More Earnings Tea Leaves

The markets seem encouraged by earnings reports that aren’t as bad as expected, and in tech there’s been a similar move—Intel comes to mind.  Yesterday we had a couple of big network firms report, Ericsson and Nokia, and also the tech giant of all, IBM.  What can we glean from these reports?

I find Ericsson’s report most interesting because when you take it along with my survey findings it shows the slippery slope vendors are navigating.  Ericsson did decently, certainly not issuing a profit warning like Alcatel-Lucent, and the majority of its success came from growth in professional services.  That’s no surprise; Ericsson has been focusing more on that strategy for years now.

But Ericsson really isn’t just Accenture with an attractive Scandinavian accent.  They actually have all of the pieces needed to field an NGN architecture that would meet operator needs.  Their problem is that they never learned to tell people about it effectively.  Like their counterpart to the east, Ericsson lacks good strategic articulation, which pushes more and more educational-sell requirements onto the sales organizations.  That never works; sales people sell, they can’t take the time to build a business case for their prospects.  That’s a role that strategic marketing has to fill, and it’s not happening yet.

Then we have Nokia.  Their numbers have been bad; they’ve fallen from being THE handset player to the guy hanging with frozen fingers onto the edge of a lifeboat.  The current quarter was certainly nothing to restore their former glory, and the fact that they did better in handset sales with Windows phones only shows how bad things were before.  But what was good for Nokia was that NSN reported a turnaround to profit in the quarter if you discount restructuring costs.

NSN doesn’t have the fundamentals problem that Nokia has; they actually have good stuff, a strong framework from which to launch a drive to empower operators in advanced services.  I looked at their cloud position and it’s a very good one, with an unusually rich vision even on the IT side that’s rare for a company without servers in their product line.  The articulation isn’t bad either, but their forum for pushing the position was a TMF meeting.  Whether you love the TMF’s progress or not, you have to admit that showcasing a monetization strategy to OSS/BSS guys is like presenting a new marketing plan to the accounting department.  NSN could do really well if they, like Ericsson, learned to sing pretty.

IBM’s numbers were very interesting to me because in many ways they cut across all the grains in tech.  The company raised full-year guidance in earnings, and its EPS was higher than consensus, but it suffered a pretty consistent revenue downside not only in areas where it might be expected (like hardware) but also in software and services.

I have to wonder whether IBM is falling victim to “quarter myopia”, looking so much at the short term results that they start focusing their marketing on sales support instead of brand awareness, buyer strategic education, and account control.  On the call, IBM sounded like it’s plan was to mine margins rather than grow the business, and I think that reflects a defensive position on the potential for IT to improve productivity—at the very moment when there’s a prospect that the cloud might actually be able rebuild productivity cycles for the first time in a decade.

An interesting final earnings comment is Mellanox, an InfiniBand fabric player who as far as I can see is the actual leader in data center fabric deployment.  The company had 50% sequential growth in revenue and hit record levels this quarter.  It had 87% growth in operating income.  What I think this means is that the network equipment vendors who want to push data center fabric have to do that in a broader strategic context or they’ll just create a market for a mature fabric technology that hardly anyone has heard of (except, apparently, real buyers).  It’s hard to beat InfiniBand in basic fabric applications, but Mellanox doesn’t really do cloud positioning and so it’s vulnerable to a strategic presentation of fabric mission—at least until it figures that out and takes steps to counter the problem.

My image of the networking industry is that of a bunch of bloodhounds with noses to the ground searching for a quarry who’s standing on the top of the next hill waving a flag to attract attention.  Yes, these guys will likely find their target at some point, but if any one of them just lifts their eyes to the strategic horizon they’re going to be comfortably entrenched in the Network Promised Land when the others arrive.  And trust me, at this point it’s still anyone’s game to win.


Earnings Bring Clarity to the Cloud?

Intel reported its quarter, and the numbers were better than many had feared, though sales in the PC market grew only 4% while they grew by 15% in the data center.  In some ways, the picture is a bit of a poster-child for the cloud, and there were aspects of the earnings call that also relate to other parts of the IT space.

