Google is reportedly ready to announce its “gPhone” plan, which is a part of Google’s grand strategy to force wireless operators to open up to over-the-top services. The new phone will reportedly be “open” to the point where applications and services cannot be restricted. This means that if users are prepared to pay the operator’s rate to establish an Internet connection from the phone, they can use any Internet-based service without additional charges or restrictions. This is the model Google hopes to establish in order to promote ad-based content delivery and other Google interests. The problem is that mobile services have very limited capacity, no more than a few megabits per cell. If a lot of over-the-top applications are promoted on the phone, there is a real risk that the process would degrade cell performance, particularly if a lot of users happened to be congregated in one place. There are also significant risks of software leaking personal data, making mobile phones into what might well be the most insecure environment a user could join. It is very difficult to see how the mobile operators would control service quality and security without some way to limit applications and usage on phones, and we are wondering whether Google may have stepped too far too fast here.
Verizon reported earnings that were higher than expected, but not a blow-out. The most interesting numbers released were for FiOS, which added over 200,000 customers in the quarter and is now approaching the three-quarters-of-a-million mark. And, like AT&T did earlier, Verizon is showing off some strategies that it hopes will expand not only its FiOS offering but also transform its revenue model overall. In fact, we think Verizon’s stuff might be more interesting in this latter zone than AT&T’s was. An example is Verizon’s desire to broaden text messaging from the mobile SMS framework of today to a user-centric and virtually universal service, blurring the boundaries between instant messaging and SMS forever and presumably increasing the appetite for both. The strategy would be smart because of points made in earlier entries here; mobile data services in general have not taken off in many markets except in the youth sector. Since IM is popular with business users, Verizon hopes that creating “IM FMC” it can broaden the use of mobile services for things other than voice. Verizon has a similar strategy in gaming, where it plans to have a hosted game set that can be played at home, from a laptop portably, or from a mobile device. Finally, Verizon plans to introduce much more proactive home network management, for the user themselves through automatic discovery and linking of compatible devices and for the operator through TR-069 to provide delivery management for high-value services. Verizon’s spend per FiOS customer is in excess of $800, and so the company is eager to find new ways to create revenue from those users.
October 25 2007 regarding the future of routers and routing.
Internet pioneer Lawrence Roberts thinks that the cost of routing threatens the Internet’s future. The view is somewhat self-serving given that Roberts is a founder of an alternative-to-routing company, and it also discounts some current market realities, but it raises an interesting question given some other market trends. There is no question that operator revenue per bit is falling rapidly; one operator told us by 50% per year. Given this kind of decline in bit revenue, it is inevitable that operators either seek to increase margins by selling “fat bits” (bits associated with a higher-margin service) or reduce cost per bit. The Internet doesn’t provide a means of supporting fat-bit revenue generation because it lacks settlement, and so only cost reduction is possible. However, most IP deployment today is by network operators with service designs that include but are not exclusive to the Internet. These operators, which include IPTV providers, would have the option to deploy higher-cost capital equipment to generate their bits. If all of this is true (and it seems to us that it is), then router vendors should be promoting non-Internet missions in order to justify their higher costs, and if those missions are not promoted then routing as we know it will inevitably commoditize
Verizon will be making a symmetrical version of broadband available to consumers at a very reasonable price in a move that seems certain to be a slap at the architectural limits of cable broadband. The FiOS symmetrical offer will provide 20 Mbps in both directions for $65 per month, according to AP reports, for customers with an annual phone contract. The reason this is likely to cause angst in the cable world is that cable broadband cannot offer that kind of uplink speed at all without moving to a completely new plant architecture at considerable cost. It’s also true that AT&T’s U-verse architecture can’t match this service. Verizon, by eliminating restrictions on the uplink data path, could well create a market for consumer videoconferencing and P2P that would be nearly impossible for competitors to match.
