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Surprise, surprise!  The latest data from the European Telecommunications Operators Association shows that costs are up and revenues are down, and the author wonders how long this sort of imbalance can go on without compromising spending.  Maybe it already has; we noted that Acme Packet showed weakness that could be a symptom of a capex problem with operators.  There’s more indication now.

Juniper, who pre-announced revenues, earnings, and margins lower than expected, has been by the Street as a player on the Internet’s success.  The problem is that while the Internet has been a consumer success and has driven a host of OTTs to astronomical heights, it’s been a mixed blessing for operators.  On the one hand, they needed a consumer revenue beyond voice and they got one.  On the other hand, that new model has utterly commoditized bandwidth and transformed networking from connectivity to experience delivery.  Juniper and other vendors were swept along with the benefit transformation and they’re all now facing the downside of bit commoditization.

The general view of the Street is that there’s a sector problem here (true) and also a Juniper problem (true again).  Our surveys started showing that Juniper was losing strategic influence at Level 3 of the network—the router layer it so needs to sustain.  This loss was in our view a result of a failure to bake their content monetization, mobile/behavioral monetization, and cloud services positions.  Players who had better credentials there, especially the cloud, were able to gain share.  Some of the Street analysts think the proximate cause of the Juniper disappointment was that Cisco took market share.  Likely true, but the issue of why that happened is more relevant.

Cisco has the most solid cloud position of all the network equipment vendors, and my survey work is showing that the cloud is moving faster than other optimization strategies simply because operators know how to move it.  There are operators we survey who launched content projects, then cloud projects, and the content projects have yet to advance even to trial.  The cloud projects are awarded, in many cases to Cisco.  The question is whether Cisco won them or Juniper lost them.  Both companies need to try to push the outcome in their direction.  Who will?

 

We’re on the eve of the Consumer Electronics Show, and it’s already clear to most of us that the event is in jeopardy.  Not only are some big names (like Microsoft) expected to withdraw after this year, the whole notion of shows in general and this one in particular is under threat.  Ironically, what’s threatening both are the things that the show helped to promote in the past.

Anyone who remembers the ‘90s knows that media has been changed profoundly by the Internet.  The ability to communicate instantly with prospective buyers stimulates the desire to do that, and that means having something instant to communicate.  In the past, it was considered smart to make big splashes at trade shows because the media would be there to cover things and you could explain your product easily.  Today nobody wants the product explained anyway, and the media is spending weeks in advance speculating or publishing leaks.  By the time the event arises there’s more a sense of anticlimax.

That’s not all, either.  Only a few companies can really hope to create a stir at an event like CES.  If you’re one of them, you can create a stir anywhere, so why let a bunch of techno-leeches barge in on your thing?  You can control your message more in a major launch where you’re on stage alone, and you get all the attention.

This year we may be adding in another factor.  How much consumer electronics can we show?  There’s not much “new” expected at the show this year.  We’ll have perhaps new tablet models, new OS features, maybe some trendy little gadgets, but it’s not like the heady age of smartphone and tablet launches in a market that was comparatively a desert.  We’ve had HDTV and 3DTV.  What now?  Smellavision?  There are a few places we could still stick touchscreens, but it’s pretty likely we’ve passed the point of diminishing returns.  Consumer marketing is about fads, but fads are like cries of “wolf!”  You can promote them when people are bored, but every one of them raises the bar for the next.

 

I’ve got a kind of “tale of two TVs” today, if that’s not too euphonic for you!  The big story at CES may not be tablets after all, but Google TV.  And the biggest IPTV success story may be doubling down on their approach, but shifting to Microsoft’s  Mediaroom.

Google has tried TV already, and it didn’t exactly work out.  The problem with their first attempt was primarily that it wasn’t offering much in terms of a different experience, meaning that at the end of the day you got something like streaming from Netflix or Hulu or Amazon.   What they’re now looking to do is to integrate a lot more Android into Google TV, creating a kind of enormous tablet from a flatscreen.  It’s not quite that, of course, but the analogy is decent.  What I hear is that there will be a host of apps from the Android Marketplace that will run on it, and that these apps will permit not only viewing and information-gathering, which would make the Google TV a direct web portal, but also communications.  I’ve also heard that some set manufacturers are looking at introducing a camera, which would take the analogy to the tablet further, and that Google has an app in the works that will allow Android tablet users to sync their tablets to the TV, so touching the screen on the tablet will perform the analogous function on the TV.