Data center growth at the high end of the chip line is, I think, a pretty conclusive indication that companies are buying systems structured for resource pooling strategies like virtualization and the cloud.  The goal of these pools is to exploit the additional computing power available to manage total cost of operations by reducing the number of systems needed to run a given application set.  It’s a part of the cloud story, but I don’t think it’s fair to say that the cloud is driving IT in any sense.  In the currently popular cloud model, the notion that the cloud is cheaper than traditional IT, it would have a net negative impact on system sales because you can’t spend more to replace something than that something cost and still say you’re saving cost.

Intel also reported strength in the ultrabook lines, and I think that’s interesting because it may validate one of the key thesis of Microsoft’s initiatives; workers aren’t ordinary consumers.  Ultrabooks are tablet-like in form factor but are real PCs, meaning they run everything a PC does.  If the world were moving to a completely cloud-dominated future, we’d expect to see less need for powerful appliances; power would shift to the cloud.  Microsoft’s Office strategy, which clearly suggests they think personal productivity apps will run on the devices in the users’ hands, plays to that same position.  Maybe the cloud is the future, says Microsoft and Intel, but it’s not the future yet.  If the cost-savings driver is the cloud’s only stimulus, frankly, I don’t think we’d ever get there.

It isn’t, and another development may prove that.  VMware’s decision (or more likely EMC’s decision) to change out CEOs may be an indication that the company is going to step beyond virtualization or building bottom-up resource pools from servers and into a broader cloud vision.  The rumor is that VMware wants to get into network virtualization, which means SDN.  I think that would be significant, but more as a symptom of a maturing vision of SDN than as an opportunity for VMware to suddenly dominate the space.

SDN has two “home ranges”, one as a foundation for resource networks and another as a foundation for access/user networks.  In the former context the SDN has to be paired with cloud provisioning and integration systems, the “DevOps” stuff, and in the latter it has to be paired with security and identity and access rights management.  There is no question that VMware could take and likely sustain a compelling position with DevOps, and that they could use that position to generate a conception of an SDN as a cloud partner inside the network.  The challenge is that clouds consume services and not forwarding decisions.  There still has to be a context for all those forwarding-table changes, a context that adds up to connection services, and those services then have to be presented to the cloud in a useful way.

Cisco may have something in mind here because they announced the purchase of Virtuata, a firm specializing in cloud security.  It’s tempting to ask whether Cisco intends to integrate security into a high-level cloud vision, one of its “Architectures” or Cisco’s ONE.  The problem is that in the past Cisco has typically bought companies to manage sales relationships; a very tactical mission.  Other network vendors could be doing something here, too.  I talked with Juniper yesterday about their cloud/SDN plans and at the high level they seem complete and potentially compelling.  The devil will be in the details, just as with Cisco.  Having all the pieces of a puzzle doesn’t build that picture of the Grand Canyon.

In the midst of this cloud/SDN symbiosis issue there’s the pressing problem of operator revenue and profit.  A study released by Telco 2.0 says that data revenue gains are no longer sufficient to offset voice revenue losses and that operators will face major losses by the middle of the decade.  I’m not completely on board with the specific numbers, but the theme is consistent with everyone’s forecast (including my own) that ARPU growth in mobile will plateau and begin to fall some time in 2013 and wireline is already going that way.  That ultimately hits operators ROI, which means less “I” unless you get “R” back on track.  The cloud/SDN symbiosis could link the service architecture the operators are buying into (the cloud) with network infrastructure investment (SDN).  That’s why we think this union is the biggest issue for the operator-focused equipment vendors; you can’t be a success if your buyer is a failure.


Tales of Alcatel-Lucent, Yahoo, and Microsoft

Alcatel-Lucent became the first network vendor to suffer in the latest quarter, with a profit warning that sent its shares down sharply.  The company, like most in the space, faces a deadly combination of competition from price leader Huawei and pressure on operators created by their own ROI and profit woes.  What’s sad for me is that this problem could have been avoided three years ago and significantly mitigated even a year ago.

I have to admit frustration here, not just with Alcatel-Lucent but with the network vendors overall.  How long do you have to read the same tea leaves before you understand that the business of pushing bits is just not going to make enough to sustain you?  Operators have been unhappy with their vendors’ support for monetization strategies for four years now, and it’s been clear since then that without positioning to help operators field higher-layer services to compete with OTTs, vendors would not only lose engagement they’d lose differentiation for their equipment.  Well, gang, we’re here.

