Famous and then discredited DOTCOM analyst Henry Blodget interviewed Verizon Communications CEO Lowell McAdam on December 24th for Business Insider.
McAdam explains the company’s three-tiered strategy, including how a potential purchase of Yahoo would fit into those plans. He also discusses Verizon’s Go90 mobile video service, the future of FiOS and the company’s upcoming 5G network. Excerpts of the interview follow:
Pic of Verizon CEO Lowell McAdam.
Will Verizon buy Yahoo’s Internet Assets?
McAdam: Our view is their board hasn’t decided what they’re going to do. As far as we know, it’s not for sale. And I’m pretty sure if it turned out that parts of it or all of it were for sale, we’d look at it just like we look at anything in the digital-media area at this point because it’s so hot.
Why did Verizon buy AOL and what would Yahoo do?
McAdam: If we look at our strategy, it is three tiers. Have the best connectivity you can have out there. Own certain platforms that drive a lot of traffic to your network. So our Go90 platform, and AOL’s ad platform, fits into that perfectly. And then the third tier is a few areas where you want to get to content, or solution, or application, so that you can show that broad area of the ecosystem.
Healthcare Internet of Things (IoT) is one of those because we think that will drive a lot of traffic to the network. So AOL fit in perfectly with that strategy. And if there were pieces of Yahoo that augmented AOL, perhaps, but again that’s way premature. Their board hasn’t made any decisions and there’ve been no discussions and we’re not getting ahead of our headlights here. We’ve got plenty to do.
Blodget: You just launched it, Go90. What is it? Where is it going?
McAdam: It’s not just a video platform — it’s a social-networking platform based on video. We have the NFL deal. We just cut a deal with the NBA, so we’ll have … many more games than you’ve seen before. But the interesting thing is we can get many things like Comedy Central that are distributed in certain places, but we’ve also got some premium content now — AwesomenessTV, which is owned by DreamWorks.
Driving at a very low cost, driving a huge number of views. Some of the episodes will come out at 6 o’clock on Saturday night. By 10 o’clock, they have more views than some of the cable-news stations do in an entire month. The 300-channel bundle is going to continue to break down. And as we do, we’ll be able to provide some long form but more geared toward millennials, more short-form content like “Guidance” and other series like that as we go forward.
On FiOS (Verizon’s Triple Play Fiber to the Home distribution system:
McAdam: Our biggest challenge with FiOS is building it out. And you know we look for opportunities to learn, and I think Google has done us a favor by showing that the standard licensing agreement with the cities is probably not sustainable because, again, people do not want 300-channel bundles and the economics won’t work for that.
I’ll give you a factoid on our Custom TV, which is averaging 40 to 60 channels. It became 40% of our volume the minute we launched it. And it doesn’t have all the heavy weight of these sports channels that you have to pay for, whether you watch or not, and some of the 13 channels that come along with those. So we’ve seen that grow.
So skinnying down the bundle helps the profitability, driving more broadband helps the profitability, and, frankly, I think a big breakthrough is going to be when we start doing 5G because that allows you to cover many more homes without having to actually go into the home to provide the services.
What is 5G to Verizon?
5G is much more designed for video. We call it more use-case defined.
When you think of the thousands of devices in the Internet of Things, when you think that today 70% of our traffic is video and year-over-year our volume has grown 75%, no one sees that slowing down. So bigger capacity, faster response times. Latency is very important when you think about autonomous cars and things like that — 5G will really change the game, and I think will be another spike of growth in the wireless industry.
When Will Verizon Wireless Customers Get It?
McAdam: I showed my board the service in November, and you don’t ever go to a board with something that’s not real. We’ll be piloting it more broadly. San Francisco, we’ll be there. We’ll have it in New York. We’ll have it in Boston.
I expect to have our Basking Ridge campus up in January, and then rolling it out more commercially later in the year, and then commercially more in 2017 and beyond.
Comment: Amazing that McAdam says he showed his board a “5G service” in November, when it hasn’t even been defined yet by ITU-R or consortiums working on 5G (see previous 5G related blog posts on this site)
Competition from MSOs/CableCos for Verizon?
