Packet Optical Market Reflects Seasonality: Q3/11: ACG Research Optical Networking Market Share Report

The Worldwide Packet Optical Transport Market has seen typical 3Q seasonality, declining 16.1% sequentially but growing 21.0% year over year, according to ACG Research. The total Worldwide Optical Networking market declined 9.3% sequentially but grew 5.4% year over year in Q3 2011.

Cisco has regained the number one position with 22.7% of total market share in Packet Optical Transport; Fujitsu is still strong at the #2 spot. Tellabs, which had the #1 share in POT systems for the last 2 quarters has now fallen to third place with 16.1% market share. Of note, Infinera captured the number one spot in Long haul DWDM segment for North America.

According to Eve Griliches, "Despite weak economies and lackluster employment trends, financial investment firms are still investing in optical networking products, albeit at a slower rate this quarter. Content providers are deploying 100G as planned, and in fairly high numbers. We are in a fairly different market now, which is changing faster than previous generations. Demand from content providers is growing and spending by top tier providers is being constrained.”

Top Vendors-Worldwide Packet Optical Transport Systems (POTS) Market
Vendor	Rank	Q-Q Revenue Growth	Y-Y Revenue Growth
Cisco	1	16.7%	35.8%
Fujitsu	2	22.0%	49.1%
Tellabs	3	-24.2%	-15.2%
Huawei	4	5.3%	54.9%
Alcatel-Lucent	5	-17.6%	-31.6%
Total		-4.4%	12.9%

QUARTERLY TREND and DRIVER HIGHLIGHTS

• This quarter has been marked by headwinds, strikes, hurricanes and floods. Overlay that with a climate that has a "hesitation to spend" and "continued focus on fiscal control" and you would assume that it was a lousy quarter. It is not. OTN architecture is clearly resonating with operators, but adoption of OTN standalone platforms within major carriers involves a long selling and new certification cycle.

• It turns out the headwinds, strikes and floods had little disruption for most vendors in what is a typically soft quarter. Effects of the floods in Thailand are likely to be felt next quarter and possibly into Q1 2012, although not by significant percentages.

For more information about ACG Research's Packet Optical Transport Market Share Report contact sales@acgresearch.net.

Global Politics and Debt Overshadow Router and Switching Market in Q3: Service Provider Routing & Switching Market Share Report, ACG Research

Concerns over the high level of global government debt, especially in Europe and slower economic growth in the US, Europe and emerging countries, which may stumble into a recession, are impacting the Worldwide Carrier Routing & Switching markets. The global market decreased 4.3% sequentially and grew slightly 1.8% year over year, according to ACG Research. The Total Worldwide Carrier Routing & Switching market grew revenue $2.8B in Q3/11. Core Routing revenues were down 3.9% q/q but up 4.2% y/y. Edge Routing and Switching revenues were down 4.4% q/q but up 1.1% y/y.

With 54.5% of the total market share, Cisco, the market leader, is capitalizing on the trend of its customers simplifying the way their networks work and how next-generation Internet can be more visual, mobile and virtual. The company has posted 3.9% growth in edge routing, largely attributed to successful ASR 9000 momentum. Juniper holds the number two spot with 18.1% and continues to gain traction with its strategy of capitalizing on mobile, Internet and cloud computing and solutions portfolio. Alcatel-Lucent, which is benefiting from the market momentum for 100G IP/optical as well as providers replacing and leveraging 100GE and IPv6 transition technologies has 16.5% of the total market share.

According to Ray Mota, managing partner, “Many carriers are letting emotions get in the way of fundamentals regarding the economy. Carriers need to understand that volatility in markets is normal, and they must understand what is driving the volatility in order to make sound investment decision for expansion of networks or development of new services.” They need to control emotions and look at economic fundamentals, for example, the US GDP grew 2.5% in Q3, the UK grew 0.5%, and India grew 7.7%. So, focus on fundamentals, allow expansion and promote cautious growth by controlling cost on the operational side and expanding into new services related to enterprise-productive services, such as mobility and video/CDN experience enhancements.”

Vendor	Rank	Market Share ($)	Q-Q MS Point +/-
Cisco	1	54.5%	3.8
Juniper	2	18.1%	-1.8
Alcatel-Lucent	3	16.5%	-1.3
Tellabs	4	2.8%	-0.4
Huawei	5	1.9%	-1.4

QUARTERLY TREND and DRIVER HIGHLIGHTS

• Open Internet: The US senate just voted to block a resolution that would disapprove the FCC Open Internet order. This move is a victory for the over-the-top (OTT) operators such as Google, Amazon, and Netflix. Network operators should continue to be innovative regardless of this ruling and figure out ways to create more value without net neutrality violations for the OTT market.

• Ethernet continues to move beyond the metro, and we are seeing providers offer Ethernet services nationally and globally and with consistent class of service and end-to-end service level agreements. However, some service providers still struggle with how to differentiate their services. We suggest they focus on two areas related to this concern: 1) design and deliver personalization and solutions offering instead of just products and 2) focus on while maintaining simplicity.

