Hard to Say What is Happening to Global Telecom Capex

It is impossible, yet, to say whether a big forecast revenue miss by Sonus Networks also will affect other suppliers of global telecom infrastructure.

Sonus blamed an expected miss of as much as 32 percent to 36 percent in the first quarter of 2015 on delayed orders and longer decision cycles.

For the first quarter ending March 27, 2015, revenue is now expected to be in the range of $47 million to $50 million compared to previous guidance of $74 million.

Some might expected a bit of a slowdown in global capital spending, as some mobile programs, primarily around fourth generation Long Term Evolution, wound down. But many analysts have been predicting capital investment levels that are flat.

Others have forecast declining capital investment in 2015, however.

It is possible some U.S. carriers are slowing investment because of unfavorable regulatory rulings, but other carriers, in other regions, might have reasons to maintain or even increase investment, especially to support new mobile infrastructure and fixed network Internet access.  

Zero Rating Facebook Lead to a Doubling of Mobile Internet Purchases in Philippines

Zero rating of content--allowing mobile users access to one or more Internet apps without requiring a mobile Internet subscription, is controversial in some quarters as a violation of network neutrality principles.

But zero rating works, as a way of introducing mobile users to the value of using the Internet, according to tests run by Globe Telecom in the Philippines.

The “Free Facebook” test, which offered all Globe mobile users access to Facebook, including those without a mobile data plan, ran from October 2013 to May 2014.

Over the course of the test, the number of data users on Globe’s network doubled, and the portion of Globe’s prepaid subscriber base who were active on mobile data expanded from 14 percent in September 2013 to 25 percent in November 2014, Facebook and Globe say.

In other words, the mobile Internet customer base nearly doubled.

Globe’s Free Facebook campaign (and similar internet outreach efforts by other players in the market), led to a six million increase in the number of active mobile internet users in the Philippines as a whole.

During the first phase of the trial, Globe’s user base increased by 17 percent. Along with continuing to use data, these users also shifted core telco spend over to Globe’s network, growing voice and text messaging revenues by five percent.

By the end of the first campaign, prepaid mobile data users grew from 4.8 million to 9.7 million, more than a two-fold increase.

After the test, Globe saw a 34 percent jump in average revenue per user, as customers converted to paid mobile service.

The percentage of Filipinos who access Facebook only from WiFi--and never from a mobile data network--decreased from 38 percent at the start of the Free Facebook campaign to 17 percent at the end of Free Facebook Phase two.

Comparing third quarter 2013 (pre-Free Facebook phase one) to the third quarter of 2014 (post-Free Facebook phase one) saw a 58 percent increase in mobile browsing revenue on Globe’s network.

Complain about zero rating if you desire. It worked to acquaint millions of Filipinos with the value of the Internet, and increased the number routinely using the Internet.

Does Net Neutrality Decision Illustrate New Balance of Political Power Within Ecosystem?

Some might take a cynical view of the Federal Communications Commission’s network neutrality rules, since politics matters in Washington, D.C., and matters greatly for the setting of communications policy.

To a great extent, politics also reflects perceived political power. So one might argue the perceived power of the ISPs has dropped, while the power of the app providers has grown.

In a way, this is the political analogy to the “content versus distribution” debate within the video ecosystem: who has more power within the ecosystem?

“What the net neutrality rules really demonstrate--and a little sooner that we are all comfortable with--is that a new status quo is emerging. And that status quo is Google, Netflix, Facebook et al,” writes Kieren McCarthy, of The Register.   

Others might note that executives from Google visited the White House once a week, on average, during the tenure of President Barack Obama.

Some might call that an exaggeration of the situation, but others might say there is great merit. Power within the Internet ecosystem has, for some time, shifted away from ISPs and access providers, and towards the app providers, in the same way one might argue power has shifted to content owners versus content distributors in the video ecosystem.

It perhaps is no coincidence that the video and content distributors (pipes and access) are one and the same. What seems most unique and valuable in video content or Internet ecosystems are apps and content, not access methods. In fact, people only want Internet access because they want to use the apps.

