Market Analysis – 43222629 – Modem banks

Executive Summary

The global market for modem banks is small and contracting, with an estimated current Total Addressable Market (TAM) of est. $45 million. This legacy category is projected to decline at a Compound Annual Growth Rate (CAGR) of est. -8.5% over the next three years as modern alternatives proliferate. The single greatest threat is technology obsolescence, driven by the widespread adoption of cellular (4G/5G) and broadband for out-of-band management and M2M connectivity, coupled with the decommissioning of public switched telephone networks (PSTN). The primary opportunity lies in strategically managing the transition to next-generation cellular-based remote access solutions.

Market Size & Growth

The market for traditional modem banks is in a state of managed decline, sustained primarily by legacy system support and niche out-of-band (OOB) management applications. The global TAM is projected to shrink consistently as organizations migrate to more modern, IP-based solutions. The largest geographic markets remain North America, Europe, and APAC, driven by the need to maintain existing infrastructure in data centers and industrial settings.

The three largest geographic markets are: 1. North America (est. 40%) 2. Europe (est. 30%) 3. Asia-Pacific (est. 20%)

Key Drivers & Constraints

1. Constraint: Technology Obsolescence. The primary constraint is the rapid replacement of dial-up technology with cellular (4G/5G LTE) and broadband internet for primary and backup connectivity, including OOB management.
2. Constraint: PSTN Decommissioning. Telecommunication providers globally are phasing out traditional copper-wire telephone services (POTS/PSTN), eliminating the foundational infrastructure required for analog modem banks to operate. [Source - FCC, 2022]
3. Driver: Legacy Infrastructure Support. Demand is sustained by the need for reliable, non-IP-based OOB management for critical servers, routers, and switches in established data centers, as well as support for legacy industrial (SCADA) and point-of-sale systems.
4. Driver: Security in OOB Management. For certain high-security environments, a physically separate, non-routable dial-up connection is still perceived as a secure "last resort" access method, driving minimal but stable demand.
5. Constraint: Component End-of-Life (EOL). Manufacturers of the core chipsets and controllers for analog modems are discontinuing production, creating supply chain risks and forcing product EOL for modem bank suppliers.

Competitive Landscape

The market is highly consolidated, characterized by a few established players focused on the broader remote access and infrastructure management market. Barriers to entry are low from a technology standpoint but high from a market-viability perspective, as the shrinking demand discourages new entrants.

⮕ Tier 1 Leaders * Digi International (Opengear): Market leader in OOB management, offering integrated solutions that combine traditional serial/modem access with modern cellular failover. * Perle Systems: Specialist in serial-to-Ethernet and OOB management hardware, known for robust and reliable console servers with optional integrated modems. * Multi-Tech Systems: Long-standing provider of M2M and IoT communication devices, including industrial-grade external modems and legacy modem banks.

⮕ Emerging/Niche Players * USRobotics (UNICOM Global): A legacy brand still offering analog modems, primarily serving small business and niche replacement markets. * StarTech.com: Distributor and brander of a wide range of IT connectivity parts, including single-port external modems for legacy applications. * ZPE Systems: Focuses on open-platform infrastructure management solutions that can integrate various access methods, including legacy modem pools.

Pricing Mechanics

The price build-up for a modem bank is dominated by hardware costs. A typical 16-port rackmount unit's cost structure is approximately 60% hardware (chassis, power supply, modem chipsets, CPU), 25% software/firmware R&D and licensing, and 15% assembly, logistics, and margin. The technology is mature, leading to relatively stable pricing compared to cutting-edge network hardware.

However, volatility can arise from supply shocks in legacy components. The most volatile cost elements are tied to the semiconductor supply chain, even for older nodes.

• Modem Controller Chipsets: est. +5-10% change in the last 18 months due to constrained capacity at foundries producing mature-node semiconductors.
• DRAM/Flash Memory: est. +15-20% change, following broader memory market price fluctuations.
• Logistics & Tariffs: est. +5% change, influenced by global freight costs and trade policies, though this has stabilized from post-pandemic highs.

Recent Trends & Innovation

• Shift to Cellular OOB (Q1 2023 - Ongoing): The most significant trend is the replacement of modem banks with cellular gateways. Suppliers are heavily marketing 4G/5G LTE solutions as the primary OOB method, offering higher speed, better security, and independence from aging PSTN infrastructure.
• Integration into Console Servers (Q3 2022): Standalone modem banks are disappearing. Functionality is now an optional, integrated feature within larger "resilient infrastructure" or "smart out-of-band" console servers, which combine serial, Ethernet, and cellular access in one chassis.
• PSTN Shutdown Acceleration (H2 2023): Major carriers in the US and Europe have accelerated timelines for shutting down copper networks, forcing enterprise customers to find alternatives for fire alarms, elevator lines, and modem-based remote access.
• Focus on Software & Security (Ongoing): Innovation is centered on the management software. This includes zero-trust security models, centralized cloud-based orchestration portals, and robust logging/auditing for all remote access sessions, regardless of the physical connection method.

Supplier Landscape

Regional Focus: North Carolina (USA)

North Carolina presents a stable but transitioning demand profile for this category. The state's significant concentration of large data centers (Apple, Google, Meta) and financial services headquarters (Charlotte) creates a consistent need for robust out-of-band management. While historical deployments rely on modem banks, new data center builds and infrastructure refreshes are exclusively specifying cellular (4G/5G) OOB solutions. Local demand is therefore shifting from purchasing new modem banks to maintaining existing units and planning their phase-out. There is no significant local manufacturing capacity for this commodity; the market is served entirely through national distributors and direct sales from the key suppliers. The state's favorable business climate does not materially impact this specific legacy category.

Risk Outlook

Actionable Sourcing Recommendations

1. Initiate a Technology Transition Pilot. Mandate a review of all sites currently dependent on PSTN-based modem banks. Launch a pilot program with a leading supplier (e.g., Digi, Perle) to qualify a 4G/5G cellular out-of-band solution. Target a 12-month plan to migrate at least 25% of critical infrastructure from analog modem dependency to a cellular OOB standard, mitigating the high risk of technology obsolescence and PSTN shutdowns.

2. Consolidate Legacy Spend and Secure Last-Time Buys. For remaining systems where transition is not immediately feasible, consolidate all residual spend for modem banks and replacement parts with a single Tier 1 supplier. Negotiate an end-of-life support agreement, including a forecast for last-time buys of critical spares. This leverages remaining volume to ensure supply continuity and gain visibility into the supplier's product discontinuation roadmap, preventing unexpected support gaps.