IEEE ComSoc Technology Blog

1.  SDN Data Center and Enterprise “In-Use” SDN Market Topping $1.4 Billion in 2015, IHS-Infonetics:

 Data Center (DC) and enterprise LAN software-defined networking (SDN) deployments began to ramp in the first half of 2015 (1H15), reports IHS in its latest IHS Infonetics Data Center and Enterprise SDN Hardware and Software report. IHS forecasts the market for ‘in-use’ SDN Ethernet switches and controllers to top $1.4 billion this year, nearly doubling from last year. 

“New SDN use cases continue to emerge, and the first half of 2015 was no exception with the establishment of the software-defined enterprise WAN (SD-WAN) market. The SD-WAN market is still small, but many startups and traditional WAN optimization appliance vendors and network vendors have jumped in,” said Cliff Grossner, Ph.D., research director for data center, cloud and SDN at IHS.  

“The data center and enterprise LAN SDN market will be solidified by the end of 2016 as lab trials give way to live production deployments. And in 2017, SDN will move from early adopters into the hands of mainstream buyers,” Grossner said. 

DATA CENTER / ENTERPRISE SDN MARKET HIGHLIGHTS:

·     In the first half of 2015 (1H15), bare metal switches accounted for 45 percent of global in-use SDN-capable Ethernet switch revenue

·     Looking at the leaders in individual SDN categories:

o   White box switch vendors, as a group, are #1 in bare metal switch revenue

o   Dell owns 100% of branded bare metal switch revenue

o   HP has the largest share of SDN-capable (in-use and not-in-use) branded Ethernet switch ports

·     In-use virtual switch (vSwitch) ports are expected to make up 11 percent of SDN (in-use and not-in-use) ports shipped by the end of 2015

·     SDN in-use physical Ethernet switches are forecast by IHS to comprise 15 percent of Ethernet switch market revenue in 2017, up from 4 percent today

Data Center and Enterprise SDN Report Synopsis:

The biannual IHS Infonetics Data Center and Enterprise SDN Hardware and Software report provides worldwide and regional vendor market share, market size, forecasts, analysis and trends for SDN controllers, bare metal Ethernet switches and branded Ethernet switches in use for SDN. Notably, the report tracks and forecasts SDN controllers and Ethernet switches in-use for SDN separately from not-in-use SDN-capable Ethernet switches. Vendors tracked: Alcatel-Lucent, Arista, Big Switch, Brocade, Centec, Cisco, Cumulus, Dell, Extreme, HP, Huawei, Juniper, Lenovo, Midokura, NEC, Pica8, Plexxi, PLUMgrid, VMware, White Box, others. This report is part of the IHS Data Center Networks Intelligence Service.

To inquire about Intelligence Service subscriptions, please visit www.infonetics.com/contact.asp

RELATED RESEARCH

• Operators Expect OPEX Reductions in 2nd Year of Data Center SDN Deployment

• 25GE Ports to Make Up 9% of Converged DC Network Adapter Market by 2019

• Open Networking Is Invading the Data Center

• Cloud Service Providers Reveal Preferences for DC Technologies and Vendors

• Software-Defined WAN Taking Hold in the Data Center 

TO PURCHASE RESEARCH, CONTACT:

IHS Sales: +1 844-301-7334

https://www.ihs.com/about/contact-us.html

2.   DATA CENTER SDN MARKET FORECAST TO GROW OVER 70% IN 2015, ACCORDING TO DELL’ORO GROUP

Amazon AWS, Google, Microsoft Azure Drive 25 GE and 50 GE

On the heels of T-Mobile US’s Un-Carrier X free video streaming  announcement last week to drive sales, this afternoon Sprint announced  a simplified 50% off promotion to help drive higher sales volume,  leveraging the improved network performance post the Network Vision upgrade and optimization.