Blodget: Brian Roberts of Comcast points out that only a relatively small percentage — maybe 10% — of mobile data is actually consumed outside of home and work. And Brian talked about cable maybe moving into offering mobile phones and connectivity. Do you see much more head-to-head competition over time?
McAdam: I guess it depends on the model. I think the key is the technology will be there to offer an integrated, seamless product. So far, the bundle has been a bottom of the bill discount. I believe mobile-first video will take off inside and outside the home. The question is how long does it take for this to sort of come down? Is the 300-channel bundle going to be around for a decade? I tend to think not. I think it’s more three to five years.
Blodget: And how much going forward will owning content matter to that?
McAdam: It’s a little bit. It’s the same philosophy we would have whether it’s distribution or networks or stores. You need to own enough of that to understand what drives the usage, but the key for us is the best network carrying traffic. Platforms that enable those applications to seamlessly go on the network and have just a few of those applications and content is all we’re really interested in.
Interview Transcript: http://www.businessinsider.com/verizons-lowell-mcadam-on-5g-and-more-2015-12
1. A representative of Google presented plans for Google Fiber at a City of Santa Clara meeting that Ken Pyle (Viodi View) and I attended on December 16, 2015.
Ken wrote: “Google appears to be considering the city of Santa Clara (population 120,000) as one big fiber hood. This is significant, as Google’s initial builds were done by popularity (e.g. they would go to those areas where they got enough sign-ups). Their fiber hood strategy was controversial in some circles, as it harkened back to the early cable days of so-called redlining where operators would avoid building in parts of cities that were not economically viable.”
Google is working closely with the Santa Clara’s municipal electric provider, Silicon Valley Power, which is owned by the City of Santa Clara, for equipment space and rights-of-way. That Silicon Valley Power is especially supportive to this project indicates that they see the fiber project being a service to their customers and a complement to their municipal fiber and WiFi network.
Google indicates it will be a 36 month buildout cycle after they start the project. Google would not commit to a start date to either Santa Clara or San Jose, CA. The decision on when to start seems like a business decision, as from a permitting and local regulatory approval standpoint, it appears that Google should be able to start construction as early as Q1 2016.
Pic of Santa Clara Study Session on Google Fiber:
2. AT&T is one of multiple Internet service providers (ISPs) that have responded to Los Angeles’ request for proposal to build CityLinkLA. The five-year plan is aimed at providing access to residents who lack broadband service. A city spokesman says other municipalities have inquired about the project, which will connect residents to educational and other local resources.
Both wired and satellite telecommunication carriers were eligible to offer bids, according to the request for participants, which closed last month. The solicitation said the city will provide the selected vendor low-cost land and office space, expedite the application process for major project components, and offer access to existing networks, like the city’s SmartPoles, under a long-term lease.
AT&T submitted a proposal for CityLinkLA, which, if selected, it hopes to tie into its existing collaboration with the city, Kathryn Ijams, a spokeswoman for AT&T in California, wrote in an email.
“AT&T understands the City’s vision for a more connected Los Angeles and is excited about the opportunity to make the CityLinkLA project a success,” Ijams wrote. “We look forward to discussions with the City to determine how AT&T’s investments can help support the City’s goal of delivering advanced communications to where Angelenos live, work, and play indoors and outdoors.”
The city did not give details about how Google Fiber or AT&T’s Gigabit project may fit into the initiative. But in a release, Blumenfield said private sector efforts would complement CityLinkLA.
“Access to high-speed Internet is essential to the City’s future economic competitiveness, and will drive Los Angeles’ entertainment, tech, and entrepreneurial activity,” he said. “We welcome AT&T GigaPower and Google Fiber to Los Angeles, and look forward to continuing to push Los Angeles to become the world’s premier gigabit city.”
On December 2nd, Nokia shareholders overwhelmingly approved the acquisition of Alcatel-Lucent . The only remaining full service telecom equipment company in either North America or Europe is being sold to Nokia in a 15.6 billion Euro (€) deal which could make the “new Nokia” a market leader in network equipment and cloud services for telecom wireless AND wire-line networks. The only other full service telecom suppliers left are Huawei and ZTE from China.
