SD-WAN Market Grew 28% in 4Q 2018

Software-defined networking (SD-WAN) software revenue, including appliance and control and management software, rose 26 percent quarter over quarter to reach $359 million in the fourth quarter of 2018, says Josh Bancroft, IHS Markit senior research analyst.

Those are the building blocks for service provider SD-WAN services, which Vertical Systems Group has estimated at about $282 million in managed service revenues in 2018.

Providers actively selling managed SD-WAN services in the U.S. include the following companies (in alphabetical order): Aryaka, AT&T, CenturyLink, Cogent, Comcast, Fusion Connect, GTT, Hughes, Masergy, MetTel, Sprint, Verizon, Windstream and Zayo, Vertical Systems says.

source: Vertical Systems

VMware led the SD-WAN software market revenue share with 20 percent, followed by Cisco at 14 percent and Aryaka at 12 percent, IHS Markit says.

For the foreseeable future, both direct and channel sales will continue to drive SD-WAN market growth.

Respondents to IHS Markit surveys have shown a preference for self-managed SD-WANs using on-site hardware and software. But managed services are gaining share.

source: IHS Markit

The Trouble with Antitrust: Past, Present, Future

Antitrust issues are at the forefront of the proposed merger of T-Mobile US with Sprint, but also with concerns about the market power of firms such as Facebook and Google.

The point of antitrust legislation is consumer protection. So the empirical issue is whether antitrust action actually works, in practice. Do such actions (breakups, for example, as some suggest for Facebook and Google) protect consumers and provide benefits such as lower prices?

The answers might not always be clear. Firm actions are not always unambiguously pro-competitive or anti-competitive.

“When prices decline sufficiently so that no firm in an industry is earning economic profits and some firms exit, this outcome may reflect a highly competitive market,” note economists Robert Crandall and Clifford Winston of the Brookings Institution.

In other cases, a large competitor might be engaging in predatory pricing to drive out its rivals.

If one contestant adds lots of capacity, is that an example of an implied threat to cut prices drastically, or a way to add more competition?

“Almost any action by a firm short of outright price fixing can turn out to have pro-competitive or anti-competitive consequences,” the economists notes.

After studying the impact of antitrust actions, they say they can “find little empirical evidence that past interventions have provided much direct benefit to consumers or significantly deterred anti-competitive behavior.”

So “authorities would be well advised to prosecute only the most egregious anticompetitive violations,” they note, as such actions are inconclusive. Looking at the big textbook examples of major antitrust action, they find

* the breakup of Standard Oil had little effect on either consumers or on profits
* The American Tobacco case did little to spur meaningful competition
* the decree did not reduce Alcoa’s dominance
* price of a movie ticket rose in the two decades following the Paramount decision and there was little market entry by new competitors
* After antitrust action, USM’s revenue gains were more than twice the sum of its four major competitors’ gains
* After the AT&T breakup, long distance prices did fall, but that is attributable to “equal access” rules, not the breakup
* Monopoly cases against Safeway and A&P had little impact on market structure
* The charge of American Airlines predatory pricing at hubs is inconclusive

One generic problem is that antitrust cases take so long to conclude that industry structures often already have changed by the time a decision is rendered. That was true in the Standard Oil, Alcoa, IBM and Microsoft cases, they say. In other cases, including American Tobacco, Paramount and United Shoe Machinery cases, negligible consumer price or industry structure changes happened.

Also, mergers may harm or benefit consumers. It depends. Mergers that enable firms to acquire market power may only raise consumer prices, while mergers that enable firms to realize operational and managerial efficiencies can reduce costs and thereby lower prices, the economists notes.

After reviewing about a hundred merger reviews and cases, the authors say “regulators are not sorting out good mergers from bad ones with much accuracy” and that “antitrust authorities overreach and attempt to block productive mergers.”

“We can only conclude that efforts by antitrust authorities to block particular mergers or affect a merger’s outcome by allowing it only if certain conditions are met under a consent decree have not been found to increase consumer welfare in any systematic way, and in some instances the intervention may even have reduced consumer welfare,” they say.

“We have not found any evidence that antitrust enforcement has deterred firms from engaging in actions that would have seriously harmed consumers,” they add.

In the end, “any deterrent effect of the antitrust laws may be relatively small compared with the well demonstrated ability of competitive markets to deter anti-competitive monopolies, collusion and mergers,” they conclude.

The point is that antitrust actions often fail to achieve the objectives of greater competition and consumer price benefits.

“The apparent ineffectiveness of antitrust policy stems from several causes:
1) the excessive duration of monopolization cases, which portends that the particular issue being addressed will evolve into something different—often of less importance—by the time it is resolved;
2) the difficulties in formulating effective remedies for monopolization and effective consent decrees for proposed mergers;
3) the difficulties in sorting out which mergers or instances of potentially anticompetitive behavior threaten consumer welfare;
4) the substantial and growing challenges of formulating and implementing effective antitrust policies in a new economy characterized by dynamic competition, rapid technological change and important intellectual property (Carlton and Gertner, 2002);
5) political forces that influence which antitrust cases are initiated, settled or dropped (Weingast and Moran, 1983; Coate, Higgins and McChesney, 1995), including situations where firms try to exploit the antitrust process to gain a competitive advantage over their rivals (Baumol and Ordover, 1985);
6) the power of the market as an effective force for spurring competition and curbing anticompetitive abuses, which leaves antitrust policy with relatively little to do.”

