Transition Defines Service Provider Video Infrastructure Market

In addition to facing the macroeconomic uncertainty that is challenging nearly all IT markets, the SPVI market is undergoing significant transitions on three major fronts:

Converged IP infrastructure: Cable operators’ desire to move to a converged IP infrastructure has been in the works for several years. This is understandable, given the complexity of the legacy systems and the mission-critical nature of the infrastructure. The development of the CCAP architecture addressed this need, and CCAP based products are being trialed now. We expect commercial deployments to start in late 2013. Interestingly, this transition is being driven and managed by the service providers with the cooperation of the traditional networking vendors.

TVE is part evolution and part revolution. It is evolutionary in that we have had the ability to stream video content to computing devices for over a decade. It is revolutionary in that tablets, mobile devices and LTE wireless are providing consumers much greater choice and control over content, location and time. This transition is in full progress and is being driven by a different set of players than has been customary: consumer electronics manufacturers, content owners and the standards bodies that influence protocols and technologies such as MPEG dash and HTML5. This is unfamiliar territory because the SPs or the traditional vendors are not in control of the device and have less influence over the design, implementation or utilization.

The OTT revolution is also fully underway, but the impact is not totally felt as yet. This revolution is not about technology but business models and revenue participation. The balance of power has shifted more to consumers. SPs must find business models, pricing, packaging and bundles that appeal to consumers and that they can provide in a profitable manner. While content owners have significant leverage in the OTT model, they are also dependent on consumers’ tastes and requirements.

These transitions are dramatically changing the roles and relationships of the technology suppliers, service providers, content owners and consumers and are creating significant challenges for all the parties. In addition to these macro transitions, pay TV operators are facing increased demand for higher speeds and more competitors (fiber, DTT, satellite and cable), and need to upgrade existing networks to stay competitive.  

These market conditions present a difficult landscape for SPs and their suppliers, as it dictates not just a technology transition but a re-evaluation of core business models as well.  These are definitely interesting times for the pay TV market.

For more information about ACG Research's Video services, click here or contact sales@acgresearch.net.

David Dines
ddines@acgresearch.net
www.acgresearch.net

Multiple Factors Reduce Optical Network Forecast

ACG Research has reduced the Optical Networking forecast for 2012-2017 from a 3.6% five-year CAGR to 2.6%.

• Economy: The economy continues to affect the market as regions such as the euro zone have not improved, and North America has not built any significant momentum toward a clear or immediate surge in spending. There seems to be few outlets for positive data points.
• Capital Expenditures: We are not seeing the CapEx flush that some expected in the second half of 2012. While AT&T has reported increased spending for broadband over the next three years, we believe only a portion of this will trickle down to optical expansion requirements.
• Guidance: Several vendors are guiding flat or are lowering expectations for Q4 (Alcatel-Lucent is an exception). Those heavy in the enterprise have reported corporate trepidation and are slowing their spending because of indecision.
• Company Size: We are seeing smaller companies doing better than some larger ones primarily because they are well diversified in their customer bases. Most medium or smaller companies are selling to content providers as well as the enterprise, which helps buffer the lower spending by Tier 1s. Those that are largely Tier 1 focused are feeling the most pain.
• Pricing Pressure: 100 G pricing and general ASPs have fallen more than 50% in the last 5 quarters for some vendors.
• Product Management Choices: Vendors that have multiple products are not making the difficult product management decisions to move forward and support key programs. Research and development is being spread across multiple platforms, resulting in delayed product and lack of innovation.
• Consolidation: We expect these factors will finally result in consolidation in the optical market.

ACG continues to be cautious in our overall estimates for the next five years. The transition from separate IP and optical platforms to converged packet optical-based platforms remains slow as operators weigh the advantages and disadvantages of integrated solutions and the effect of SDN on the overall marketplace.

For more information about Eve Griliches, click here.

For more information about ACG Research's SDN services contact sales@acgresearch.net.

