CIMI Corporation has completed an extensive survey-and-model process on the economics of carrier infrastructure, focusing on the TCO differences between Carrier Ethernet and IP/MPLS. The results of this study will be published in the July issue of our newsletter Netwatcher, and we will also release a separate report in the fall.
The results of the study, which surprised us considerably, were that while Ethernet always generated lower capex costs, it was also unusually vulnerable to issues in service management efficiency, especially in the WAN versus metro. Those issues could swing the TCO in IP’s favor, providing that IP service management was strong. In fact, the effectiveness of service management tools on controlling operations costs and support incidents had more effect on TCO than a swing in capital cost of over 40%.
NEC is buying OSS firm NetCracker, a move we think sends the clearest signal so far on the importance of operations software in the telecom space. NetCracker is known for a strong service delivery platform (SDP) software position, a class of operations and service feature strategies that focus on hosting features and operations elements on specialized platforms.
We believe that telco equipment vendors will generally beef up their OSS positions, but in particular will be beefing up their SDP positions, as consumer services and partnerships with higher-layer players change the nature of service provider revenue targets and infrastructure priorities.
NEC sees this as an entrée into the telco space, and they’re right. The price of playing in major deals in the future is going to include the ability to supply integrated operations solutions. If they’re your own, you have differentiation. If they’re someone else’s, you’re heading down the road to plumbing.
AT&T is about to begin a trial roll-out of a U-verse service that could deliver two HD streams at once, something that hasn’t worked up to now. There are several ways in which AT&T is looking at this, one through increasingly aggressive compression and the other through upspeeding the loop. It is possible both will be tried. There is no indication of when the capability will be fully rolled out, but AT&T appears committed to it. They have to be; this would be a crippling problem for U-verse if it continued much into 2009. We believe AT&T has major problems with its TV strategy, this change notwithstanding, and that they will eventually be forced to move to another approach.
Telcos are apparently working harder to make their APIs suitable for a broader range of web developers, providing more Web 2.0-like or “RESTfull” interfaces (an acronym for the normal interaction between web clients and servers). We believe that the move is positive in that it shows the operators are aware they can’t make their developer programs work with complex event-based APIs. But we also believe that simple web interfaces are only suitable for the limited set of services that can be projected from a telco API direct to an end user. While we’re clearly biased, we believe this is a validation our open source ExperiaSphere (www.experiasphere.wikispaces.com) approach.
Twitter, the “What are you doing” less-than-texting concept, is gaining a lot of buzz, users and funding. Monetizing any social network has proved difficult, and Twitter’s simple approach makes it harder than usual to see how ads might work there, but it still raises a troubling question for networks. Is the real service of the future more signaling than bandwidth? Clearly you can’t be twittering video stuff to each other; and few people have the time for an activity that must occur regularly and also consumes a lot of capacity.
If casual social microblogging is the prototype of future services, then network bandwidth and bandwidth production could be in deep trouble. We believe that the telco side of the market needs to be thinking about how to make casual bit-intensive activities as attractive as short text messages and blogs, or face some unpleasant consequences.
T-Mobile is launching its broadband voice @Home service throughout the US, which prepares them for an agressive FMC position. French telecom carriers are also expected to push harder on FMC and wireline broadband expansion as the consolidation in the market finally draws to a close, but that we believe is mirroring a worldwide trend.
Consolidation hasn’t been holding other projects back, it’s simply been a safer early response to declining revenue per bit. We believe that operators worldwide are preparing for a “transformation test” around FMC, broadband services, partnerships with Internet companies and developers, and other new areas. They’ll fund what works and cease funding what does not, and this could result in some pockets of spending and reductions as everyone takes the measure of their market. We think the situation will be more predictable in 2009 than in 2010 through 2012, when only some successful revenue initiatives will drive spending growth in service provider infrastructure.
Cox Cable has issued an RFI that includes requests for PON/RF distribution with high-speed broadband, very similar to the FiOS model of Verizon. The RFI leaked last week at NXTcomm but had been rumored even before that show. It is apparently a true RFI, meaning that there is no immediate expectation of an equipment order. We hear that Cox is simply preparing an internal position paper on alternatives for plant modernization, given the current war between cable and telcos that provide video.
The question cable operators must answer is not only whether they can deploy FTTH, but how widespread telco FTTH could become. A cable industry study previously showed that the cable plant, even DOCSIS 3.0, could not compete with full FTTH should it be deployed. Our own modeling shows that Verizon could expect to reach about 70% of its customers with FTTH, that AT&T could reach perhaps 26%, and that Qwest could reach only 11% without significant shortfalls in ROI or significant improvements in cost or revenue.
NXTcomm 08 was an interesting show, something a lot better than some of the disasters that followed the breakup of the SuperComm partnership, but far less than SuperComm in its prime.
<p>We believe this is due not as much to the show as to the industry; infrastructure doesn’t have buzz any more. In the heyday of the older show, the bubble was in bloom and there was a lot of trade press action around it. Today, publication coverage of infrastructure issues is down because the buyers are all big telcos who don’t do things interesting enough to make the press happy. The big news in the show was the substantial vendor presence in Carrier Ethernet.
<p>While most of the companies that showed products were objectively doing less than half of what the market would require in terms of features, there was enough support to make it clear that despite the PBT announcement by BT, this technology isn’t going away. We believe, in fact, that the major deployments will begin to roll in 2H09 and that most of the opponents of PBT will end up quietly supporting it by then.
<p>We had 10 interviews with vendors and carriers on our ExperiaSphere initiative and we were thus able to exceed our own objectives for the show. Service management issues and their relationship to standards and to network resources are a key part of the Ethernet picture, and also key for IP/MPLS in any form. In fact, a report we are publishing in the July issue of Newatcher, our newsletter, shows that service and operations management issues with both Ethernet and IP/MPLS result in more swing in total cost of ownership than technology issues do.
Verizon says it will make its top-tier FiOS service, a 50/20Mbps pipe available over its whole footprint, which would make Verizon users some of the most empowered in the western world. The move comes as cable MSOs prepare an assault on DSL in further commercials.
<p>The combination of all of this puts enormous pressure on AT&T, which has no fiber offering. But it also pressures Verizon to improve DSL services. Verizon reports DSL has tapered down as customers wait for FiOS, and we believe that Verizon will be offering incentives for users to adopt DSL to hold them over until FiOS is available in their area.
Huawei may have a reputation for being just a price leader, but that’s enough to propel significant growth outside China and pull it into the DSL port shipment lead over Alcatel-Lucent. We believe that Huawei is not so much a competitor as a fall-back when there is no real “competition”, meaning where vendors fail to generate any meaningful differentiation. Price then decides, and Huawei wins.
The success recently may be due in small part to economic conditions, but we believe the largest part is due to equipment vendors ceding key strategic issues in service creation and management to partners. That being done, the equipment is just plumbing and the partner solutions can be applied over Huawei. We believe ALU sees this, and that it was a motivation behind its purchase of subscriber management specialist firm Motive.