With all the ink net neutrality is getting, I feel like I just have to say something about it. Regulatory policy, after all, is perhaps the largest single factor in setting business policies for network operators and so one of the largest factors in setting capex policies too. Since I’ve blogged before on the broad question of what might and should happen, there’s no point revisiting those points. Instead, let’s take this first Friday of 2015 to ask what the impact of the “current proposal” on neutrality (by FCC chairman Wheeler) might be on SDN and NFV.
The first impact area is the broadest. The operators are of the view that classifying ISPs as common carriers, even if the FCC uses Section 706 “forbearance” to shield infrastructure from wholesale requirements and other provisions of the Telecom Act, is eventually going to end up with just that—sharing infrastructure. There is little doubt that the immediate impact would be to focus operator planners on how to invest without exposing their assets to the sharing risk. It’s probable that this will have a negative impact on capex in 2015 but little impact on SDN/NFV because the final state of public policy won’t be known until at the earliest the end of the year.
Title II constraints will apply to only Internet services, and not to IP overall. The second impact area is that operators will be looking at what might be in the second category and not the first, and to move stuff between the two to shield investments. Here we find a possible impact on SDN and NFV.
It’s difficult to say whether regulators would accept an argument that Service A and Service B were both delivered on IP packets across the same access infrastructure, mingled together and indistinguishable in a technical sense, but were virtually/logically separated. That would suggest that IP-level separation of services could be a risk to operators, which might then encourage them to adopt some form of “deep grooming” of infrastructure. We know that you can separate Internet flows from video or voice flows at a level below that of IP and claim service separation with some confidence. SDN might be a mechanism for doing that.
Under the FCC’s prior rules, Internet access was subject to neutrality but content delivery, CDNs, and (implicitly) cloud computing were exempt. I think it likely that Wheeler’s intentions would be to sustain this immunity because this stuff has no place being considered a common carrier service. That would mean that operators would be induced to consider NFV enhancements to services part of a cloud offering rather than part of a carrier service offering. Service chaining and Carrier Ethernet are a good example. Title II fears would suggest that operators not augment Carrier Ethernet with hosed elements, but rather offer cloud-hosting of some high-level features and connect the Carrier Ethernet service through them.
This promotes what could be called a “common-carrier-service-is-access-only” view. Your goal as an operator is to terminate the access line in a cloud element and offer managed services through a Title II access connection. The Internet, Carrier Ethernet, and all business services could be subsumed into a cloud-service and hidden from Title II. The shift in policy could present challenges for NFV for two reasons. First, it could undermine the current activity by forcing it toward a separate subsidiary (required to avoid Title II). That would be a delay, perhaps into 2016. Second, it could complicate the way that NFV MANO works by requiring that all services other than best-efforts Internet (which isn’t an NFV target) have integrated regulated access and unregulated hosted elements, offered by different business units. Every deployment might then be a “federation” issue and all management might have to cross business boundaries. Neither of these are supported in current standards or work.
The third point is that once you decide on a Title II avoidance strategy, you end up with a strong reason to virtualize everything at Level 2 and 3. Mixing regulated and unregulated services on a common router begs for an appeal to a US District Court by a hopeful CLEC-type reseller of services. Why not have virtual switches and routers deployed separately by both regulated and unregulated entities? Or why not have the unregulated entity deploy all the stuff besides the access? This shift would make current operations groups into access players and shift more and more capex to an unregulated entity that might be a set of new decision-makers adhering to new infrastructure policies.
The regulated entity (or the about-to-be-regulated one) has also paid for all the legacy stuff. How would operators reinvest in current infrastructure without sinking more money into the Title II pit? The question of how current infrastructure is handled if the FCC (or Congress) applies Title II has to be a factor. Logically the assets should be redistributed, but if everything is kept in the now-Title II entity then nobody is going to add to those assets. Uncertainty about this is obviously going to curtail spending plans while things are resolved.
If all this comes about, then the majority of incremental capex would go inside the cloud, for data centers to host cloud computing and NFV, and to fiber trunks and agile optics to create interior lines of communication. We’d see mobile services built increasingly through the use of personal agents that disintermediated access and devices from application functionality. We’d see IoT applications evolving to look more like big data.
Interestingly, none of this would necessarily exclude the OTTs and others from the new cloud-driven market. Their trap is more subtle. For the decade of the ‘90s even into the middle of the next decade (when the FCC finally wrote a CLEC order that made sense and set ISPs on the road to non-regulated operation) there were no barriers to actually investing in the next generation except the desire for a free lunch. OTTs will face that risk again, because there will be an enormous temptation to wait to see if they can ride a Title II-created gravy train. All that will do is to force investment even more inward, inside the cloud where regulators won’t go.
For SDN and NFV the net of all of this is short-term delay and longer-term success. For the vendors in both spaces the decision to move to Title II and in particular to bar settlement and paid prioritization will hurt the network players and help the IT people. It’s not that there will be a windfall of SDN/NFV spending (I’ve already noted the likelihood of a short-term deferral of major projects) but that IT players have little exposure to the market now and won’t be hurt by the hiccup that will certainly hurt the network giants. Ironically, paid prioritization and settlement—which Internet supporters generally dislike—might be the thing that would save the current business model. Clearly that isn’t going to happen now, so hold onto your hats and watch while the country gets another lesson in why regulations matter.