IEEE ComSoc Technology Blog

As part of an ongoing study into integrated HetNets, a Small Cell Forum/ Wireless Broadband Alliance Task Force has produced the first comprehensive technical documentation, assessment and specification of the architecture and interfaces for integrated small cell and ‘trusted’ Wi-Fi (ISW) networks. The conclusions are captured in a new white paper that considers the architectural options, interfaces and deployment aspects of the TWAN (Trusted Wireless WAN). It also includes a comprehensive industry survey of major operators and vendors addressing the business and technical implications of integration.

This is the first study of its kind to bring clarity to the architecture of the TWAN that connects the access points, controller and gateways of the integrated ISW network, an area that has not been addressed by any standards organizations.

The paper is available FREE here 

Small Cell Forum new & revised documents are here

Last year, the key theme of the WBA annual report was the start of the transition from best effort to carrier-grade Wi-Fi networks. This year, that transition is very visibly under way and the ecosystem is starting to plan for the next five years. In the near term, wider-scale, carrier-grade deployments are enabling new business models such as smart cities and enterprise services. Looking ahead to 2020, the next wave of change is being considered, including the role Wi‑Fi and the WBA will play in shaping 5G.The WBA has developed Vision 2020 to harness its experience of creating seamlessly interconnected wireless services in new and emerging areas.

Global Carrier Wi-Fi Equipment Industry report analyzes the industry and key vendors.  This expensive report is available for purchase here.

AT&T reported largely mixed 4Q results that included one full quarter of Direct TV results. While subscriber metrics were generally in line to modestly better, financial metrics missed the mark.

Given intensifying competition, we think the company has shifted focus on improving profitability over subscriber growth. We believe AT&T has been relegated   to this path given T-Mobile”s continuing net add momentum. Furthermore,   with iPhone 6S supporting Band 12, T-Mobile should see improved coverage using its 700 MHz A Block spectrum.

We also expect AT&T to be affected by the eSIM in the iPhone 7, which will increase churn risk for the wireless carrier  industry. Recent increases to monthly data allowance and free music streaming at T Mobile suggests the company may not be as capacity  constrained as the Street believes; however, our re-seller checks are highlighting significant network coverage-based challenges within the T-Mobile subscriber base.

While T-Mobile is still a net spectrum acquirer, we believe leveraging WiFi-first calling may have been more successful   than the company had expected, resulting in more generous data allowances.

On the wireline front, competition from Google Fiber and cable companies high speed internet services have forced AT&T to continue to build out GigaPower, a negative NPV, but strategically important, asset.

 Key Points:

    * 4Q15 results recap: Including the full month of DTV results (the Direct TV acquisition closed on 7/24/15), consolidated revenues increase 22.3% YOY to $42.1B, below consensus of $42.7B.  

Business Solutions revenue of $18.2B, Entertainment and Internet Services revenue of $13.0B, Consumer Mobility revenue of $8.7B, and International revenue of $1.8B. Adjusted EBITDA of $12.2B were also short of Street expectations of $12.9B. EBITDA margins improved by 160 bps YOY to 29.1%, driven by increased cost efficiencies in Business Solutions and contributions from Direct TV within the Entertainment group. Mobility postpaid net adds of       526,000 and prepaid net adds of 469,000, compared to consensus of 485,000 and 354,000, respectively. Postpaid churn was 1.18%.

    * Potential for spectrum acquisitions and asset sales. While AT&T has not committed an exact amount for the 600 MHz incentive auction, management has been clear that it would like to acquire two 10 MHz blocks.

We believe there is growing urgency to shed less profitable businesses, such as consumer wireline, to fund spectrum       purchases.

    * FY16 guidance maintained. Management maintained prior issued guidance of double-digit consolidated revenue growth, adjusted EPS growth of mid single digits, or better, stable consolidated margins, and $22B in capex.

FBR Comments:

Declining iPhone churn confirmed that the loss of exclusivity and resurgence of T-Mobile were manageable.

Extended upgrade eligibility, upgrade fees, and accelerated upgrade opportunities through AT&T Next have material margin implications, and we expect continued discipline on upgrade eligibility, even in the event of flow share to Verizon and T-Mobile.