The previous “Cut Your Bill in Half” promotion was difficult to execute due to grandfathered plans and discount complexities. The new plan is simplified in that it only applies to existing plans and includes a choice to maintain pricing. Management believes over 50% of switching customers will opt for a larger data plan at the same price versus a 50% cut, which should ease profitability concerns.

With LTE Plus now in 77 cities and numerous number one awards in RootMetrics in 2H15 testing (~108 awards),
management is wise to cut price now because perceived network quality remains poor, in our view. Over 50% of the base (and 100% of additions) leverage three spectrum bands (800 MHz, 1.9 GHz, and 2.5  GHz) to deliver higher download speeds. The company is confident the offer will generate sufficient volume to be accretive to earnings.

■ Offer details. The new 50% off promotion will apply to the current base service plan and access charges for any customer who switches from TMUS, T, or VZ and includes payment of up to $650 in early termination fees (which many customers keep despite the credit rating impact).

■ Contractual period. Lower pricing will be for 24 months and run until 2018. Existing Sprint customers can get a free Alcatel ONETOUCH PIXI 7 tablet with one year of free service (either a $15 per month, 1 GB plan or $10 per month Family Share Pack access) with any new two-year contract.

■ Plan exclusions. The promotion excludes the TMUS $90 unlimited plan as the Sprint $70 unlimited plan is already competitive and this would be dilutive.

■ Promotion timing. The promotion starts on November 20 until year end. The “test drive” period will last 28 days, after which the customer can either stay or leave Sprint without incurring restocking fees. ■ Our thoughts. Sprint needs to show greater sales momentum to ease the pace of revenue erosion. We think this should be accretive as incremental growth is high margin. This is a good window to exploit improved network performance post Network Vision upgrade and optimization. Sprint has been slow to pivot to a new network upgrade plan and is cash constrained, so we need to see acceleration in deployment.

Introduction: 

 

1. NGMN 

2. Asia-Pacific Telecommunity 

3.   Telecommunication Technology Committee (TTC) 

Recently, TTC FMN-Ad Hoc finalized a “TTC White Paper on Future Mobile Networking” and attached it to this contribution.

TTC recognizes that ITU-R Working Party 5D focuses mainly on radio part, however, TTC hopes our White Paper can provide useful information for developing “5G” mobile network in WP 5D.

4. Industrial Technology Research Institute, Inc. (ITRI) 

ITRI has started a 5G project that includes the research and development of mmWave, SDN/NFV, and Ultra-Dense Network technologies. We plan to create a channel model generator and simulator for mmWave. An ultra-dense small cell network will be established at ITRI with the capability to interconnect a remote testbed for joint testing. We will also develop big data analytics for intelligent IoT and mobile broadband on high-speed moving network applications. Recognizing the importance of international collaboration ITRI is cooperating with the European Union on access convergence taking advantage of 5G research results and testbeds at ITRI. An SDO was established recently to enhance our contributions in standardization of “IMT-2020” systems. The above effort is consistent with ITU-R’s vision, capabilities, and technology trends.

5. Fifth Generation Mobile Communications Promotion Forum (5GMF) 

5GMF was established in September 2014 to conduct research & development concerning the fifth Generation Mobile Communications Systems, and research and study pertaining to standardization aimed at the early realization of the Fifth Generation Mobile Communications Systems. 

This section includes responses that were included in Doc. 5D/991 from the 5G Forum and ETRI.  To respond the request of ITU-R WP 5D, TTA circulated the liaison statement to our members and related organizations in Korea. As a result, two replies from 5G Forum & ETRI were received as shown in attachment, which describes the activities update of each organization. 

7. Activities Update of 5G Forum

5G Forum was established on 30 May 2013 in Korea as an open forum with a vision of “Global leadership and promotion in 5G mobile communication toward 2020”

Around 30 member organizations from operators, vendors, academia and public organizations from domestic and international players are actively participating in 5G Forum activities.