In October, Nokia said it would pay € 4 billion to shareholders as the company raised its outlook for the year. Nokia will hold 66.5 percent stake in the new company, Alcatel-Lucent will hold the remaining 33.5 percent stake.
Nokia’s Position & Executive Quotes:
Currently, Nokia is ranked the third largest network equipment manufacturer after Ericsson of Sweden and China’s Huawei. Dell ‘Oro group says that Huawei has now surpassed Ericsson as the #1 provider of wireless network equipment, according to a recent WSJ article. That desite Huawei being shut out of the U.S. market after a congressional report deemed it a risk to national security. The company has strong sales in Asia and Latin America and is the #1 smart phone vendor in China.
Following the sale of its mobile phone business to Microsoft, Nokia focus on wireless telecommunications infrastructure and mapping services. Last August, the company sold its digital mapping business to German carmakers BMW, Audi and Mercedes for approximately € 2.5 billion.
Rajeev Suri, Nokia’s CEO, said he was delighted by shareholders recognizing the “long-term value creation opportunity” of the deal, which is expected to close during the first quarter of 2016. “I feel quite confident because as we have seen we have broad shareholder support, support from costumers, regulators, government and so on. There’s broad support overall for the deal,” Suri said.
“Nokia’s shareholders have today shown the full extent of their support for our proposed combination with Alcatel-Lucent. By ratifying the transaction in such great numbers, they have endorsed our strongly-held belief that the combined company will be better positioned to compete as a world leader in network technologies over the long-term,” said Risto Siilasmaa, Chairman of the Nokia Board of Directors.
Competition for the New Nokia:
In addition to Huawei (which is also a global leader in smart phones), there will surely be competition from the recently announced partnership between Cisco and Ericsson, in which the companies will jointly develop new products for telecom and cloud service providers.
According to Cisco’s press release, “In a world driven by mobility, cloud, and digitization, the networks of the future will require new design principles to ensure they are agile, autonomous, and highly secure. Ericsson and Cisco will meet this challenge together by offering end-to-end leadership across network architectures including 5G, cloud, IP, and the Internet of Things – from devices and sensors to access and core networks to the enterprise IT cloud.”
The press release notes that the partnership would bring in incremental revenue of $1 billion for both companies in 2018. Under the terms of the partnership, Ericsson will also receive patent licensing fees from Cisco.
According to Dell’Oro Group, Huawei, Ericsson, and the combination of Nokia and Alcatel-Lucent are the top three players in the worldwide market for wireless infrastructure equipment. These three are closely ranked, with each having 25% to 30% market share.
Note that Ericsson is a pure play wireless equipment and managed services vendor while both Huawei and Alcatel-Lucent design, develop and sell BOTH wireless and wireline gear. Alcatel-Lucent subsidiary Nuage Networks develops software for cloud resident data centers and specializes in network virtualization/overlay model of software defined networking.
We think there are three huge growth areas that telecom companies really haven’t yet penetrated in a big way: cloud computing networks (from customer premises to cloud service providers point of presence), software defined WAN (multiple reference models for SDN, NFV, others known as SD-WAN), and Internet of Things (IoT).
Gartner indentifies several companies (many are start-ups) as building products for SD-WANs:
1. Representative Vendors: Cisco, Citrix, CloudGenix, FatPipe Networks, Nuage Networks (a subsidiary of Alcatel-Lucent), Ocedo, Silver Peak, Talari, VeloCloud, Versa Networks, Viptela
2. Other Vendors: InfoVista (Ipanema Technologies), Riverbed, Sonus
In an evocative blog post, Mushroom Networks CEO wrote:
“SD-WAN gives enterprises additional options when it comes to the configuration of not only their networking devices, but their network itself. With SD-WAN, companies can utilize different types of networks that weren’t available in the past. For example – in traditional networks, it’s possible to send different traffic over different kinds of networks, i.e. to send critical traffic over a dedicated MPLS network, and less important traffic over a less expensive network, like a broadband network or even a wireless LTEnetwork. Some SD-WAN technologies can take this to a new level whereby various algorithmic nodes (configured by software) can be implemented as a function of application type. Think in terms of special treatment of, say VOIP packets, such as optimizing the WAN connectivity for latency, jitter etc, to ensure VOIP quality and reliability. If these types of specialized flow based complex algorithms can be pushed down to the hardware via a software defined environment with ease, the benefits are limitless.
