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Earnings reports always give you something, but they don’t always give you conclusive answers.  So it was yesterday with three tech companies, Apple, Netflix, and Juniper.  These three players epitomize the new network ecosystem and its confusion.

Apple missed, no question about it, but there is a significant question on whether the miss really means much. The market wisdom says it’s not Apple’s fault.  After AT&T’s report, which showed that customers might be holding off on iPhones until the new model came out, many had expected Apple to miss on its revenue line.  Their regular schedule of new models is now overhanging the sale of their current ones.  This, with no promise there even will be a new model!

The problem is that none of this should have surprised anyone, and there’s a potentially bigger problem with the Mac sales.  Pundits say that the Mac sales were hurt by the late delivery of the new models in the quarter, but if everyone was waiting for a speculative iPhone model and the same mindset held with Mac’s real models, why didn’t they buy when the products came out?  Pent-up demand is as logical as overhang because it arises from the same notion of unfulfilled expectation.

There may be an element of overhang, and maybe some buyers were too busy at the beach to get to their Apple Store in time for their purchase to count this quarter.  There may also be an element of saturation here.  How many times will even the yuppiest yuppie do an upgrade to be cool?  How long will having the latest iPhone be enough to make you cool?  And there are other questions.  Tablets are overhanging PCs, so clearly they’d overhang Macs too.  Might iPads be cool enough that you don’t need a Mac, so iPads might overhang the Mac even more?  And might Apple’s cloud activity still be half-hearted because they’re afraid that a cloud framework would open their historically closed ecosystem?  We need to watch Apple’s signals carefully here because there are some signs that things aren’t on that hockey-stick trajectory now, and may not return to that trajectory quickly.

Then we have Netflix.  The company missed profits and revenues as costs for programming went up and subscriber growth slowed.  This is the firm that some believed would sweep traditional linear TV out of the market just a year or so ago, and now it’s pretty obvious that Netflix is the one at risk of being swept away.  The problem is simple; you cannot make fresh content and promote it heavily when your business model is based on the presumption that you’re a cost-based alternative.  If you’re in a commodity business you’re a commodity player, and the fundamental reality is that except for very old content, the video space isn’t a commodity business.  People want to watch specific things, not just any old thing.  That means those who have rights to that stuff because they’ve produced it will have an advantage, and their return on investment depends on advertising—commercials.  You can’t make enough in streaming ads to fund the material you’re streaming.

Juniper has the distinction of being the only player in our trio who didn’t miss their numbers, but their guidance was again a bit tepid and it seems pretty clear that Juniper is relying on market changes more than their own changes to boost their sales in the future.  My problem with that is that market changes for everyone in the router/switch business are taking things the other way.  Operators have the same squeeze Netflix has; it costs them more to build capacity but they don’t gain compensatory revenue.  So you have to either help them with the revenue side or expect that they’ll demand steeper discounts on capacity-building and also slow-roll where possible.

Juniper has a decent SDN capability and they’ve articulated it at least in private briefings with some effect.  However, capability and product are not the same thing.  It’s clear from listening to the Street that the future of Juniper in their eyes depends on the PTX and QFabric and security.  OK, SDN and “network virtualization” both impact those spaces in some way.  If Juniper can grab onto SDN principles and leverage them in the areas of PTX, QFabric, and security then they can strengthen all their weak points.  That’s what they need to do, and before more and more of the need for the changes has been pushed up into network virtualization or down into agile optics.  PTX in particular is an assertion that electro-optical coupling in a network core is better than pure ROADMs or OTN.  That can be true if you insert SDN principles, IMHO, but not if you don’t.  Get a move on, Juniper, because others are moving on you.

 

We’re happy to announce that we have released three new video tutorials, a series on cloud computing.  These are available on YouTube as follows:

The Cloud Revolution Part One — http://youtu.be/cD75sF9z2FU

The Cloud Revolution Part Two – http://youtu.be/VYq0s5wZdWY

The Cloud Revolution Part Three – http://youtu.be/0uEK2GdvLAg

You can also find the links for these videos on our new video information services website, http://www.ohnayitshay.com.

 

Cisco says that they’re laying off another 1300 workers or about 2% of their employee base.  VMware says it’s buying Nicira.  Are these two things related?  I think they are.

Nicira is a “network virtualization” player, a company who has built a connectivity layer on top of traditional networking and used that layer to offer communications services to applications, particularly those running on virtualization platforms or in the cloud.  Unlike network-based VPNs or VPLS, there’s no real limit to the number of virtual networks Nicira can support.  And they can run above anybody’s network, so they are “platform independent”.   They can also provide connectivity features to applications, acting as a kind of shim between the real network interfaces and the applications’ southbound service APIs.  Want TCP/IP?  You may get it via Nicira and not directly, and so VMware becomes a network vendor, which they probably like given that their current quarter was light.  One analyst even said it was the future of networking.