In 5G Forum, 5 sub committees (Global Strategy, Convergence & Services, Spectrum, Wireless Technology, and Network Technology) are responsible for: 

As an outcome of global collaboration, 5G Forum signed MoU with 5GPPP of Europe, IMT-2020 PG of China and 5GMF of Japan and had discussions with other bodies as well. 

8.  Activities Update of 5G R&D from ETRI

ETRI is leading two important national 5G projects, namely, Quadruple-Thousands (QK) 5G and Giga Korea (GK) 5G projects. 

9.  Wireless World Research Forum (WWRF) 

On Monday, Ericsson and Cisco announced a multi-faceted partnership to create the networks of the future – and through this, shape the direction of the industry. Ericsson, a leader in wireless network equipment, and Cisco, which dominates the market for Internet gear, will work together to integrate existing equipment. They will combine some sales and consulting efforts and, ultimately, may jointly develop entirely new hardware and services.

Both companies have invested a lot of time in designing this partnership over the past year, according to Ericsson’s CEO (see quote below).  

Cisco brings their leading position in IP and a strong presence in enterprise. Ericsson brings leadership in mobile networks,  strength in global services, and strong relationships with the world’s leading service providers.

Ericsson and Cisco together hold more than 56,000 patents, invest $11 billion annually in research and development, and operate more than 76,000 services professionals serving customers in more than 180 countries.

Hans Vestberg, President & CEO of Ericsson:

 “The strength of this partnership lies not just in its scale, but in the depth of the solutions Ericsson and Cisco can now provide to the networking market. It is a market in transition – increasingly mobile, cloud-based, and digital – and customers are seeking end-to-end solutions to reach their full potential.  We have evaluated the impact of acquisitions, our own development, and other strategic opportunities – and this partnership is by far the best way forward. We believe that this partnership will create the most value both for our customers and for Ericsson and Cisco.

For Ericsson, this partnership also fortifies the IP strategy we have developed over the past several years, and it is a key step forward in our own transformation. It will start generating revenues for Ericsson as soon as 2016, ramping up to USD 1 billion by 2018 and building from there.”

http://www.ericsson.com/thinkingahead/the-networked-society-blog/2015/11/09/creating-the-networks-of-the-future-with-cisco/

From the WSJ:

Both companies are coping with challenges that include a slowdown in the smartphone market, a longtime driver of revenues for the telecom companies that are their biggest customers. They also face heightened competition from Huawei, as well as a new threat created by the pending €15.6 billion ($16.8 billion) takeover of Alcatel-Lucent SA by Nokia Corp. Those rivals have expertise in both wireless and Internet technologies, a combination that Cisco and Ericsson hope to now match, said Pierre Ferragu, an analyst at Sanford C. Bernstein.

At the same time, the deal underscores a widening recognition of the downsides of large mergers, particularly cross-border transactions that can face regulatory scrutiny in many countries.

“Neither Ericsson or Cisco really believe that these large mergers typically work,” Chuck Robbins, Cisco’s chief executive, said in an interview.

Analysts don’t expect formal reviews by antitrust authorities, but politicians on both sides of the Atlantic may take a close look. Governments have been eager to closely monitor suppliers of equipment regarded as highly sensitive for security and privacy reasons. Huawei has been essentially shut out of the U.S. market after a congressional report deemed it a risk to national security.

For Ericsson, the alliance could help retain its position as the world’s biggest telecom-equipment supplier by sales, just as its Nordic rival Nokia regains strength. Nokia’s takeover of Alcatel-Lucent could create a powerful challenger to both Ericsson and Cisco.

To find new revenues, analysts said, Cisco and Ericsson must develop new products to cope with changes in the networks operated by mobile and wireline carriers—as well as exploit a trend called the “Internet of Things,” which will connect more everyday devices to one another.

The other problem is Huawei, which recently overtook Ericsson in the market for mobile infrastructure equipment, according to analysts at Dell’Oro Group. Huawei received 30% of revenues in that market during the first half of 2015, according to the research firm, compared with 27% for Ericsson and 25% for the combination of Nokia and Alcatel-Lucent.

