Light Reading’s Carol Wilson did another nice interview this week, and documented it in a story about the progress and future of the ETSI NFV. A good part of the story focuses on the assertion that the ISG had to constrain its scope to get its work done. Respectfully, I disagree.
Telecom is an industry that makes capital investments on a cycle as long as 20 years or more, and this isn’t the sort of financial situation that breeds quick changes in course. Any revolutionary technology has to be able to prove it’s better in the long run, but it also has to somehow generate enough benefit to cover what might be a formidable set of near-term financial hurdles. It’s those hurdles, and overcoming them, that I’m going to talk about today.
Capex reduction always seems to be an appealing justification for something, but capex is where you run hard into that issue of “sunk costs”. Network equipment currently installed at Levels 2 and 3 and above has almost four years of residual depreciation. That means that even if you were to say that a new SDN or NFV approach could cut the cost of equipment by a third, it would take considerable time to make up the savings. During that time, there’s a risk that something else would come along. It’s for this reason that operators have tended to distrust revolutionary technology changes justified by capex.
The classic defense against sunk cost is an evolutionary strategy. If you can gradually introduce something new, you can replace the old stuff that’s fully depreciated as it becomes eligible. The fact that you don’t touch stuff that still has write-down to be taken means you don’t have those sunk costs. Evolution can also reduce risk by limiting the amount of infrastructure you change at any given moment.
The problem with the evolutionary-displacement model, at least with respect to SDN and NFV, is that the revolutions themselves may not support it. NFV, for example, presumes reasonable economies of scale from the pool of resources that would be used to host network features. If you start off with small pools, you may secure no savings at all. SDN’s challenge is that control plane separation for two or three devices inside a network isn’t likely to bring about very much change.
The SDN community, in my view, has never really faced up to the issue of financial justification. I found in a survey this spring that neither enterprises nor service providers cited “SDN benefits” that could be readily quantified. If you present your CFO with a non-quantified benefit, you may as well say that Gandalf approved of your choice. Real costs, real risks, demand real dollar-signs benefits.
In the NFV space, operators graduated from a notion that capex reduction would justify NFV, to the current view that it will be justified by creating operational efficiencies and improving service agility. We’re in an age where running a network costs about as much as buying it, so operations costs are a real concern. Operators are also concerned that the OTT players appear to be able to deploy services on a dime where they take years to do the same thing. But there are two problems with these modern justifications.
Problem number one is that old bugaboo of real-dollar benefits. Operations savings can justify NFV (or SDN), right? Well, how much operations savings would it take? How would we go about securing the savings? And with service agility, given that OTT services are really hosted experiences delivered over the network and not network services per se, how exactly does SDN or NFV make these more agile? If the OTTs can build new services without SDN and NFV, the operators could build the same ones without the new technologies too.
The second problem is one I’ve been harping (ranting, some may say) about from NFV’s inception. If you want operations efficiency and service agility, then you want changes in service operations and management. You also have to think about the often-neglected but always horrific issue of first cost.
Service operations and management are out of scope to the ETSI NFV ISG, and that’s been true all along. I didn’t agree with that, and I still don’t. I understand that the scope of an effort like NFV has to be contained to insure it doesn’t become a decades-long project, but the very first thing that any technical project has to do if it’s to succeed is to secure its own driving benefits. Otherwise you come up with a “solution” that you can’t implement. NFV has embraced value propositions it doesn’t own.
But even if it could own them, there’s still that first-cost problem. Network operators, like public utilities, are cash-flow machines. People buy their stock not because they are going to double their sales in a year or so (by stimulating the birth-rate, perhaps?) but for their return in dividends. So operators faced with a technology shift will draw this chart of free cash flow. When you start deploying your new thing, you face immediate costs and there is little chance early service benefits will offset them. Your cash curve dips negative and stays that way for a while, till finally the benefits start to catch up. Eventually the curve turns around, goes positive, and the CFO and shareholders are happy.
The problem with this first-cost thing, applied to SDN and NFV and to the notion of operations-and-agility benefits, is that you can’t secure the benefits of the new technologies without wrapping both legacy and new stuff in a common operations framework. The need for evolution, in short, combines with the need to reduce first cost. How can we change everything about operations and service creation with SDN and NFV when we can’t fork-lift our whole infrastructure and start over? By making the changes “above” the infrastructure, where they apply to the old and the new.
That raises the final and perhaps most interesting truth. If service agility and operations efficiencies are the goal, and if those goals have to be realized through high-level realignment of operations practices and processes that are implemented in a technology-neutral way, are these two “benefits” really benefits of SDN and NFV? The answer is, “in part, no they are not”.
Every single network operator out there could benefit from an abstraction-virtualization model of services and infrastructure even if they didn’t change a single device in their network. They could secure a big chunk of the benefits they want without changing infrastructure at all. They could, by building high-level cover that’s technology-neutral, ease their way past evolutionary sunk costs and formidable first costs. Cisco could defend its status quo goal better than by inventing new slogans and sticking its fingers in various weak points.
We don’t need to modernize service operations and management practices to implement SDN and NFV, we have to modernize them before we implement either one, and then use what we’ve done to pave the way. That’s why operations/management was never, could never be, out of scope for SDN and NFV.