At the service level we all know that mobile broadband gets most of the capex. In topology terms, the big focus of capex is metro networking. It’s so important it’s even been driving operator M&A. If you look at “opex” in the most general terms, meaning non-capital expenses, you find that paying for backhaul and other metro services is for many operators the largest single element. Finally, something that’s been true for years is even truer today—over 80% of all revenue-generating services transit less than 40 miles of infrastructure, so they are often pure metro.
The big question for metro, for operators, and for vendors is exactly how the metro impetus to capex can be supported and expanded without killing budgets. That means generating ROI on incremental metro investment, and that’s complicated because of the dichotomy I opened with—there’s services and there’s infrastructure, and the latter is the sum of the needs of the former.
If we were to look at metro from a mobile-wireless-only perspective, things are fairly simple for now at least. Mobile broadband is sort-of-subject to neutrality but the notion of true all-you-can-eat isn’t as established there and may never be. Operators tell me that ROI on mobile investment is positive and generally running right around their gross profit levels (15% or so) but wireline ROI hovers in the near-zero area, even going negative in some places.
One telling fact in this area is AT&T’s decision to phase out U-verse TV (a TV-over-DSL strategy that those who’ve read my blog long enough know I’ve never liked) in favor of satellite. Another is that Verizon has capped new growth in FiOS service area, and now focuses on exploiting current “passes” meaning households where FiOS infrastructure would already support connection.
A part of the problem with wireline is the Internet. Neutrality rules make it nearly impossible for operators to offer residential or small business connectivity at a decent return. Enterprises are interested in new connectivity-related services only if they lower costs overall. Even the VPN and VLAN services enterprises consume are at risk to cannibalization by Internet-overlay SD-WANs and VPNs.
Every operator on the planet knows that there are “producers” and “settlers” in terms of service revenue potential. The former are likely to do something revenue-generating and the latter are settling on legacy services that can only become less profitable to operators over time. Today, to be a producer, you have to be a consumer of TV service over wireline (which, increasingly, means fiber or cable), a post-pay mobile broadband user or (preferably) both. For the rest, the goal is to serve them at the lowest possible cost if you can’t rid yourself of them completely.
The ridding dimension is amply demonstrated by regulated telcos’ selling off of rural systems. They know they can’t deliver TV there, they can’t run fiber, and so wireline there is never going to cut it. Better to let these groups of customers go, presumably to rural-carrier players who qualify for subsidies.
The lowest-cost dimension is looking more and more like a form of fixed wireless. While all the wireless broadband talk tends to center on eager youngsters who have iPhones, the advances in wireless technology combines with the growing appetite for mobility to generate the once-revolutionary idea of bypassing wireline last-mile completely. That would mean that wireless and wireline would converge in infrastructure terms except where wireline broadcast video delivery is profitable.
Wireless rural services make a lot of sense, and so would the replacement of copper loops with wireless in urban areas where the plant’s age is starting to impact maintenance costs. Wireless also dodges any residual regulatory requirements for infrastructure sharing, already under pressure in most major markets.
Wireless creates a whole different kind of metro topology. In the 250-odd metro areas in the US, there are about 12,000 points of wireline concentration, meaning central offices and smart remote sites. That equates to an average of about 50 offices per metro. There are more than 20 times that number of cell sites and they’re growing, which wireline offices are not. We’re already evolving to where the mobile sites are supported by Evolved Packet Core and the infrastructure is not subject to sharing. Net neutrality rules are also different, at least slightly, for mobile in nearly all the major markets.
NFV and IoT could do even more. The distribution of feature-service-hosting data centers could add hundreds of even thousands of sites per metro area, and all of these would be points of service aggregation so they’d be fiber-served. What we’re headed for is a fairly dense metro fiber fabric, perhaps linking a fair population of mostly-small data centers.
This is the future that the MEF wants to exploit with their Third Network concept. It’s also the future that may determine whether SDN a la OpenFlow is ever going to mean anything in a WAN. The reason is that we have three different models for what a metro network would be, and almost surely only one of them will prevail.
One model is SDN, which is a model that says that services should be based on virtualized-Level-1 technology for aggregation, traffic management, recovery, and service separation. We’d then build higher-layer services by adding devices (virtual or real) that connect with these virtual wires. This model would, if adopted, transform networking completely.
The second model is the MEF approach, which says that you build Ethernet networks at Level 2 and these networks are then the basis for not only Level 2 services but for Level 3 services. With this model, switching is expanded and routing could in theory be containerized to virtual instances, perhaps even running in CPE.
The final model is the IETF model, which not surprisingly builds an IP/MPLS network that offers (in a switch of OSI thinking to say the least) Level 2 over Level 3 among other things. This network would retain IP, MPLS, and rely on BGP even more.
You can see the common thread here; which is that we’re talking about competing models for metro infrastructure, an underlayment for services rather than services in itself. Implicit in that is the fact that any model chosen will influence what level of technology gets purchased, which vendors win. The SDN model favors white-box plays, the MEF model favors Ethernet and the IETF model favors routers. Since metro technology is growing so much, under so many different pressures, there’s no meaningful incumbency to consider. Anything could win.