There are some who say the emphasis on consumer welfare has to change. Bigness itself now seems to be the rationale for action. In what some claim is a return to earlier principles, the argument is that a focus on consumer welfare, especially prices now is inadequate.

Instead, antitrust should focus on potential harm to competitors, reduced innovation, jobs, reduced market entry, decreases in product quality, and privacy.

Since traditional antitrust has been relatively ineffective, one wonders how it might be any more effective when a number of harder-to-measure outcomes are substituted. We have done poorly enough when quantitative measures were used; we are likely to do far worse when qualitative measures are the substitute.

T-Mobile US Promises Mobile Substitution for Fixed Internet Access

Perhaps the most-startling new argument T-Mobile US is making in support of its merger with Sprint is the ability to use the 5G network to provide the equivalent of fixed network internet access without using fixed wireless, relying solely on the mobile network to reach about half of all U.S. homes.

The “broadband in a box” solution that New T-Mobile does not appear to require use of an exterior antenna of any sort, the company says in a new filing with the Federal Communications Commission.

“New T-Mobile will simply ship a box to the customer’s home for the customer to self install,” says T-Mobile US.

That claim also suggests the network supporting the offer will not be “fixed wireless” but the mobile network itself, a use case that has become a reality in the 4G era for lighter users. But T-Mobile US seems to suggest the 5G mobile network will be a platform for full competition with fixed internet access services, generally.

source: T-Mobile US

By 2024, T-Mobile expects to cover about half of U.S. homes with the in-home Internet service, relying on the mobile network, not fixed wireless, providing average download speed in excess of 100 Mbps or higher (with a minimum speed of 25/3 Mbps), the company says.

“New T-Mobile will use this low cost structure to aggressively capture share by pricing its service at (redacted) per month below what in-home broadband providers typically charge today,” making the story “lower prices for fixed network internet access.”

That would be the latest example of mobile substitution that began with voice services.

Is T-Mobile US Sprint Merger in Trouble?

I never claim to understand all the politics of communications law and regulation, but it does seem to me that the latest filing by T-Mobile US, and the pause of the merger review by the Federal Communications Commission, does suggest policymakers are not yet convinced the Sprint merger with T-Mobile US is really in the public interest. Indeed, merger opposition is not a new story. The AT&T effort to buy T-Mobile US was rebuffed, for example.

Initially, the claim was that the merged company would be a stronger competitor to AT&T and Verizon, which is true as far as it goes. A much-bigger company with much-greater scale--in a scale business--should do better.

Ignore for the moment the fact that no equity analyst I ever have heard from thinks “lower prices” are an outcome. Instead, they believe higher prices are the outcome. That is not to say market concentration and prices are related is a simple and obvious way.  

Still, most might agree the merger is better for Sprint and T-Mobile US. It is not so clear it is good for consumers , at least in terms of the amount of price competition in the U.S. mobile market. That noted, it remains unclear how much competition the U.S. mobile market can sustain, long term.

But some of us would argue the answer is yet unknown, as Comcast, Charter and possibly other large entities with scale could be big forces. The U.S. market arguably is big enough, with enough ways to create new business models blending app, services and access, that the “best” answer might not be “two or three” pure-play mobile service providers.

Someday, we might find that mobile access is something that is part of the core value proposition for bundles of vale that bridge apps, services, devices and network services. We just do not know where the larger business is headed, except to note that “access alone” is getting to be a dangerously-thin way to earn revenue on a sustainable basis.

I’ve argued in the past that among the most-sustainable outcomes is for Comcast and Charter to combine assets with T-Mobile and Sprint, for example, pairing one mobile firm with one cable leader. Other combinations might be proposed, but none seem to have the clean “we provide access services” rationale as well as cable-plus-mobile.

That is the analogy to AT&T and Verizon’s operation as entities with mobility and fixed assets.

The filing leads with the argument that “new” T-Mobile will challenge the cable operator “monopoly” of fixed network internet access. “New T-Mobile will not only raise the performance bar and enhance competition for mobile wireless services, but also enter into and disrupt in-home broadband,” the document says. Some of us believe that is a reasonable or plausible claim.

But it strays from the basic argument that new T-Mobile actually is good for mobile consumers. And that suggests T-Mobile believes it has not won that argument. Some of us have argued the deal would face a high bar because the U.S. mobile market already is concentrated.

In the mobile business, as well as the fixed business, competition is going to occur in different ways, in the future. So both T-Mobile US and Sprint are long-term asset sellers, if this merger is not approved. Some might argue that would be better for both innovation and competition, long term.

