When Will Managed SD-WAN Service Be a Significant Revenue Driver?

From a service provider perspective, It is hard to say when managed SD-WAN services will hit an important inflection point, and drive revenue, where early SD-WAN revenue has been based on hardware purchases by enterprises that deployed themselves.

It is not hard to see the attraction SD-WAN holds for enterprise buyers. Where an MPLS connection can cost hundreds of dollars a month per Mbps per month per location, an SD-WAN can run over an internet connection costing as little as $7 a month, per Mbps.

Among the issues: increased need to connect branch locations, and an increased reliance on cloud-based apps that run over the internet.

source: PwC

source: Juniper Networks

Currently, there are more than 2,000 commercial SD-WAN paying customers, according to IDC.  More than 50,000 branches are deployed based on a single SD-WAN product.

Still, IDC has estimated that half of the estimated $130 million in sales during 2016 was booked by just two companies, both startups. Most of that revenue was likely generated by hardware sales, not recurring service provider revenue.

Gartner expects that by 2020, SD-WAN sales will be worth about $1.25 billion, representing a 15 percent compound annual growth rate.

At the same time, router sales are expected to drop by 23 percent, and branch office router sales by more than 60 percent by 2020, as 50 percent of all enterprise routers are replaced by SD-WAN.

source: Gartner, Network World

Why the Interest in Private LTE?

It might be intuitive why private 4G Long Term Evolution networks are expected to be deployed by enterprises. The answer has to do with the new roles of advanced mobile networks generally. Recall that the 5G standard does not address voice. Recall that the 4G standard did not address voice, initially, either.

That is not so unusual. Each generation of mobile networks has had a different key revenue model, in terms of incremental revenue growth. And what seems already clear is that the 5G era will be characterized by new revenue sources created by internet of things networks and sensors, not voice, texting or other app and web usage by human devices such as smartphones, tablets and PCs.

source: IHS Markit

And that shift explains the interest in private enterprise LTE networks, not campus versions of “mobile networks” that allow people to talk, text and use the internet. Enterprises will be deploying networks of sensors for all sorts of industrial reasons.

Another new angle is that lots of new unlicensed spectrum is going to be made available to support new 4G and 5G networks, public or private.

source: Qualcomm

Apply for New Innovation Awards by Dec. 1, 2017

People and companies in the network-centric information and communications industries have until Dec. 1, 2017 to submit their entries for the new Innovation Awards created by the PTC  to “recognize the individuals and companies that have transformed and continue to transform our industry and the markets we serve.”

The focus is "innovation," over a lifetime, affecting consumers and businesses, networks, creating the best applications and services, important regulatory innovations and quality of life for people across the Pacific region.

The winning recipients will be announced during the inaugural Innovation Awards Gala taking place on Tuesday, 23 January 2018.

There is no charge to apply, and Individuals or companies may enter as many categories as they wish, provided they meet the eligibility requirements outlined for each category.

Apply using the  online application system by Dec. 1, 2017.  

Why Overbuilding is So Rare

Both for-profit and non-profit entities long have looked at whether it is feasible to compete against cable TV and telcos for internet access, video and voice services using their own facilities, with the objective of providing higher-quality service (internet access speeds, for example) and lower cost.

Generally speaking, more success has been found by suppliers who, in fact, do not “overbuild” telco and cable TV networks across an entire metro footprint, but pick niches (apartments and high-rise living units; neighborhoods and suburbs).

That is the same “cherrypicking” strategy used by business service specialists, who only operate in business districts and office parks.

A study of potential lost market share if municipal internet access networks were built in Seattle and Fort Collins, Colo. assumes Comcast, the leading internet service provider in those cities, would lose 20 percent to 30 percent of its current customer base. That is a reasonable assumption, given other experience in the U.S. market.

Assuming 20 percent loss of share and $50 average revenue per account, Comcast might lose $1.38 million a month, or $16.6 million in annual revenue, in Seattle, or $373,500 a month ($4.5 million annual) in Fort Collins.

Seattle has about 340,479 housing units, of which 327,188 are occupied at any particular time. At an average network cost of about $700 per location passed (Seattle is highly urban, so costs to build a new cabled network are likely higher than that), the core network might cost $238 million.

Connecting an actual customer might cost $300 per location, if internet access is the only service offered.

At 20 percent take rates, the new provider might have 65,437 customers. That represents activation costs of about $19.6 million.

Assume the new provider sells internet access at the same average of $50 per account (so there actually is zero savings for each customer), but that delivered bandwidth is a gigabit per second, with annual revenue of $16.6 million.

Assume the new operator has a 40-percent gross margin (revenue minus direct costs), implying annual net cash of about $6.6 million (before taxes, interest, depreciation and amortization).

And, at five percent cost of capital, interest payments on network construction ($238 million) alone are $12 million a year.

Without getting any more detailed, the business case simply does not work.

It is fine to criticize ISPs for not delivering higher-quality services at more affordable prices. But the costs of building internet access infrastructure, using any cabled method, plus reasonable market share expectations, explain why facilities-based competition is so difficult.

Ubiquitous third suppliers might be an unreasonable expectation. Limited builds in some neighborhoods, suburbs or high-rise living units might have sustainable economics. But advocated likely hope in vain for the emergence of full citywide competitors.

Mobile Networks Might Carry Half of IoT Traffic om 2025

Mobile networks will carry half of IoT data traffic by 2025, Machina Research predicts. Of the use cases of highest interest to mobile service providers, connected car is perhaps the most important, as it inherently requires a mobile access solution.