With the LTE network buildout complete and AT&T diversifying into Mexico to alleviate churn pressures, further changes to upgrade eligibility are likely. 6 to 12 Months Can AT&T drive earnings growth? Smartphone activations remain significant.

Strategic initiatives with Samsung and Google, coupled with support of the Windows Phone ecosystem by MSFT, NOK, and other OEMs, are key to lower wireless subsidy pressure, but it is early days.

We think AT&T will continue to consider pricing action to augment growth once the LTE network build is complete, but competitive intensity is likely to increase in FY16, so this will prove difficult absent consolidation or until T-Mobile becomes spectrum challenged, which we think is still one year away and a function of T-Mobile commitment to continue network investment. Timeframe: 6 to 18 Months

How will AT&T fare in the changing wireless landscape in 2016 and beyond?

Our strategic concerns for AT&T include:

1) the Apple eSIM impact, should Apple be successful in striking wholesale agreements;

(2) the Google MVNO impact, which could strip the company of the last bastion of connectivity revenue; and

(3) a Wi-Fi first network from Comcast, coupled with a wholesale agreement with a carrier, which would enable a competitor and increase pricing pressure. Timeframe: 6 to 18 Months

Does AT&T have a sustainable spectrum advantage compared with other carriers?

AT&T is behind Verizon in spectrum and out of spectrum in numerous major markets, according to our vendor checks. However, with additional density investment, it is reasonably well positioned to benefit from the combination of coverage layer (700 MHz and 850 MHz) and capacity layer (1,700 MHz and 1,900 MHz and soon-to-be-confirmed 2,300 MHz) spectrum and will focus on LTE and LTE Advanced, as well as refarming 850 MHz/1,900 MHz spectrum for additional coverage and capacity.

Yet this non-standard LTE band will cost more capex and take longer to implement. In the short run, aggressive cell splitting is expected, and metro Wi-Fi and small-cell solutions with economic backhaul solutions are becoming available, allowing for greater surgical reuse of existing spectrum. Sprint differentiation through Clearwire spectrum in FY16 is only likely to modestly affect AT&T relative to Verizon. Furthermore, with 70% 80% of wireless data traffic on Wi-Fi and only 20% of capacity utilized, this suggests a focus in this area to manage data usage growth.

We expect AT&Ts wireless segment to continue to be challenged by a resurgent T-Mobile US. We are less bullish on near-term improvements in capex intensity, due to cultural challenges associated with the much-needed migration to software-centric networks, coupled with the need to upgrade its fiber plant aggressively to improve its competitive positioning and lay the foundation for efficiency improvement.

Risks:

Outperformance at AT&T, Inc. depends on a sustainable economic recovery. Revenue pressures could accelerate in the event of a further economic slowdown, and cost cutting could be inhibited by increased competitive intensity.

Incremental capital spending remains high within the telecommunications segment, driven by technological and competitive challenges. As a result, the inability to control costs effectively could result in downward pressure on free cash flow and affect the sustainability of the company’s current dividend policy.

Overall industry risks continue to center on pricing pressure, particularly in the business segment and accelerated wireless substitution in the consumer segment. Economic recovery factors continue to play key roles in a sector where growth in wireless subscribers, growth in revenue from existing subscribers, and enhanced wireline services are large determinants of growth.

Regulatory uncertainty also continues to play a significant role in the valuation outlook for both the wireline and wireless sectors; therefore, the regulatory landscape must be watched carefully.

Sprint’s turnaround story continues with another quarter of positive postpaid net add growth and historically low churn. We believe recent pricing action, coupled with evidence of broader network improvements, bodes well. Positive subscriber momentum confirms that Sprint’s turnaround is beginning to gain traction.  

We are encouraged that roughly the majority of Sprint’s customer base is using tri band devices. Sprint achieved positive net adds with its aggressive 50%-off offer despite recent price increases (unlimited data plan increased to $70/month from $60/ month). This offer appears to be accretive, as many customers are buying additional data for a similar price they paid to Verizon and AT&T.

Lack of Free Cash Flow continues to drive the network strategy, which is getting underway at a lower cost trajectory than expected by the market; Sprint provided more details around the new device lease facility in partnership with SoftBank.

Looking ahead, we see an improved liquidity position as Sprint extends its leasing focus to the financing of cell site installation and equipment on more favorable terms than Sprint’s current, unsecured, high-yield bond rate, which should further improve Sprint’s cost structure.