If you subscribe to the view that power matters, and gets expressed in politics and then FCC decisions, the net neutrality ruling will come as no surprise.

“The FCC hasn't suddenly discovered it must fight for the people's rights: it's simply realized that it's time to serve new masters,” said McCarthy. “The new rules are simply paving the way for the next generation of companies who will bend the market and government to their profit-making will – and be given the freedom to do so in the policies of today.”

McCarthy is blunt: “The people that will be most served by the rules are not consumers but large Internet companies.”

Google and Netflix didn't want interconnections between networks regulated, and so they were not regulated.  While the FCC sees future possible negative motives in the cable companies, it seems to think the opposite is true when it comes to the internet companies, McCarthy noted.

As McCarthy sees matters, one huge problem is that the FCC acted without knowledge. The agency’s "open internet" plan wanted Internet service providers to supply all information about network packet congestion including the source of it, its location, its size and so on. The actual order does not require such information. Why?

As the document notes, “we decline at this time to require disclosure of the source, location, timing, or duration of network congestion, noting that congestion may originate beyond the broadband provider’s network and the limitations of a broadband provider’s knowledge.”

In other words, congestion can happen for all sorts of reasons beyond an ISP’s control.

One might cynically say the FCC continues to “blame” ISPs for bottleneck or oligopoly practices, while it continues to see app firms as aggrieved parties.

The FCC is going to force cable companies to provide many more details over their internet offerings: everything from speeds, rates, restrictions and packet loss stats.

But the agency doesn't know how to. So it is asking its Consumer Advisory Committee to come up with a plan within six months.

The FCC is also going to be the place for disputes over how cable companies are ripping off consumers and internet companies on a "case-by-case basis." But it doesn't have such a facility, and has never really run one before so it will have to create and hire a new ombudsman, McCarthy says.

One might argue the Commission acted to prevent clear abuses of market power by cable companies. The issue is whether the Commission adopted remedies that are unnecessary, and ignored the growing power of app providers (edge providers) in the ecosystem.

The view seems to be that the ISPs are inherently monopolists, while app providers inherently are innovators posing no threat to Internet openness.

Google Fiber Salt Lake City Gigabit Network is in Design Phase

Salt Lake City is among the new U.S. metropolitan areas--including Atlanta, Charlotte, Nashville and Raleigh-Durham-- metro areas now in the design phase of Google Fiber’s gigabit Internet access service.

In a Competitive Market, the Low Cost Provider Wins

One business lesson I learned in the cable TV business decades ago was that,  “in a competitive market, the low cost provider wins.”

It also helps when a business can create or discover entirely new sources of revenue as well. But operating costs, profit margins and capital investment burdens, do matter as well.

Right now, U.S. mobile operators are feeling pressure on all those fronts. Several have made huge investments in new spectrum, and new auctions are coming. The industry is in the midst of a price war and new competition seems to be coming.

All that also has put pressure on equity values. By some estimates, U.S. mobile operator equity values have dropped $45 billion between November 2014 and March 2015.

It is probably coincidence that the cost of new spectrum purchased in the AWS-3 auction was about $43 billion. The bigger issue has been the warnings by AT&T and Verizon that profits will be challenged in the early quarters of 2015.

So the eventual winners will have found ways to create big new revenue streams, maintain profit margins and cut costs.

In the absence of consolidation by the top four national providers (regulators seem unwilling to approve), contestants have to cope by considering losing market share to protect margins or sacrificing margins to gain share.

Some think a four-provider market would become much more stable with two “premium” suppliers--AT&T and Verizon--and two “value” suppliers Sprint and T-Mobile US.

But at least some fear the mobile operators might never recover investment costs, as network upgrades and spectrum purchases escalate.

AT&T’s Domain 2.0 program is one way to attack capital and operating costs by virtualizing the network.

Telecom "Structural Decline" is Spreading

“Structural decline” of the market is not a phrase the provider of any good or service wants to hear.

Nevertheless, that is precisely what has happened in a number of segments of the communications business, including  long distance voice, business and consumer voice overall, mobile voice and mobile texting.

