October 23 2008 regarding carrier Ethernet and management trends.
ECI is reportedly moving into Carrier Ethernet more strongly and taking the OSS high road that we predicted would be needed in our recent TCO study on Ethernet versus MPLS.
The company has special focus on synchronization, essential in wireless backhaul applications for anything other than 4G services because of the use of T-carrier trunking for voice, and also software tools to improve Ethernet management integration with OSS/BSS.
In a separate story, Light Reading reports that Soapstone founder Larry Dennison is starting a company that will focus on virtualization and support for service componentization and assembly, for both Carrier Ethernet and other technologies. We believe this space, which has been critical for years now, is finally getting some attention.
Tellabs reported a large restructuring loss and plans to de-emphasize its access business to focus on more profitable sectors. Access is a problematic space for equipment vendors because the carriers are putting enormous pricing pressure on access technology since they are not able to profit adequately from their broadband Internet investments.
We believe that this is one of the early signs that monetization issues for operators will eventually hurt equipment spending, and we heard this week for the first time that a Tier One may cut its spending slightly for 2009. The current plan cited by the provider was to continue access build-outs but try to conserve in metro and core through more aggressive negotiations with vendors and “better technology choices”.
Tellabs also indicated that it did not expect to see a 4Q budget flush this year, which may be an indicator other equipment vendors will reduce 4Q guidance.
Google again beat Street estimates with its revenue up 31% and profit up 26%. The performance of Google in the last quarter isn’t a complete vindication of the company’s business model in bad times—things have gotten worse since then—but they are a strong indicator that Google and perhaps other online firms may beat traditional advertising and retail channels in tough economic times. That would suggest that the Internet is becoming a necessity, something that is recession-proof, and that conclusion would have major implications for technology planning in 2009 and beyond.
Our models do show a tendency for online to continue with only small declines while more traditional channels dip more seriously. If the current quarter’s numbers show this, it will certainly have a major impact on the market, and on M&A in the online space. We note that Google’s growth is still slowing, and that the company needs to become successful beyond search ads, and very successful, to continue to dominate the field.
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Verizon has shown some of the teeth behind the monetization frenzy among operators, revealing a plan to reassess the charges levied on bulk SMS generators such as the companies who send phone alerts and market messages.
The decision is linked to a general view that SMS will become another all-you-can-eat service, and that like the Internet, there is a threat to operators in that they might then become simply a passive conduit for another’s business model. That would create investment without return.
We believe this particular item will be readily missed in coverage of the provider space, but the significance in our view is very high. Operators are working to end the free ride because in these times they must, and that will spread to other areas.
It is becoming increasingly clear that 2009 will see the most action in the metro and access space. Worldwide, operators are looking very hard at FMC and femtocells, and we believe that there will be some deployments even in the US by 2H09.
There are also a number of competitive initiatives from competitive access providers aimed at Ethernet services and enterprise customers, attempting to play off the corporate desire to gain headroom in access to leverage with later tactical purchases of services.
Our research is showing that worldwide focus on infrastructure spending will be strongly in the access/metro direction in 2009 and even in 2010.
There are indications that some smaller providers are going to make an entry into the enterprise managed services and applications market, including Reliance and Tata. The goal is to make a wide-ranging network with ample capacity into a financial asset by relying less on its commoditizing bits and more on what can be done with the capacity—services, in short.
We believe that the decision is also linked to a slow response from incumbent providers to the sudden interest in managed services, interest that was mounting even before the current economic bust. In tough times, enterprises often want to trade expense for capital investment, particularly in markets where credit is tight or expensive.
The FCC has cleared the way for auction of spectrum that would be conditional on providing free wireless Internet service. The move has been controversial because most in the FCC believe that there is no way to make such a service work.
Other attempts at free or low-cost wireless services, such as municipal WiFi, have largely collapsed because advertising sponsorship was not forthcoming and problems in performance tarnished the image of the service. It may be that the greatest impact of the measure will be on the mobile advertising space, where current wireless operators will be looking to secure new ideas that will keep their own services on top and reduce the viability of a purely ad-sponsored approach.
Verizon has announced that FiOS customers with a set-top box (STB) will be able to watch Internet video on their TVs using a menu selection, with no change of equipment or additional hardware.
The move could have an enormous impact on the credibility of Internet video, and the fact that Verizon is prepared to take the step is an indication that it believes that linking the TV and the Internet is inevitable and that refusing to take advantage of its own capabilities to do just that without extra equipment will only throw away a competitive advantage.
IBM reported a solid quarter in any times, and a sterling one in the present economy, with profits up 20%. IBM also reaffirmed its full-year guidance, a move that sent analysts into a feeding frenzy and boosted stock futures today.
We believe that IBM’s numbers reflect two truths:
- Economic issues are more likely to impact future capital projects and spending than current ones
- Companies with strong service businesses can sustain project momentum better by establishing stronger account control and thus aiding in the project justification process.
We believe that trusted strategic partner firms like IBM, HP, Accenture, and Oracle will generally do well even in the conditions to come.