This is not only useful for enterprise branch office setups but also useful for small and medium-sized businesses, who are often challenged to justify the expenditures of an MPLS circuit at all of their locations, and often lack the in-house IT networking talent to manage their network complexity.
SD-WAN gives you the ability to mix and match your WAN network types, and synch your different classes of network traffic with those different classes of network. It will allow a company’s network to become much more efficient and dynamic, and allow for much more efficient utilization of network resources. And over time, when companies compare the savings on a monthly basis on the network spend versus the one-time (or close to it) spend on new hardware, many companies will find that it’s a no-brainer.
If you have an enterprise which has several locations or more and/or significant network traffic, SDWAN offers enormous potential. And if you’re a medium to large enterprise, the potential savings of SD-WAN are truly impressive, especially over time. But even if you have a very small company, with one or two locations and relatively little traffic, SDN can provide the SLA and QoS targets your applications need, such as VOIP/SIP, over very cost effective broadband connections.
The full scope of applications and impact to be felt from SDN is yet to be determined. But one thing is definite – the next few years are going to be very interesting.”
We think SD-WAN represents a great opportunity for the new Nokia and other telecom/ network equipment vendors like Ciena.
Telecom Equipment Market & Growth Areas:
Service Provider Telecom Equipment market comprising the Access, Carrier IP Telephony, Microwave, Mobile RAN, Optical, SP Routers, SP WiFi, and Wireless Packet Core markets, are set to improve between 2014 and 2019, according to Dell ‘Oro Group. The Service Provider Telecom Equipment market is expected to be $26 B higher than the comparative five-year period (2008-2013).
We think there are three huge growth areas that telecom companies really haven’t yet penetrated in a big way: cloud computing networks (from customer premises to cloud service providers point of presence), software defined WAN (multiple reference models), and Internet of Things (IoT). While analyzing these are beyond the scope of this article (contact the author if you’re interested in a consulting arrangement to do so), we believe gaining market share in these markets will be critical for the big telecom equipment companies.
This article focuses on IoT opportunities for both wireless and wireline network equipment makers. Note that IEEE recently held an IoT World Forum on Dec 14-16, 2015 in Milano, Italy.
According to IDC, the worldwide Internet of Things (IoT) market will grow from $655.8 billion in 2014 to $1.7 trillion in 2020 with a compound annual growth rate (CAGR) of 16.9%.
Devices, connectivity, and IT services will make up the majority of the IoT market in 2020, according to IDC. Together, they are estimated to account for over two-thirds of the worldwide IoT market in 2020, with devices (modules/sensors) alone representing 31.8% of the total. By 2020, IDC expects that IoT purpose-built platforms, application software, and “as a service” offerings will capture a larger percentage of revenue. What role the big telecom gear makers play in IoT is anyone’s guess at this point in time.
Research and Markets forecasts the IoT in manufacturing market size to grow from USD 4.11 Billion in 2015 to USD 13.49 Billion by 2020, at a compound annual growth rate (CAGR) of 26.9%. Manufacturer’s need for operational efficiency has increased the utilization of sensors through enhanced automation and integrated connected technology solutions across the manufacturing process, which, in-turn, has increased the demand for IoT solutions for various manufacturing applications. Other driving forces include decreasing hardware and connectivity cost and increasing penetration of connected devices. The target audiences of the IoT in manufacturing market report are solution vendors, manufacturing equipment suppliers, system integrators, advisory firms, national regulatory authorities, venture capitalists, private equity groups, investment houses, equity research firms, and other stakeholders.