Now we can add linear video subscriptions to the list. The Cabletelevision Advertising Bureau estimates that about 40 percent of third and fourth quarter TV ratings declines can be attributed to over the top  subscription online video services.

Total TV viewing fell about 10 percent in the third quarter and about nine percent in the fourth quarter, according to an analysis of Nielsen data by Sanford C. Bernstein.

In the first quarter of 2015, so far, TV viewing appears to be down about 12 percent, according to Bernstein estimates.

“We believe the U.S. television industry is entering a period of prolonged structural decline, caused by a migration of viewers from ad-supported platforms to non-ad-supported, or less-ad-supported platforms,” wrote Bernstein analyst Todd Juenger.

The only “legacy” business that has not yet reached saturation, and begun to decline, is high speed Internet access. And some would argue that is because it is a “new” product line.

But high speed access will eventually become saturated as did the earlier products lines. That is why the search for big new revenue streams is so important, and why some believe industry regulation should aim to foster growth, not damp it down.

US Telecom Filed Lawsuit Challenging Net Neutrality Rules

The first of several lawsuits challenging the new Federal Communications Commission network neutrality rules has been filed, this one by the USTelecom, the trade group representing U.S. telcos. 

Broadcasters, TV White Spaces Supporters Disagree About Database "Problems"

Any database-driven approach to spectrum sharing will hinge on the accuracy of the databases, it goes without saying. Citing errors in the databases, the U.S. National Association of Broadcasters has asked for an immediate halt to TV white spaces operations in the United States.

The Wireless Innovation Alliance, which supports TV white spaces deployment, counters that NAB provided no evidence of interference, no evidence that any FCC requirement is not being met, and no instance of any harm to a broadcaster from the data-entry rules and processes it criticizes.

NAB alleges there is evidence of “false entries.”

“The current database design allows--and may encourage--users of TV white space devices (also known as TV Band Devices or TVBDs) to falsify information they are required to enter into the database when they register certain fixed and mobile devices,” NAB argues. “This information includes, among other things, the location information upon which the Commission premised the entire concept for spectrum sharing in the TV band.”

NAB says it has conducted multiple analyses of the TVWS database in 2014, and, that at various points, more than a third of the devices in the database contained “patently inaccurate” location information.

The Wireless Innovation Alliance counters that test entries are a necessary part of the verification process.

The "discrepancies" between location and address are not indications of a messy database, the Wireless Innovation Alliance says.  

The database contains two entries for each device: Its actual location and a contact record for the operator of the device.

The “location” is where the device is; the “address” could be where the responsible company can be contacted.

The skirmishing is not terribly unusual. Struggles over allocation of spectrum often pit broadcasters against communications interests or satellite interests against mobile interests.

Bharti Airtel Joins Amazon Web Services Direct Connect

It’s good to be “on network,” rather than “off network.”

Bharti Airtel has joined the AWS Partner Network (APN) and will deliver private network solutions for enterprise customers across the globe using Amazon Web Services (AWS).

This will help Airtel’s enterprise customers across the globe establish a dedicated network connection between customers’ premises and Amazon’s data centers.

That in turn, will help  reduce network costs, increase bandwidth throughput, and experience a more consistent network connectivity experience.

AWS Direct Connect will allow Airtel enterprise customers to establish a dedicated network connection between their network and one of the AWS Direct Connect locations.

Using industry standard 802.1q VLANs – any dedicated connection can be partitioned into multiple virtual interfaces, allowing customers to use the same connection to access public resources such as objects stored in Amazon Simple Storage Service (Amazon S3) using public IP address space, and private resources, such as Amazon Elastic Compute Cloud (Amazon EC2) instances running within an Amazon Virtual Private Cloud (Amazon VPC) using private IP space.

Airtel customers will benefit from AWS Direct Connect in a number of ways.

By transferring data to and from AWS directly, customers can reduce their bandwidth commitments, and save money. All data transferred over the dedicated connection is charged at the reduced AWS Direct Connect data transfer rate rather than Internet data transfer rates.

