The US Mobile Consumer Deserves a Reset

The AT&T and T-Mobile merger raises serious issues as to how the FCC is conducting its regulatory oversight responsibility. Clearly, it’s time for real reform.

Whether you are for or against the merger between AT&T and T-Mobile, you have to be very concerned at how the process is playing out (refer to Roger Entner’s well documented FierceWireless’ article (http://www.fiercewireless.com/story/where-due-process-fcc-releases-report-attt-mobile/2011-11-30).

It is convenient to lay the broken process at the feet of the current administration; however, this is not a new failing of just Obama's FCC. Dating back to 2006 Former Chairman Reed Hundt observed that the FCC has the “reputation for … capture by special interests, mind-boggling delay, internal strife, lack of competence, and a dreadful record on judicial review.” The low opinion of the FCC’s reform process continues today (fcc-reform.org): “Rather, because the agency operates with limited imagination, almost no strategic thinking or planning, and with an absence of well-developed sources of data to guide its decisions, it often misses opportunities to chart independent courses of action…to be sure, the agency also has an uncomfortable track record of conducting its proceedings…without engaging in careful data-driven decision-making… (http://fcc-reform.org/paper/fcc-reform-and-future-telecommunications-policy/i-background/fcc-historical-perspective). This unfortunately sounds all too familiar in the AT&T/T-Mobile’s application.

The FCC also broke with tradition and before having a full vote, had already signaled its intentions. Actually, the entire process has been broken, raising serious doubt as to how the FCC is conducting its regulatory oversight responsibility.

What this means is that a reset is needed and that is just what AT&T and T-Mobile have done by withdrawing their application. Their message: let’s start the process over and get it right this time. But there is a dilemma: How will it be possible to get an unbiased review, using the established criteria, in which that the market can be confident for this and future transactions?

Sticking with precedent would be a great start. Mobile competition has always been measured on a local level (for example, Denver is different from the competition in Washington, DC), and that should not change. Considering ALL of the competitive options is the next step. MetroPCS, Cricket, Leap, C-Spire and others deserve to be recognized for their important roles in the market, not cast aside. Let’s at least start there. After that, are we going to regulate users and/or spectrum holdings? That also needs to be addressed especially in light of the Verizon/CableCo spectrum deal (refer to Phil Goldstein’s article: http://www.fiercewireless.com/story/verizon-buy-spectrumcos-aws-spectrum-36b/2011-12-02?utm_campaign=TwitterEditor-FierceWireless). They may look like separate transactions, but the impact on the user and the markets are definitely linked.

The US market is widely regarded as the most competitive 4G market in the world. As pointed out by the FCC, Americans enjoy unprecedented choice when it comes to their mobile services. While the US has the most mobile operator choice, other countries such as Sweden show faster service by using larger spectrum allocations. However, the FCC continues to be mute on how to solve the near-term problem at hand: spectrum availability. Their actions on AT&T/T-Mobile and VZW/CableCo will speak volumes. The mobile broadband market is too important to America’s growth, competitiveness and economy to be saddled with such an opaque and inconsistent regulatory oversight process as exhibited during the AT&T/T-Mobile review. It may turn out that this merger will not receive government approval, but let’s complete the entire process to determine the outcome. American mobile consumers deserve nothing less.

For more on T-Mobile read Chris' article When it comes to 4G, T-Mobile has the advantage on FierceWireless.

Chris Nicoll
cnicoll@acgresearch.net
www.acgresearch.net

Mobility Winners Will Bridge Cellular and WiFi

But at what cost to the backhaul networks?

On the heels of 4GWorld in Chicago this year, it is rapidly becoming apparent that users’ behaviors are slanting more toward the nomadic than being truly mobile users. According to a 2011 Deloitte study, traffic on WiFi networks is expected to increase must faster – up to 50% - than data on cellular networks. This aligns well with common wisdom that says about 70% of a user’s traffic is from home or at work and only about 30% is when the user is truly mobile. This puts WiFi square in the sights of the cellular operators so that they can help alleviate cell congestion, but it raises a host of issues:

• Backhaul is the #1 problem for many WiFi networks and is typically in the megabit range for many businesses, not nearly enough to support even a handful of 4G users on smartphones or laptops
• Unlicensed spectrum is just that, unlicensed, and carries the possibility of interference and congestion from other networks
• Security is not standardized with the carrier networks and is often nonexistent in many facilities, something the 802.11/HotSpot 2.0 standards are working to address
• Quality of service is a high demand (and becoming more so) at sites where the users are more stationary and hitting the networks harder with larger downloads, streaming audio and video and two-way conferencing.

A number of equipment vendors (for example, Cisco with its Service Provider WiFi solutions) are stepping up to address these issues. Small players include BelAir Networks, Ruckus Wireless and Alvarion, companies working on a seamless combination of small cell and WiFi infrastructure.

The hardest problem or perhaps the most expensive problem to solve is that of backhaul. As the cellular operators found out with the 4G upgrades, sufficient backhaul has a huge, positive impact on users’ experiences; insufficient backhaul creates poor experiences.

According to BelAir Networks, a combination of small cell/WiFi service can increase capacity by 100x. Those are the kinds of numbers that get the operators’ attention (if the operators can address the many issues important to their users).

Chris Nicoll
cnicoll@acgresearch.net
www.acgresearch.net

ACG Research Names Chris Nicoll as Principal Analyst for Its Mobility Practice

ACG continues to expand its coverage areas by recruiting best-in-class subject matter experts

ACG Research announced today the appointment of Chris Nicoll as principal analyst for its mobile service. Chris will lead ACG’s mobility practice services and syndicated programs, which includes mobile infrastructure, service provider WiFi and service provider VoIP services.

"We are extremely excited about Chris joining our team,” says Ray Mota, managing partner. “His rich technology analysis background, commitment to the industry and passion for helping carriers grow make him an ideal fit for ACG Research. And with Chris leading our mobile analysis consulting services, ACG will be on the cutting edge in providing the services to service providers and vendors that help them determine their economic value.”

Chris is a highly respected and experienced industry analyst, consultant conference speaker and panel moderator. Chris provides strategic marketing thought leadership, competitive response and corporate positioning consulting to his clients based on his previous experience working in Strategy, Network Engineering and Public Affairs for US and International network equipment vendor and fixed and mobile operators.

Recently, Chris published ACG’s Q3 Mobile Infrastructure Market report, which showed across the board decreases quarter over quarter but year-over-year market growth across all segments. Total Packet Core was up +19.9% and Mobile IP Edge posted an increase of15.1% y/y. Of all vendors, Cisco and Ericsson were the only vendors to post positive or neutral numbers in all product areas, reinforcing their leadership positions. Chris is working to expand the coverage area in his space. Contact Chris at cnicoll@acgresearch.net to discuss your company and to ensure accurate representation in his reports.

Scaling the Router Control Plane

As network usage moves to cloud, personal and mobile services the quantity of network signaling—control plane—traffic is exploding. Router vendors and network architects who are already struggling to meet the bandwidth requirements of video traffic must add control plane scalability to the network design equation.

The rapid increase in network signaling traffic is driven by the move from an Internet that served fixed locations and fairly static information sources to one where users demand personalized, socially-inclusive, media-rich apps, and mobile devices. Growth in fixed and mobile broadband subscribers, the number and type of network devices, and applications are all fundamental drivers of increase control plane signaling traffic. They combine to produce a multiplier effect that makes control plane traffic grow faster than data plane traffic.

Read the entire article at FierceTelecom.

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

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.