Juniper: Settling for Marketwashing?

One of the kingpins in Juniper’s financial future, according to the Street at least, is the success of its PTX strategy.  PTX is an optical-core evolution that responds to network operator pressure for some way to build IP cores other than with humungous gigarouters.  We noted at the time that we believed that the PTX could make a kind of natural partner with QFabric as a cloud strategy, but Juniper apparently never saw it that way, or didn’t position it.

The latest in the saga is that Juniper and NSN launching a new model for IP core networking called the Integrated Packet Transport Network.  This is a combination of Juniper’s PTX and the Nokia Siemens Networks hiT 7300 high capacity optical packet transport platform, a product that seems outside the range of the new focus of NSN.  Obviously that raises the question of whether Juniper might plan to buy NSN’s optical business (there are plenty of speculative buyers for various NSN business elements, though).

Juniper and NSN have had a partnership for years, and in some ways a tighter relationship between the two might be logical if NSN is indeed to shed the non-mobile elements of its   product line.  Juniper doesn’t have any compelling mobile strategy and so it would gain from that, perhaps.  The reason we say “perhaps” is that such a partnership would inevitably surrender service-layer dominance to NSN, who has something there even if it’s primarily focused in the mobile space.  If the service layer is the only place where real differentiation can occur, then does Juniper cede all differentiation to NSN?

The question may be all the more relevant for another pair of announcements from Juniper.  Last week, recall, Dell announced its own data center architecture, built around its servers and Force10 acquisition.  Given that our research has always shown that data center networks transition totally in sync with server/software architectures and their demands, this puts four companies (Cisco, Dell, HP, and IBM) with servers against Juniper in the data center, and Juniper doesn’t have servers.  So Juniper announced that QFabric had won an independent network test of data center networking scale and performance, and that Juniper “delivers the new network” for Microsoft Lync (UC/UCC) servers.

It’s hard not to see this as a counter-move, and if that’s true then it’s kind of a weak one.  We have as many independent tests in this industry in every space as we have vendors (does that suggest anything?), and each has a different outcome.  Switches switch, so it doesn’t matter what the application is.  As with NSN, this is more about a kind of marketing partnership.  I don’t think Juniper is asserting it works only (or even better) with NSN optics or Microsoft UC, but rather that it’s making its support of both “partners” explicit to respond to market conditions.  I’ve been critical of Juniper’s lack of high-level strategy and engagement in the past, and at the same time I’ve been impressed by their hardware technology.  I hoped they’d get the former up to speed to complement the latter, but these moves suggest to me that they’re not going to do that, but rather position themselves inside the story of another.  And if the story is about somebody huffing and puffing and blowing houses down, you really want the hero role for yourself.

Network Planning for a Usage-Priced World

The flap over usage pricing, renewed last week by announcements by AT&T and TW, has raised again the question of how network infrastructure might respond to a new broadband world, one where unlimited usage no longer stimulates new apps.  In such a future, operators would be accepting a role of bit-pusher, and the growth of broadband would no longer be unbridled.  Many, myself included, think that the social-network and video bubbles would burst.  Operators are somewhat cautious about the topic, but there are a few comments/directions we can relate and this is clearly a good time to be thinking about them.

So what’s a worthy approach?  Operators’ number one strategy for the moment is to reconsider their content strategies.  Video traffic is by far the greatest source of profit problems, and inside some of the current moves you can see the video issue weaving its threads.  For example, we’re told that operators have concluded that there are no “hogs” or heavy users who are not heavy consumers of video.  By setting usage cap points at the top end of what non-video users are likely to use, operators believe that they can focus their price-pressure remedy on the specific culprit of streaming.

CDNs are also a part of the video optimization picture, of course.  In the past, CDNs have been largely promoted by content owners as a means of dealing with peering-limited delivery performance.  But by staging content artfully closer to the access edge, you can unload the deeper metro infrastructure where operators say content is creating the largest pressure in wireline.  In wireless, CDNs are helpful but can be made more compelling if you offload video from the 3G/4G cells, which could be done through expanded use of WiFi.  That’s because cell congestion in wireless can happen before metro aggregation congestion.

