IP services

Software-driven network services — lots of talk

Network operators at a UK software event talked about more aggressive plans to focus on software-driven network services and features, and included goals of delivering software modules as elements or units of basic service functionality. This vision mirrors what we have heard in private dialogs and public presentations alike, beginning almost 18 months ago, but there are more public articulations of the view today than there have been in the past. Some operators are reportedly avid supporters of Web 2.0 (BT included) and others (like Telstra) are more skeptical. We believe that despite all of the talk here, there is actually relatively little real progress in transforming operator business models to a more software-driven, partner-developer-focused, form.

Verizon’s FiOS plans cause more cable angst

Verizon’s FiOS plans in 2008 include obtaining some franchises in major metro centers and increasing its HD channel count to 150, both of which are likely to cause further angst for the cable companies. In the former area, Verizon faces the issue of efficient delivery to multiple dwelling units (MDUs), a technical step that it’s been working to resolve through the use of in-building fiber or MoCA cable. The latter step is simply a matter of getting the business relationships in place, since FiOS has ample capacity to deliver virtually any number of HD channels. The current Comcast-satellite war over who has the most HD will be moot when Verizon gets its full complement of channels. All of this will be fueled in part by the digital transition that is scheduled for mid-2009. The coupons for customer conversion for over-the-air sets limited to analog tuning will launch shortly, and the campaign to prepare the market is expected to create a major surge in HDTV sales in 2008 and 1H09, making the question of who has the most HD channels an important marketing point.

AT&T To Revamp BellSouth FTTC strategy?

AT&T is rumored to be considering a revamp of the BellSouth FTTC strategy, based on Tellabs, in favor of an FTTC/FTTP strategy based on Ericsson. Ericsson had, via its Marconi unit, a history with BellSouth’s fiber plans and there is some sign that the carrier is now breaking its original plan to have a uniform infrastructure in favor of a more regionalized approach. We have noted in the past that BellSouth’s internal review of fiber options prior to the merger had favored a Verizon-like plan, and this may be an indication that AT&T will now consider that for at least that region. We also believe AT&T may consider broader FTTH deployment and also the Verizon linear RF approach to broadcast.

Sprint readies for IPv6, federal mandate or not

The Federal government agency mandate to run IPv6 by the summer of 2008 is now approaching, and Sprint at least is planning to be ready in case the government actually goes through with what it has mandates, far from a sure thing. IPv6 is a new version of IP that has considerably more address space, enough to address all the devices on the Internet and PSTN with room to spare. The problem is that it requires changes in the network and user equipment to use. It is expected that it will roll out commercially in a gradual way, and that IPv6 may not be really used universally on the Internet for a decade.

Dueling Cisco/Juniper Ethernet switch rumors

Rumors continue to spin around a new Juniper enterprise Ethernet switch and a competing Cisco product launched, not surprisingly, at about the same time. As we reported last week, financial analysts were predicting that Juniper would launch its Ethernet switch on January 29th in New York at a meeting scheduled for the financial and media communities, and Cisco has traditionally worked to trump competitive announcements by making one of their own just before that date. All of this is aimed at the larger “data center” or enterprise headquarters market, a market that in 2008 may be more challenging than it was in 2007 according to our research.

Motorola shakeup to cause industry trickle-down?

Motorola’s president, Ed Zander, stepped down and will be succeeded by Greg Brown. The company has been under pressure because of poor stock performance, and it is this that makes the departure of Mr. Zander interesting. There are many companies that Wall Street believes have not met shareholder appreciation goals, including Cisco, and the pressure for the change came as private equity companies were working with some board members and investors to break Motorola up to create several units whose combined performance would better suit shareholder goals. We believe that this kind of pressure will spawn aggressive product moves among other network companies in 2008 to prevent being fragmented.

Stopping the revenue-per-bit plunge

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

Comcast admits P2P interference

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.

Cable research misses the mark

Pyramid Research has released a report that indicates that cable companies enjoy more synergy in triple- and quad-play services and as a result, telcos are losing margin in their multi-tiered services. While we agree with some of this, we think it misses some key points. First, the best competitive strategy is to be moving from a low-margin, low-growth area to one of higher margins and growth. That’s what the telcos are doing with their video offerings. Second, cable companies started with high-capacity delivery in video, o it was logical that their infrastructure was able to manage lower-bandwidth service needs. However, the telco modernization of their plant threatens the cable companies’ ability to match data bandwidth and video, particularly VoD and FTTH broadband, and the recapitalization of the cable plant would be (as CableLabs itself has noted) very expensive. Finally, the internal rate of return for telcos is historically very low, making it easier for them to embark on low-ROI projects, while the cable guys have higher IRRs and less tolerance for poor returns. It is also interesting that cable is not a strong competitor elsewhere in the world. There are too many issues not covered here for us to be fully comfortable with the results.

Relevant Reading
Pyramid Research

Verizon adds SLAs for non-Verizon network

September 26 2007: Verizon is adding end-to-end SLA availability on its business IP services, the first time a major US operator has crossed boundaries to offer an SLA on a network partly delivered by someone else. The move is a validation of work by standards groups like the IPsphere Forum to provide a means of creating a uniform SLA across multiple network partners. Verizon is a member of IPsphere but it has not been indicated that the service uses IPsphere technology.

Relevant Reading
InfoWorld