Alcatel-Lucent’s New Broadband and IBM’s New Cloud

I’ve been speculating on the role that WiFi might play in the future mobile broadband ecosystem, and Alcatel-Lucent has apparently been doing the same.  The result is their latest enhancement to their lightRadio line, which they call “lightRadio WiFi”, a development that addresses the reality of mobile broadband—it’s not all about 3G and 4G but rather about appliances.

Smartphones and tablets have long used WiFi both to escape over-the-air charges for periods of high Internet use, and of course a growing percentage of tablets don’t have any other connection option.  Given this, it follows that WiFi resources need to be managed not as independent broadband oasis but rather as a kind of sparse mobile network, one that offers coverage in some places but not (geographically) in most.  At the same time, it’s clear (from trials in places like Florida) that it will soon be possible to cover a large geographic area with overlapping WiFi “cells”—and all of this is driven by the appliance side.  What Alcatel-Lucent has done with lightRadio WiFi is to bring WiFi into the fold in terms of connection management, to embrace fully the notion of hand-off and potentially even roaming and charging within a 3G/4G/WiFi mixed enclave, or even in theory for WiFi alone.

They’ve also illustrated why it’s so difficult to be fully engaged in the appliance revolution if you’re a vendor who has neither appliance nor RAN assets.  This new vision of a RAN could be transforming, and anyone who drives the transformation bus gets to decide who sits where.  That makes things harder for other vendors who have less-developed positions with the RAN and service/handoff/roaming control, and much more difficult for those who have no clear asset base on which to develop these capabilities.

In another critical market area, the cloud, IBM sponsored a survey that will shortly be published that shows that the key role of the cloud is not (or should not) be to make current business models cheaper, but to enable new ones.  This is the very point that I’ve been making based on our own surveys.  As our February Netwatcher edition will show, it’s IT projects that unlock new benefits that change the IT spending trend line overall, and these projects are falling off at an alarming rate.  If the current trend continues, then IT will become another business commodity item, something that IBM for sure doesn’t want to see.  It’s also interesting that this talk is coming out of IBM just after it’s made a leadership change.  Users in our surveys have reported that IBM has fallen from its once-unique position as leader in articulating the business-value-to-technology-decision evolution that’s critical in driving new productivity paradigms.  Does IBM now want to get this back?

That’s what we’re hearing.  Ginni Rometty, who came from Global Services, may have a better-than-average insight into what IBM needs to do to get businesses thinking that IT is something that can truly ramp up their bottom line, and that can be done only by showing that there are new benefits to unlock.  That these benefits could drive IT spending up an average of almost 25% over the next seven years versus current trends wouldn’t hurt IBM either.  But as good news as this could be for IBM and even for IT at large, it’s likely not good news for networking.  All of the IT-driven waves of the past involved networking as necessary connecting glue and thus (through several intermediate phases) drove universal broadband.  The next wave would need to drive a new network/IT relationship, and an IT company like IBM is more likely to push that relationship strongly into IT’s favored direction.


Another Look at TV, and the Cloud

The speculation on Apple’s and Google’s plans for entertainment products seems endless, but it also seems to be ramping up.  As is always the case with rumors and speculation, it’s far from clear that there’s any substance behind the stories, but there are at least some grounds to wonder a bit.  After all, there aren’t many consumer markets left.

At the high level, the issue for both companies seems to revolve around the viewing experience.  Google makes money on ads, and commercials are ads.  Apple makes money on devices, and TVs are devices.  Both companies covet some presence in the space of the other, and the best defense is a good offense.  The question is how both companies could deal with the margin and competition issues, both of which would be raised by a play.  And remember that with their MMI deal ratified by regulators in both the US and EU, Google is free to manufacture stuff on its own.  Is that threat enough to force Apple to be more aggressive?

Maybe, but it’s not clear that TV is the place for that aggression to play out.  I’m not sure I believe that Google wants to make TVs.  I’m similarly unsure that they want to make STBs, so for Google I think an Android-for-TV-and-STB strategy might be the strongest play, buttressed by an appliance approach that’s an evolution to Google TV in some way.  Apple may want to make TVs, but whether they do or not they face the challenge that if Google has any TV strategy at all, then Apple has to either make a TV or create a licensed iOS version to host on one.  That’s something Apple has always resisted.

On the STB side, the whole opportunity rests on the presumptions that (first) there’s a clear value in creating an ad link between streaming and RF TV, and (second) that an STB is the best way to do it.  Technically, having an STB create a merged HDMI stream from the Web (for ads) and traditional linear RF TV is feasible.  The question is whether it’s valuable.  For online ads inserted in video, advertisers have focused on using the targeting benefits to reduce their overall cost rather than to increase ad spending justified by creating additional sales.  That suggests that were inserted ads to replace broadcast commercials, the net receipts by the networks could well be lower.  Thus, no offering here seems logical.

Cisco jumped on the usage-price trend with another of its releases that seem to tell operators to suck it up and spend on Cisco.  The latest one seems to say that usage pricing is somehow going to increase data usage, logic that I’m frankly unable to decipher.  Operators are generally opposed to usage pricing as a long-term revenue strategy, according to my surveys, and they’ve been that way from the first.  That doesn’t mean that they don’t see a role for it, in mobile in particular.  The majority would rather see third-party charges, meaning the right to charge OTTs for access to users in some way, and that’s something the FCC says it doesn’t want.  All want to get into the higher-level service business themselves, and most of those with usage-price plans would see them more as a combination of bridge to a service-driven transformation and a barrier to rampant traffic growth driven by OTT efforts.