Bandwidth on demand will be easier, as AWS Direct Connect provides 1 Gbps and 10 Gbps connections, while customers can easily provision multiple connections.

Management also is easier, as customers use the AWS Management Console, providing a single view to efficiently manage all connections and virtual interfaces.

"Data Center to Data Center" Traffic is Growing Faster Than "Intra-Center" or "Data Center to End User" Traffic

Once upon a time, global wide area network traffic was relatively limited, and mostly represented connections between tandem switch and central office switch locations.

These days, traffic tends to be dominated by server-to-server traffic, within data centers, between data centers and then from data centers to end users.

A recent Bell Labs study forecasts total metro traffic will increase 560 percent by 2017, largely driven by IP video and the increasing adoption of cloud and data center services and applications.

According to the study, metro video traffic (including subscription TV and Internet video) will increase 720 percent by about 2017.

Metro cloud and data center traffic will increase 440 percent by 2017, the study predicts.

As the demand for video content increases, video caching is now being implemented within metro networks, moving content caching deeper into the network.

As a direct consequence, traffic between data centers in metro areas will grow, keeping much traffic off the backbone networks. That’s a significant change.

On the other hand, a growing percentage of traffic also will be moving between data centers.

Traffic between data centers is growing faster than either traffic to end-users or traffic within the data center, and by 2018,  traffic between data centers will account for almost nine percent of total data center traffic, up from nearly seven percent at the end of 2013, according to Cisco.

Until recently, metro traffic had a “north-south” flow from a content source to the end user with content sources typically located at a national central location and delivered over the wide area backbone network.

But there is a change coming, Alcatel-Lucent says. The north-south flows increasingly will be replaced by “east-west traffic  flows for traffic flows from data center to data center, increasingly located within metro centers.

There are revenue implications for providers of high-capacity metro networks and long haul bandwidth providers alike.

How Much Enterprise Spending Could be Shifted to Cloud Alternatives?

If a traditional enterprise data center represents about 23 percent of the whole information technology budget, and data communications represents about nine percent of total budget, you can see where the potential for spending shifts lies: substituting cloud computing for owned data center operations.

Enterprises can shift data center costs in the direction of cloud facilities and bandwidth. Presumably some other existing costs, including IT management, application support, app development, IT service desk and end user computing costs likewise could be reduced.

source: AT Kearney

Device Barriers to Developing Market Internet Access Falling Fast

Though Apple will continue to sell at the high end of the smartphone market, volume will come in emerging markets, for devices costing less than US$100. That, in turn, will drive Internet access in emerging markets.

The rapid emergence of the sub-$100 smartphone category is one illustration of falling barriers to Internet usage in developing markets.

"The future of smartphones lies in emerging markets, sub-US$100 price points, and phablets," said Melissa Chau, International Data Corp. senior research manager. "In 2014, 73 percent of smartphones were shipped to emerging markets, 21 percent were priced below US$100, and 12 percent had screen sizes between 5.5 and seven inches.

By 2019, 80 percent of smartphones will be shipped to emerging markets, 35 percent will be priced below US$100, and 32 percent will have a 5.5-inch to 7-inch screen size.

As recently as 2010, PCs still made up the lion's share of the total “smart connected device” market, with the combined desktop and notebook categories accounting for almost 53 percent of shipments compared to nearly 45 percent for smartphones and three percent for tablets.

By 2014, smartphones had grown to represent almost 73 percent of total shipments, while PCs had slipped to nearly 17 percent and tablets had increased to about 13 percent.

By 2019, IDC expects the distribution to be nearly 78 percent smartphones, almost 12 percent PCs, and about 11 percent tablets.

Some 28.7 million mobile phones were shipped in Vietnam in 2014, representing 13 percent year over year growth.

Smartphones represented 41 percent of all mobile phones shipped to Vietnam in 2014, or 11.6 million units, and are expected to eclipse feature phones in 2015.

Smartphone sales grew 57 percent in 2014, International Data Corp. says. As is the case elsewhere in Asia, lower-priced smartphones are driving the trend.