The operators are not without blame.  The same day that Alcatel-Lucent announced its profit warning, the Wholesale Application Community disbanded.  WAC was an operator initiative intended to promote the operators’ entry into the higher-layer services space, but my readers will recall that from the first I was concerned that their APIs weren’t moving the ball.  The problem with the operators is that they see things through OSS/BSS-colored glasses (vendors see them through router-colored glasses).  When your big achievement is to expose a billing interface that does little that a free credit-card reader for a mobile phone couldn’t do, you’ve got problems.

Interestingly, this may wrap around to demonstrate the biggest opportunity that Yahoo’s new CEO (Marissa Mayer, an engineer type formerly at Google) has to turn the former giant around.  About the same time as operators were saying they didn’t like vendor support for their strategies, they approached Yahoo (and Google, and others) to propose a kind of alliance.  They didn’t get one from Yahoo then, but might they now?  It’s up to Mayer.

Can Mayer turn Yahoo around?  I think all this “product company” stuff is high-flying crap.  You can’t slap a different label on something and call it something different, you have to change the underlying reality.  What product?  Yahoo could be a giant in OTT simply by creating a strong alliance with the operators.  Do it now, Marissa.  Do it before either another player does, or before the operators suddenly figure out that OSS/BSS isn’t where services live.  Do it now, before you toss Yahoo’s last chance out the window, because this is surely exactly that.

Speaking of Microsoft, they’ve unveiled Office 2013, surely a product nearly as critical to the company’s success as Windows 8.  The new Office is more of a partnership with the cloud than a traditional software application; Microsoft wants the experience to work on anything from a thin-client Surface to a full desktop, and with or without an Internet connection.  The truth is that the average software user will still install the stuff pretty much as always, even on the RT version of Surface.  It’s accessible from a browser if you happen not to have your own system.

The bigger news is the licensing, which seems to be breaking the single-system model that Microsoft has stuck to (and lost market share to Google Apps over).  Licensing would normally cover up to five devices, allowing users to run their software on all their Windows gadgets for one fee (which we don’t know yet).  The devices sync via the cloud, a mechanism that can be created ad hoc now via SkyDrive.

A stronger new collaboration link is created by the first integration of Lync, Sharepoint, and Skype, as well as with Microsoft’s social-media platform Yammer.  It appears that Microsoft is going to develop the cloud/collaboration dimension of Office significantly, no surprise given that’s a direction for Google in Apps.  Because even the RT platform will run a full-feature Office with or without connectivity, Microsoft has an advantage for users who aren’t always able to be online while working.  That may be a reason for the keyboard-centricity of Surface too; there’s no point in offering a full-feature Office package on a system without a good keyboard because few could take advantage of it.

Office 2013 will move the ball in the battle over cloud productivity, ironically by making productivity cloud-facilitated but not cloud-dependent.  It’s becoming clear that Microsoft isn’t launching a bunch of stuff, it’s launching a coordinated attack on rivals Google and Apple for the worker/user, a subset of the “consumer” that Apple targets or the somewhat diffuse opportunistic space Google targets with Apps.  By shooting for a specialty space, Microsoft hopes to get a firm foothold from which it can then advance as conditions dictate.  Smart strategy, but it will be all in the execution.


New CIMI Video-Based Information Site is UP!

We promised to let you know when material is available for our new video information service, and today is the day.  The website is live at and we’ve posted our first video.  Our next step is to start doing hangouts, and we’re soliciting interest in doing a hangout (as a participant) on the topic of the video.  Please let us know if you’re interested.  If you want a quick link to the video, click HERE!

Please let us know what you think, and forward suggestions for future topics and hangouts.  You’ll find a list of the current topics on the site.  We need help and feedback to make this work, so please contribute your thoughts at least and if possible some time for a Hangout!  Email me at if you can!

Content, Delivery, and Public Policy

At this point, nobody can doubt Comcast’s determination to become the big ecosystemic player in content.  The company already owns NBCU and now it’s bought out Microsoft’s stake in  Microsoft had already dropped out of the cable network venture and now it’s apparently ready to get out of the whole deal.  That may be the biggest news in the deal, in fact.

Microsoft wasn’t influencing policies in any negative way from what I hear, but according to the rumors the software giant doesn’t want its future position with network operators complicated by participation in a venture that might be competitive to some.  And the story is that Microsoft is going to push big time to be a provider of cloud and content strategies to operators.  Which they need to do if they want their tablets and phones to have even a slight chance of success in the consumer space.

