We’ve all no doubt heard (read) the rumors of Cisco’s next core router, the “CTR”, and read that it’s designed to be able to support the “lean core” model. What we haven’t heard is that such a mission is essentially a validation of my long-standing point that network connectivity—bit-pushing—isn’t profitable enough anymore, and that radical changes are going to happen to reverse the slipping ROI on network devices.
Somebody did a university study a decade ago that pointed out that the revenue per bit was very different at different places in the network. Out in the services layer, at the customer point of connection, some services were generating thousands or tens of thousands of times the revenue that the same bits generated inside the Internet core. What this proves is that in terms of willingness to pay, context of bits (the services) is the critical factor. Where context is necessarily lost (in the core, every bit is pretty much like any other), then value is lost.
For a couple of decades, operators have recognized that the traditional model of the network wasn’t going to offer them reasonable ROI on their deeper assets, and they looked at things like optical meshing, agile optics, and flattening of OSI layers to address the problem that equipment costs were high in the very place where bit-value was low. If you look at Cisco’s CTR, and at other newer “core” products from competitors, you can see that these products are more and more designed to be lean handlers of routes or even electro-optical transition devices. Where bits are the least valuable, you need lean handling. Conversely, where lean handling is acknowledged as a need, bit value is acknowledged as a problem.
This point about variable value per bit also shows why new services are so important. When an operator provides a bit-transport service to the user, the value of that bit is still hundreds of times less (by that study) than the bit would be valued if you stuck it inside a service like mobile voice or SMS or even TV viewing. The experience that users pay for is what commands the margin, and if operators offer only bits then they invite others (the OTTs) to create the experiences. That’s what’s been happening up to now, and what the operators want to stop.
If we start with the retail services, the experiences, we can see how something like SDN can be highly valuable in creating an agile, optimized, operationalized, framework for creating and delivering the good stuff. I can write a stunning SDN justification by starting with OpenStack Quantum and working my way down to the infrastructure. Because Quantum is linked to the deployment of application components (SaaS, which is profitable) or service virtual components (NFV, which operators expect to be at least less costly than custom hardware), I can validate a business benefit to drive my investment by following Quantum’s trail downward.
If I don’t do that, then I have to presume that SDN simply changes retail transport/connection service in some way. What way? Do we expect that SDN would create some new service interface and protocol? I don’t think anyone is proposing that. Do we expect that SDN will make the experience of routing or switching different—and by “experience” I mean what’s seen looking into the UNI from the user side? Don’t we have to deliver packets to where they’re addressed. Sure we could in theory have user’s capacity expand and contract dynamically with load, or over time. So you’re saying we can’t do that now with current protocols? I respectfully disagree. Furthermore, if the operator has to size the network for the peak capacity people could use or risk not being able to deliver on what’s needed, how does this elasticity change their cost picture? If it doesn’t, how do they price it more favorably than just giving the user the maximum capacity?
We can also look at the question of whether NFV might be shooting at the wrong duck by targeting cost reduction rather than new services. The problem that network operators have with “new services” is that even if they’re a lot more profitable than the old connection/transport services, the old services are still there and dragging down the bottom line. If an operator offered a content service that earned 40% gross margins and was losing 10% on the basic network transport service associated with the delivery of that content, they’d still be earning 30%, which is better than losing 10%. However, their OTT competitors with the same 40% gross margin and no network losses to cover would be earning the whole forty. Or, more likely, they’d be pricing their content service lower and undercutting the operator. The network has to be profitable, you can’t carry its losses to higher layers to pay off or you can’t compete with others who don’t have the losses in the first place. So NFV and other initiatives like lean-core or agile optical networking have to happen no matter what happens at the service layer.
Do you want to know what the biggest danger is? Us. We don’t want to believe that the world of unlimited usage and expanding capacity and exploding service sets, all delivered at steadily lower costs, is going to end. Because we don’t want to believe it, we listen to people who say that the future won’t include the loss of all the goodies. We form an inertial barrier far greater than the cost inertia of long-lived telco devices, the politics of huge telco bureaucracies, or the intransigence of old-line standards types. Our industry, our lives, are the sum of the decisions we make, and we need to make some good ones now. Facing reality doesn’t assure that, but it’s at least a good start.