The OFC event is offering us a pretty clear picture of a pretty dramatic contradiction, if that’s not a contradiction in itself! On the one hand, it’s increasingly obvious that there is going to be a lot of optical activity in the next two or three years, but on the other hand it’s clear that Wall Street believes that none of the optical system players are going to cash in. They like the component people.
To drive the point home, Goldman Sachs downgraded Juniper at the very moment that the company was announcing a new “core router” that’s based on the PTX optical exchange product family and declaring itself to be an optical company. They noted that the core router space was in continuous decline and that Juniper’s market share was in any event at risk to Alcatel-Lucent and other players there.
The story behind this all is one I’ve been telling you for some time—the metrofication of networking. When you shift from delivering connections among users to delivering experiences to users, your traffic patterns change. No more any-to-any because there’s simply not that much widely popular material to experience. Look at the top movies or top TV shows or top books on the best sellers list; there aren’t that many items. If you have 80% or more of your traffic focused on a couple hundred content elements, you’ll cache them all in every metro area. Content drives up access and metro bandwidth needs, and drives you more to fiber distribution, but it doesn’t do much for core networking, which is fine because nothing goes through the core that can make any money. You have long-haul Internet access and you have business VPNs, and both are under constant price pressure.
Then there’s mobile. The average metro area has a couple hundred central offices, but it might have twenty or thirty thousand cell sites. As you move to LTE deployment you’re not going to feed towers with a couple T1 lines, you’ll use 100M Ethernet at least, which means fiber. But here again we’re not seeing a mobile market that’s a profit hockey-stick on the charts, so there’s a lot of price pressure on the devices. There’s also precious little differentiation among products based on features; you just need to push cheap bits upstream toward a service point.
And finally, the cloud. Presuming that we do have a dramatic increase in cloud computing, how far do you think carriers will haul cloud traffic? Cloud users, whether they’re consumers or workers, are counted in population data. Population is in metro areas. Any good metro area will either have enough cloud demand to justify metro data centers, or there’ll be no cloud market to care about. Sure there will be players dabbling with cloud services over the Internet, like Amazon or Rackspace, but for real cloud opportunity they’ll either have to push their own servers into metro areas or they’ll be eaten by operators who can use local servers and short network connections to generate better response times and higher reliability.
So why, arguably, aren’t vendors like Cisco and Juniper telling a better story in metro? In large part it’s because they don’t have any RAN, and absent a radio network strategy you don’t have much of a mobile strategy, and without mobile you’re missing a big metro driver. They also don’t have an arresting IMS position, which is the next thing on the checklist. But both Cisco and Juniper do have a mobile story in the EPC sense at least, and there’s where I think both companies have made a mistake, because you could tie EPC to metro cloud.
Operators need to completely rethink “networking” for the metro of the future. We go from a hundred COs to tens of thousands of cell towers, to delivering 80% or more of traffic from a cache point 40 miles or less from a user, to building services by assembling virtual functions and controlling networks with explicit central functionality rather than distributed adaptive behavior. If differentiation is important in sustaining pricing power for a vendor, what’s a better place to look for it than in the heart of a revolution in metro? But where’s the revolution from either player? Juniper did announce a notion of hosting elements of EPC, but didn’t tie it to NFV. They announced a great metro router (see my blog of yesterday) but didn’t assign it any specific metro mission, they just washed the story with the “metro” and “optics” taglines. Juniper has every single component needed to build the metro cloud of the future today. They don’t talk about it. Cisco has the same, and they’re not talking either.