Ericsson’s core business of supplying equipment has suffered from price competition and from the relatively slow rollout of broadband wireless networks, known by the acronym 4G, by its carrier customers.

Cisco also faces pressure from Huawei. Dell’Oro estimates that the Chinese company accounts for 13% of the global router business—Cisco has 49%—but Huawei has displaced Cisco as No. 1 in China.

In the short term, one benefit of the alliance is for Ericsson to resell Cisco networking gear. The Swedish company also has 65,000 service personnel that help advise carriers on how to build networks. Cisco, which has 11,000 service workers, can take advantage of the Ericsson staff, Mr. Robbins said.

Ericsson, which has around 116,240 employees, reported revenue last year of 228 billion Swedish kronor ($26.3 billion). Cisco, which employs 70,000 people, reported revenue of $49.2 billion in its latest fiscal year, which ended in July.

The companies sell some competing equipment, but the overlap is small. Cisco accounted for 1% of the wireless infrastructure market in the first half, while Ericsson accounted for 1% of the routing market, Dell’Oro Group estimates.

An added wrinkle of the partnership concerns patents. Ericsson, a wireless pioneer, claims 37,000 patents to Cisco’s 19,000. The companies said they expected to complete a patent cross-license agreement under which Cisco would pay an unspecified amount to Ericsson for use of its patents.

From Fortune on line magazine:

What exactly the partnership will do is obscured by scores of words of gobbledygook (that’s a technical term) issued by both companies. These refer to a “multifaceted relationship” focused on “networks of the future” that will facilitate the cross-selling of both companies’ “end-to-end product and services portfolio.” (Fortune’s Jonathan Vanian has details here.)

The companies weren’t prepared to discuss much about the commercial nature of their “non-deal deal.” They said neither company is taking an ownership position in the other, but they predict the combination will result in incremental revenues of $1 billion to each company by 2018.

There was one concrete type of reference to money: Cisco is paying Ericsson a licensing fee for the use of its patents. Cisco’s stock declined a bit, and Ericsson’s rose about the same amount, percentage-wise.

Rather than merging and all the headaches that would ensue, they reached multiple agreements, terms undisclosed, to work more closely together. Centerview Partners, an investment bank, advised on the partnership, according to a news release. That means money is involved.

Why be so cryptic? The kinds of equipment Ericsson and Cisco sell tend to make governments nervous. Nervous governments like to bless mergers before they happen. No merger, no blessing, no problem.

Fortune’s Stacey Higginbotham has a different take on this deal.

Forbes on line magazine:

The partnership comprises a series of agreements spanning everything from reselling and joint sales, to technology cross-licensing, co-innovation and joint professional services, and should it aims at boosting each company’s annual revenues significanly.

“Given Ericsson’s annual revenues of more than USD26 billion and Cisco’s of more than USD49 billion, and opportunities in new enterprise-driven communications and IoT services, we think each company’s goal of driving USD1 billion in new revenues by 2018 based on this strategic partnership is achievable,” said Dana Cooperson, Research Director at global telecoms specialist Analysys Mason

Ericsson’s nearly USD5 billion and Cisco’s over USD 0.7 billion in telecom software professional services is one possible area ripe for growth.

The agreement is described by analysts as an aggressive move positioning Ericsson and Cisco against competitors, like Huawei, HP, and Nokia –Alcatel-Lucent , for dominance as the partners of choice for communication service providers that want to become digital service providers as well.

In fact, the announcement was well received by several high-profile executives of companies like Vodafone , AT&T and Verizon. For Robert Gurnani, Verizon’s Chief Information and Technology Architect, it even “has the potential to reshape the industry.”

However, according to Cooperson, to make the agreement work, the Swedish and American multinationals will have to abide to certain preconditions. Their ability to pre-integrate solutions based on a common, robust, architecture will have to be of sufficient value in time and money to be compelling to customers.