All this is interesting given that the reason I hear that Microsoft is getting into Telefonica is that they’re going to do a lot of joint TV app work.  Making IPTV a decent profit model isn’t easy since the technology is inherently more expensive than multi-channel TV over CATV cable, but it is fair to say that if there’s a way for IPTV to add value it might be in how it would be better at integrating the online and viewing experience.

That makes these two developments competitors in my view.  If IPTV needs to tap the melding of Internet and  TV more effectively, then having the TV do that by itself is hardly promoting the right market model.  If  both these approaches get traction we may be watching the battle, even perhaps the last battle, over whether IP streaming can replace linear RF on any scale.

Interesting to speculate.

 

Cisco is discontinuing its personal/consumer telepresence product, Umi (or however you like to spell it; I’m not going to imitate their accent-U!), a move that’s no big surprise to most industry-watchers, including me.  The big question isn’t why (because it didn’t sell) but whether the move might represent a gradual shift by Cisco toward a more sustainable vision of the future.

First, no significant audience is going to pay the Umi price for good consumer telepresence; there are too many things with webcams out there.  I think Cisco knew that, and perhaps was hoping to spawn some sort of populist drive for premium telepresence service.  The problem with that, of course, is the neutrality issue.  But the real problem with Cisco’s telepresence approach has been that it’s traffic-push and not revenue-pull.

For a year and a half now, Cisco has been champion of what could be called the “bits-suck” theory of network infrastructure.  If something comes along that consumes bits, that just sucks the old dollars right out of operator pockets and into the pockets of network equipment vendors (mostly, of course, Cisco).  It’s not volitional, it’s Natural Law.  Hence telepresence in any form is good for Cisco, and consumer telepresence is great.  Hence, Umi.

The challenge for this approach is that driving up consumption of bandwidth in an all-you-can-eat world only drives down operator profits.  It’s kind of ironic that Cisco would promote its own profit growth through a strategy that proposes its customers abandon their own hopes for more profitable services.  Not only is it ironic, it’s ineffective, which means that at some point Cisco has to move on to something more realistic.

The Street is liking the “new Cisco”, a company that seems to be more humble, hard-nosed, and hard-competing.  It’s going to like “hard-thinking” even better, if Cisco starts to demonstrate that.  I think Acme Packet’s shortfall announcement yesterday demonstrates that oldthink in networking is going to end up taking you to some ugly investor meetings.  So Cisco needs newthink, which has to be a position more aligned with what operators can sell than what they are going to be forced to buy, or give away.

The other problem with consumer telepresence as a driver is that it’s aimed at wireline; you can hardly cart Umi around with you.  Right now, ROI on wireline infrastructure is falling too fast for operators to be even modestly interested in supporting new wireline models of any sort, and particularly those that make the operator a passive traffic conduit.  Which is of course the core of the issue here.  Network equipment vendors have stubbornly clung to the notion that traffic is valuable despite continued proof to the contrary.  It’s not.  It never will be.  Services are valuable, if the “service” itself either creates productivity improvements for business or differentiable experiences for consumers.  Simple transport and connection will always be the foundation of the network, but never again will they be the foundation of network profit, and thus they can never be the foundation for network equipment vendor profit either.  Cisco, more than any other network player, has the assets to swing for the stands here with a service story that really links the transport of yesterday to the profit of tomorrow.  They’re coming to bat this year, and we’ll watch closely to see how they do.  One thing is clear already; the space is Cisco’s to win or lose because nobody else has the leverageable assets they can push into service in time to influence the market.  This is the transitional year in service provider networking.

 

Acme Packets, one of the growth leaders in the network equipment space as far as the Street was concerned, did a surprise pre-announce of a less-than-expected quarter.  Supporters of the company have rallied around the notion that this is somehow just a transient blip.  Yet the company told investors that the shortfall came from a bunch of geographically scattered deals they’d had 50% confidence or more they could close, and somehow didn’t.  That sounds a bit broad to be transient to me.

