Surprise, surprise! The latest data from the European Telecommunications Operators Association shows that costs are up and revenues are down, and the author wonders how long this sort of imbalance can go on without compromising spending. Maybe it already has; we noted that Acme Packet showed weakness that could be a symptom of a capex problem with operators. There’s more indication now.
Juniper, who pre-announced revenues, earnings, and margins lower than expected, has been by the Street as a player on the Internet’s success. The problem is that while the Internet has been a consumer success and has driven a host of OTTs to astronomical heights, it’s been a mixed blessing for operators. On the one hand, they needed a consumer revenue beyond voice and they got one. On the other hand, that new model has utterly commoditized bandwidth and transformed networking from connectivity to experience delivery. Juniper and other vendors were swept along with the benefit transformation and they’re all now facing the downside of bit commoditization.
The general view of the Street is that there’s a sector problem here (true) and also a Juniper problem (true again). Our surveys started showing that Juniper was losing strategic influence at Level 3 of the network—the router layer it so needs to sustain. This loss was in our view a result of a failure to bake their content monetization, mobile/behavioral monetization, and cloud services positions. Players who had better credentials there, especially the cloud, were able to gain share. Some of the Street analysts think the proximate cause of the Juniper disappointment was that Cisco took market share. Likely true, but the issue of why that happened is more relevant.
Cisco has the most solid cloud position of all the network equipment vendors, and my survey work is showing that the cloud is moving faster than other optimization strategies simply because operators know how to move it. There are operators we survey who launched content projects, then cloud projects, and the content projects have yet to advance even to trial. The cloud projects are awarded, in many cases to Cisco. The question is whether Cisco won them or Juniper lost them. Both companies need to try to push the outcome in their direction. Who will?