AT&T told investment analysts this week that software-defined WAN (SD-WAN) technology would be a key part of its portfolio down the road, especially for small and medium-size businesses. AT&T CEO Randall Stephenson offered insight into AT&T’s SD-WAN strategy on its Q1-2017 earnings call on Wednesday.
Most of the call, especially the prepared remarks, was devoted to AT&T’s wireless operations, 5G availability, DirecTV and DirecTV Now, and the Time Warner acquisition (“moving along as scheduled”). Yet AT&T did talk about strategic business services during the Q & A session of the call. In response to a question from David W. Barden – Bank of America Merrill Lynch about SD-WANs, CEO Stephenson said:
“On the SD-WAN, yeah, it’s real. It tends to be real down-market (SMB), David, and you should assume that we’re developing capability ourselves, because it’s a viable offer down-market. We’re seeing some effect from it. It’s not material yet, but we think it’s a legitimate capability. We need to be there; we need to have it. And so up-market (large enterprise customers), the traditional VPN capability is always, we think, is going to be the enduring capability. But down-market (SMB), we’re going to have to be prepared to compete with this kind of offering.”
AT&T hasn’t released its own SD-WAN solution yet, but the mega service provider said on October 5, 2016:
“For a customer with similarity across sites and looking to deploy SD-WAN at all locations, the AT&T SD-WAN premises-based, over the top solution (?) may be the best fit. The premises-based, over the top solution will be avaFor a customer with similarity across sites and looking to deploy SD-WAN at all locations, the AT&T SD-WAN premises-based, over the top solution (?) may be the best fit. The premises-based, over the top solution will be available later this year.”
–>It wasn’t and there’s still no definite availability date!
That same day, AT&T revealed it was collaborating with SD-WAN vendor VeloCloud with the aim of releasing a solution sometime in 2017. AT&T’s said its SD-WAN service will let customers manage application performance and bandwidth by allowing them to set parameters for routing data traffic across different access types.
AT&T will continue to market traditional MPLS-based VPN services to its large enterprise customer base. “Up market, the traditional VPN capability is going to be the enduring capability,” as per Stephenson quote above.
A network-based system could build off a customer’s existing MPLS, Carrier Ethernet or wireless connections. Customers could use SD-WAN to manage their various wired and wireless Internet connections from third parties.
“For SD-WAN solutions, AT&T is the first provider in the industry to announce both an over-the-top solution as well as a network-based SD-WAN solution, which couples smart SD-WAN CPE with a smart MPLS network,” wrote a VeloCloud spokesmen to SDxCentral. “A typical SD-WAN solution is deployed in an over-the-top manner, i.e., SD-WAN CPE is deployed at every customer site, and tunnels are established over the network transport links among sites,” he added.
Comment: AT&T hasn’t announced availability of any SD-WAN service so the VeloCloud spokesman is less than honest! AT&T has touted its SD-WAN over the top option (whatever that means), but hasn’t delivered it yet to paying customers. Nonetheless, the VeloCloud website lists AT&T as a “managed service provider partner”:
“AT&T SD-WAN efficiently routes data traffic across a wide area network, choosing the access type for the best network performance. AT&T provides options in the SD-WAN category: a network-based option that enables virtually seamless connectivity across multiple site types, and provides an easy transition for customers with existing AT&T VPN services; an over-the-top premises-based option for businesses that want to deploy SD-WAN at all sites.”
Being able to provide VPN capabilities along with Carrier Ethernet has been a key factor in how AT&T has retained its profile as one of the largest domestic U.S. and international Ethernet providers.
SD-WAN may represent a future capability for AT&T’s business unit, particularly as a next-gen strategic service. That’s despite a challenging environment where businesses are not aggressively spending capital on business services.
Weaker Demand for Business Services:
AT&T CFO John Stephens said on the earnings call that interest in business services was not as strong as the company initially forecast.
“In the business segment, we saw weaker demand than we expected,” Stephens said. “U.S. business investment as percentage of gross domestic product (GDP) continues to be low.” Stephens added that “growth expectations in the economy have been rising, but we have yet to see that translate into economic gains or demand.”
A weak economy is a huge problem for network providers offering business services as spending on same is constrained by lower revenues. Another issue for SD-WAN is that many SMBs are choosing cloud computing and storage, rather than expanding their VPNs or looking for another solution to connect their branch offices and headquarters sites. Such a network topology change augers well for cloud network access solutions (like AT&T Netbond or Equinix Cloud Exchange), but not for SD-WANs.