Key Points:

■ Management raised FY15 and FY16 adjusted EBITDA guidance. As a result of cost savings and revenue growth, the adjusted EBITDA trajectory is improving faster than expected. Management raised fiscal-2015 adjusted EBITDA guidance to $7.7B–$8B. Its preliminary estimate for fiscal-2016 adjusted EBITDA is in the range of $9.5B–$10B, substantially higher than consensus estimates. We are confident management can drive out further network head-count costs as it leans on Google to assist with network planning and backhauls traffic inside 2.5 GHz, instead of through leased fiber backhaul.

■ Network update. Performance is benefiting from optimized NV markets. Planning for the small cell pivot is underway, but equipment orders remain light. The initial focus is outdoor urban, where there is no WiFi option, so customer churn risk is highest and roaming expense can be minimized. The major risk is that Mobilitie, the network financing installation partner, promises Sprint the world at one-third of the cost, gets early wins on easy site locations, but does not get the key sites where Google tells Sprint it needs them. Mobilitie may have to fail before vendors help. This will become clearer by the end of 1Q16.

Sprint Network Performance Improving Due to Network Vision Optimization

Independent network checks and Sprint reseller checks confirm improving network coverage relative to T Mobile US and Sprint is closing the gap with AT&T and Verizon. However relative performance metrics are already declining in Chicago because the company spent too long messing around with the wrong network strategy. Management now appears to be on the right path and should be able to add capacity quickly and cheaply as long as they continue to hold Mobilitie’s feet to the fire. Mobilitie should have good early successes but the key will be its success in the harder to locate but most important dense urban areas in major cities.

LTE is available in all markets and the LTE plus network (i.e. Carrier aggregation 2 x 20MHz of 2.5GHz) is now in 150 markets. Downlink cell edge performance is 10x faster when the company adds 2.5GHz to a 1.9GHz cell site. While there is no change to the uplink performance (due to 2.5GHz having weaker propagation than 1.9GHz) the downlink is served by the wider, high power downlink channel increasing cell edge speed from 500kbps to 5Mbps based on our checks. The company noted peak speeds of 100Mbps are possible and is marketing on this basis. The question is how sustainable can this improved performance be. We believe 2.5GHz is the key to sustainability. Adding capacity is cheap if you have spectrum. The percentage of time customers are on the LTE network at 94% is also very encouraging with respect to VoLTE.

In our view, to achieve network superiority relative to Verizon and AT&T, Sprint will need to establish greater network consistency. This is not possible, in our view, without the consolidation with TMobile, as the company does not have sufficient cash flow to invest in high-cost network coverage in the near to medium term. We believe senior management understands that establishing network superiority in two years will be very difficult (perhaps five years is more realistic) but continues to drive at this lofty goal.

The concern is execution. Engineers are incented to take short cuts on vendor interoperability due to this aggressive target. However 2.5GHz is the jewel in the crown and the company has a terrific head start on the competition which is looking forward to the 3.5GHz band to provide it with a similar low cost spectrum portfolio to address metro capacity challenges. The 2.5GHz band is excellent for indoor coverage, outdoor densification with pico cells, and good as an (initial) wireless backhaul solution.

Clearwire’s established backhaul network is also a viable alternative to fiber backhaul. We believe the company continues to focus on outdoor small cells first, vs. indoor coverage using crowd sourcing data to determine where its pain points are and where the highest roaming expense to VZ occurs. We are encouraged that in region roaming expense continues to fall significantly as many coverage holes have been filled and software solutions have been found to prevent phones from roaming on the high cost Verizon network.

Update on Sprint’s Low-Cost Densification Program:

Outdoor Pico Cells Sprint shares have been volatile following the Re/Code article this month which suggested that Sprint will be decommissioning cell sites as part of the new lower cost network strategy. Management clarified that this is not correct, and we believe that the cost savings reported were against what the company may have spent using established vendors, not what they actually spend. Therefore we believe there is limited revenue risk to the tower segment which extend for the next 5- 7 years, but may lower future revenue streams which we do not believe the market has factored in due to the company’s weak balance sheet and expectations for consolidation over this time frame.

How can Sprint leverage its 2.5 GHz spectrum portfolio to improve network quality?