Top EC regulator Neelie Kroes has decided that cutting wholesale rates for copper loop access by CLECs would impair rather than promote FTTH deployment, and so has decided for the moment to keep things as they are.  I’ve long been of the view that wholesale requirements don’t really create competition and there is no evidence they promote anything other than operators running offshore to look for better ROI.  However, I don’t think that holding the line on copper wholesaling will help either.

If you look at operators globally, those in developed countries tend to be able to deploy FTTH for one of two reasons.  First, their demand density (roughly, GDP per square mile) is high enough to make return on infrastructure easy to achieve.  Second, they can offer some form of channelized television service.  In the US we see that one operator, Verizon, has a combination of TV and high demand density and the other (AT&T) has TV-over-copper because they have lower demand density.  We believe that even Verizon could not deploy FTTH here without TV, which suggests that most of Europe falls below the density floor.  If the EC wants FTTH they will likely need aggressive promotion of fiber-delivered TV.

The issue with the EC fiber policy and similar issues with US policy on broadband stimulus show how difficult it is for regulators to induce a change in telecom in a market that was largely privatized nearly two decades ago.  The deregulation craze of the ‘90s made it much harder to directly set operator policies because you can’t order a corporation to act against the interest of its shareholders.  But there’s a deeper point here too.  As I’ve noted in the past, all of the indicators on Internet use show that buyers need perhaps 6-12 Mbps and are willing to pay somewhat fairly for that capability.  You can offer them more and many will find that the cost exceeds the benefits, proved by the fact that customers cluster at the low end of the service pricing spectrum for a given operator.

Remember, though, that you need channelized TV to work in order to make wireline profitable in any form.  Cable companies like Comcast recognize this and have developed a two-barreled approach—make your own in-home VoD as good as possible and support TV Everywhere.  I think this is an area where Verizon has gotten a bit behind, and users tell me that telcos in general are a bit too conservative in offering VoD, hoping perhaps to keep users hooked on channelized viewing.  Instead they’re creating a market for Hulu and Netflix and even Amazon’s “Instant Videos”.  The summer, according to my casual survey, is when most people build up their commitment to streaming video because “nothing’s on” the regular channels.  Many of these exiles from channelized viewing never fully return to their old habits in the fall.


A New (Free) Video Information Service from CIMI Corp!

Many of you know that we’ve done surveys of enterprises for thirty years now, and surveys of network operators for more than twenty.  In that time, we’ve seen a disturbing trend, a loss of strategic information readily available to early-stage planners to guide them in adopting new technology paradigms.  They used to get this from the media and from vendors, but somehow in this age of information we seem to have lost touch with the task of informing real people about their real problems.

We want to give you advance notice of our launching of a new information service, one designed to supplement our current outreach initiatives like our blogs and our technology journal, Netwatcher.  The service is free and will focus on presenting a completely objective view of what’s going on in telecommunications, media, and technology—or TMT as the Wall Street types call it.  Our target will be the strategist who wants to adopt, or to present, technology in new ways, to improve worker productivity, personal enjoyment, and overall business revenue and profit.

This service is going to be entirely video-based, and will be based on two interdependent sets of presentations.  First, we’ll have YouTube videos that will present tutorial information that benefit from presentation graphics.  These will cover topics like tech spending, the cloud, SDNs, etc and they’ll be produced by CIMI Corporation and narrated by me.  Second, we’ll be hosting Google+ “Hangouts on the Air”.  Google+ Hangouts are video chats among a group of no more than 10 people.  The “on the air” part means that they can be broadcast in a public sense.  Some of our hangouts will be live, others will be recorded on YouTube, but we hope that the hangout process is the biggest source of content.

Who can hang out?  In a viewing sense, anyone.  This is all public.  In a participatory sense, we’re going to screen those who want to participate.  We need a solid identification of the person and their company and position before we let them participate.  They need to agree to the rules, which basically means following the format we set and not engaging in commercial or offensive behavior.  If somebody breaks the rules, we’ll stop the Hangout and block them from it and all future ones, then resume without them.  One strike, one warning, and you’re out.  We may try to group participants to create a unity of purpose but we hope to get volunteers and to simply pick people who express interest.

What will the hangout topics be?  Some will be based on the tutorial videos, but we also plan to cover vendor announcements, industry developments, regulatory issues, etc.  Whatever is interesting and relevant to planners in the TMT world.  If you like, you can suggest topics.

