I almost hate to do a blog on what 2017 holds for networking, and for network operators in particular; that kind of analysis is almost a cliché. In this case, though, it might be important to look ahead to the coming year because it could include some fairly cataclysmic events and changes. At least I can promise you that this won’t be your usual year-ahead Pablum!
The big news in 2017 was actually telegraphed with the news that Huawei’s sales grew almost a third in 2016, making the company the big winner in the network infrastructure game. The reason for that is my opening point—2017 is the year when network operators stop preparing for a return-on-infrastructure crunch and start making hard decisions for the long term.
Most operators have drawn charts showing revenue per bit collapsing under the Internet pricing model of all-you-can-eat, and cost per bit declining a bit less dramatically. As a result, there’s a crossover point, and the date for this is usually placed sometime in 2017. This impending financial milestone is what has been pushing SDN, NFV, carrier cloud, and a bunch of other things. But now, it’s upon the operators and so they have to be prepared to do something that bears fruit rather quickly.
The new pressure on operators to do something will be manifest in their efforts in the SDN and NFV space. Expect to see an avalanche of operators looking at AT&T’s ECOMP, because it represents a broad and adoptable model for software automation overall. Most operators now realize that “SDN” and “NFV” in the narrow scope of the standards aren’t going to do them enough good, or fast enough. They’re now looking beyond the standards, and probably they’ll never come back. Open Source will replace standards forever, starting in 2017.
I can tell you that there are a few operators who already know that SDN and NFV aren’t enough, and aren’t fast enough. Those operators know that somehow software automation, effective use of portals, or both are going to be their touchstones for 2017. The rub for them is the “somehow” part; most have a goal but not a specific path to reaching it. Even architectures like AT&T’s ECOMP, which at least admits full-scope software automation, doesn’t yet address all the key points there. Nobody has done much on the portal side, despite the fact that some university projects in that area first appeared three or four years ago. In 2017 we’ll see some vendors step up on software automation, both in the OSS/BSS space and among the network equipment vendor community. We might also see some portal progress, but even if we don’t, software automation impetus will be enough to support real progress in opex reduction by the end of 2017. Implementations started then will mature and offer our first real “success stories” in 2018.
Which, of course, is a bit late to prevent the critical crossover operators expect. The next news item is good news for operators, though. There is a general trend among regulators worldwide to accept that the pro-OTT bias of regulations under the banner of “net neutrality” has threatened investment in infrastructure. Huawei’s surge is a direct result of operator pressure on capex to lower that cost-per-bit curve, and when network vendors talk about systemic conditions or market conditions, what they’re really talking about is that critical point of revenue/cost convergence. If regulatory changes occur, they might let operators alleviate the pressure without further capex reductions.
The two issues that are critical are settlement and paid prioritization. The first of the Obama Administration’s FCC Chairmen (Genachowski) was aware that these could be used to create a special advantage to large players, but was willing to accept measures in both areas with the proviso that the FCC would watch developments. His successor (Wheeler, the current Chairman) pulled back and banned both. Republican Commissioners say they’ll reverse that decision, and if they do it could improve operator return on infrastructure enough to fend off further capex pressure until 2020.
I think that they may do all of that, and certainly they’ll do something this year. That means that network infrastructure might have a couple of years of relief from the pricing pressure once the impact of regulatory change takes hold. But not decisive relief, because the fact is that regulations are politics under the covers, and nobody can be sure where the political winds will blow in 2017 and beyond.
Despite regulatory relief and opex improvements, network vendors will be under tremendous pressure in 2017. Specialists in SDN and NFV will be under even more, because relief from the profit-per-bit risk won’t come instantly and won’t be fully proven and accepted even when it does start to appear. Further M&A among network vendors is likely, focusing on consolidation in the middle-tier players and on adding critical technology elements among the higher tiers. We’ll also see management/organizational changes in most of the network vendors as they work to adapt to market conditions that will be difficult no matter what happens with regulations and technology.
For vendors, the timing of possible regulatory relief and a possible introduction of enough opex savings to mitigate capex pressure creates a risk of its own. Do you sit in the rain and hope for a break in the clouds, or seek shelter? The logical, smart, thing to do at this point would be to recognize the shifts underway in software automation will transform networking, and that things like SDN and NFV will eventually change what software automation doesn’t.
That’s right; SDN and NFV don’t go away, they simply become the “two” of a one-two punch at cost and agility issues. Complete software automation could reduce opex by at least 60% and improve service agility, but it doesn’t create much new revenue because it only tweaks the business-service pricing model a bit. To do more, you need to add in cloud services, and SDN and NFV will not drive the cloud but rather will be driven by it.
Over the next week or so, I’m going to expand on some of the critical points in the evolution of networking that we can expect to see exposed and addressed (if not resolved) this year. In the meantime, I want to wish you all a Happy New Year!