2.5 GHz spectrum is the basis of Sprint s LTE plus network and makes up the bulk of Sprint’s spectrum portfolio. Sprint controls approximately 120 MHz of 2.5 GHz spectrum in 90% of the top 100 U.S. markets. If Softbank can create low-cost Pico and CPE solutions using 2.5 GHz spectrum to densify its network, Sprint will have the potential to become the lowest-cost and fastest data network among the national carriers that are migrating to a greater dependency on low-cost Wi-Fi spectrum ahead of a migration to low-cost, shared LTE spectrum in the 3.5 GHz band and beyond.

Timeframe: 12 to 24 Months

How can the company shift away from expensive coverage improvement but still improve network quality?

Sprint is shifting away from high-cost macro coverage improvement to less costly surgical capacity improvement. Despite network coverage improvement from Network Vision (NV), substantial coverage gaps still exist, and network congestion is compounding challenges. Network quality remains poor in the eyes of consumers. The good news is that 2.5 GHz deployment will be quick (though now targeted), and in the postpaid segment, management has cleared the decks of 3G devices and is focusing on tri-band devices, which may provide 3G refarming opportunities at 1.9 GHz. LTE is now used by the postpaid segment 94% of the time. Key will be clearing 3G devices in the prepaid and wholesale segments.

Timeframe: 12 to 24 Months

Sprint’s Pricing Promotion:

Aggressive pricing promotion appears to be revenue accretive Sprint offered 50% off the price off most Verizon, AT&T, and T-Mobile rate plans during the biggest switching period of the year. Results exceeded expectations in terms of customer demand and the number of lines per account that were coming in. Sprint has extended the offer for another month. Management calculates the average customer life value of this year’s additions is 33% higher than a year ago. Furthermore, Sprint’s share of industry postpaid phone gross adds increased by 150 basis points year-over-year to the highest level in almost 3 years. Revenue accretion is a function of incoming customers paying similar to what they paid Verizon or AT&T as they are taking more data. Furthermore, Sprint is seeing a lot more multi line customers. As a result average billing per account and per user is increasing. Postpaid average billing per account is up 4% YOY while average billing per user (i.e. service plus handset revenue) is up 3% YOY. Higher installment billings and lease revenues more than offset the lower monthly service charges offered in conjunction with device financing options as well as the fact that average lines per account increased 5% year-over-year. Total service revenues plus installment billings and lease revenues of $7.1B increased 1% year-overyear. In terms of device leasing 65% of postpaid device sales were financed consistent with the prior two quarters and 46% a year ago. Furthermore 55% of postpaid sales selected leasing plans which was up slightly from last quarter.

US telecom network providers can provide voice and broadband service to Cuba without government permission following a Federal Communications Commission announcement that it has removed the island nation from its “Exclusion List.”  The Exclusion List identifies countries and facilities that are not covered by grant of a global facilities-based Section 214 application and require a separate international Section 214 application filed under section 63.18(e)(3) of the Commission’s rules

“Removing Cuba from the Exclusion List benefits the public interest as it will likely alleviate administrative and cost burdens on both” telecom companies and the FCC and fuel more competition among telecom carriers interested in the market, the agency said.  

The FCC order states (see references below):  “We adopt our proposal to remove Cuba from the Commission’s Exclusion List. We agree with the commenters that removing Cuba from the Exclusion List will make it easier for U.S. facilitiesbased carriers to initiate service to Cuba, promote open communications, and help foster bilateral communications between the United States and Cuba.”

The move has been anticipated following the Obama administration’s decision in late 2014 to reopen diplomatic relations with the island nation. At the time of the dramatic announcement, the U.S. government said telecommunications companies will be among the first industries to to set up equipment and other infrastructure projects needed to begin their services.

IDT Telecom, Netflix, Sprint and Verizon began offering services early last year. Cuba’s state-owned and operated telecom ETECSA struck an agreement with IDT to provide direct international long-distance voice calls between the two countries. Verizon and Sprint began offering international mobile services in the country, while Netflix launched its streaming video services in Cuba.

In September, 2015, the U.S  Commerce and Treasury departments followed through by removing a series of restrictions on Americans traveling to and doing business with Cuba. The changes, ranging from investment to banking to joint ventures, enabled American businesses to establish a “physical presence” in Cuba and hire Cubans to work in their offices.