I think the problem here is the old issue of ARPU.  Look at voice calling from an operator perspective and you see a market that you’d really have no reason to want to be in if you weren’t there already.  ARPU in wireline has plummeted.  ARPU in wireless voice is already negative in most markets, with broadband growth likely to keep it positive overall for not much longer than another year.  The largest OTT voice provider, Skype, has been bought by Microsoft, and while the Windows giant might well run it into the ground, they might take it somewhere that would be transformational.  Google Voice, fearing what Microsoft might do, could jump out to try to beat Microsoft to the punch.

What seems to be true here is that if you’re a vendor who can roll out LTE you’re still engaging with carrier buyers almost without positioning effort (you’ll have competition, though).  If you’re not, then you have to fight for engagement.  The longer this problem lasts, the harder it will be for vendors to break out of the pattern, because engagement and disengagement are both contagious; you disconnect and you lose touch with the issues, which makes you less relevant, which makes you disconnect further.  I don’t doubt for a minute that we’re going to see players step up and sing new and interesting songs in the first half, and by doing so raise their relevance.  I don’t doubt we’ll see players fail to do that, and lose more market share.

The Street has also been talking a lot about enterprise. Their view, like the one I expressed in Netwatcher last month, is that IT spending in 2012 isn’t going to be strong but that there’s a chance of recovery in 2013.  Their thesis is that the 2012 problem is largely due to economic uncertainty, which I agree with.  They think that’s going to be eliminated by 2013, and I hope they’re right.  In any case, I still cling to the fact that if IT improves productivity then IT should be doing BETTER in a period like this.  The fact that we’re calling 2012 a down market means that we’re admitting to the fact that IT has failed to deliver on new productivity paradigms, which is also what my numbers have said.

The fact that storage, in mid-sized-and-larger firms, is the hot IT space according to the Street is an indicator that we’re placing our bets more on business intelligence or data mining.  Those are IT and processing functions, and they are great for making better business decisions if you assume that the knowledge to understand a new optimality was collected and stored even though you didn’t recognize the value at the time.  I wonder how true that is.  Productivity is like warfare; you win it with boots on the ground, at the place where the work and the worker intersect.

 

Well, it’s 2012 and everyone is going to be talking about what kind of year it will be, or what kind of year 2011 was.  It’s inevitable at this time of year, and the fact that there’s nothing much being announced at this point in time is no small reason for the recaps or future-tellings.

For myself, I’m looking deeper into the whole service provider monetization project area, analyzing what I’ve always called “secondary data” from the surveys.  Operators talk among themselves, and so when we survey them we get anecdotal information on what other operators are doing.  This spreads out the span of the survey at the expense of reducing the detail and the quality of responses.  Generally I don’t use secondary data, but now I want to look at it because it might shed further light on the project activity.  We survey less than 50 operators, and while this base has been uncannily accurate in terms of providing issues and solutions, it’s not large enough to measure the projects themselves.  The secondary base, which is over a thousand operators, is.

Why bother with this stuff?  The reason is that I think there’s a lot that’s going to happen in 2012 and I also think that how it will impact the industry will depend on the state of the network operator monetization projects underway now.  We are going to have a tumultuous year in terms of market change, and that means that only stuff that’s at least gotten some internal traction has any chance of being a factor in the future.  How much of that stuff is there?  I expect that I’ll have some good data available for our February 2012 issue of Netwatcher.  Some of the early stuff is looking pretty interesting indeed.  What’s likely to be more interesting is how the vendors are playing in this project dynamic.

All of the five major players (Alcatel-Lucent, Cisco, Ericsson, Huawei, Juniper, and NSN) have assets that operators are, or would be, interested in.  In the second half of the year, Alcatel-Lucent and NSN seemed to be stepping up their game, presenting a much stronger story in mobile, content, and even services.  I’ve been particularly impressed with NSN’s progress in raising their strategic credibility with network operators.  Among the big five, only NSN and Huawei managed to do that in 2011.  The question is whether these guys will follow up on their early momentum or whether one of the other players will do something dramatic.  Cisco remains the one to watch; as I’ve said, they have more assets in play than anyone else.

