S&P added its voice to Moody’s and downgraded Alcatel-Lucent to a negative outlook. The rating agency cited the combination of slower capex growth among telcos and increased competition. They’re right about the problem, but I remain convinced that Alcatel-Lucent and the others in the industry have created this mess for themselves by sticking their heads in the sand.
The recent push to usage pricing is an admission by operators that they’ve lost control over their average revenue per user (ARPU). If users are paying Netflix for video they could have paid telcos. There isn’t a single OTT service offered today, whether funded by ads or by payments, that telcos could not have supplied. Why didn’t they? In part it was because they were thinking of these services in the light of a service architecture, and they expected their vendors to provide them with the tools to take that next step. And their vendors did not. Now, for over a year in fact, operators have been moving away from vendor solutions, looking instead to startups or to their own integration. That focuses innovation above the network, and that reduces the ability of network vendors to differentiate based on features.
Nobody in network equipment is going to get rich on service-layer tools; as a percentage of revenues they’ll never pay the mortgage. But nobody will sell a differentiated network product unless they have something at the service layer to provide the differentiation. While Alcatel-Lucent actually had a better story in this regard than their competitors, they have never told it with conviction. Underneath it all, these guys are all box-and-bit people, and those kinds of people make poor salespeople for a service story.
At some point this problem becomes unsolvable. The Titanic could have been saved by prompt action in the first couple of hours, but past that point nothing was going to happen other than move the demographics of the survivors around a bit. Same here. We are running out of time for vendors to adopt the right approach, and if they don’t there will be no course of action that will save them all from a date with the rating agencies down the line—all except of course Huawei.
There’s still a lot of innovation opportunity to address, though. The “cloud” is almost totally misperceived, for example. All the talk is about IaaS, and that’s dumb. First, all cloud services ultimately have to produce SaaS to the end consumer, so that’s where the top of the food chain has to be. Everything else is just prey. Second, are we really thinking that the model of virtualization that was aimed at consolidating single-application discrete servers will live forever? Will there never be apps written for the cloud? If there are, why would those apps want to base themselves on virtualization? It’s needed only to separate legacy stuff, and let me tell you right now that most legacy stuff is not going to the cloud at all, not in “legacy” form. We will build the cloud’s usage by building its value, which is done by building cloud software. Look there for benefits, people!
If we have the cloud wrong in the sense of expecting too little change, then we have the network wrong too. SDN is like the cloud, it’s a label we’re attaching to a set of transformations that will extend beyond what people would have originally thought was coming, what the term originally meant. The future of networking is tied directly to the cloud, and yet we are in the infancy of the concept of cloud networking and what little has been done is simply overlay nonsense. There will be a role for overlays in the future. Do you know what it is? Have you read about it? Probably not, but the fact is that overlay virtualization will work only with fabrics. Think about it; no network structure means no benefit to hosting virtualization on each node. There aren’t any. So if we’ve missed this point, how much else is out there waiting to be seized? Maybe some vendors will figure it out before they all face that ratings-agency demon.