Of course it’s not that simple.  Network virtualization is at best like any other kind of abstraction, meaning that you still need a network to virtualize.  While network virtualization can help with aligning network connectivity and segmentation to computing virtualization, it’s hardly a total solution.  Furthermore, network virtualization is an application for software defined networking—if you believe in SDNs—and SDNs are a hot button with the network vendors.  Collision?  You bet, and be patient because that’s where Cisco jobs come in.

Applications link to networks via two distinct layer, what could be called the “logical” interfaces of the software APIs in the communication middleware and the physical interfaces to the network—Ethernet, IP.  Neither Ethernet nor IP are complete service protocols, which is why we have things like TCP to augment them.  We know that both have security issues too, so the point is that network service needs are likely to evolve.  You could argue that SDN principles represent a network-centric vision of that evolution, a bottom-up transformation.  You could argue that network virtualization represents a top-down software-centric vision.

So what does this have to do with Cisco jobs?  Every dollar spent on network virtualization is a dollar lost to Cisco, a dollar that could fund additional work and jobs.  Every feature that’s absorbed into network middleware is gone from the network, and with it the differentiation and margin protection that features bring.  More job risk.  Cisco at its Live event said it was getting architecture religion, but the question now is whether they can get it quickly enough.  There’s real work involved in making SDNs into the capability set that network virtualization already is.  Has Cisco done that work, or have any of its competitors?  We’ve reviewed some of the vendor SDN strategies, but there’s little we can say about them explicitly because the briefings were wrapped in NDA.  So yes, there’s progress, but how many of these vendors could have sold their SDN solution for a billion dollars like Nicira did?

SDN and network virtualization are faces of the same coin, one seen from below and the other from above, and since neither of the two concepts are particularly well understood most don’t recognize that.  They’re outriders in the battle for differentiation between IT and networking, and IT is winning because whatever might be said about the “architecture” of an SDN solution here versus a Nicira-style software solution, you can buy the latter and not the former.  This isn’t about boxes, it’s about capabilities.  Those who produce them win.

 

We’re ending the summer soon, and with it what many TV viewers dread; the summer rerun period.  The interesting thing is that there are more options these days for summer viewing, and more are exercising them.  As a result, there are potential changes in TV viewing that could have significant long-term market impact.

I bought a Roku 2 last week to deal with my personal frustration over summer programming.  Since my interest runs more to documentaries, there are fewer channels available, and the networks have taken up the habit of switching shows between them and then running the shows as “new”.  This, in my impromptu survey of consumers, was number two on the list of irks following the protracted loss of new programming.

The combination of Roku and Amazon’s prime videos gives me a lot of material, and that’s the problem for the networks and the linear TV providers.  In TV or movie format I can find literally hundreds of series, probably thousands of hours of viewing, for documentaries alone.  The quality of the viewing is virtually indistinguishable from HDTV programming, without skips or pixelization.  So here’s the question.  Will I, armed with so easy an alternative to traditional TV, be willing to put up with the same amount of drivel in programming this fall, or more, or less?  You know darn well what the answer is.

Anything that breaks linear viewing habits is bad news for the networks, the providers, and even the network equipment vendors.  For a cable company, it asks them to pay for delivery of content that not only isn’t what they get paid for, it competes with what they get paid for.  Can they then continue to build out capacity?  The decline in viewing translates to a decline in ad revenues for networks, which means either less programming or more junk programming.  How many reality TV shows can we have, after all?  Storage Wars, Shipping Wars…what’s next?  Lawn Wars?

The NCTA is rolling out its TV Everywhere platform, and that’s a threat in its own right.  Yes, it helps tie streaming to linear delivery which mitigates some of the negative impacts.  But it encourages people to use streaming, to view on alternative devices, and to exercise personal choice rather than viewing “what’s on”.  All bad for linear, all bad for access.

All of this comes as the FCC’s report shows that while ISPs are more honest about bandwidth claims, only cable and FTTH can deliver broadband in quantity.  In the US there are no major providers of either that don’t rely on linear TV for profit.  So why bother saying that the US needs to encourage FTTH deployment when, at the same time, we’re adopting behavior that undermines the last profits in the fiber loop?

My point is that this is an ecosystem, friends.  We are all going to live in a future composed from the sum of our present decisions.  Networks’ quest for quick quarterly returns is creating a future that undermines their own position.  Consumers’ quest for something for nothing is going to undermine their own choices.  So do we have a network future with no affirmative choices at all?  The operators and the enterprises in our surveys are pushing investment back, deferring to the second half what they would have spent in the first, then perhaps pushing it into next year.  We are seeing the effects of short-term thinking and planning, an effect that first makes it nearly impossible to avoid major pitfalls in the evolution of the market and second nearly impossible to address major opportunities.  There is a future out there that we could as an industry still grasp, but we can’t diddle forever and expect the option to stay on the table.

