There’s clearly a lot of movement in network equipment, both in technology and competitive areas. There have been some recent developments in the Open RAN space, and other network vendor announcements that suggest changes in 2021. This gives us an opportunity to examine how the trends I’ve talked about in the past are evolving through the present.
One announcement that got a lot of attention recently was the kerfuffle between Cisco and Acacia Communications. The two agreed on a deal, then Acacia said it would back out because Cisco had failed to secure China’s regulatory approval on time. Cisco said Acacia was simply maneuvering to get a better deal, and that might be validated because Cisco and Acacia reached a new deal that gave them a 64% premium to the original deal.
Obviously, Cisco wanted Acacia badly, and just as obviously there had to have been changes in the market’s perception of the future to explain why Cisco made such a low initial offer, and why Acacia accepted it. That situation is a good place to start our exploration of network market conditions and developments.
The original offer was made in July 2019, well before COVID but also before the full import of the shifts in network infrastructure planning by operators, cloud providers, and large enterprises was known. While everyone knew that operators were suffering a profit-per-bit squeeze and were pushing down on capital spending, few at the time recognized any special urgency.
In the two service provider fall planning cycles that followed, operators were pretty clear that they intended to reduce costs, and in particular intended to do whatever they could to reduce capex. By that time, it was pretty clear that things like NFV were not going to have a major impact, and so operators were putting a lot of price pressure on equipment, which favored (in 2019) price-leader Huawei. But US government pressure on operators’ use of Huawei equipment may have created a sense of relief for competitor Cisco.
The 2020 planning cycle showed that operators were not going to simply shrug off the loss of a price leader. They were instead turning aggressively toward white-box networking. AT&T’s announcement that they were going with startup disaggregated white-box router vendor DriveNets was a critical proof point; Cisco fought hard against that deal.
For Cisco, committed to selling network equipment for most of their revenues, this generated a push for a response that could immediately reduce the pressure on their network gear. Longer-term, Cisco also saw the need to get more directly involved in the cloud-platform business, but that move would surely take a lot of time to mature. Acacia had been providing Cisco with optical modules, and the original Cisco driver for the deal—improved margins on the gear by owning the optical interface side—still looked good. What looked even better was the idea that if Cisco could leverage Acacia to create a packet-optical layer that was integrated with Cisco routers, they could take a major step forward toward addressing operator capex concerns without ruining their own margins.
Router networks run on transport optics, and vendors like Ciena have traditionally supplied the gear. Over time, it’s been clear that packet optics could tap off a lot of the handling at the IP layer, and so optical vendors have been moving into that space. If Cisco and Acacia could create a packet-optical underlay within a router chassis, they could displace the additional layer of gear, which would reduce capex, give Cisco a bigger share of what was left, and reduce opex by reducing the number of boxes in the network. This is what made Acacia more valuable to Cisco, I think, and both Acacia and Cisco knew that. Hence, the new deal at a big premium.
Open-model packet optics isn’t here yet, so the Acacia deal gives Cisco a way to exploit the benefits ahead of a more competitive market. That situation isn’t likely to last forever, though, and Cisco has to face a technology challenge in packet-optical Acacia mission-building. A truly effective packet optical layer could arguably significantly reduce the value of IP-level grooming using things like MPLS. In fact, packet optics could reduce the value of the IP layer overall, if it handled things like resiliency and failure recovery. Cisco needs to have a strategy to address how to frame their Acacia-based packet optical stuff without eating the IP layer to the point where it becomes a commodity.
If IP is simple enough, then packet optical network equipment vendors could still propose a new packet optical layer, overlaid by a white-box IP layer, and end up with lower capex and opex than Cisco could offer with Acacia. What’s required is a strategy to separate the control and data planes of IP and thus facilitate the deployment of white-box data-plane-specialized boxes, likely in a disaggregated mode. The fact is that we have a number of initiatives that would deliver that, including the ONF’s programmable networks concept and DriveNets’ disaggregated router model.
The challenge is getting something to deploy in enough volume to be meaningful in terms of capex impact. The easiest place to do that is a place in the network where considerable change is already mandated by a budgeted shift in technology. Enter 5G in general, and Open RAN in particular.
More than anything else, Open RAN is about creating a truly open separate-control-plane concept. However, what 5G calls the “control plane” and “user plane” doesn’t match IP control plane separation. Open RAN is separating the 5G mobility and registration services, network slicing, and so forth. All of this is above the IP control plane. Open RAN stories today are told without any presumption that the 5G User Plane, which is really IP, is in any way impacted. Similarly, players like the ONF and DriveNets are telling a separate-IP-control-plane story that doesn’t in any way involve the 5G control plane, or Open RAN.
Cisco needs to control the way IP evolves, to stave off a massive shift in the way operators see the IP layer, so that an Acacia/Cisco packet optical layer can pull through Cisco devices without heavy discounting. Right now, the fact that 5G is the only greenfield space where massive shifts could be expected, and that 5G so far isn’t proposing to rethink the IP control plane, favors Cisco. But that’s just right now.
The problem for Cisco is that there’s a lot of competition developing around hosting the RAN control plane. AT&T, already using DriveNets’ disaggregated router in its core, is committed to Open RAN. “It means a huge opportunity for us. Let me start by saying that AT&T will deploy and implement Open RAN” is an AT&T statement from a recent article. Not surprisingly, that view is creating a bit of competitive jousting.
The general interest of cloud providers in hosting the 5G control plane got a boost with a deal involving Google Cloud and Nokia. The focus on cloud-native here is likely to be more than blowing an NFV-laced kiss at the terminology, given Google’s involvement. Cloud-native 5G would be a much more credible platform to extend into higher-layer services.
Cisco rival Juniper, already apparently looking at network-as-a-service as a broad strategy, cut a deal to help Turk Telekom to export its 5G technology base, and obviously intend to integrate it with Juniper. Since Juniper’s NaaS model could present an opportunity for operators to extend connectivity services without becoming OTTs, bringing the story to 5G could give Juniper a jump too.
Cisco seems to be holding back a bit on committing to their own 5G control plane strategy. Does this mean that they’re not seeing a threat to the IP layer? Does it mean they think it’s too soon to take a position; that they might speed up what they fear might happen instead of taking control of it? We don’t know, but it seems likely that Cisco will have to make a move by late spring, or they risk losing the initiative in a space that might be defined by fast-movers.