Clients will need to be comfortable that Ericsson and Cisco are not just strengthening their leading positions in mobile infrastructure, professional services and IP infrastructure to create de facto lock-in. Finally, “the companies will need to show that they are not too big to move quickly to create joint solutions,” Cooperson said.

Introduction:

IHS-Infonetics conducted in-depth interviews with service providers that have deployed or plan to deploy or evaluate software-defined networking (SDN) by the end of 2016.  They discovered that 85% of survey respondents expect data center network operating expenses (OPEX) to decrease significantly by the second year of SDN deployment.

Author’s note:  Of course, that was one of the driving forces behind moving to SDN in the first place! 

“Service providers expect SDN to deliver a positive return on investment. Our data center SDN study found that providers expect significant OPEX cost reductions within two years of deploying SDN. CAPEX reductions are also expected, and respondents acknowledge they need to invest in equipment and operational processes to get started with SDN,” said Cliff Grossner, Ph.D., research director for data center, cloud and SDN at IHS.   “In supplying SDN to service providers, open source vendors have the largest opportunity with orchestration software and applications,”  Grossner added.

DATA CENTER SDN SURVEY HIGHLIGHTS:

·     Service provider respondents named Cisco, Alcatel-Lucent/Nuage and VMware as top SDN vendors. Note that none of those use the pure SDN/Open Flow model!

·     Service providers that are scaling up their data centers—investing significant CAPEX in physical servers and virtualization technology—are most likely to deploy SDN

·     Expectations for SDN are clear: simplified network provisioning, network automation, rapid application deployment and interoperability with existing equipment

·     The top data center SDN use cases among operators surveyed are a cloud architecture for the data center, automated application deployment and hybrid cloud.

DATA CENTER SDN SURVEY SYNOPSIS:

For the 35-page 2015 IHS Infonetics Data Center SDN Strategies: Global Service Provider Survey, IHS interviewed purchase-decision makers with detailed knowledge of their organization’s data center SDN plans and strategies about plans to evolve their data centers and adoption of new technologies over the next two years. Respondents were asked about SDN deployment drivers, barriers and timing; expected CAPEX and OPEX changes with SDN; use cases; switching technologies; applications; vendors; and more.

To purchase research, please visit:

www.infonetics.com/contact.asp

RELATED RESEARCH

• Bare Metal Switches a $1 Billion Market by 2019, Software-Defined WAN Rising

• Storage Area Network Market Declining as Off-Premise Cloud Services Rise

• Enterprises Plan to Spend 1/3 of IT Budget on Off-Premise Cloud Services by 2016

• Cloud Services for IT Infrastructure and Applications to Top $230 Billion by 2019

• Carriers on Track to Spend $5.7B on SDN Hardware, Software & Services by 2019

• Network Operators Reveal SDN Plans, Timing & Challenges in New Survey

References:

http://press.ihs.com/press-release/technology/operators-expect-opex-reductions-2nd-year-data-center-sdn-deployment

Raj Jain, PhD: The key characteristics of SDN are programmability that allows policies to be changed on the fly. This allows orchestration (ability of manage a large number of devices), automation of operation, dynamic scaling, and service integration. Combined with virtualization, this also allows multi-tenancy and all of the above benefits to individual tenants as well.

It is important to know what SDN is not. SDN is not separation of control and data plane or centralization of control or OpenFlow. These are all one way to do SDN but alternatives are equally good. Networks can be programmed and policies can be changed without separation of data and control plane, without centralization of control, and without OpenFlow.

http://www.jisajournal.com/content/6/1/22

http://www.prnewswire.com/news-releases/sdn-to-drive-down-service-provider-capex–opex-heavy-reading-finds-246142961.html

http://sites.ieee.org/sdn4fns/files/2013/11/SDN4FNS_panel_presentation_Bram_Naudts.pdf

The recently released IHS Infonetics Macrocell Mobile Backhaul Equipment report  tracks equipment used to transport mobile traffic. In the report, IHS Technology forecasts a cumulative $45 billion to be spent on macrocell mobile backhaul equipment worldwide over the 5 years from 2015 to 2019.  