In addition to connectivity, which is expected to be mostly wireless, there are many IoT opportunities for telecom service providers (SPs) and equipment vendors. Those include control and management, service provisioning platforms, big data/analytics (making sense of the huge volumes of data collected from things), and privacy/security sub-systems.
France based service provider SigFox has built their own 2G-like network that’s just for the IoT- no smart phones or tablets are end points! They have already started initial IoT network deployments. Fierce Wireless reports that San Francisco is the first U.S. city to receive Sigfox’s connectivity; the other cities Sigfox plans to launch in by early 2016 are New York, Boston, Los Angeles, Chicago, Austin, Houston, Atlanta, Dallas and San Jose.
“The Internet of Things can bring new opportunities to San Francisco — the Innovation Capital of the World,” said San Francisco Mayor Ed Lee in a press release. “Creating a network of this kind, the city will be able to attract new startup companies, strengthen existing businesses and provide more jobs, economic growth and continuing prosperity for our residents. I’m excited that the Internet of Things network will help the city deliver more efficient services for residents and opportunities for innovation for entrepreneurs.”
Network Requirements for IoT Traffic:
Security and privacy will likely receive a lot of attention. As IoT devices become more and more prevalent in our lives, their usefulness for applications like healthcare, energy and home monitoring will demand their awareness of increasingly personal information, or at least information that easily be profiled back to you once it’s analyzed as “big data’ in the cloud. Service providers will need to implement sophisticated network security systems that meet the expectations of both consumer and enterprise customers.
Network availability will be critical for many IoT applications. If critical infrastructure systems like industrial control, emergency, healthcare and security are going to be sending time-critical traffic over a service provider network, they need to have a very high degree of confidence that the network will be up and all the networking services will be working. Enterprise-class availability (three-nines or 99.9% up uptime) won’t be adequate: these services will demand the six-nines reliability (99.9999% uptime) that today is only achieved by telco-grade networks. Again, there will be a wide diversity of requirements for network availability, reliability and resiliency: some IoT applications will tolerate packet loss while others will demand maximum fault tolerance.
The latency (and jitter) of service provider networks will have a strong impact on the usefulness of many projected IoT applications. If you’re driving a connected car with the expectation that traffic lights or sensors are going to react to your presence, a one second delay at 70 miles an hour means that you’ve travelled 100 feet. A lot can go wrong over that time and distance. Quality-of-service (QoS) segmentation will allow service providers to position (and price) different service levels for different use cases.
All these issues point to the need for highly-reliable, low-latency, secure infrastructure platforms in service provider networks optimized for IoT traffic. It remains to be seen if the SPs and vendors capitalize on this mega-trend
Disaggregation of IT equipment started with Facebook driving the Open Compute Project (OCP) to open up the design of compute servers. It then extended to bare metal switches and white boxes (such as those from Pica8), especially for Software Defined Networks. That represents a huge competitive threat to traditional switch/router vendors.
The latest disaggregation effort is to decompose the functional elements of two types of equipment: GPON Line Terminating Equipment (LTE) and G.FAST (vectored DSL) modems. It’s known as the CORD project, which is an acronym for Central Office Re-architected as a Data center. Last June, ONOS (a consortium developing an Open Source SDN operating system for service providers) combined with AT&T to demonstrate a CORD Proof of Concept (POC) at the Open Networking Summit which we described in this article.
“One of the ONOS applications that has really taken hold is CORD,” said Bill Snow, vice president of engineering at ON.Lab . “From day one we have targeted ONOS to serve the service provider marketplace… and we found that there was a big hole there.”
At the Light Reading White Boxes for Communications Service Providers event in November, CORD for GPON was described by Ken Duell as “FTTH as a Service” consisting of hardware blueprints (schematics?) and open source software modules.” Duell said a CORD-GPON field trial will be held in the 1st Quarter of 2016.
In addition to AT&T, ONOS CORD project contributors include Ciena Corp., Ericsson AB, ON.Lab, SK Telecom and Huawei Technologies Co. Ltd.
