Capex Signals from the Market

UBS reports that there are some unusual shifts in telecom spending, and I agree if one defines “unusual” as being “atypical to past performance” rather than “without clear cause”.  What they’re seeing is a lower-than-usual ramp in capex in the fourth quarter, and a larger shift toward wireless investment.  Duh!  We have a lower ramp because revenue per bit continues to drop and ROI in incremental project investments is harder to prove.  Yes, it’s “deferred” the spend into 2012 but there’s no more guarantee it will be actioned then than there is/was in 4Q.  And the shift to wireless is because wireless is more profitable than wireline.  This isn’t the field of dreams, guys.  Revenue-wise, they may not be coming.

Verizon and AT&T have both reported, and in both cases you have results that fell short of estimates in new subscribers for mobile.  Verizon slightly beat estimates on revenues, and AT&T slightly missed.  Verizon’s profit leaped more than AT&T’s, and Verizon did better in market share on postpay cellular services, which is where everyone wants to be.  AT&T’s numbers got a bigger contribution from prepay and from Amazon’s Kindle subscriptions.  Both companies continue to lose wireline voice customers and both continue to outgain cable companies in TV subscribership.

So what’s happening here is that we’re seeing investment follow return, and that could be truly ominous because it’s clear that “return” here is being generated more by things like Verizon getting the iPhone than from anything operators are doing within their networks.  That, in turn, means that there is less differentiation for equipment.  What there is may be increasingly turning toward video delivery, not simply “streaming” or “OTT” video but TV Everywhere and some form of telco TV.

You can see this in vendor positioning, of course.  The old-line telco firms have been gaining ground over the last couple years on the new-age IP vendors simply because the former had done their duty in mobile voice and had an established position in RF and registration, meaning IMS.  These same firms took a lead in getting their video story straight.  If we look at the three Eurogiant telecom players, Alcatel-Lucent, Ericsson, and NSN, we see that they are all powerful mobile players and all have good video stories.  Hint, Hint!

Cisco took the hint apparently, and has purchased BNI Video, a startup who has been a leader in providing back-end service-layer technology for TV Everywhere.  I hope that Cisco is doing this for all the right reasons, which are that the step both validates its Videoscape position (which has been in doubt because of management shifts) and gives it the only explicit major-vendor positioning in TV Everywhere.  It’s not that the Eurothree can’t do it, but that they haven’t been as pushy on that angle of multi-screen.

Alcatel-Lucent has a very strong CDN strategy in Velocix, and while I’ve not been able to confirm whether Velocix can be composed in Alcatel-Lucent’s Service Composition Framework, it is componentized and so I would infer that it can be.  NSN’s multi-screen video strategy is new and elegant, and Ericsson has done very well in content and multi-screen even though the company positions it badly.  Out in the world of CDNs, Verivue is likely the strongest independent product of all, and the most flexible in terms of integration with current infrastructure.  I also believe that since it’s scriptable it’s composable, though Verivue doesn’t talk much about composition or service-layer integration with the product.  You might wonder whether given this, Cisco was buying a Comcast incumbency with BNI as much as the company itself, which is what raises the question of just what Cisco will do with the product in a strategic sense.

One thing that IS unique about the BNI stuff is that they are a kind of mesh point between the channelized linear delivery world and the TV Everywhere world.  I noted in our ExperiaSphere Multi-Screen Video Application Note that there was a need to integrate multi-screen and screen-switching with linear delivery because users were program- rather than technology-focused in their viewing expectations.  It’s too early to see whether Cisco will be taking this story more to the front.  Cisco is feeling the pain here for sure.

From a total-market perspective the most important thing here is that the decline in revenue per bit has made IP infrastructure less strategic, and that’s what’s shifting the fortunes of the vendors.  Those who can play in services, meaning mobile and TV, do better than those who can’t and that is what’s putting on all the pressure to get a mobile position (Cisco’s NEC deal) and a TV-everywhere-multi-screen position (BNI).



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