MOBILE BACKHAUL MARKET HIGHLIGHTS:

·    Worldwide macrocell mobile backhaul equipment revenue declined slightly (-0.6 percent) in 2014 from 2013, to $8.5 billion

·    Demand remains solid from LTE deployment, 3G network expansion and backhaul capacity enhancement, but increasing pressure on equipment pricing is inhibiting revenue growth

·    IP/Ethernet clearly remains the driver of the mobile backhaul equipment market, required to do the heavy lifting for ever-growing mobile bandwidth usage

·    Microwave radio was the largest spending category in 2014, at 47 percent of global mobile backhaul gear revenue, though this segment is projected to decline as more fiber and wireline Ethernet come into play

·    Toward 2019, 5G backhaul demand starts to drive the market, pushing the microwave segment back to modest year-over-year revenue growth

 Analyst Quote:

“While the market has experienced something of a plateau of late as many operators are approaching late-phase LTE deployment having already upgraded their backhaul, renewed growth is definitely on the horizon,” said Richard Webb, research director for mobile backhaul and small cells at IHS. “Developing countries later to the LTE party, such as India, will drive steady growth over the next few years, which will gain extra momentum from early 5G adopters.”

MOBILE BACKHAUL REPORT SYNOPSIS:

The biannual IHS Infonetics Macrocell Mobile Backhaul Equipment report provides worldwide and regional market share, market size, forecasts through 2019, analysis and trends for macrocell mobile backhaul equipment, connections and installed cell sites by technology. Companies tracked: Accedian, Actelis, Adtran, Adva, Alcatel-Lucent, Aviat Networks, Canoga Perkins, Ceragon, Ciena, Cisco, DragonWave, E-band, Ericsson, FibroLan, Huawei, Intracom, Ipitek, Juniper, MRV, NEC, Overture, RAD, SIAE, Telco Systems, Tellabs, ZTE, others. To purchase research, please visit www.infonetics.com/contact.asp.

WEBINAR: SDN AND NFV FOR SMALL CELLS AND BACKHAUL:

Join analyst Richard Webb Oct. 29 at 11:00 AM ET for Leveraging SDN and NFV for Small Cells and Backhaul, an event examining the challenges and opportunities for combining SDN and NFV in the backhaul network. Register here.

RELATED RESEARCH:

• NEC and Alcatel-Lucent Claim Lead in IHS Microwave Equipment Scorecard
• Plateau for Microwave Equipment Market until 5G Gets Underway in 2017
• Operators Forging Ahead with SDN in Macrocell Backhaul Networks
• Mobile Backhaul Market Plateau Will Be Short Lived, IHS Says
• Mobile Operators Turning to Ethernet Microwave for Voice and Data Backhaul

Verizon is  taking steps to enable Wi-Fi voice on its wireless network. The carrier has submitted a petition to the FCC requesting that the regulatory body grant it a waiver identical to the one it gave to AT&T earlier this month for WiFi calling without TTY service.

Enabling Wi-Fi voice calling is problematic for the FCC, because the underlying technology doesn’t reliably support TTY (teletypewriter), a decades-old service used by the hearing impaired. AT&T complained to the FCC last month that competitors T-Mobile and Sprint merely disregarded the rules around TTY support when they launched Wi-Fi calling. 

Verizon plans to research and deploy RTT (real-time text) technology, a successor to TTY. However, the company maintains that it’s not ready to roll out the technology across its network just yet. It hopes to do so during the period that its requesting the waiver for—through 2017, or the same length of a waiver that AT&T was granted.

“Verizon plans to meet the same conditions enumerated in the AT&T Waiver Order. Specifically, Verizon agrees to inform its customers through multiple channels that TTY is not supported on these services for calls to 911 and inform customers of alternative means to reach 911 services. Verizon will also inform the Commission and customers of its progress toward the deployment of RTT as described in the AT&T Waiver Order. And Verizon is seeking a waiver for the same duration as that granted to AT&T,” according to Verizon’s petition.