We hope to start this off before the end of July and then let nature take its course.  If you would like to receive updates, please email us at and let me know whether you want to simply be notified of an opportunity to view material or if you’d like to actually participate.  This would be a good time to suggest topics too.  Nobody will be promoted for anything other than for the hangouts or videos if they submit an email, and all you have to do to be removed is to ask.

We’ll update those who respond with the website of the new service and further information, but we’ll also post this on our blog, CIMI’s homepage, and on LinkedIn.  Please give it a try and let me know what you think.


Content Lawsuits, B2B Disappointments, and Cloud Misconceptions

Well, it’s Recap Friday again, and today we can start with the Aereo situation.  The online video provider has been streaming over-the-air material in what the owner networks say is a clear violation of copyright.  They asked for Aereo to be shut down, and a judge ruled they could operate while the suit progressed.  That’s been claimed by many as a “victory” for OTT video and cord-cutting.

Aereo is complicated.  Slingbox lets you toss your video bits to a remote viewing location.  The difference with Aereo is that they do the bit-tossing on your behalf.  Whether that’s enough to cut the mustard in court is up in the air (I think it probably won’t) and the judge’s refusal to shut the service down is a reasonable accommodation to the people who have subscribed, so there’s been no fight yet, much less a victory.  My question is whether a win by Aereo would really be a win at all.

Does Slinging video hurt the networks, apart from the legal question?  Truth is that it would be hard to prove.  The same people watch, they just watch in situations where they couldn’t before.  If advertisers paid for commercials on the content then as long as Aereo doesn’t drop them and substitute their own, there’s no harm financially.  Maybe there’s even a benefit because again the audience might be larger.  So while I think this case is probably lost for Aereo, I don’t think it’s necessarily a bad thing for the content guys.  Who it hurts are the network operators, particularly the cable companies, who may lose fees from carrying material or VoD revenues and then are stuck carrying the traffic that’s disintermediating them—for incrementally zero dollars.  Moral: This shows we need to think very carefully about how the Internet model and the video world collide, to be sure we don’t kill the player that’s supporting both.

Content is king in places other than entertainment video, too.  A recent survey by Corporate Visions says that 80% of B2B marketing/sales types believe that their campaigns are either ineffective or partially ineffective.  The largest reason is that the content isn’t compelling.  The second-largest is that marketing/sales misalignment was leaves sales organizations with the heavy lifting in strategic positioning because their company creates marketing collateral that’s not about marketing at all, it’s essentially a mass-consumable version of a sales pitch.

We have a couple of presentations on this topic; they relate to the way that social media combines with traditional marketing to maximize the effectiveness, and also how to do general “trajectory management” in converting suspects to customers by using marketing and sales symbiotically.  If you’d like us to do a hangout on either of these topics, open to anyone to view on Google+ or YouTube, drop me an email (

My final point here is about “Cloud Misconceptions”.  I asked enterprises what they believed was the biggest misconception about the cloud.  Answers were fit into two groups.  The typical enterprise who’s still kicking cloud tires said the biggest misconception was that “the cloud always saves you money over internal IT”.  The second group, who consist of the “cloud literati” who have really been pursuing the cloud, said the biggest misconception was that “the primary benefit of the cloud is saving money versus internal IT”.  Interesting, huh?  The smart people say that what the less literate see as a problem is actually an almost predestined outcome; that the cloud is driven by other factors.

The cloud is an alternate IT architecture, it’s kind of the Internet of Computing.  The flexibility of the model and the way it change worker/IT interaction creates a new opportunity for empowerment of workers, a new set of benefit cases that could drive IT spending up considerably.  This is the cloud that the elite buyers see now, that every real buyer will see eventually, and that buyers say vendors and providers have failed to take ownership of.  Could that be related to the crummy B2B marketing?  Sure sounds like it to me.

When Tablet Meets Phone Booth?

The mobile phenomena, our gadget-coupled love affair with ubiquitous broadband, is hitting the market in a variety of ways, some expected and some a bit strange.  There are likely stranger ones on tap, too, which is what you’d expect of a revolution.  And for sure, the big revolution of the decade is mobile broadband.