The U.S. economic embargo on Cuba remains in effect since only an act of Congress can lift it and then only if numerous conditions are satisfied.

Reference:

FCC Order Removing Cuba from the Exclusion List

http://transition.fcc.gov/Daily_Releases/Daily_Business/2016/db0115/DA-16-55A1.pdf

http://www.fiercetelecom.com/story/cuba-removed-fcc-exclusion-list-opening-door-more-us-based-csps/2016-01-19

The changeover from the legacy PSTN to All-IP networks may be at the heart of Deutsche Telekom’s (DT’s) decision to own 12% of the entity formed by BT’s merger with mobile operator EE rather than accept additional cash. A DT executive said the transition would help pave the way for the introduction of new IP-based technologies. 

It might not be immediately obvious why DT would prefer 12% of BT to additional cash. Outside the UK, there is little overlap between the two operators’ footprints. While BT is expanding into the TV, mobile and ultra-fast broadband markets in the UK, DT is heavily focused on building a “pan-European” network in central and eastern Europe.

According to Axel Clauberg, Deutsche Telekom’s vice president of aggregation, transport, IP and fixed access, all-IP investments are also laying the foundations for the rollout of New IP technologies like SDN and NFV. 

All-IP and New IP could provide a financial rationale for cross-border takeover activity, according to financial analysts. The scenario is that an operator buys a network in a neighboring country, dispenses with that player’s service platforms (along with some facilities and employees needed to support them) and bolsters its sales and margins accordingly. This could justify a takeover of BT. (See All-IP DT Could Drive Euro M&A, Say Analysts.)

Besides their all-IP ambitions, though, BT and Deutsche Telekom share an interest in expanding their enterprise-sector businesses through the rollout of cloud services, as do many large telcos (e.g. Verizon and AT&T in the U.S.). It remains to be seen if that effort will be at all sucessful.

For more info:

http://www.lightreading.com/services/cloud-services/bt-dt-tie-up-holds-all-ip-cloud-promise/a/d-id/720345

Century Link’s Data Center & Colo Plans:

In yet another sign that there’ll be fewer cloud providers with their own mega-data centers, Century Link has proposed to divest more than 18 data centers it acquired in 2011 when it purchased Qwest and then Savvis.   With the Savvis aquisition, Century Link also picked up managed services and cloud services. CenturyLink became a colocation provider through the acquisitions. That move to divest its data centers won’t necessarily disrupt the company’s colocation business, according to  Chief Financial Officer Stewart Ewing.  

In a recent speech to investors during this week’s Citi 2016 Global Internet, Media & Telecommunications Conference, Ewing described the company’s evolving managed services business, saying that data center ownership is not necessary for monetization.

“When we bought Savvis, we indicated that we really would not invest in the data-center business such that we would be able to grow revenues at the same rates that the colocation companies would get … because we just simply didn’t want to make the investment there,” Ewing said. “And we bought Savvis more so for the managed services and cloud.”

After operating the facilities for a few years, CenturyLink has decided that “we don’t really have to own the data centers so we’re going to run through a process to see what level of interest is out there and our ability to monetize that asset, and if we can’t we’ll keep it,” he said.

“But we think that if we can monetize it, we can still sell colocation services from a wholesale perspective with whomever we sell the data centers to, or potentially other colocation providers, as well as … continue to be a customer of that business from the standpoint of managed services cages for customers being in those data centers, as well as the cloud pods that are in some of those data centers,” Ewing said.

CenturyLink wants to keep the managed services and cloud services pieces because, when coupled with its network and IT services, it gives the company a differentiator between it and others that aren’t able to “put the whole package together for customers,” he said.

“So as more midsize and enterprise customers, and smaller customers start moving their infrastructure from their data center and closets to the cloud, we think that we can facilitate that process for customers, and it will give us, again, a differentiator,” Ewing said.

Other telcos are making major decisions regarding their data-center assets. This week, Reuters reported that Verizon Communications has started a process to sell its data-center assets as it focuses on its core business. It reportedly hopes to sell the assets for more than $2.5 billion. In October, Windstream announced the sale of its hosted unit to TierPoint for $575 million.