“Because Verizon is seeking a waiver identical to the waiver granted to AT&T and committing to the same conditions that were fully considered by the Commission on a well-developed record, there is no need for the Commission to seek additional public comment here and the Commission should promptly grant this petition.”

If Verizon can get its TTY waiver, then it will be able to support “true” Wi-Fi calling on both iOS and Android devices which would both be able to make calls over Wi-Fi through their native dialers rather than a separate mobile app.  

References:

http://www.theverge.com/2015/10/25/9611746/verizon-wi-fi-calling-feature-seeks-fcc-approval

http://www.pcmag.com/article2/0,2817,2493836,00.asp

http://appleinsider.com/articles/15/10/06/att-granted-fcc-waiver-to-activate-wi-fi-calling-amid-tiff-with-t-mobile-sprint

http://apps.fcc.gov/ecfs/document/view?id=60001330537

http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db1006/DA-15-1141A1.pdf

Attribution: This blog post was written by David Dixon of FBR and edited by Alan J Weissberger

Executive Summary:

Competition is dampening returns, but VZ’s strategy is on track. Though behind on IoT, densification is helping to address 75% YOY data traffic growth; usage per customer should help augment revenue growth. Chicago and New York should benefit from the launch of unlicensed LTE in 2016 at relatively low cost, with AWS 3 spectrum utilized in 2017/2018. While DISH spectrum leasing provides a free option, VZ is also well positioned to leverage more low-cost capacity spectrum via 150 MHz of 3.5 MHz spectrum (70 MHz of priority access + 80 MHz of unlicensed spectrum).

The industry has rallied around the 3.5 GHz spectrum to build an effective ecosystem that should allow the spectrum to be put into use quickly. This, combined with refarming opportunities in the 850 MHz and 1.9,Ghz bands, has VZ well positioned on the spectrum front. We still think a DISH spectrum acquisition is unlikely, but a leasing agreement could be a useful Plan B, should VZ’s small cell strategy run into speed bumps.

Key Points:

■ 3Q15 earnings recap. Consolidated revenue of $33.2B (+5.0% YOY) was ahead of consensus’ $33.0B but below our $33.5B estimate, driven by a 5.4% YOY increase in wireless revenue, partially offset by a 2.3% YOY decline in wireline revenue. Consolidated EBITDA of $11.5B were below our Street-comparable estimate of $11.8B. Retail postpaid net adds were 1,289,000, with churn of 0.93% and a retail prepaid net loss of 80,000. The 3Q15 adjusted EPS of $1.04, after a $0.05 non-cash pension re-measurement adjustment, compared to our Street-comparable estimate of $1.02.

■ Divestitures and accounting changes drive lower EPS growth in 2016. Specifically: (1) Converting from a subsidized to installment wireless phone model increased earnings in 2015, as 100% of the equipment sale was recorded as revenue. However, 30% of the base is now not on subsidized pricing (expected to increase to 50% in 2016), normalizing the earnings impact); (2) divested Frontier properties are classified as discontinued operations, driving a $0.13–$0.14 EPS lift from discontinued depreciation expense; (3) a loss of higher-margin properties with stranded centralized costs, with some of the cost savings realized after the labor agreement; (4) losses for start-up businesses.

■ Estimate changes; lower price target. We lower our FY15 and FY16 estimates to account for divestitures, accounting impacts, and lower phone sales volume in 4Q (anniversary of iPhone 6 launch in 4Q14). FY15 revenue/EBITDA/ EPS estimates decline to $131.1B/$46.2B/$3.95, from $131.8B/$46.5B/$3.96; FY16 revenue/EBITDA/EPS estimates decline to $133.0B/$47.2B/$4.03, from $137.1B/$48.4B/$4.12.

Our Thoughts – Time Frames for Impact:

1. Aside from being well positioned on spectrum for the macro network, how what is the small cell opportunity as an alternative to more macro network spectrum going forward?

