September, 2009

FCC universal broadband cost estimate doesn’t factor in performance

The FCC said that giving 100 Mbps broadband to every home would cost $350 billion, which is about half what we think it would cost to give every household FTTH and therefore pretty consistent with our own models. The FCC also said you could provide 50 Mbps for $50 billion, and our model says that’s a third of the actual number.

The relationship between broadband cost and service performance is complex, and we suspect that most planners simply haven’t delved into the details at this point. The issue here is that public policy goals in broadband might be aggressive because of intense industry lobbying, but that real progress is unlikely to be made toward universal service unless there are major compromises in performance.

We are covering this issue in depth in October’s issue of our newsletter/journal Netwatcher.

Verizon DirecTV acquisition could ease FiOS video load

Some financial industry speculation is buzzing about the possibility that Verizon might buy DirectTV. While Verizon is clearly committed to FiOS, it’s not clear just how far FiOS could extend toward thin geographic areas or areas where household income is low.

Given that, a satellite offering would give Verizon a way to offer broadcast TV without consuming broadband capacity, which could be critical given cable’s plans to push DOCSIS 3.0 to the 50-to-100 Mbps level. video on demand (VoD) could still be delivered over DSL.

A deal would also tweak AT&T’s nose since that provider relies on DirecTV and is also rumored to be looking at the company.

AT&T swipes at Google in net neutrality debate

AT&T is punching back at Google’s long advocacy of net neutrality, accusing the company of violating its own principles with Google Voice. The primary issue is that Google blocks calls to rural exchanges that charge high termination fees per call. Google says that’s because Voice is a free service, and that in any event, it’s not a telco and isn’t bound by net neutrality principles.

The free voice argument is a weak one because Google doesn’t admit telcos could reject net neutrality principles for lack of profit, and the net neutrality argument is a weak public position at a time when the FCC is considering broader net neutrality scope.

We think the play will raise some essential questions about whether net neutrality needs to be carefully structured to avoid creating what in effect is market-by-avoidance.

Does Gmail outage open the door for Operations as a Service?

Google’s Gmail suffered yet another publicized outage, which is raising concerns not only about whether the Google system is really ready for serious use, but whether SaaS and cloud computing overall might be exposing enterprises to more risk than they bargained for.

Data on the paid version of the service isn’t available so we can’t be sure whether the paid traffic is doing better in terms of reliability, but certainly many users would try the free version first to decide whether to commit to a paid equivalent.

We believe Google is on the horns of a major dilemma, in that it needs to start creating a for-pay model in application, computing and even video streaming services, and to do that, it needs something more than best efforts. That not only means its own platforms have to be very reliable. It means its network connections need to be good, too.

This may be the issue that will spawn more constructive dialog with network operators on premium handling, but rumor says the last talks were stymied by the question of who supports the customer. Operators need to think about making their own operations/support process highly efficient so they can not only boost their own net profit but sell operations as a service too Google.

New cable ad platform — EFIB — set for launch

The cable industry’s advertising consortium, Canoe, is launching its ad exchange and interactivity platform (Enhanced Binary Interchange Format, which it calls EBIF — catchy, huh?) This format will allow TV advertising to be as precise in terms of demographic targeting as in online advertising, and also support viewer interactivity to get more product information or even request contact.

In short, EBIF largely eradicates the difference between what you can get with online ads and what you get with TV ads. This shifts the whole TV/online battle (particularly in video) to the question of who and when you get them. Online video will need to sell itself based on its ability to attract users who aren’t as accessible on TV. On demand is a part of that, but only as long as the cable companies and networks don’t turn more to video on demand (VoD) for the mission. It will take about a year for this to gel, in our view, so there’s some time for the online markets to think up a counterpoint.

AT&T to jump to 4G, abandon HSPA+

AT&T has abandoned its HSPA+ (high speed packet access) plans in favor of a migration to 4G LTE, a move that isn’t at all surprising, given Verizon’s commitment to LTE and the extreme competition between the two companies. Sprint promoting 4G (via WiMAX) would have left AT&T at risk of being the only 3G provider of note in the U.S.

