capital allocation through strategically reinvesting in the business, paying down debt and returning capital to shareholders. We remain committed to delivering value to shareholders, and believe that our platform of world-class differentiated solutions and services positions us to do so in 2018 and beyond.