A change in the industry network engineering business model is underway toward using small cells on dedicated spectrum to manage more of the heavy lifting associated with data congestion. Verizon demonstrated this shift during the AWS3 auction: It modeled a lower-cost small cell network for Chicago and New York. We expect CEO Lowell McAdam to manage this shift from the top down to mitigate execution risk due to cultural resistance from legacy outdoor RF design engineers, whose roles are at risk as the macro network is de-emphasized.

Enablers include the advent of LTE, increased spectrum supply across multiple spectrum bands including LTE licensed, unlicensed (500 MHz of 5 GHz spectrum) and shared frequencies (150 MHz of 3.5 GHz spectrum), amid a fundamental FCC spectrum policy shift from exclusive spectrum rights to usage-based spectrum rights, which should dramatically increase LTE spectrum utilization (similarly to WIFI).

Previously, outdoor small cells co-channeled with the macro network proved challenging: While they can carry substantial load, they also destroy equivalent capacity on the macro network due to mis-coordination and interference, so the macro network carries less traffic but still looks fully loaded. AT&T discovered this in its St. Louis trials that, in part, steered it toward buying $20 billion of AWS3 spectrum.

However, the industry trend is toward LTE underlay networks, where small cells are put into other shared or unlicensed spectrum with supervision from and/or carrier aggregation with the macro network. It still requires good coordination across all cells for this to work; while Verizon initial proposals for 5 GHz are downlink only, we think uplink will also be used longer term because uplink needs more spectrum resources for a given throughput; we see higher uplink usage trends in the Asian enterprise segment and from Internet of Things (security cameras).

Time frame:12 to 18 Months

2. Does Verizon have sufficient spectrum depth to drive revenue growth longer term? Or does it need to aggressively acquire spectrum in future spectrum auctions or in the secondary market (DISH)?

The short answer is yes. Verizon carries 80% of data traffic on 40% of its spectrum portfolio; its combined nationwide CDMA and LTE spectrum depth is 115 MHz, ranging from 88 MHz (Denver) to 127 MHz (NYC). We expect AWS3 capacity spectrum to be deployed in 2017/18. Investors may not be crediting Verizon with potential to source more LTE spectrum from refarming of CDMA to LTE (22 MHz to 25 MHz) used today for CDMA data (22 MHz to 25 MHz).

Critically, network performance data show Verizon network close to the required performance threshold for a VoLTE-only service, suggesting there is additional refarming potential for the 850 MHz band (25 MHz) used today for CDMA voice and text. This band is likely to be transitioned in 5 MHz x 5 MHz LTE slivers to run parallel with the expected linear (voluntary) ramp, versus exponential (forced) ramp in VoLTE service.

More low-band spectrum is key for the surging IoT and M2M segments, which are proving to be more thirsty than “bursty.”

Time frame: 2 Years+ 

This is a follow on to the recent post noting opposition to the FCC reclassifying linear OTT suppliers as pay tv providers.

A Millward Brown global survey of 13,500 multiscreen viewers concludes that the lure of online video extends to adults of all ages.  The survey polled people who own a TV and either a smartphone or tablet—in 42 countries on what they think about video advertising. People are spending as much time watching online video as they spend watching TV, The survey also found an average online viewing time of 204 minutes a day for people ages 16 to 45, split evenly between TV and online. 

Forty-nine percent of people liked mobile-app videos that reward people with virtual incentives like points for playing games, and 31 percent of consumers responded favorably to skippable mobile preroll ads. Only 14 percent of people said that they liked mobile pop-ups, the ads that take over a screen, and 15 percent tolerated nonskippable video ads.

http://www.adweek.com/news/technology/young-or-old-everyone-seems-online-video-much-tv-now-167541

Lot of new OTT players, competing with Netflix.

Source: “Premium Prospects for OTT in the USA” study from MTM, Ooyala and Vindicia