One impact that’s predictable is a decline in PC sales.  The problem is that we can’t be sure how much of a decline we’re seeing (Gartner and IDC seem to disagree on whether it’s worse than expected) or what exactly is driving it.  We do know that people are buying tablets more and more, and my own research says that young people would rather have a tablet as their first gadget than a PC (they want a smartphone more than either one, though).  The big “however” here is that it’s pretty clear that the smartphone doesn’t directly impact the PC market and it’s likely the tablet is having only a modest broad-market impact.

There’s a lot of hype in this space.  What I think is provably happening is that users are dividing their activities into two distinct zones, one representing periods when they need to be productive and the other periods when they simply need to absorb information.  For the former they need a keyboard whose performance matches their entry skills or they lose time.  For the latter they need a tablet.  As long as these two zones are distinct, as long as users aren’t unexpectedly moving between them, then it’s not necessary to have a common device to support both and tablet sales would not be expected to kick the props from under the laptop.

How about the cloud?  Doesn’t matter in this picture, because the question isn’t where the application or data storage is, it’s what the user’s relationship with the data could be.   What does, or could, matter is something like Microsoft’s Surface.  If a tablet could be linked to the cloud and made a suitable platform for data entry by adding a functional keyboard, then it could become the prime platform for more users.  Not all, probably.  In my own world I use a laptop almost daily, and the same with a tablet, but for heavy spreadsheet and graphics/presentation work I need to attach a trackball or move to a desktop system.  Why?  Not because it wouldn’t be impossible to use a tablet or a laptop and touchpad, but because it wouldn’t be PRODUCTIVE.

If mobile broadband is driving all of this, then what’s next?  One answer may come from the NYC plan to install WiFi hotspots in phone booths.  There aren’t many of these out there now, but the plan could generate ten thousand or more over time.  If this sort of thing happens, then it has major consequences on mobile broadband use and behavior because it encourages a sharp divide between “mobile” and “migratory” behavior.  We’re mobile when we’re moving; we’re migratory when we’re roosted in a sequence of places.

Since WiFi hotspots have limited range, they’ll encourage a migratory behavior pattern.  I’ve seen this from Alaska to Europe already; people lounging outside a public library or other WiFi location to get access.  The question is whether they’ve come there to do something specific, a “productivity” app, or whether they stopped there to play a video somebody emailed them and want a bigger form factor than their phone.  If most casual tablet use is information sipping, then tablets can gain ground.  If most is planned access there’s an implication of productivity intent, and laptops (or, probably, ultrabooks or netbooks) may win back some followers.  So here’s a test for you New Yorkers to help me with; see what kind of device people are using around those phone books.


Two Almost-Cloud Tales

There are a lot of things that skirt the line between revolution and over-promotion, and the cloud is surely one of them.  The thing I believe distinguishes the categories is the presence or absence of a comprehensive cloud model.  If you believe the cloud is an architecture for delivering applications/features from a large flexible resource pool to a ubiquitous and often mobile user community, it’s a revolution.  If you believe the cloud replaces private IT, then it’s hype.  We have a couple of indicators in the cloud space today that illustrate this.

Sprint and CDC are partnering to create a hosting/cloud experience based on CDC IT resources and Sprint’s network.  The reason this is important is that it illustrates the fundamental coupling of cloud and network.  You can’t have one without the other, and while we’ve looked at that as meaning that every cloud needs a network to cement it together, it’s also true that every network needs a cloud to make it profitable.

Here’s the thing.  We don’t get online to push bits around, we get online to experience something.  The bits are just troubling details along the delivery path.  That’s hardly a model for profit growth, network-wise.  The money in the long run will always be in the thing that the buyer is trying to pay for.  Amazon is a retailer not a trucking company.  Sprint, who is a mobile player, is telling us that you can’t make money on mobile networks.  Since mobile networks offer the highest margin and ROI of any network, that means you can’t make money on networks.  Enter the cloud.

The question is whether Sprint is doing smart cloud or dumb cloud.  Their previous partnership with Cisco on collaboration suggests that they may be seeing cloud services as something offered over the Internet as an OTT play rather than something tied to their mobile services business.  I think that’s a mistake.  Service providers have high hopes for monetizing mobile customers through mobile/behavioral symbiosis at the service level, and a cloud is the logical platform for that.  So Sprint should be looking there, a place where they can add to their mobile ARPU and not try to create a whole new following by creating a partnership.  There’s not enough margin in retail cloud services for intermediaries.