"The low-cost segment has been the main driver, with six out of ten smartphones as budget models priced below US$150 are shipped to Vietnam," said " Võ Lê Tâm Thanh, IDC senior market analyst.

What Drives Global Bandwidth Demand? Everything

No single driver accounts for the strong growth of Internet bandwidth demand in every region of the world. Instead, almost every trend in communications, computing and entertainment now collectively boosts demand for capacity.

More users, more users on mobile, more people watching video, more content consumption, stored in more places and assembled from more sources, plus globalization all contribute to higher usage.

But usage alone is not the whole story. “Where” usage occurs also has changed, with the greatest volume growth in Asia. That, in turn, leads to more traffic across Asia to and from Europe, and to and from North America.

Use of more-global internet exchange points (IXPs) likewise has affected traffic flows.

Historically, most traffic transited through US-based network access points (NAPs) in which backbones interconnected their networks and exchanged traffic. As all ISPs had to connect to the US for international transit, they also used these links to exchange domestic and regional traffic, a process referred to as tromboning.

Today, regional IXPs are used to exchange more local traffic. Still, the largest number and percentages of IXPs are located in North America, Europe and Asia. That in turn drives traffic between the three regions.

By 2018, perhaps 78 percent of all workloads will be processed in cloud data centers, Cisco argues.

But traffic between data centers is growing faster than either traffic to end-users or traffic within the data center, and by 2018, traffic between data centers will account for almost nine percent of total data center traffic, up from nearly seven percent at the end of 2013. 

The high growth of this segment is due to the increasing prevalence of content distribution networks, the proliferation of cloud services and the need to shuttle data between clouds, and the growing volume of data that needs to be replicated across data centers.

Data center traffic on a global scale will grow at a 23-percent CAGR, but cloud data center traffic will grow at a faster rate (32 percent CAGR) or 3.9-fold growth from 2013 to 2018, Cisco predicts. .

Cloud workloads are expected to nearly triple (grow 2.9-fold) from 2013 to 2018, whereas traditional data center workloads are expected to see a global decline, for the first time, at a negative two-percent CAGR from 2013 to 2018.

From 2013 to 2018, the Middle East and Africa is expected to have the highest cloud traffic growth rate (54‑percent CAGR), followed by Central and Eastern Europe (39-percent CAGR) and Asia Pacific (37‑percent CAGR).

      Cloud Traffic Growth by Region, in Exabytes

Region	2013	2014	2015	2016	2017	2018	CAGR 2013–18
Asia Pacific	489	716	1,010	1,368	1,802	2,331	37%
Central and Eastern Europe	85	120	170	238	331	442	39%
Latin America	89	130	180	240	312	394	35%
Middle East and Africa	31	53	86	132	193	262	54%
North America	643	857	1,102	1,384	1,701	2,077	26%
Western Europe	311	401	502	631	791	988	26%

Source: Cisco Analysis, 2014

      Regional Distribution of Total Data Center Workloads, in Millions

Total Data Center Workloads in Millions
	2013	2014	2015	2016	2017	2018	CAGR 2013–2018
Asia Pacific	16.3	20.9	28.4	37.9	48.0	61.2	30%
Central and Eastern Europe	2.3	2.7	3.1	3.6	4.3	5.1	17%
Latin America	2.6	3.2	3.9	4.7	5.7	6.9	21%
Middle East and Africa	1.8	2.3	2.9	3.5	4.3	5.2	24%
North America	56.1	62.8	68.7	73.9	80.3	88.0	9%
Western Europe	29.2	33.3	36.5	39.7	42.2	45.1	9%

Source: Cisco Analysis, 2014

The portion of traffic residing within the data center will decline slightly over the forecast period, accounting for nearly 77 percent of data center traffic in 2013 and about 75 percent by 2018. 

Despite the decline, the majority of traffic remains within the data center because of factors such as the functional separation of application servers, storage, and databases, which generates replication, backup, and read and write traffic traversing the data center. 

Furthermore, parallel processing divides tasks and sends them to multiple servers, contributing to internal data center traffic.