Next Generation Networks

NGN services architecture — stalled out

Danish carrier TDC is the latest to get into the API program to attempt to secure developer support to expand service features and flexibility, but the offering is still very limited.

The problem with “third-party access” has been as much what is available for access as how to access it. Most of the players, including BT, have exposed a relatively small number of mobile-related features and have used an API that is substantially based on Parlay.

We believe that more modern and “seminal” features have to be exposed and a simpler API used, but the barrier to this is lack of an effective next-generation network (NGN) services architecture. There is no easy way to create or manage composable features, and standards to support the process are stalled despite years of effort.

Australia nixes Telstra broadband bid

In a decision whose short-sightedness was worthy of U.S. process, the Australian government disqualified its national carrier Telstra from bidding on an enormous and controversial program to provide more universal broadband access in Australia.

There have been political fights between Telstra and various government agencies since the carrier started its path toward de-nationalized status. Australia is a country with incredibly challenging economic demographics, and we believe its regulatory bias should have been more pro-investment all along. Given that there are really no credible alternatives to Telstra, the move seems almost suicidal.

Over-the-top players: A race to the bottom

One of the forgotten truths of the current economic crisis is that while telcos worldwide will certainly be deferring some projects and obsessing even more about monetization, their competitors are likely to be even more concerned.

The guys at the greatest risk, in fact, are the darlings of the last couple of years—the over-the-top players. Many of these are still struggling to define any revenue model at all, and with advertising slipping and VCs demanding break-even performance, a lot of startups will die, and public companies will slump, shrink, be acquired, or disappear. In a race to the bottom, the guy with the lowest internal rate of return always wins because he can keep investing past his competitors’ pain point.

The issue is whether the telcos can take advantage of their opportunity. The recent interest in service mashups by Cisco and Alcatel-Lucent has the potential to allow the network operator to take control of the partnership with the OTT guys while the latter are down and out. Will they seize on that opportunity? That, according to our research, depends on how well the vendors (particularly the two we named) do to create the right ecosystem.

Alcatel-Lucent position could be game-changer

Alcatel-Lucent has posted a press release with more color on its new strategy, one that makes it clear just how dramatic its new position is. The company is now committed to a program of facilitation for the composition of services by partners as a primary strategic thrust, a position that is totally unique in the equipment vendor space and exactly what operators have been telling us they want to see.

Quoting from their release, “This strategy requires providing an open environment, which does not exist today, where all these trusted capabilities can be available between the network and “over-the-top” applications typical of Web 2.0. It is a challenge that Alcatel-Lucent is uniquely positioned to address, with its long-standing relationship with network-based service providers and thousands of enterprises worldwide, its capabilities in delivering fixed and mobile broadband, flat-IP networks and its end-to end integration capabilities around the globe.”

Vendor PR is never a sure sign of things to come (like any form of PR), but this has the potential to be a game-changer of a strategy in a market where monetization has become a singular obsession among buyers.

Alcatel-Lucent strategy: Focus on third-party access

Alcatel-Lucent has announced job cuts and predicts a decline in global telecom spending of between 8 and 12%, which is much larger than any dip we can see based on any credible set of economic trends.

The forecast appears to be based on the presumption that the recession will continue not only through 2009 but through 2010 as well, since only that outcome would create such a broad suppression of spending.

The good news is that Alcatel-Lucent has targeted the strategic issue we believe has the greatest credibility: the linking of network assets to over-the-top players in what is popularly called “third-party access.” If they play strongly here, they stand to gain considerably, and even more so should the market conditions get as bad as they expect.

Cisco’s new broad, vague Web 2.0 program

Cisco announced a broad if somewhat vague program to bind the Elements of Web 2.0 applications into a cohesive whole. The details on this vision were extremely difficult to extract, and we could find no Cisco material online to offer more insight. But it appears to us that Cisco is proposing a broad concept of service-from-mashups where APIs used by various social networks, sites, and even operators could be combined in some centralized way to create new services.

What is even less clear is exactly what role Cisco proposes to play in this. Will it offer a product set, host a service, or both? All this said, we admit that it just might be that Cisco is looking at the area of reformulating service creation—a major focus of our own interest—and also the area of using social networking and similar Web evolutions as the basis for collaboration and communication, another thing we believe to be essential in shaping the next generation of services.

In short, Cisco may be on to something and we’ll try to figure out what exactly it is.

Microsoft telco framework quietly dropped

Microsoft has quietly dropped its Connected Services Framework, an ambitious program that targeted telcos with a package of components that was, at some points in Microsoft’s positioning, a service and sometimes a product.

The move has been interpreted as a response to the complex telco environment, but we think the real reason is more complicated. First, vendors are finding telcos are not happy about closed platforms for services and thus are more likely to demand standards conformance. That opens the ecosystem, making it less profitable for the vendor. Finally, monetization of new services is still problematic, and as a result, the investment needed to create them has to be carefully justified.

All of this speaks against CSF. We note, however, that Microsoft has specific point products that we believe it intends to deploy to telcos. In fact, Microsoft has been successful with carriers worldwide in getting some of these into networks—as much as anyone has, in fact. It’s shedding the CSF packaging and positioning, in our view, but not the market.

Good season for start-up acquisition

Tellabs is indicating it may be willing to use its strong balance sheet for some down-market M&A, something that we think might be a very good idea for a lot of the larger players in the current market.

The industry is filled with small startups, some of which have good technology and strong roles in the network of the future, but little mindshare or account control. As investor fears mount, the price of these smaller players is dropping, making them a decent buy.

We believe that the deals will have to be made before the end of 1Q09, however, because it’s likely the new administration will be able to move forward enough that a recovery (not a full one, mind you) will be visible in the second half.

Cisco’s four-day holiday: Signaling stability?

Cisco plans an unprecedented shutdown for four days during the holiday period, part of a plan to achieve over a billion dollars in cost savings to help counter the impact of the downturn in IT and networking spending.

We believe the step is a kiss blown at Wall Street, something Cisco knows is likely not to be the right answer but that may be necessary to support the stock price in the near term. Even in that light, we believe the move to be unwise because it tars Cisco with the brush of a firm experiencing problems in the downturn, something competitors might play on directly but that will indirectly challenge the most basic value proposition Cisco presents to buyers—stability.

Report on IP traffic growth greatly exaggerated?

UBS has released a sector report on telecom that suggests that the slowing IP traffic growth will threaten router vendors. While the firm has long taken a rather bearish stance on the industry, this seems more alarming and less justified than most positions.

We know of no credible reports of slowing IP traffic growth; in fact, the increased deployment of high-speed broadband seems to promise the opposite. However, beneath its questionable main thesis is an essential truth, which is that while IP traffic growth may not be slowing, the IP revenue ramp is definitely slowing. Service providers, like everyone else, invest for profits, and revenue per bit has been declining.

We have seen pitch after pitch from the service providers talking about their strategies for transformation, but we have also heard these same providers tell us that their barrier today is equipment vendors that have not followed up on operators’ published strategies. The trend toward usage pricing and caps, and traffic metering, are all related to the need to curtail costs to match revenue potential. If equipment vendors want to continue to sell gear, they need to step up in the NGN revenue game, not just push boxes.