Apple, already facing an anti-trust review or two, is now getting growing push-back from app providers over the subscription-sharing rule. Apple wants a cut of every subscription, meaning that they want apps that sell something to sell only through Apple’s store and not directly to the consumer. If dissent spreads here, it could be a worse problem for Apple than government scrutiny. From the very first days, Apple has fostered a closed ecosystem model to the greatest extent it could, bucking a general industry trend toward opening software and systems to third-party exploitation. Google, of course, announced its own program for an Android store that’s considerably more financially friendly to publishers and streaming audio/video apps, which only puts more pressure on Apple.
The rumors of a lower-priced iPhone and even iPad are further indications that Apple is worried about competition from Android. Just as the PC-compatibles shunted Apple aside in the desktop wars of the 1980s, Android-based devices are threatening to diminish Apple’s market share and marginalize it with developers—those who aren’t already upset by Apple’s store policies. But Apple loses in any price war even if they win, because they’re always seen as a player who sustains higher margins. With Jobs’ health now clearly a problem, the difficulties could be harder for Apple to work through.
Meanwhile, the smartphone and tablet wars are putting pressure on mobile providers, and in particular creating competitive drive to migrate to LTE. Operators tell us that their LTE migration strategies have been advanced “over a year”, and this is creating its own set of issues because the faster move means that a lot of users will either have to be driven to change out their phones or there will be a considerable number of older 3G devices still in service when 4G rolls in.
One impact this has had is increased interest among providers in using packet-mode infrastructure to backhaul circuit-switched connections. Running a single fast feed to a 4G tower is bad enough, but doubling it up with TDM backhaul for circuit-mode voice is truly bad news. Extreme Networks did a mobile backhaul announcement that focused on synchronous backhaul and integration of packet-sync traffic with TDM, and now Juniper has snapped up the IP of a startup with synchronous packet backhaul capability.
Another issue created by pushing 4G into the fast lane is the change in the dynamics of the metro network created by all the mobile backhaul paths. A typical metro area (LATA) in the US today would have an average of about 200 central offices. There would likely be ten to twenty times that many mobile cells (in addition to the femto and WiFi sites). How will all these new locations impact the metro mission? And given that 4G will almost certainly drive packet-mode voice (VoLTE), could there be pressure to migrate wireline users to VoIP? Operations clearly has to contend with this.
Wireline broadband has its own issues. It is very clear that video streaming services are growing, partly in response to the tablet opportunity, and this creates special problems for broadband operators, most of whom see video services in the form of channelized TV as a big revenue opportunity. So now they’re faced with having OTT streaming services using the operator’s own lowest-profit Internet service to compete with channelized video that’s supposed to be that operator’s highest-profit service!
The debate here, crystallized in the Comcast/Level 3 dispute, was recently punted by the FCC even though no formal complaint has yet been filed. But not only may Level 3 file such a complaint, Netflix is making noises that it might do the same. Cable MSOs are particularly sensitive to OTT video competition because of the fear that cord-cutting will catch on. They’re similarly concerned that HD and 3D services, when streamed, will create even more traffic and pose major congestion issues unless the cable companies build out more. Remember, their cable spans are shared-capacity, so they may have to make more radical changes to scavenge bandwidth for online services. And they want somebody to pay.
In the cloud space, Huawei has pulled its offer to acquire 3Leaf’s virtualization property, after a US government panel recommended against the deal. The Chinese government expressed regret that the company had taken the step, though I think it’s unlikely they were really surprised by the move. What’s likely to happen now is that Huawei will shop for software intellectual property and other assets outside the US, which may be harder in terms of finding candidates but easier in terms of getting the deal approved. Remember, though, that there’s a lot of virtualization and cloud assets out there in open-source form, and Huawei would be free to exploit these as long as they complied with the license restrictions.
AT&T is continuing to push its notion of the cloud as being a natural extension of the network, enhancing its cloud computing offering. One of the new features is tighter binding with AT&T VPNs, creating a “virtual private cloud”. This is also a model Verizon seems to favor. It seems to me that this would naturally create interest in cloud infrastructure as both a customer service framework and as a platform for carrier IT and feature hosting, but hey we’ve ignored similar evidence of symbiosis for a long time!
In the economic/geopolitical space, the situation in the Middle East (particular in Libya) remains very tense, and it’s far from clear whether the “democratic” movements will really result in any meaningful shift toward democratic government. The US exchanges are closed for a holiday, but international exchanges have taken a hit and US stock futures are down. Oil prices are rising too, and the situation could worsen if anything truly bad happens. But I think the major US economic risk is still the shift away from a manufacturing economy to a service economy, which can’t produce growth in wealth large enough to satisfy people’s desire for upward mobility and can’t generate taxes enough to bail out revenue-strapped states. Will this derail our recovery? Not likely, but we have to watch the domestic developments as closely as the international ones.