• With IT spending on cloud services projected to increase 300% to $42B by 2015, cloud continues to be the driving force in the market, and vendors are taking a focused approach and targeting technologies for the next-generation infrastructure and data center evolution.

For more information about ACG Research's Q3 Market Share Router and Switching Report, contact sales@acgresearch.net

Connecting America: Winners and Losers

The goal of the “Connecting America, The National Broadband Plan,” on which the FCC will be issuing a ruling on October 27th, is to bring broadband service(s) to nearly 100 million Americans who do not have access. As with any bill that hits Congress, all have the touch of special interest groups promoting their agenda. This bill is no exception.
One of the losers will be the small rural local exchange companies (RLEC). Why? Dig deeper in the plan and you’ll come across a “Notice of Proposed Rulemaking” (https://prodnet.www.neca.org/publicationsdocs/wwpdf/33111icore.pdf). To fully understand the repercussions of this document for RLECs one has to understand one of the major ways these companies make money.

Before fiber optics was widely used, carriers created Carrier Access Billing Settlements (CABS), which are a way to track termination fees (and origination as it pertains to toll-free calls). You use my network to terminate your customer or I use your network to terminate my customer. When you touch my network you owe me. When I touch your network I owe you. At the end of the month the call minutes that touched our respective networks and comparison on any overages are tallied and the companies settle payments. That’s CABs very simplified.

The RLECs receive more calls from ATT, Verizon, CenturyLink and other carriers than the other way around. At the end of the month or quarter these rural carriers can get hefty checks from the major carriers, which help to subsidize their network infrastructures and without which maintaining their existing customer base would be severely limited.
I recently spoke to the CEO of a RLEC and one of his big concerns among many is the slow erosion of his CAB settlements. This bill would add access fees and universal service fees to VoIP. The CEO estimates that over a four-year period his settlement agreements with ATT, Verizon, CenturyLink and other companies will drop precipitously, by nearly 80 percent.

The original purpose of VoIP was to avoid some of these access fees. Connecting America will benefit the large providers as they will see significant reductions in payments to RLECs while at the same time increasing access payments from VoIP service providers. These fees would, no doubt, have a negative impact on thousands of small and mid-sized VoIP companies and consumers by adding costs of doing business. Rural carriers manage all the customers’ complaints, service the current infrastructure, do the truck rolls and manage the overall satisfaction of their customer base. This bill, as it is written today, will affect their bottom lines and possibly put many of them out of business.

Broadband access for Americans should be universal if possible. I agree with and applaud this goal. Is there a way to bring all the benefits of the Internet to all Americans and not wipe out the RLECs or the small and midsized VoIP service providers? ICORE, Inc., believes it’s a noble and worthy cause to provide America with broadband access but not, however, on the backs of the small guys. Rather than funding this project through a government FCC mandate to the sole benefit of the large carriers, they propose that all instead abide by the same rules regulated through the PUC. In other words, let the states manage parity not the federal government. Second, enact strong penalties for the one percent of providers that are gaming the system and leave the 99 percent alone. And finally, have this commission exercise its authority to require VoIP, wireless and landline providers that use the public switched network to pay for that usage.

Tony Jones
tjones@acgresearch.net
www.acgresearch.net

ACG HotSeat with Mike Marcellin from Juniper Networks on QFabric

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Juniper Networks Universal Edge: Scaling for the New Network

Bandwidth-intensive media content is dramatically increasing pressure on service providers’ and enterprises’ networks. Although demand is climbing, it is not generating increases in revenue; consequently, service providers face a scenario where the profitability of providing network services could be compromised. The solution is a converged solution that delivers the quality of experience, service acceleration, and scalability necessary to resolve the service providers’ traffic issues while providing a platform for greater monetization. Juniper Networks’ Universal Edge offers advanced features required to profitably deliver a new breed of service offerings.

ACG Research conducted a total cost of ownership study that compares the MX3D Universal Edge router with two competing routers for a typical edge network passing 64,000 households and a proportional number of enterprise establishments and wireless cell sites.

Download the TCO.

Juniper Networks QFabric: Scaling for the Modern Data Center

The modern data center has undergone substantial changes that have significantly impacted service providers' business operations. IT is now a key strategic asset for differentiation and business success. Service providers face challenges when deciding to upgrade or replace new, emerging technologies that are shaping the next-generation data centers. Traffic flow patterns, the size of data processing and storage operations, and increased scale are impacting data center operations. To meet the challenges, Juniper Networks has introduced QFabric, which addresses the requirements of the modern data center. QFabric does this by delivering any-to-any connectivity, location-independent low latency and services, and orchestration integration, fundamentally simplifying management.

To determine if QFabric does simplify network operations, reduce network latency and congestion, seamlessly integrate with existing network infrastructure and services, and deliver scale without adding cost and complexity, ACG Research conducted a total cost of ownership (TCO) comparison of QFabric versus the market share leader’s network architecture for a mid-scale to large-scale 10GbE data center. It found that QFabric achieves 58% to 76% lower TCO and has more linear scaling of capital expense and operating expense.