East Asia Leads FTTH Net Gains

Almost 82 per cent of global fiber to the home  fiber to the home net additions came from China in the third quarter of 2018,  which reported a six percent quarterly growth in fiber connections, according to Point Topic.

Argentina in the same quarter saw net additions rise 21 percent; Brazil saw 19 percent net additions; the United Kingdom added 11 percent while France gained 10 percent.

As in recent previous quarters, 70 percent of all new fixed broadband subscribers were added in East Asia.

source: Point Topic

According to the latest research by Point Topic, in the third quarter of  2018 the number of global fixed broadband subscribers exceeded one billion, having increased by 2.6 per cent quarter-on-quarter.

5G: What Matters is Ability to Create Economic Value

Most observers spend way too much time worrying about which firm or country is ahead or behind in 5G. Ultimately, what matters is how much value any firm or nation can wring out of a platform. We have seen this before, in fixed network broadband generally.

If being “way ahead in broadband” means people are watching television, the direct productivity or economic development value might be questionable. “Is there a broad economic societal payoff from increasing broadband speeds from 10 Mbps to 25 Mbps, or are the benefits mostly private in nature (e.g., faster movie downloads)?” asks George Ford, Phoenix Center chief economist.

“Do counties with mostly 25 Mbps broadband connections fare better economically than counties with mostly 10 Mbps broadband connections?” Ford rhetorically asks. “I find no evidence of such an effect here, at least with respect to the growth in jobs, personal income, or labor earnings between 2013 and 2015.”

“Broadband (and higher speed broadband) is not randomly distributed across geography, but rather is deployed in areas where the ratio of demand to costs is favorable, complicating the task of discovering broadband’s influence on economic outcomes,” Ford notes.

To cite just one example, “population density in counties with predominately 25 Mbps service averages 603 persons per square mile, but only 32 persons-per-square-mile for counties with predominately 10 Mbps broadband service,” Ford notes.

That matters because infrastructure is cheaper to deploy in urban areas than rural areas. So population density alone might explain speed differences, as a matter of supply.

Average population for the treated counties (where 25 Mbps is a minimum speed) is 251,490, but a paltry 22,013 for the control group (10 Mbps service)—a 10-fold difference, says Ford. But there are other important differences.

The average number of jobs in the treated group is 150,288, while only 10,605 in the control group. If one assumes stronger economic activity also creates higher demand for faster broadband, the difference between areas with 25 Mbps and 10 Mbps is explainable.

Similar size differentials are observed for total earnings as well as personal income. In other words, higher-income consumers can afford to pay for more-expensive broadband.  Large differences are also seen in the share of persons with a college education (22 percent in 25-Mbps areas compared to 14 percent in 10-Mbps areas).

In a broad sense, the issue is whether economic growth is driven by something other than broadband speeds. In other words, faster broadband gets deployed where demand is highest, and those areas also tend to be areas of higher household income and higher economic growth generally.

What matters is the ability to wring value from broadband.

“Stated simply, merely counting broadband connections or penetration, without regard to any consideration of value, assumes that all types of broadband connections are equal and that all societies are equal and identical in how they value Internet access by speed and connection mode; that all users of broadband place equal value upon that connection and all such connections can be produced at equal cost,” notes George Ford, Phoenix Center chief economist.

That is not to say faster internet access is immaterial. Faster broadband might lead to technological advances that do much more than simply increase broadband speeds, Ford notes.

The point is that it is hard to identify the relationship between broadband and economic growth.

Enterprises Say They are Deploying Edge Computing

Around 10 percent of enterprise-generated data is created and processed outside a traditional centralized data center or cloud, according to Gartner. By 2025, Gartner predicts this figure will reach 75 percent, says Santhosh Rao, Gartner senior research director.

As the volume and velocity of data increases, so too does the inefficiency of streaming all this information to a cloud or data center for processing.”

That is the reason many are convinced edge computing will be important: possibly 75 percent of computing shifts to venues outside private data centers and hyperscale data centers, eventually.

Some processing will continue to be done by devices. Other processing will happen locally, inside a building, at what some call a gateway. “Edge servers can form clusters or micro data centers where more computing power is needed locally,” says Rao.

“Servers deployed in 5G cellular base stations will host applications and cache content for local subscribers, without having to send traffic through a congested backbone network,” says Rao.

And there are signs enterprises believe edge computing has its place. About 37 percent of 100 service provider executives surveyed by 451 Research on behalf of Vertiv already have deployed at least some edge computing to complement their mobile operations, Vertiv says. An additional 47 percent say they plan to deploy their own infrastructure edge assets.

Though most of the infrastructure edge use cases (including multiservice edge computing) involve the need for ultra-low latency performance, there are some use cases where bandwidth also is fundamental.

Virtual reality video quality similar to high-definition TV quality requires bandwidth of 80 Mbps to 100 Mbps, compared to 5 Mbps for HD video streaming, for example.

source: Vertiv