Another strategy gaining credibility is the “usage-free” notion, something that is a perilous course from a regulatory perspective.  The idea is to exempt applications or content sources from usage pricing, either because they’re your own or because the app/content source has elected to pay on your behalf.  This seems to be at least a potential violation of the US neutrality principles, but because CDNs are explicitly exempt from neutrality it may be possible to concoct an architecture that would pass muster, and of course the whole order is in the courts on appeal anyway.

The next approach operators are looking at is pushing traffic down the stack.  A three-layer architecture with IP at the top is the most expensive to deploy and support.  Reducing the number of active network elements has a major value in cutting costs.  Operators have been pushing for more fiber and less IP, and while vendors have blown kisses in this direction it’s very possible that things like OpenFlow might be used to augment basic optical switching/steering and create a network and even metro core with more optics than electronics, so to speak.  This is what operators hope for in the long pull, but they believe they may have to wait until either optical players or other cost disruptors (like Huawei) figure out exactly how to do this; the big equipment vendors are in their view dragging their feet on optical consolidation.

If the current trends in revenue per bit are sustained, our model says that global network infrastructure spending would have to fall to less-than-replacement in the next couple of years, meaning that the total new assets being placed in service would be less costly than those being retired.  In some geographies this is already true in wireline, but the thing that’s interesting is that we’re also approaching a point where retirement of older TDM stuff will largely cease to be a factor.  Up to now, we’ve had a net gain for IP and Ethernet and optical even in the face of declining capex, but that’s coming to an end.

Paying the Price of Mindless Optimism

AT&T surprised nobody and angered everybody (or at least almost everybody) when they announced that they were now imposing metered usage on all unlimited-data plans at specific cap rates per month.  The announcement comes just as the MWC show ends, a show that seemed more interested in promoting new things to do with cheap bandwidth than in addressing the inevitable—carriers strapped for ROI impose speed brakes or usage pricing plans.  Usage pricing for some wireline users was also announced this week—TW is trying it for lower-usage subscribers but it’s pretty certain it’s going higher.

If you read some of the news pieces out of MWC the disconnect here is striking.  There’s a story about how startups are jumping in to offer free or ad-sponsored texting to smartphone users to compete with paid SMS.  One such company said in effect that bits were going to be like water and you don’t charge somebody for a drink.  There’s a proposal that users will stream concerts to their friends (how do you feel about that, artists and promoters?), and there’s a quote that users by 2020 will consume a gig a day over mobile networks.  Cisco has been preaching hockey-stick video traffic growth for years.  Since AT&T imposed their caps at the 3 or 5 GB/month level, this all seems a bit of a stretch, don’t you think?

We’re suffering from a kind of moral consumerism; what I want is fair and logical if everyone else agrees it is, objective reality notwithstanding.  We saw that at MWC, and we see it with every story on the Internet, in every analyst brief.  This of course only further socializes the unreality; it’s the classic “Emperor’s New Clothes” picture.  If the media/analyst community will play along with your delusion why ever face reality?  Because, dear marketplace, reality IS.  All the sycophants in the world are not going to create a future for a financial non-starter.

We are stuck in a broken business model with any unlimited-usage strategy.  We’re stuck in it in part because nobody will admit that eventually we’re going to pay for traffic in one way or another.  We’re lacking politically effective remedies because the only way to make a change in the payment model now is to impose settlement on the operators for traffic flows, and regulators have generally said that’s not allowed.  Thus, with bill-and-keep the only option on the payment side, we’re increasing our billings so we can keep more.  Do we want an industry here or not?  We’re out of good choices now, and we’re shortly going to be out of all choices but very bad ones.