The coming tablet wars are likely to force the issue in project terms.  Tablets are a kind of intersection point; they are mobile (3G and in 2012 4G) yet not-mobile (WiFi), voice-crippled (no standard voice from carriers) and yet voice-enabled (Skype, Google Voice, etc.).  They’re an almost-computer that is still almost convenient.  What the tablet is doing is creating positive pressure to converge all the monetization goals, and to put the focus point squarely in the hands of appliance giants Apple and Google rather than the operators.  Already I can see the mixture of issues in monetization slowing down content and mobile projects and accelerating cloud projects.  I think that’s going to continue, and yet if there’s a space where the Alcatel-Lucents and NSNs of the world are still lagging, it’s in the cloud.  That’s what gives Cisco its chance.

 

It’s the last workday of 2011 and everyone seems to be doing a retrospective, but I’m not going to do that!  What’s the point of blogging if you rake up the past anyway?

There are more stories today about both Apple’s and Google’s possible plans in the TV space.  One of the popular ones (for both vendors) is that they’ll include broadcast TV services and also personalization, meaning channel-by-channel subscription.  I have serious doubts that either of these is true, and I think the fact that they’re likely false makes the notion of a serious TV play harder for either company to justify.

Without broadcast TV channels, anybody’s “TV” is just super-Netflix at best, and the problem is that broadcast IPTV is a black hole.  Look at U-verse; the Microsoft/AT&T/Alcatel thing.  It takes special infrastructure that has a high complexity and cost, not just a box that’s stuck at the end of a broadband connection.  Without special features in the access network, the streaming process will create hiccups even in decent broadband areas because of increased traffic and congestion.  Operators have no incentive to fix these; they’re not part of the revenue stream.  With lower-bandwidth connections, there will be a lot of hiccups, and what happens to Apple or Google (or their dealers) if somebody moves to a place where Internet is slower or poorer?  Nothing like built-in customer support problems to create negative incentives.

The point is that IPTV is more than the TV part, it’s a whole system of content management, QoE management, and delivery optimization and neither Google nor Apple control anything like enough of the pieces to make this sort of thing work.  Thus, I think an attempt by either to get into the broadcast TV space would be a major technical/QoE black eye for them.

And then there’s the question of whether anyone would even license the material to them.  There is no legal obligation for a content owner to permit OTT streaming of their video, as we all know.  Sure, some of the off-brand networks might go along with Apple and Google, but here again the rumor mill sticks a wrench in the spokes.  These networks would be the very ones hurt by any trend toward a la carte channel selection.  That was the point that was made when the FCC was pushing the notion that channelized TV operators of all types should allow consumers to select a la carte.  Thus, the two rumors don’t even go together.

The truth here, I think, is a lot more pedestrian.  It’s becoming clear that streaming video fits into personal viewing primarily to fill gaps in traditional programming.  Everyone has such gaps, and given the nature of network broadcast TV (seek the lowest common denominator), there are likely to be more gaps and particularly so in key higher-income demographics like young professionals.  There’s a good opportunity there, and that’s a demographic that both Apple and Google want.  I think both companies want to integrate the viewing experience, to manage how content is presented.  They’d really like to be in control of the “Guides” and to be able to use subscriber behavior and history to suggest things to fill the empty spaces.

There are also more stories today about phones and tablets and Microsoft and RIM.  It’s pretty obvious that RIM has left the path of wisdom and is now going to have a very hard time getting back.  The question is whether they get smart and accept the notion of M&A.  With whom?  My suggestion is Microsoft.  Here’s a phone with a brand that can’t get OS right.  Here’s an OS that can’t get a phone right.  A match made in heaven.  OK, it throws Nokia under the bus, but they’ve been down there for a couple years anyway.  I think the only way Microsoft can save WP7 is by buying a big handset brand, and who else is out there?  I think the only way RIM can avoid vanishing to a point is to sell itself to somebody who needs brand more than anything, and who else is out there?