Click here to download the ACG Research’s white paper.

The Demand Drivers and Economics of 100G Ports

A broad spectrum of routing, switching and transport vendors is now adding 100 Gbps ports to their product lines. These high speed ports are arriving just in time to meet the capacity requirements of large service providers’ core networks. In addition, 100G technology will help to drive down both CapEx and OpEx which will help service providers to control their costs in an environment where revenue growth is not keeping up with traffic growth.

IP network traffic is growing in a range of 35% to 85% per year across the world. It is growing in all market segments—residence, mobile and enterprise. Residential service usage will be the biggest contributor to overall IP traffic growth. Residential traffic growth is driven by the widespread acceptance of broadband service and the rapid adoption of Over-The-Top (OTT) video content. OTT video has a major impact on network traffic for three reasons. First video content requires much more bandwidth than other media. For example, traditional voice telephony requires 64 Kbps while Verizon FiOS HDTV service requires 18 Mbps. Secondly OTT video as well as Video on Demand are unicast services—each viewer receives a unique flow of video content. In contrast, broadcast TV is multicast—all viewers are connected to the same flow of video content. This has an overwhelming impact on network traffic. Video is expected to comprise over 90% of total traffic within the next three years.

Read the entire article in FierceTelecom's e-book.


Michael Kennedy
mkennedy@acgresearch.net
www.acgresearch.net

OpenFlow: Software-Defined Network Eases Cloud Management for Providers

Traditional routing and switching platforms haven't met cloud providers' requirements for building and managing cloud services -- a reality that equipment vendors were once unwilling to accept. What cloud providers want is an application programming interface (API) for the network layer so they can control the flow of their specific applications across their infrastructures. We now see this capability emerging with the software-defined network and OpenFlow specification.

Read more...

Marshall Bartoszek
mbartoszek@acgresearch.net
www.acgresearch.net

Amazon Lights a Fire and Their Competitors Are Hopping

I like what Amazon is doing with their new Kindle Fire. Everyone likes new hardware and last year’s Kindle is so “yesterday.” There was a very interesting quote from Jeff Bezos that bares further exploration. He was talking about one of the reasons other tablet manufactures have not succeeded in the marketplace, and he thinks it is “because they built tablets instead of services.” Think about that for a moment. Why have Google and Facebook exploded onto the high-tech scene? It’s about content or in Amazon’s case serving the content appetite of the masses. Remember net neutrality debates? The service providers thought the content providers were getting a free ride on their networks. The last time I checked, I pay for my broadband at home and I know the content providers pay for their “pipes.” Who is getting what for free?

Traditional service providers are sitting on incredible assets. They have data centers; they have “pipes”; they sell managed services; they have call centers, billing systems and skilled employees. They invented data centers formerly called center offices or COs. So what gives? Why can’t the service providers compete with Amazon or Google? They have the potential to be content kings. I say it’s because the largess within their operations. The leadership recognizes it and understands that it is better to slowly turn the crank and not make any waves. The leadership has the will but they lack support from the rank and file because of their sheer size. I remember when SBC heralded the news that it was going to introduce a video on demand service. After years of efforts and supposedly billions of dollars of investment, can I download a video from AT&T? Sure, five years after I could from YouTube. There is very little internal creativity within the service provider market. They move too slowly, and they rarely innovate anything. At one time service providers were the true communications innovators. What happened? Today, if they see an emerging trend, they buy into a market. So what you get is a large, desperate organization with very little synergy between it parts.

If just one of the service providers could think outside their box for a moment, like Amazon, they could step out of the commodity business of providing wired and wireless “pipes” and move into content services. Think about some of the innovations that Amazon has done. They wanted to make buying over the Internet efficient so they built a better mousetrap and patented a shopping cart process. Then, due to their success in selling stuff online, they had to build massive distribution centers and data centers to support their growth. Low and behold, Amazon was one of the most influential innovators in cloud computing. No one thought people would want to read a book or the newspaper on a Kindle. I see people using them every time I go through an airport. Millions have been sold. Now, they Amazon has completely rethought the browser and have introduced Silk as an innovation that has the potential to solve some very practical issues with mobile computing. I love it.

In the movie “The Graduate” a character gives Dustin Hoffman one word for the future, “plastics.” Today, the word for the future is “content.”

Marshall Bartoszek
mbartoszek@acgresearch.netwww.acgresearch.net

Meshed Optical Topologies

As network architectures become more agile and dynamic, they enable faster provisioning and service creation. However, migration issues are increasingly apparent as operators move from static and point-to-point networks to transparent mesh architectures that deploy ROADMs, optical cross-connects and dynamic control planes.

Operators are discussing mesh topologies and dynamic networks but are overlooking important technical and physical issues. Power transients and chromatic dispersion effects are far more prominent at higher bit rates and in mesh topologies. Specifically, standard mitigation is simply not sufficient or sophisticated enough to handle the increased rollout of high-capacity links at 40G and 100G in transparent mesh networks.

Want to read more? Click here to download the PDF.

Eve Griliches

egriliches@acgresearch.net
www.acgresearch