 

As you all know, I like to read the earnings reports to spot critical trends, both with the companies themselves and for the markets they play in.  Microsoft and Google both reported earnings yesterday, and both gave the markets an upside surprise.  So what does that mean?

Media coverage of Microsoft has missed the point.  Though Microsoft posted its first-ever loss, the problem was because of the writedown of its ill-fated ad company aQuantive and not from sales, and the company’s financial performance ex the exceptional items was better than expected, which is why it’s stock was up.  Microsoft seems to be benefitting from the business space more than the consumer space; PC sales were up to the former group and down in the latter.  This is almost certainly due to a shift of consumer demand toward the tablet, something that’s not yet happened (and may not, at least in comparable numbers) for business.

This trend isn’t wholly bad or good for Microsoft.  I think it validates the thesis that Microsoft sees its tablet and even phone opportunity as coming more from the business side, not so much because businesses will demand Microsoft stuff but because their inertia is higher and their demands a bit different.  Microsoft thus has more time and a slightly different target of opportunity to take aim at.

What will mature things on the business side is a mature conception of the cloud.  Right now less than a fifth of enterprises are cloud-literate to a full extent, and before we can hope for a rational market we need literacy levels of a third or more, which we’re not likely to get until late 2013 at best.  But that means Microsoft has a year for Windows 8 to impact things, for better or worse, and likely just a bit less for Office 2013 and Surface.  It’s not going to be easy, and we can’t really read how Microsoft plans to proceed beyond what I’ve already said in prior blogs, but at least they have a shot.  The death of the PC and of Microsoft are greatly exaggerated.

The same can be said for Google.  The fact that they are “behind” in social networking generated a lot of hype that Facebook would swab the deck with them, performance-wise.  We’ve not heard from Facebook in the current quarter but the Street clearly doesn’t believe that it’s going to be swabbing many decks, and Google’s numbers were impressive.  Google is making display ads work, it’s making YouTube ads work, and it’s still making money aggressively on search ads even with per-click rates down.

The reason is that search is the thing most readily connected with buying.  Yes, some people do pure research on products or other stuff, but if you set aside geeks like me who entertain themselves by knowing things, the search engine market base is probably for the most part looking for stuff to do or to buy.  What better place to advertise?  Yes, it’s a market that’s going to hit the wall eventually.  Yes, SEO practices are making it harder to get good stuff from search.  But it’s not Facebook that will steal prospective buyers away, it’s Amazon.  If you can’t find good research by searching, you go to Amazon and just read reviews on products.

Motorola, which did OK, is probably Google’s hedge against change.  Mobility is where the future lies simply because mobile broadband can be—and is being—integrated into our lives in different ways.  The future of advertising, the future of broadband services, and even the future of the cloud (business and consumer) are tied up in mobility.  Google is going to take some flak for Motorola, as it did for YouTube, but it will probably make a go of the venture down the line, which is what’s making it a powerful player in the space.

Verizon also released its numbers, and they show that mobile is king already.  Financial analysts have summed up the earnings by saying “Mobile’s up, wireline’s down” and if you exclude FiOS that’s true.  Some look at the profit line for Verizon and think it shows the company is gouging the consumer, but the fact is that their return on infrastructure even in the mobile space is below that of Google (measuring return on capital overall).  It’s also getting lower, and that’s why operators are so hot on managing network costs and expanding their service profile via the cloud.

I think Verizon (and to a slightly lesser extent, AT&T) have a fairly realistic vision of how the cloud comes about and helps them make more money.  They see a new developer/partner ecosystem built on top of a bunch of as-a-service URLs exposed from underlying network and platform capabilities, and used to create new offerings at the retail level.  This process is interesting because it will create the largest carrier IT investment in history, and one that is entirely outside the traditional OSS/BSS stuff.  IMS isn’t part of OSS/BSS, and IMS is a voice service layer.  IPTV logic similarly is kept separate where it’s deployed; it’s under Operations and not under the CIO.  The cloud will likewise be separate, and for the OSS/BSS types the question now is whether they can sustain relevance, not whether they can take over.  Inertial thinking kept them from commanding the evolution and it could push them out of the game now.  Google, my friends, doesn’t have an OSS/BSS.

 

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.

 

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.

 

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.

 

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 http://www.ohnayitshay.com/ 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 hangmeout@cimicorp.com if you can!

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 MSNBC.com.  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.