Juniper reported strong sales, with its infrastructure products up about 35% and its service-layer technology up 17%, beating Street estimates. The stock was lower in after-market trading, however. Some analysts expected even faster growth rates, and this will clearly put some pressure on Juniper for the coming quarters. Dell’Oro Group puts Juniper’s router market share at 15%, far less than Cisco’s 65% and double that of Alcatel-Lucent. However, many analysts believe that Alcatel-Lucent has targeted Juniper for market share gains, though Alcatel had a very weak quarter in contrast to Juniper’s. Juniper is benefiting from service provider NGN investment, which we believe will continue to be strong in 2008 and through at least the first half of 2009.
The key question for Juniper is the enterprise business (part of their Service Layer Technology) and there the issue is Ethernet switches. It is very unlikely that Juniper can maintain engagement in the enterprise space lacking these products, and so we believe that Juniper is indeed likely to field a family of enterprise switches either late this year or early in 2008. However good this might be for SLT, it will certainly put more pressure on Juniper’s management and strategy, particularly since Cisco is executing extremely well in the enterprise sector at this time.
Comcast has finally admitted to taking steps under its usage agreement to block or interfere with P2P traffic, at least that of BitTorrent. This is perhaps the first instance of a large access provider using their UA this way, but as we have noted before, it is inevitable that access carriers take steps to manage the use of their network, particularly where that use might interfere with other customers in the short term (by congesting the shared cable uplink bandwidth in this case) or in the long term (by forcing upgrades to capacity that cannot provide the operator with suitable ROI to justify the investment). We believe this process will be widespread by next year, and it is very unlikely that the courts would find it an abuse. In 2008 we would expect to see the first examples of operators providing premium handling as an extra-cost option, and this is likely a step in that direction. We also believe that premium for-charge service options are a good thing, since they link increased performance to increased carrier revenue and thus justify the buildout at the business level.
USA Today is reporting that the WiMAX revolution is about to happen, which in one extent we believe is correct. WiMAX is definitely going to be a major force in the market in 2009 and beyond, but it is also likely to be at the cusp of a major issue with broadband wireless, which is how to prevent promiscuous Internet access to content from overloading the service and essentially invalidating its truly useful missions. Broadband wireless in any form is a kind of ultimate shared media, and without some constraints on adverse use by a small number of heavy users, its utility could be compromised or its revenue credibility destroyed. The question of how to mediate use on wireless broadband is more important than the question of how to provide it at the technical level.
Regulators didn’t surprise anyone today with their news, but the did relieve some tensions. The Third Circuit Court of Appeals upheld the FCC’s classification of DSL as an information service, and the House voted to extend the ban on Internet taxes for four years. The former ruling was the most instructive because it upholds a relatively generous view of the extent to which the FCC can bend explicit legislative frameworks for competitive regulation to achieve a market goal–widespread and high-quality consumer broadband.
AT&T is reported to be preparing to make an offer for EchoStar, the DBS company with which it partners for its Homezone service. We believe this to be a clear indication that AT&T recognizes that it cannot make U-verse available for a large population of its customers and that they will instead have to rely on a satellite partnership for the broadcast program delivery, reserving IP for VoD. The challenge AT&T faces is that its relatively low demand density makes it difficult for AT&T to push fiber to the home, and without FTTH the mapping of broadcast channels to DSL delivery (U-verse) adds network complexity and cost at the metro level. The decision may induce Verizon to accelerate its own FTTH plans to reduce its reliance on satellite partnership.
CableLabs is releasing a new version of the PacketCable specification used for voice services over cable. The 2.0 release will include support for business features and also support for IMS-based FMC, presumably to support either a cable company push into wireless or an MVNO relationship with a provider like Sprint. The move is likely to be linked to the recent reports of FMC activity at AT&T and Verizon, and it may thus be an indicator of a broad industry trend toward convergence of wireless and wireline voice. As we have noted many times, however, it is far from clear that such a convergence would necessarily create IMS momentum.