And though mobility might not be a fundamental requirement for many other use cases, the mobile network will prove to be the easiest solution, even if other connectivity options also exist, one might argue.  

source: AT&T

AI, Edge Computing, 5G, Big Data Analytics, IoT are All Parts of A Single Transformation

Artificial intelligence, edge computing, cloud computing, gigabit mobile networks (5G and others), internet of things and big data all are key trends across many industries.

What we tend to miss, as so much change is happening, is simply that so much change is coming. It is better to view the cluster of innovations as the big change, and not so much the disruption each separate trend represents.

For it is the cluster of technologies that is so unusual. In the past, it has been easier to model the impact of a single innovation (personal computer, mobile phone, internet). It will be much harder in the coming era, since so many fundamentally disruptive technologies are emerging at the same time.

Big data now requires cloud computing. Big data will get bigger as internet of things sensors are widely deployed. So only artificial intelligence can sift through all the data to discern useful patterns.

And some of that data will have to be analyzed fast enough that edge computing is necessary. But 5G and other connectivity solutions will be needed to acquire all the data.

It is nearly impossible for a human to model all the possible interactions with enough detail to make the output useful. From a mobile operator’s point of view, it might be logical to put 5G at the center.

Other industries are going to put AI, or cloud, or IoT or big data at the center. No matter. The point is that the cluster of technologies is what really matters, not any single one of the technology trends.

In this unusual situation, impact will not be measured by market share stats. The percentage of work loads, the location of work load processing, the number of sensors and connections, the use of analytics and machine learning systems will fail to tell the full story.

source: Korea Telecom

As useful as market share analysis might be, it fails to capture the underlying market dynamics when a disruption is underway. Consider that, after nearly two decades, online commerce claims only about seven percent of total retail commerce volume.

Most of us, asked to evaluate the potential impact of a substitute technology platform that has gotten only seven percent share after nearly two decades would likely say that technology is not a major disruptor of the legacy platform.

But we would be quite wrong. If history is a useful guide, we are about three share points away from a decisive change in the adoption rate--and market share--of the new platform.

The reason for that assertion is that, in the past, transformative technologies and successful consumer electronics innovations hit an inflection point at 10 percent adoption, no matter how incremental the prior moves had seemed.

This chart by Asymco shows adoption rates of popular consumer products after 10 percent adoption was reached, no matter how long the gestation.

source: Asymco

As you probably would expect, particular products introduced into developed ecosystems tend to be adopted faster, while products that require further development of an ecosystem can take longer to reach 10-percent adoption rates. Automobiles required a huge infrastructure of roads and gas stations.

The telephone required network economics, as the value of having a phone line was fairly low, for most users, when few other people had them. Likewise, supplying electricity required power plants and transmission lines, plus local power distribution networks.

source: Forbes

And though it is a lesser point, as in some other markets, online commerce represents virtually 100 percent of the net growth.

source: www.nielsen.com

Researchers have been predicting for several decades that computing is going to be pervasive. What we are seeing is the realization of that prediction. Some say "fourth industrial revolution" is coming. Some of us might simply say the era of pervasive computing, as predicted, is arriving.

It is not simply "production" that is going to be affected, affecting industries and economics. Human consumption, lifestyles and behaviors are going to change, as well. This is big, very big.

Sometimes Market Share Conceals More than it Reveals

As useful as market share analysis might be, it fails to capture the underlying market dynamics when a disruption is underway. Consider that, after nearly two decades, online commerce claims only about seven percent of total retail commerce volume.

Most of us, asked to evaluate the potential impact of a substitute technology platform that has gotten only seven percent share after nearly two decades would likely say that technology is not a major disruptor of the legacy platform.

But we would be quite wrong. If history is a useful guide, we are about three share points away from a decisive change in the adoption rate--and market share--of the new platform.

The reason for that assertion is that, in the past, transformative technologies and successful consumer electronics innovations hit an inflection point at 10 percent adoption, no matter how incremental the prior moves had seemed.

This chart by Asymco shows adoption rates of popular consumer products after 10 percent adoption was reached, no matter how long the gestation.

source: Asymco

As you probably would expect, particular products introduced into developed ecosystems tend to be adopted faster, while products that require further development of an ecosystem can take longer to reach 10-percent adoption rates. Automobiles required a huge infrastructure of roads and gas stations.

The telephone required network economics, as the value of having a phone line was fairly low, for most users, when few other people had them. Likewise, supplying electricity required power plants and transmission lines, plus local power distribution networks.

source: Forbes

And though it is a lesser point, as in some other markets, online commerce represents virtually 100 percent of the net growth.

source: www.nielsen.com

Now consider a situation where multiple disruptive technologies are developing simultaneously, and where the net value which can be produced is an interaction between and among those technologies.

Big data now requires cloud computing. Big data will get bigger as internet of things sensors are widely deployed. So only artificial intelligence can sift through all the data to discern useful patterns.

And some of that data will have to be analyzed fast enough that edge computing is necessary. But 5G and other connectivity solutions will be needed to acquire all the data.

It is nearly impossible for a human to model all the possible interactions with enough detail to make the output useful. From a mobile operator’s point of view, it might be logical to put 5G at the center.

Other industries are going to put AI, or cloud, or IoT or big data at the center. No matter. The point is that the cluster of technologies is what really matters, not any single one of the technology trends.

In the past, it has been easier to model the impact of a single innovation (personal computer, mobile phone, internet). It will be much harder in the coming era, since so many fundamentally disruptive technologies are emerging at the same time.

source: Korea Telecom