Kelly Morgan, research director at 451 Research, said there’s been no apparent downside for telcos selling their data-center assets.  “I think that so far there haven’t been a lot of drawbacks,” she told Channel Partners. “It all depends on the pricing,” she added.

Colocation Market:

The market leader is Equinix, with close to 8.5 percent of global market revenue. Digital Realty is the the second-largest supplier in terms of revenue (5.6 percent) but the largest in terms of operational square feet, with or 9.6 percent of global capacity. 

The market leader is Equinix, with close to 8.5 percent of global market revenue. Digital Realty is the the second-largest supplier in terms of revenue (5.6 percent) but the largest in terms of operational square feet, with or 9.6 percent of global capacity.

“This remains an extremely fragmented industry,” said Kelly Morgan, research director, North American Datacenters. “The majority of colocation facilities are provided by local operators with only one to three facilities each. However, it is becoming harder for them to compete with the more geographically diverse providers that are now entering many local markets. We will see continued consolidation in this sector.”

Consolidation in the data center market has been ongoing. The biggest recent deal was the merger between Interxion and TelecityGroup in Europe. A recent example in the U.S. was the Fortune Data Centers and Dallas Infomart merger last October.

Other consolidation is occurring in the form of telecoms and cable companies buying service providers. Zayo acquired Latisys, and Canada’s Shaw Communications acquired ViaWest. Large communications companies have been acquiring into the data center and cloud market for years. One big past example was Verizon acquiring Terremark.

The market seems split between those focusing on core markets and those focusing on emerging markets. Equinix and Coresite focus specifically on their core markets, while other players like 365 Data Centers and EdgeConneX focus on underserved metros.

“This remains an extremely fragmented industry,” said Kelly Morgan, research director, North American Data centers. “The majority of colocation facilities are provided by local operators with only one to three facilities each. However, it is becoming harder for them to compete with the more geographically diverse providers that are now entering many local markets. We will see continued consolidation in this sector.”

Consolidation in the data center market has been ongoing. The biggest recent deal was the merger between Interxion and TelecityGroup in Europe. A recent example in the U.S. was the Fortune Data Centers and Dallas Infomart merger last October.

Other consolidation is occurring in the form of telecoms and cable companies buying service providers. Zayo acquired Latisys, and Canada’s Shaw Communications acquired ViaWest. Large communications companies have been acquiring into the data center and cloud market for years. One big past example was Verizon acquiring Terremark.

The market seems split between those focusing on core markets and those focusing on emerging markets. Equinix and Coresite focus specifically on their core markets, while other players like 365 Data Centers and EdgeConneX focus on underserved metros.  Other colocation providers include Telx, and SV Colo.

451 Research estimates that less than half of the world’s current. total operational space for colocation (space supporting IT equipment) is in North America: about 43 percent. EMEA and Asia-Pacific compose a large portion of the other half, each accounting for one quarter of the market. However, this is the first quarter that APAC has edged out EMEA as the second-largest market. Latin America is around 4.5 percent of the market.

References:

http://www.channelpartnersonline.com/news/2016/01/cfo-centurylink-could-still-offer-colocation-serv.aspx

https://en.wikipedia.org/wiki/Colocation_centre

http://www.datacenterknowledge.com/archives/2015/04/17/colocation-data-center-market-to-reach-36b-by-2017/

Introduction:

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.

References:

Interview Transcript: http://www.businessinsider.com/verizons-lowell-mcadam-on-5g-and-more-2015-12

Video: Verizon CEO Lowell McAdam explains why he bought AOL

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.

Read more at: http://viodi.com/2015/12/21/google-spurring-ftth-deployment-in-the-former-valley-of-the-hearts-delight/

Pic of Santa Clara Study Session on Google Fiber:

http://i2.wp.com/viodi.com/wordpress/wp-content/uploads/2015/12/20151215_170246-e1450805402461.jpg

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.”

Read more at: http://statescoop.com/la-seeks-broadband-access-incomes/#sthash.B57y4geu.dpuf

Introduction:

On December 2^nd, 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.

Opportunities Knocking:

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).  

SD-WANs:

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

https://www.gartner.com/doc/3173719/market-guide-softwaredefined-wan

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.”

Here’s Google’s Open Network Summit presentation on their SD-WAN

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.

IoT Market:

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.

IoT Opportunities:

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