The truth is that the phone market is ripe for a major change anyway.  We’re talking about “superphones” now, smartphones with two or three times the screen resolution.  For what?  Unless you look at your screen through a jeweler’s loupe it’s going to be hard to tell the difference.  The point is that we’re into the gilding-the-lily phase here, which means that the competitive focus is going to shift.  I think it’s going to shift out of the phone and into the cloud, which is something both Apple and Google are preparing for.  Microsoft could be a player in that kind of shift if it had a good handset strategy, and Nokia is never going to give it one because Nokia and Microsoft don’t want the same thing, really.  Nokia needs phones to be strong and expensive; Microsoft needs phones to be a part of a consumer ecosystem that includes PCs and the cloud.

Happy New Year!

Microsoft continues to have problems with Windows Phone; the Street is reporting that the first releases by Nokia will be delayed a quarter according to a leaked roadmap.  As I noted yesterday, both Apple iOS and Google Android devices had record activations for the holiday, so it’s hard not to say that Microsoft’s strategy with phones has been doomed from the first simply because they’re too far behind the curve.  But as some have pointed out, other players like Amazon (with Kindle Fire) have launched gadgets that have succeeded despite being rather late to market.  Is there a double standard for Microsoft, and if so how might it impact other tech players?

The smartphone market is quite mature at this point.  Sure, there are people who are don’t have one at this point, but all the early-adopter-trendsetter-social-magnet types have been equipped with one for years.  Entering the market with a splash at this point is harder simply because the pool of new capabilities you can splash in is shallow.  What could be said about a smartphone today that would break both the habits and the service plans of the past?  WiFi tablets like Kindle Fire don’t have service plans and they have penetrated a much smaller portion of their TAM.  The point is that Microsoft’s big mistake with Phone was to have tried it before they tried tablets.  They really needed to let the phone space go fallow and focus on getting a Windows 8 tablet OS out there, then leverage that product to back-door into the phone space.  They didn’t do that; they were stuck in incumbency issues with laptops.

I looked at the stock performance of the network vendors this morning, going back to the beginning of 2011, and it’s an interesting picture.  Cisco has dropped perhaps 8% in that time, Ericsson around 13%, and Alcatel-Lucent and Juniper are virtually tied for the bottom with a drop of about 46%.  If you look at the super-hot announcements the firms have made (judged by the media, at least) it would appear that the two who had the least did the best.  In our strategic influence surveys this year, Ericsson and Cisco did better at sustaining their position in the key areas of cloud, content, and mobile than Alcatel-Lucent or Juniper did, and again it would be fair to say that both these latter vendors had announcements that the media believed were more strategic (LightRadio and QFabric, respectively).  What gives here?

The answer is that network equipment is a downturn market at present, I think.  You can get people excited about change if there’s a market trend that validates the notion that changing is taking place.  Whether LightRadio or QFabric were strong products, they were products in a space on the defense.  What changes a defensive game isn’t more defense, it’s shifting to the offense.  Neither of these two network announcements did that.  Both, perhaps, could have done it, just as Microsoft could have made its Phone 7 launch exciting.  That neither did is in my view linked to the essentially defensive nature of the positioning the companies did.  Here’s the next generation of something that is under pressure in the current generation.  There has to be a paradigm shift to make networking an exciting market again, and none of the announcements that were made in 2011 were anything like a paradigm shift.  Absent that shift, the “new” stuff seems more a letdown.  Could that be a factor in the decline of Alcatel-Lucent’s and Juniper’s stock?  Not the only factor, but at least one of the factors, I think.

So who then can articulate a major change here in network equipment?  The two companies who tried in 2011 will have a higher hurdle to jump in 2012, just as Microsoft will with Phone 7.  The two who didn’t announce?  Well, what’s Ericsson going to announce—a new type of human to provide professional services?  That leaves Cisco, who has in the past demonstrated that it can be extremely charismatic.  Cisco, who has the broadest technical collateral in the cloud space.  Cisco, whose stock has stood up the best of all so far.  Maybe the Street is smarter than it thinks it is.

The point here is that nobody is going to care about how well-groomed you are while you’re falling into a well.  You need to demonstrate that your vision of how you’re going to arrest the slide and get out is compelling, not your form in the dive.  So far, network vendors haven’t done that.  Neither has Microsoft.