Telefonica is also making a sort-of-cloud announcement, but while Sprint claims cloud positioning for what may not be a viable business model, Telefonica has a viable business model it’s not properly positioning in a cloud.  The carrier has announced a mobile security service that’s designed to provide the mobile user with the same security they could expect from a well-protected desktop.  Juniper’s Junos Pulse mobile client is the foundation for the service, and Juniper will play a role in management hosting.

This could have been a great cloud story.  The Telefonica service, targeted at the enterprise to secure their public and private clouds, could be a winner.  The Junos Pulse application could give Juniper a security reference in the cloud that would mean something, not just the usual PR babble.  It’s not technology or potential that undershot here, it’s just positioning conservatism.  Just like Sprint?  Maybe.

The moral of all of this is that we’re still coming to terms with the cloud.  On the one hand, everyone from users to vendors to carriers think that the cloud is the service model of the future.  OK, then, what you do and sell for the future has to then have a cloud positioning associated with it.

Inside Telefonica’s Optical Announcement

Telefonica today announced a research-network trial of a basic IP/DWDM technology combination that flattens networks to an agile IP/MPLS edge and an agile optical core built around GMPLS.  The project included Universal Edge routers from Juniper and Adva Optical DWDM core technology.  Everyone is happy about the resulting reduction in capex and opex, and in the speed of creating new services, but there’s more to this than the press releases talk about.

As the Internet has driven down revenue per bit, operators have struggled to compensate by reducing infrastructure cost per bit to stabilize ROI.  Traditional router networks, which are a hierarchy of edge and core devices, increase capital cost and operations cost and they don’t really provide capacity, they provide connectivity.  If agile optics could be used to create a flexible core network that could respond to failures, the same technology that actually creates bits could connect the edges.  This has been behind a wave of operator RFIs on optical networking, notably Verizon’s OTN initiatives, sometimes as much as five years old.  The essential concept behind agile optics is that if you could create a wavelength mesh of edge devices there’d be no need for core connectivity management.

From the perspective of the core network builder and the user, this is a good thing because it improves ROI on infrastructure.  But there are some limits to the goodness, and the most obvious is for the network equipment vendor.  What tends to happen in OTN transformations is that the IP devices become little more than big on-ramps.  That means the total investment in core infrastructure shifts more toward optics, whose overall portion of the budget is likely to increase, and away from IP.  IP has higher margins, so that’s bad for vendors, particularly those who don’t play in the optical space at all.

A second part of the picture is highlighted by that comment about the MSAs.  Today, most Internet traffic is shortstopped within an MSA because it’s either hitting a local resource or it’s hitting a content cache.  Video traffic is almost never hauled over the core, and that’s where most traffic growth is concentrated.  Metro networks are different from core networks in that they’re really AGGREGATION NETWORKS and not connectivity networks; their focus is to concentrate traffic toward points of service presence.  That’s never been an IP mission, it’s typically more about Ethernet and tunnels.  So traffic growth overall is shifting emphasis from IP connectivity to Level 2 aggregation, and that also diminishes the role of routers.

Then there’s the critical point.  We’ve got a market driven by a different kind of aggregation; the summarization of billions of small, low-value, relationships into a gigantic traffic pit we call “the Internet”.  It’s so big that planning for it consumes all planning cycles, and so pervasive that its economy of scale is unbeatable and everyone designs apps for it rather than for other services with better service but higher cost.  In this market, every vendor has to accept that the network is going to dumb down, generate lower cost per bit, become more optical and un-differentiable.  They have to decide what their revenue and profit sources will be in the new age.  Are there models, things we’d call “SDNs” today that could reignite network value?  Sure, with proper foundation in regulation and business practices and with proper support for cloud-hosted features.  We need to transition all of the network to the optical age, not just the core.

A final point here.  If you like this kind of blog coverage of announcements and issues, we’re going to be doing more stuff you’ll like.  We’re working on a video-based (Google+) framework for delivering commentary on what we believe to be key announcements and issues.  The current plan is that we’ll set a specific regular time (provisionally 11 AM Eastern Time on Friday) and then set up a Hangout.  In some, I’m going to be the only speaker.  In others we may have journalists, vendors, or even other analysts.  If you’re interested in this sort of thing and want to be kept advised, drop an email to and we’ll keep you posted.