AT&T praises Intel’s role in network virtualization & 5G readiness

AT&T describes its relationship with Intel as “a push-pull strategy” as the huge U.S. telco invests in virtualization and upgrading to a 5G network with the aid of Intel’s Xeon Scalable processors.

“Without some of those advantages [from the new Xeon Scalable processors] and capabilities that have been created in the software space, we wouldn’t be able to do it,” said AT&T’s Chris W. Rice, SVP of AT&T Labs and Domain 2.0 architecture. “It is a key underpinning in our SDN-network virtualization journey. Intel pushed the technology into the ecosystem, the capabilities and the chips, and then we can pull it through the ecosystem.” Rice added.

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Author Notes:

1.  AT&T buys Compute Servers which contain Intel Xeon processors:

It’s important to recognize that AT&T does NOT buy processor chips from Intel or any other semiconductor company.  It buys compute servers which contain Intel Xeon processors.  While the compute server vendor(s) have not been disclosed, it’s likely one or more Chinese or Taiwanese ODMs.

According to IDC, X86 machines dominated the compute server market in 2016.  Servers using mostly Xeon processors accounted for $11.2 billion in sales, down 3.1 percent. Server machines using other processor architectures, including Itanium, Power, Sparc, ARM, and a smattering of others, drove $1.3 billion in revenues, but fell 30 percent year on year.  Intel X86 compute hardware had a 99.2 percent shipment share and an 89.6 percent revenue share, said IDC in a research report.

An article summarizing IDC and Gartner Group reports on 1Q2017 compute server shipments is here.  The rise of ODMs is described in this blog post.

In January 2016, AT&T joined the Open Compute Project which is specifying open source hardware (e.g. compute servers and Ethernet switches) for use in data centers. AT&T has repeatedly stated it wants to make its Central Offices look like cloud resident data centers.

2.  AT&T’s Cloud & Virtualization Platforms:

The AT&T Integrated Cloud (AIC) is a data center design that includes top-of-rack switches, storage, servers, and software at the hypervisor. When complete, AIC will encompass more than 1,000 zones distributed around the globe.  AIC is based on the open source  OpenStack cloud management framework.

AT&T’s Universal CPE (uCPE) is the hardware foundation of its Network Functions on Demand service. It’s an AT&T-branded Intel x86 server (presumably made by a Chinese ODM) that sits at the enterprise premises and can mix and match software-based VNFs, depending on what functions are needed at each location. The uCPE was designed and manufactured to AT&T’s specifications to enable customers to run multiple VNFs on one device.

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According to SDx Central, AT&T has deployed two workloads on Intel’s Xeon Scalable processors and says others are in the queue. The two workloads are AT&T’s virtual Content Distribution Network (vCDN) and its virtual VPN Internet Gateway (vVIG).

vVIG is a virtual machine that acts as an IPSec gateway between unsecure and secure networks, providing data security at the IP packet level. It uses Intel’s Data Plane Development Kit (DPDK) to speed up the cryptographic processing of IPSec data packets.

Using the new Intel processors allows the vVIG to support a larger data throughput for less cost and a smaller footprint. This includes up to 30 percent performance improvement in PPS handling compared to the earlier Intel processor.

AT&T’s vCDN (virtual Content Distribution Network) is a service that allows customers to manage and distribute video and multi-media web content across networks.

“We saw 25 to 30 percent performance improvements from moving it (vCDN) to Purley,” Rice said, referring to the Intel processors’ code-name. “It was a pretty seamless transition, moving it from the older Intel CPUs onto the new one. We are able to do more with fewer processors, and we’re able to get more capabilities out of our CDN and grow it horizontally as well.

“And all of the improvements, whether on the process side or the architecture side, they all have some networking improvement piece as well,” Rice added.

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Conclusions:

These performance improvements are helping AT&T move closer toward its goal of virtualizing 75 percent of its network by 2020. During its second-quarter earnings call last month, AT&T CFO John Stephens told investors that the company has virtualized more than 40 percent of its network functions. It’s making progress toward its network functions virtualization goal of 55 percent by year-end.

“We want to make sure the whole ecosystem moved with us toward network virtualization,” Rice said. “We didn’t want to have something special just for AT&T. We wanted it to be for the whole industry.”

Additionally, achieving network performance improvements requires automation, Rice said. “You’ll never get to those percentages without automation being a key part, he added.

In an earlier interview with UBB2020, Rice said:

“As we move down an automation path, as we move down a machine-learning path to drive more automation, [having open interfaces on network elements] is really a necessary first step — these open interfaces that cannot be skipped over or overlooked. I don’t know that people understand the significance of that.”