Cloud computing is one of the operators’ specific revenue goals outside their normal bit-pushing, and there are renewed claims that PaaS is “about to take off” as a cloud service.  True, perhaps, but not because of technology maturity.  The real driver is the maturing of the application of the cloud, from the early web-oriented apps toward the business core.  A realistic core application cloud would have to be one that spreads across the enterprise and one or more cloud providers to create elastic, fail-proof, resources and also support new applications better suited for cloud deployment than for central IT.  That combination of requirements would be met most easily by a software platform that subsumed the whole notion of computers, OSs, and middleware into “what the application runs on”, which is a pretty good description of PaaS.  Beware, EC2 competitors!


Reading the Earnings

Cisco and Alcatel-Lucent both delivered their quarterly numbers late last week, and in both cases the numbers were decent, but the fortunes of the two companies’ stock was different.  Cisco’s declined after its report, and Alcatel-Lucent climbed significantly.  The question is whether there was a difference in the numbers that justified the different investor reaction, and I think there may have been.

Alcatel-Lucent is arguably the broadest-based player among the service provider network equipment establishment, and it also has consistently scored high in strategic influence.  The problem the company has is one of cost, and no small part of that problem can be attributed to the now-long-past merger.  The Street believes that Alcatel-Lucent is making progress on the cost side, and since that’s the problem the Street sees, it rewards the progress.

Cisco’s problem is growth according to the Street.  In the service provider equipment space, the latest Street forecasts are predicting zero capex growth.  Enterprise spending on networking is somewhat better, but certainly not threatening to gain double digits.  For Cisco to sustain even 10% profit growth annually, it would need to demonstrate that it’s taking market share without sacrificing margins.  That didn’t come off in the report, and so Cisco was not rewarded.

To get a bit more color on the picture, we can add in the fact that two other players in the telecom equipment space (Ericsson and Juniper) both missed, with both companies citing a difficult carrier spending environment as the cause.  Add this to the Street perspective that there will be negligible to zero growth in capex for 2012 and you have another perspective on Street reaction to the quarterly numbers of Alcatel-Lucent and Cisco.  The organic growth potential for the market is minimal; cost reduction is thus the only path to progress, and high-margin, growth-dependent giants like Cisco aren’t favored by that scenario.

The thing that’s interesting, and perhaps a bit disheartening, about all of this is that the True Path to Street Success can only come by addressing the problem with capex, and that can be addressed only by providing operators some path toward higher revenue per bit.  I think that Alcatel-Lucent’s and Cisco’s calls acknowledged that in their own way—customer satisfaction or holistic approach both add up to looking beyond your own sales to the customers’ value proposition.  The question is whether either company will be able to put together a strong story that really addresses the revenue per bit problem.  I think both companies have the ingredients.  I think Alcatel-Lucent has a stronger foundation for the story at this point, and higher strategic credibility with the buyer, but I think Cisco has been gaining traction because it’s making its sales organization more articulate at the strategy level.

Ericsson’s problems suggest that what operators have told us in surveys is really true; they want their integrators to be big (if not their biggest) network equipment supplier.  We also hear that the operators want a service-layer strategy, a developer strategy, and that they aren’t hearing that from Ericsson yet.  It may be that Ericsson is being taken to task for being the only one of the big wireless players who don’t have an explicit service-layer and content approach.  NSN and Alcatel-Lucent both do, and in a market where mobile and content seem to be merging, the combination of both is a critical requirement for gaining strategic credibility.

The situation with Juniper, I think, is more complicated.  The company doesn’t have a real mobile asset base because it lacks the RAN and IMS elements, and without those it’s hard to engage convincingly in mobile plays.  Their new ACX line is targeted at mobile backhaul, but I think there needs to be more in the package to overcome the fundamental fact that competitors have more of the RAN/IMS combination Juniper lacks.  The deal Juniper did with BitGravity is aimed at improving their content position, but how much the service management piece they acquired will help things is also a question, in part because it’s not fully exposed and in part because it’s not clear what Juniper plans to do with it.  It’s not that Juniper lacks technology (they have some of the best) but rather that they are not showing the ecosystemic and customer-revenue-centric positioning that their main competitors, Alcatel-Lucent and Cisco, seem to be gaining traction with.  You can’t present solution elements in a market demanding total solutions, and Juniper still needs to bring this all together in a compelling vision.

But this is a side-show to the big event.  The real question here, I think, is whether ANY vendor will promote a real service-layer solution for operators.  Does Cisco believe it can just gain market share and avoid the risk of taking a strong stand in services?  Does Alcatel-Lucent believe they’ve done enough and the market will step to their window eventually?  Does NSN think it can ride a service-layer vision to professional services success, and does Ericsson think it can get to that same goal without a strong position anywhere in the service layer?  Huawei, meanwhile, looms for those who think that nothing is needed beyond bits.  No matter how you couch cost-based equipment marketing, it ends up spelling “commoditization”, and “Huawei wins” at the same time.