AT&T’s new deal with DirecTV may be the beginning of a shift away from U-verse toward the “Homezone” satellite-and-IP/VoD hybrid model, according to rumors we’ve heard.
The problems with U-verse are that the service has an extremely high pass cost—on the order of 4 to 6 times that of cable—and that the limits of DSL in delivery of both content and Internet make U-verse very vulnerable to DOCSIS 3.0 competition. The IPTV model has become more complex and costly over time, and faces its greatest challenges in conjunction with interactivity and HD programming.
We’re also hearing that more EU operators are looking at the linear RF broadcast model of FiOS. Cable has a parallel channel for TV, and competing with cable without that capability is likely to be increasingly difficult no matter where you are in the world. Some cable operators, like Time-Warner, are also now looking at the linear RF FTTH model for green fields, which would be a blow to IPTV supporters.
Cable companies are increasingly interested in bandwidth caps, traffic management or both. Charter has joined the group, and now most of the major U.S. cable operators are in some stage of trial or deployment.
The trend is a critical problem for online growth, and yet it is also the fault of the industry for letting things get to this point. Broadband pricing is increasingly a tax on the underclass of technology users to support the elite. An operator told us that 80% of usage is created by a lot less than the top 20% of users. All of this is a byproduct of the monetization problems, of course.
At the same time, DOCSIS 3.0 interest is rising; Shaw is unveiling the first 100 Mbps service based on it. We also note that companies that are looking at bandwidth caps are also looking at DOCSIS 3.0 services with higher monthly rates, which would be immune from the caps.
Thus, it appears that broadband is going to stratify, with premium users paying more for faster no-cap services. All of this continues to focus investment on access and metro, and on things like CDNs, rather than the core. The fact that over a million Xbox users have activated Netflix streaming tells the tale: Traffic without revenue equals ROI problems, and thus caps on usage. Lack of logic is about to change the industry.
Cisco reported its quarterly earnings yesterday, and while its numbers were better than expected, there was a problem with the company’s guidance. In effect, Cisco is projecting the current problem will extend through April and has reduced year-over-year guidance accordingly.
The Street saw this as a bad sign. We’re actually surprised Cisco was willing to guide at all beyond the current quarter given visibility. It is likely in our view that Cisco is hearing what we are, which is that if there are convincing signs of recovery by late May, a good piece of 2009 budgets will be restored and second-half spending will counter some (but not all, particularly for the enterprise) of the first-half slump.
The big problem, which Cisco did not mention, is that EU markets will lag U.S. recovery significantly and thus its export opportunity will be lower, even without considering the strengthening dollar. Still, Cisco has shown that it can hang on better than people thought, and this was also the case with Alcatel-Lucent yesterday. Chambers was also upbeat on a recovery.
Comcast has, as we had predicted, asserted to the FCC that its voice service is not carried over the Internet or Internet access infrastructure, and is therefore neither subject to their traffic management policies nor to the FCC’s four principles of net neutrality.
They’re right, of course. Cable, or PacketCable specifically, divides the data path, and broadband Internet and Comcast VoIP do not share capacity. The question now is whether the FCC will decide that it doesn’t matter whether the stuff is separate or not. We think such a decision would be the regulatory equivalent of junk science: It would imply that common carriage on any facility imposed the regulatory burdens of the most regulated service on all services.
These are not logical times, however, and regulations are never logical. The biggest risk here is that the FCC would do something that would overturn the original 2005 decision that broadband was not a “telecommunications service” and thus was not subject to unbundling provisions of the Telecom Act. That was a highly speculative ruling that stood largely because the RBOCs bought AT&T and MCI, who were bankrolling opposition.
Vuze, the online video company, has also asked the FCC to look into the Cox plan for bandwidth management. This shows that cable company needs to control bandwidth use, primarily uplink bandwidth for P2P, but also streaming bandwidth will be increasingly colliding with the over-the-top (OTT) players’ desires to pump content at no incremental cost. The shared-media nature of the cable plant is the industry’s biggest risk, as DOCSIS 3.0 is the biggest asset, and moving to DOCSIS 3.0 is useful only if content doesn’t just expand to fill the new pipe too.
Juniper announced a new “core virtualization” strategy with the TX Matrix Plus, and the concept is quite interesting. The new capability links the Juniper JCS1200 for hosted-control-plane and the TX Matrix Plus as a large aggregator/on-ramp to create an IP infrastructure that can be partitioned to support multiple independent networks.
This capability is critical for a number of reasons.
- First, it deals effectively with the problem of network operators in separating premium service traffic from the Internet, something that is a security and performance issue everywhere and a regulatory issue in some areas.