References:

https://www.sdxcentral.com/articles/news/att-intel-push-pull-strategy-nfv/2017/08/?c_action=home_slider

https://newsroom.intel.com/news/att-accelerates-network-transformation-path-5g-intel-xeon-scalable-processors/

http://www.about.att.com/innovationblog/7_1_milestone

http://about.att.com/innovationblog/author/chrisrice

 

TBR: AT&T Improves Profitability Despite Declining Revenues & Price Pressures

Editor’s Note:  The other side of an “earnings beat:”
AT&T beat analyst profit expectations, but overall revenues fell 1.7% compared to the year earlier quarter.  That was the third consecutive quarter of decreased revenues.
AT&T’s business revenues slipped during the second quarter due to wireline pressure from legacy services and equipment sales.  During the quarter, AT&T reported that Business Solutions segment revenues were $17.1 billion, down 2.7% year over year due to continued declines in legacy services and fewer wireless equipment upgrades, partially offset by growth in strategic business.
John Stephens, CFO said on the company’s earnings call that AT&T will continue to focus on cost management initiatives and process automation service delivery efficiency.
“We’re doing this by driving hard on cost management initiatives,” Stephens said. “Our focus is having the industry’s best cost structure, and one way to do that is by implementing process automation and service efficiencies,” he added.
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AT&T improves profitability despite mounting pricing pressures within the mobility and video markets, by Steve Vachon, TBR Analyst

Below is TBR’s commentary on AT&T’s 2Q17 earnings.  Contact Steve Vachon at +1 (603) 929-1166 or steve.vachon@tbri.com for additional commentary.

For content reuse and media usage guidelines, please see TBR terms of use.

AT&T is improving its value proposition as competition within the mobile and video markets intensify

AT&T’s consolidated revenue fell 1.7% year-to-year to $39.8 billion in 2Q17 due to declines across all of the company’s core businesses, with the exception of its International division. AT&T’s profitability improved in the quarter, however, as operating margins rose 220 basis points year-to-year to 18.4%, aided by the company’s emphasis on non-subsidized wireless device plans.

Pricing pressures, smartphone saturation and stronger competition from OTT providers are creating obstacles for AT&T to grow its mobility and video businesses, which is spurring the carrier to become more reliant on bundles combining both services to improve its value proposition. Though TBR believes AT&T trailed all of its Tier 1 competitors in postpaid phone net additions in 2Q17, the launch of its unlimited data plans helped to mitigate declines as the carrier’s postpaid phone losses improved in the quarter to -89,000, compared to -180,000 in 2Q16.

In June AT&T Unlimited Choice customers gained the option to add DirecTV Now to their accounts for $10 per month, a benefit previously offered only to Unlimited Plus customers. TBR believes the move will boost wireless and DirecTV subscriber additions, but will come at the expense of limiting postpaid phone ARPU as customers now have less incentive to select AT&T Unlimited Plus plans, which have a starting price point that is $30 more expensive than Unlimited Choice plans.

AT&T is relying on the low price point and flexibility of DirecTV Now, which gained 152,000 customers in 2Q17, to help offset declines within its U-verse TV and DirecTV satellite businesses, which lost a combined 351,000 subscribers in the quarter. Though AT&T increased Video Entertainment revenue by 2.1% year-to-year in 2Q17, TBR believes sustaining revenue growth in the segment will be increasingly challenging as total video subscribers decrease and the company trades linear TV subscribers for lower ARPU DirecTV Now connections.

New features such as the inclusion of additional live local channels and upcoming 4K HDR and cloud DVR support provide added incentives to attract DirecTV Now customers, but addressing the platform’s streaming capacity is critical as recent service interruptions will drive some subscribers to switch to rivals such as SlingTV and Hulu Live.

AT&T deepens emphasis on the public sector and software-mediated network services to improve Business Solutions revenue

To improve Business Solutions revenue, which decreased 2.7% year-to-year in 2Q17 due primarily to lower legacy voice and data revenue, AT&T is targeting growth from government customers. In April AT&T announced it is consolidating its government and education operations, which generated about $15 billion in sales in 2016, into the new Global Public Sector division to improve cohesiveness and foster partnerships across agencies in different sectors. Additionally, AT&T will be able to provide first responders with more reliable connectivity through its collaboration with First Net, which has already attracted contracts from five states as of July.

AT&T will improve the profitability of Business Solutions long-term by adopting NFV and SDN technologies. Integrating open-source technologies and white box hardware will provide cost savings by enabling the carrier to become less dependent on more costly, proprietary infrastructure. Additionally, TBR expects the acquisition of Brocade’s Vyatta network operating system will enable AT&T to meet its goal of virtualizing 75% of its network by 2020.

In addition to cost savings, AT&T is creating revenue streams by introducing new software-mediated network services to its portfolio, including an upcoming SD-WAN service in collaboration with VeloCloud. However, AT&T will be disadvantaged by its relatively late entry into the SD-WAN market as competitors including Verizon and CenturyLink have already begun to cement leading positions within the segment.

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References:

https://investors.att.com/~/media/Files/A/ATT-IR/financial-reports/quarterly-earnings/2017/2q-2017/ATT%202Q17%20Earnings%20Presentation.pdf

http://edge.media-server.com/m/p/gz5k2iq4/lan/en (Recording of earnings call)

 

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