 

 

With a record number of activations for iOS and Android devices, it’s pretty clear that the mobile appliance is here to stay.  Given that Microsoft has been little more than a kid with nose pressed to the candy store window in the holiday race, I think it’s also likely that the giant software firm has booted yet another opportunity.  If, that is, there ever was an opportunity for somebody starting as late as Microsoft did.  But despite this, there’s still one thing that could save Microsoft’s phone and tablet strategy; Ice Cream Sandwich.

Android 4.0 is, according to pretty much everyone who’s seen it, a major step forward in the open-source OS.  Not only will it resolve the differences between tablets and phones (or most of them) from a software perspective, it elevates the whole user experience significantly.  Given all this joy and love, then, how does it create an opportunity for Microsoft and Windows?  By not being offered.

There are already a host of Android phones and tablets out there, and arguably the key Android tablet buyers and phone buyers have already committed.  These people have earlier versions, some all the way back to the Android 2.3 and most in the “Honeycomb” version 3 collection.  The question for the companies who supplied these gadgets is whether to offer upgrades to Ice Cream Sandwich on their older devices or to try to sell new ones.  Do they present users the choice of perpetually out-of-date and increasingly app-incompatible Android versions or scrapping the gadgets they just bought and getting another?   The wrong choice—force a new buy—is the easiest to make from a business perspective, but it could kill then whole Android community.  Alienate all your early supporters; a great marketing strategy.

Apple’s iOS is going to stay up-to-date on older models of the iPhone and iPad.  Microsoft would do the same with its phone and tablet OSs.  So Android could be on the cusp of being the only popular OS that strands all its early adopters.  Google, Android’s biggest supporter, could do little about this unless it took the dramatic step of building its own Ice Cream Sandwich versions for all those old tablets whose vendors walk away from updates.  If Google does that, of course, then no tablet or phone vendor will bother to spend money on an upgrade.  Watch the progress here; it’s the big test for Android.

 

One of the things trying hard to be a fad these days is the “super-WiFi” that could utilize the TV broadcast spectrum white space.  The technology, regulatory position, and usage of this spectrum is still very much an open question, in my view, and there may be no more difficult question than whether it’s going to have much play. That question is what role WiFi or unlicensed spectrum might play in the future service dynamic.

Mobile broadband demands mobility, obviously, and the classic approach to that is to use 3G/4G services to a device.  This model worked fine with phones because cellular telephony was the primary service goal of phone buyers.  With tablets, everyone quickly realized that the primary goal was Internet access; voice was almost a non-issue.  Everyone also realized that tablets with WiFi were cheaper than those with cellular service, and of course had no ongoing service plan costs.  As a result, probably more than 90% of all tablets in use are WiFi-based.

Operators have had a love-hate relationship with WiFi all along.  In the smartphone market, most use WiFi offload to reduce the data traffic load generated by users in hospitality locations where they’re free to stream video and engage in more traffic-intensive activities.  Many operators run their own hot spots for a fee.  However, the tablet is opening a new question for them, which is whether tablets and WiFi might create a wave of opportunity that could undermine the value of their (expensive) 3G/4G networks.

There have been many experiments in municipal WiFi, nearly all of which have failed.  The problem there was that the goal of universal coverage could only be met through mesh configurations that had limited overall capacity and high operations costs.  The new WiFi model is to forget the user on the move, or even the “average” user at home, and focus only on hospitality.  If every store owner, every coffee shop, felt they had to deploy WiFi to keep customers in their facility, then these owners would bear the cost.  This would then create this enormous pool of “mobile” broadband that users could tap, continue to skew tablets toward WiFi, and perhaps eventually create a whole market based on unlicensed spectrum.

Some operators tell me that their interest in smaller cells for 4G arises from the need to address the problem that tablets and hospitality-Fi could create.   A femto- or micro- or pico-cell is still a cell, still licensed spectrum, still billable to the operator.  The problem is that the horse has left the gate here; tablets are already out there in growing numbers and the number will continue to grow.  Anything that makes WiFi more pervasive will make this underground broadband network more important.  Super-WiFi might be such a thing, but I don’t think so because it would need new RF chip technology to work, something tablets won’t be equipped with for years.  It’s the old-fashioned WiFi that may change things.