Google’s privacy plan is another example.  Because we want the illusion that we’re getting something for nothing, we accept greater and greater risk to personal data and privacy.  But all that information we’re ceding to the great beyond is fueling only one growth industry—fraud.  Advertising sponsorship and targeting cannot fill the coffers of the Googles and Yelps and Facebooks of the world for long; it’s a fifth or less of the world’s communications revenues.  At some point in the near future, the OTTs will have to start charging us too.  Wouldn’t it be better to have a sensible model now, so that we avoid the risk of massive business failures later on?  Greed and fraud created Enron and Worldcom.  We say we punished the perps in those cases.  Stupidity will create the next round of failures, and we’re all guilty.  We’ll be the perps next time, at the court of market reality.


MWC: Who’s Show Is This?

Well, MWC is all but over at this point and I have to say that while I’d love to have sunned a bit in Barcelona I’m not sorry I didn’t attend.  Judging from the comments I’ve received from operators and financial analysts at the show, it didn’t move the ball very much.  If there was a common theme, it was “mobile is really important to consumers, they’re using it a lot more, and you operator guys need to suck it up and buy more boxes”.  The theme that the OTTs will overtake you in mobile was strong, and it plays on the truth that the OTTs have taken over wireline at this point.  Buy boxes or OTT traffic will swamp you.  Buy Crest or your teeth will fall out.

The problem of course isn’t that operators can’t do the math on traffic, it’s that they CAN do the math on profits.  You don’t keep pushing infrastructure out at steadily declining ROI.  Everyone on the vendor side blew kisses at the notion of the operator “empowering” their network, supporting the “leveraging of their assets” and the “programmability” of their infrastructure.  The thing is that nobody moved the ball toward achieving any of this stuff.  DT, in fact, indicated that key standards linking the network with higher layers were simply not happening.  I’ve been involved in standards in this area; the progress is largely obstructed by a combination of vendor in-fighting and the reluctance of old-school OSS/BSS types to face the future.  Thus, it’s not the operators who need to wake up, it’s the vendors.

This morning, I looked at the material that’s emerged from the shows, the vendor websites, the speeches and videos.  In the main, it’s just marketing fluff.  To make itself relevant in the consumer age, MWC seems to have turned itself into a consumer show.  You can show a teen the wonder of mobile social networks and viral videos and expect them to sign up for a plan.  You can’t show that same video to an operator and have them see it as a solution to their future revenue challenges, and yet that’s what we’re doing.

The best insights of the show came from players like Alcatel-Lucent and NSN, who announced specific small-cell stuff, and from Cisco who announced WiFi Hotspot 2.0 support and hinted at the concept of a mobile cloud.  But all of this stuff comes down to how to run the pipes through the dirt of the new subdivision.  It doesn’t build the house.  What created the disintermediation problem of wireline was that network operators believed that their only role, the only one they needed, was pushing bits.  They didn’t see that “services” were passing them by.  The message of the equipment vendors in MWC was at its heart—stay the course and push bits.  It doesn’t matter to operators whether video, or the cloud, or retail, or LBS, or whatever is the future of mobile services if that future is ceded to the same players who have seized the initiative in wireline.

MWC was an exercise in crowdwashing and partnerwashing.  Everyone’s message was “crowds of people in social relationships will consume more and more video, video each other, videocast to the world, watch videos while they’re producing them and produce videos of themselves watching videos.  En masse veritas?  And then to fix the problem, we’re “partnering”.  What that says is that either we don’t have a clue what to do, we don’t have the money and skill to do it, we don’t have the time to do it, or all of the above.  Every network vendor’s story was “you can build a successful service future on our equipment.  Big deal; the OTTs built a successful service past on your equipment too and your own partners didn’t.  What have you done today to help those partners do something?  You’ve pointed out the need, like they didn’t know it existed.  Partner strategies are valid if they’re built on something that solidly advances the linkage of network and services.  We didn’t move the ball with stuff announced at MWC.  I’m glad I missed it.