The New IP recently reported that SK Telecom is working to enhance CORD for the delivery of mobile network use cases. The South Korean telco is leading a project called Simplified Overlay Networking Architecture (SONA), which will ease deployment of software defined data centers, where they have provided OpenStack Switching and OpenStack interfaces for CORD.
Guru Parulkar, executive director of ON.Lab, said the goal of ONOS CORD is to bring the economics of data centers and the agility of cloud to service providers. Guru opined: “Service providers should be able to build their infrastructure with a few building blocks hopefully built using merchant silicon, white boxes and open source platforms. Telco central offices have to be reinvented because they are where service providers have maximum CAPEX and OPEX spending, but they are also gateways to enable or offer new services to residential and business customers.”
Juniper Disaggregates Junos:
In November, Juniper Networks announced the disaggregation of Junos – it’s network operating system for advanced routing, switching, and security. This move will allow Juniper’s users to run the software on third-party (bare metal/white box) switches supporting the Open Network Install Environment (ONIE). It also allows customers to install third-party applications such as automation and programming tools or services like deep packet inspection directly on Juniper switches via a VM or container.
Juniper is committed to separating software from hardware as the networking industry shifts to a software focus, Jonathan Davidson, Juniper executive VP and general manager of development and innovation, told attendees at the company’s inaugural NXTWORK customer summit in Santa Clara, CA.
Severe price pressures from Chinese network/ telecom equipment vendors (e.g. Huawei and ZTE), carrier consolidation (resulting in fewer large equipment customers), new competition from the Ericsson-Cisco partnership (TBD?), results in an intensely competitive telecom equipment market with razor thin profit margins. Add “SD-WAN/disaggregation/open source software” to the mix and there is even more of a threat from bare metal switches, white boxes, and commodity transport platforms.
Meanwhile, consortium efforts like CORD/ONOS will surely lead to further minimization of the hardware aspects of large telecom equipment vendors. Software becomes the key factor with most of it going open source (e.g. ONOS and ON.Lab, Open Daylight, Open NFV, ONF, etc).
With that megatrend intact, what role will the big telecom vendors play? And how will they compete with one another?How many will be left standing in the next five years?
“[R&D work] is in the operations,” Bhaskar Gorti, Alcatel-Lucent‘s president of IP platforms, told Light Reading without hesitation at a recent on-site visit. “Getting a network function to run in a virtualized network is fine, but the reality is that there will be a hybrid world of virtual and physical networks. How do you operate it?”
This is where Alcatel-Lucent is spending its time and money in the final months leading up to its acquisition by Nokia Corp. In fact, its Naperville, Ill., offices are full of Lean Ops demos that show evidence of this R&D work. Here, the vendor demonstrates agile, New IP networks that can spin up — or down — services on the fly, taking network management down to a matter of minutes.
Gorti says that amongst Alcatel-Lucent’s customer base of network operators of all sizes, he sees the larger ones seeking a horizontal virtual approach to building NFV infrastructure and orchestration that is independent of VNFs, and smaller players running out of physical capacity and looking to add virtual network elements rather than completely overhaul their networks. Either way, he said, every request for proposal (RFP) now has virtualization on it, whether they deploy it or not. (See Major Change Afoot in Managing Virtualization.)
“It is there today; there is a roadmap, and they want to see future versions and how they will live in a hybrid world,” Gorti says. “Operations is key.”
“There won’t be that big of a business case in moving from physical to virtual,” Gorti said. “There is not a dramatic capex change right away. It’s how do you scale it and run it? We come back to operations.”
Comment: This author has previously stated that operations and OPEX are key for all the new age networking technologies, e.g. NFV, Network Virtualization, OpenFlow based Software Defined Networking, and use of white boxes for any or all of the above!
Alcatel Lucent successfully deployed a monitoring, information, management and control system based on Internet Protocol/Multi-Protocol Label Switching (‘IP/MPLS’) technology. This technology would help Poland’s maritime authorities enhance operational efficacy as well as safety at ports located near the Baltic Sea. Alcatel-Lucent completed the project as a consortium leader, along with the famous technology and consulting multinational firm, Indra. For more information, see:
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