- Second, it allows metro evolution to an IP core (something Juniper and Cisco both want, in order to marginalize PBT) by providing a means of keeping traffic there compartmentalized to avoid variations in QoS on key applications, and keeping IP involved in the major area of investment for the next decade.
- Finally, it opens the possibility of a “network-as-a-service” approach by operators, a means of perhaps pulling players like Google or CDNs in as customers.
But for us the big thing is the application of the JCS1200. Juniper is unique in its ability to support hosted control plane behavior, and this sort of thing could be a major element in a service-layer strategy. Juniper now needs to get such a strategy while it still has the lead here.
We have released a new Planners’ Briefing on Enterprise Architectures. This briefing explains what this new concept is supposed to do and how it relates to things like collaboration and unified communication.
EA may become as important to enterprise networking as OSS/BSS standards are to the telcom space, so those who are involved in the enterprise market should give this new briefing a listen.
Remember, you will always get the current briefing when you register by sending an email on your company account, your name, and your title to email@example.com, but you cannot get back issues. Speak now and learn about EA, or miss out!
The Economist has weighed in on the question of broadband stimulus and reaches many conclusions congruent with our own. There is, in our view, no credible indication that a major broadband stimulus would actually stimulate the economy, and there is a major risk that it would change the delicate balance of investment in broadband already being made.
The U.S. ranking in broadband speed, as we have noted many times, is an outcome of its low demand density—the correlation between demand density and broadband excellence is almost 100% and where it fails, regulatory policy is to blame.
There is also a recent Nokia-Siemens-sponsored report that shows that there is little correlation between broadband speed and networking reliance or exploitation by workers and consumers. Finally, we believe the jobs gains touted for broadband stimulus are inflated by a full order of magnitude.
Sure, it would be nice to see the industry get a shot in the arm, particularly if you’re a part of it, but we are not going to get out of our economic mess by reasoning that we can be exploitative because others have already done that. The proposal to open spectrum to improve access is good, but it also begs the question of whether wireless can really generate “broadband,” since the service could not be made wireline-equivalent except at great cost.
Australia has recently declared that wireless and wireline were close enough for all practical purposes, and that could put an end toward movement to higher speed there. The same could happen here.
Verizon has discontinued its Voicewing VoIP service, a move that some find contradictory to the earlier introduction of “the Hub” a VoIP phone, and Verizon’s femtocell announcement made this week. It’s actually the first logical step in the Verizon evolution.
Voicewing’s features and price points were wrong for the new service, and Verizon is getting out from under it now, as it prepares for the new positioning. We expect both AT&T and Verizon to launch similar “carrot” VoIP services to draw users from TDM as the end-of-life problem for switches approaches.
The big move will be the FMC transition, which both companies expect to make by mid-year, possibly as early as March. This shift will create significant changes for the market, but the biggest changes relating to content delivery network(CDN) and cloud deployment are yet to come.
Google is releasing a set of tools from its Measurement Lab that are intended to help consumers figure out if their ISPs are doing them wrong with traffic management. The new tools capitalize on the flap created by the Comcast-FCC war on bandwidth management policies.
At the same time, Cox is saying it will be implementing a traffic priority handling system that unlike Comcast’s “level” approach will preference “real-time” traffic in congestion periods. This, they feel (and we agree) is consistent with the FCC’s 2005 four-point net neutrality position (which isn’t an FCC order and thus doesn’t have regulatory force anyway).
All of this is critical for the industry because the notion of unlimited, virtually free, access bandwidth is a hopeless dream. That means that either heavy users are going to be made to suffer delay, or users overall will suffer. The Google move, the Comcast flap, and all of the noise are simply providing cover for the imposition of usage caps, and that would potentially reshape the online landscape, particularly video.
Don’t think Congress will fix the problem with “net neutrality” either; you can’t legislate broadband expansion and the stimulus decision not to address it on a broad scale says Washington won’t pay for it either.
Verizon wasn’t able to match analyst estimates for growth in Q1, but the company’s wireless unit increased revenues by 12%, even while subscriber growth slowed and losses increased slightly.
In the wireline area, Verizon continued to lose both business and residential fixed lines to mobile, to cable and (relatively few) to VoIP. FiOS reported strong numbers and good growth, but there are concerns that even this most successful of the telco TV offerings may not grow fast enough to generate the revenue and profits to offset wireline declines.
Verizon has been bringing out VoIP and femtocell add-ons, as other reports on this blog show, and we believe the company is preparing to make a more elaborate VoIP and FMC offering available. Its Voicewing product apparently has been withdrawn.
While revenues for Verizon and other Tier One providers are up, which would not put direct pressure on capex, we believe service providers, including Verizon, are very concerned about the declining voice margins, declining mobile growth, and the failure of their monetization strategies so far. These factors will have far more influence on spending in 2009 and beyond than the economic problems.