The big issue, we think, is likely the stress that the iPhone success places on AT&T’s cellular network. The move to 4G will have major repercussions in the infrastructure space because it will likely divert even more capex to the wireless side and to cell towers and RF modernization. It will also make evolved packet core a very hot metro issue, hot enough to change procurement plans for some operators.

Another impact of the decision will be to make the whole procurement zone purchase strategy of operators more important because wireless is likely to be its own zone and drive other product decisions, including FMC and VoIP.

FCC net neutrality proposal confuses the issue

Reviewing FCC Chairman Genachowski’s comments on the net neutrality process, we find that there are a number of interesting points.

• First, the FCC is indeed proposing to apply net neutrality to wireless, which is something that’s already caused concerns among wireless providers. Wireless is the last bastion of profitability for the operators, after all.
• Second, the FCC is making it very clear that net neutrality rights will apply only to lawful content, and in fact Genachowski specifically said it would not apply to P2P that infringes on copyright. That means that the ISPs would be free to interfere with “non-lawful” traffic.
• Third, and perhaps most significantly, the FCC is saying that while it is important to offer managed services, which we assume means services with managed QoS, in parallel with the Internet, these can’t be allowed to compromise Internet service capacity and quality growth. This could pose the risk that the FCC might reverse its long-standing position on IPTV.

We don’t know exactly what the FCC has in mind (nor does anyone else (which likely includes the FCC!), but this announcement could create more uncertainty than clarity, which could influence U.S. providers’ investment in broadband. A Senate bill to block the order has been introduced, but it has no chance of passing. The House net neutrality bill will, according to sponsors, move forward.

Google Voice, Apple, AT&T and the FCC: The flap continues

Google has released some information that suggests that Apple’s statements to the FCC in July about blocking Google Voice were not correct, and the rumor is that even more damning information is available at Google for release should Apple not reconsider its position.

Apple claimed that its “rejection” of the Google Voice application was for look-and-feel reasons, but the Google release suggests it was explicitly because Google Voice competed with basic Apple/AT&T functionality, something the FCC would likely rule on.

This issue could bite both Apple and AT&T because an actual false statement to the FCC would be bad politics, at the minimum. We say this because it’s not clear whether the FCC really has authority over Apple and handsets. The FCC would have to contend that Apple was simply a stalking horse for AT&T interests in this case, and AT&T is within the FCC’s jurisdictional web.

Verizon’s new telco model: Traditional voice doesn’t matter

Verizon made official what we’ve been saying for a year or more; wireline voice doesn’t matter. Verizon CEO Ivan Sidenberg told an investor conference that he was no longer worried about wireline voice losses because video and fiber were the future.

He’s right of course. Voice service pricing cannot be protected in a world where more and more users are on broadband. He’s also right that video has a better forward revenue stream by far, and that fiber plant is considerably more valuable than copper plant. Thus, Verizon may be the first of the world’s major carriers to face the future squarely, which will be interesting because we’ll have a close look at how the process goes.

We expect the speech to be an indicator of a major shift by Verizon in 2010, a shift to exploit VoIP and mobile more than it has. It may be, in fact, that the real transition or “convergence” of networks is just starting. We don’t expect this to ring vendor cash registers, however, because it has to be timed to roll out without excessive first cost. We see a revenue-driven shift that would focus on FiOS deployment and would then use FMC and LTE to draw users into a new model.

Related article: Next-gen voice services create carrier opportunities

Alcatel-Lucent’s converged backbone meets carrier needs

Alcatel-Lucent has announced a converged optical/IP backbone strategy that is aimed at a much more seamless coupling between core routing and core optics, the very thing that service providers have been demanding in RFPs. Further, the Alcatel-Lucent approach leverages the company’s optical incumbency and puts pressure on competitors that lack any real optical-layer product set or expertise.

We’ve seen operators working to create a more optical-based network core for at least five years now, and in the last year it’s become clear that they’ll execute on those demands in the near term.

The Alcatel-Lucent strategy is to take normal router-level lambda grooming and push it deeper, to the sub-lambda level, to support QoS-specific traffic. That’s a good option in our view. We must note that the new approach is overall more one of integration in a combination-of-product sense than in a single-product sense. We think this is a kind of statement of direction to create ever-tighter coupling in a data plane and management sense over time, which could be revolutionary.