Eve Griliches

egriliches@acgresearch.net 
www.acgresearch 

3G Technology Slowdown Prompts Vendors to Refocus

Diminishing revenues in 3G technology contributed to the Worldwide Mobile IP Infrastructure market decline of 4 percent in Q3 2012. Traditional mobile radio access network (RAN) vendors will see a massive reduction in macrocell CapEx spending by mobile SPs in the next 4–5 years. In 2012, this trend is emerging in the 3G RAN market, and its effects will continue globally in 2013, with some vendors seeing double-digit declines in 3G revenues.

Mobile service providers are struggling to maintain profitability against the data tsunami and network capability (in some cases data growth of 30% monthly), which is forcing these them to rethink CapEx and OpEx models. For mobile SPs faced with tough boardroom decisions, traditional mobile “network economics” and business plans do not work. Network performance, optimization, and small cell-based capacity planning is top of mind for these executives.

All Tier 1 vendors are now refocusing their engineering, marketing, and sales efforts on mobile IP backhaul, LTE, and small cells. Globally, the mobile IP backhaul segment has taken main stage with new product announcements by Alcatel-Lucent, Cisco, and Ericsson. The industry is also seeing strong growth and consolidation in this segment, traditionally represented by specialist vendors. 

Q3 2012 Worldwide  Mobile IP Infrastructure Market Share
Vendor	Rank	Market Share
Cisco	1	32.8%
Ericsson	2	19.7%
Alcatel-Lucent	3	18.5%
NSN	4	9.5%
Huawei	5	6.9%

Evolution of Mobile Industry and New “Network Economics”

ACG estimates small cells will carry 50% of data traffic to SPs’ networks by 2016. The impact of 50% macrocell offload has radical results in today’s $30B+ mobile RAN industry, already seeing downward trends in 3G RAN revenues. Deployment of small cell and its adoption in developed markets will radically shift CapEx spending starting in 2013, and cause tremendous shifts in vendors’ profitability, market shares, and engineering development in the next three years. While this market has been dominated by purpose-built femtocell products from a handful of niche-market vendors, all Tier 1 vendors are aggressively investing heavily.

Q4 2012 will mark significant milestones in small cells industry, with the maturity of next-generation silicon, vendor focus, and capital investment. Small cell represents a massive paradigm shift for the mobile industry; most vendors are offering or have announced next generation platforms ranging from 20mW to 5W licensed radio solutions, designed for indoor/outdoor requirements of mobile SPs. 

For more information about ACG Research's Mobile IP Infrastructure service click here or contact sales@acgresearch.net.

Looming Fiscal Cliff and Europe Uncertainties Continue to Undercut Router Market Growth

In addition to economic uncertainty, vendors in the router and switching market are dealing with more intensive competition, diminishing service provider’s profit margins, and their largest customers cutting spending and delaying purchases of new equipment.

Against a backdrop of global economic instability and political unrest, the Worldwide Carrier Routing & Switching markets reflected typical cyclical performance, remaining slightly flat in Q3. ACG Research anticipates global economic uncertainty, a challenging market and aggressive competition will continue to put pressure on vendors’ pricing and margins. “Enterprise CEOs will, most likely, remain conservative and more focused in their IT spending and hiring for the remainder of the year,” states Ray Mota, managing partner. “These factors will continue to force vendors to innovate and develop technology that can deliver significant operational savings as well as address market demands for new and cutting-edge services that are application focused. Despite some vendors providing low guidance for Q4, AT&T announced a CapEx increase of $2.5 billion per year.”

Q3 Total Worldwide Carrier Routing & Switching market posted revenue of $2.75B. The global market decreased 1.7% q/q and 2.5% y/y. Core Routing revenues were down 1.9% q/q and 9.6% y/y. Edge Routing and Switching revenues were down 1.7% q/q and down 0.4% y/y.

Cisco posted a total worldwide decline of 0.3% q/q and a decrease of 0.8% y/y. In spite of the decrease Cisco reports that its CRS and ASR series continue to demonstrate strong traction. Alcatel-Lucent decreased 2.16% q/q but was solidly up 8.2% y/y. ALU’s 100 Gig is a big differentiator for the company, and the company continues to see more sales traction with this port for core solutions, edge and metro. Juniper increased worldwide routing revenue 1.2%, q/q but was down 7.7% y/y. The company cited the reduction in service providers purchasing high-end networking equipment, difficulty penetrating new markets with new products and strong competition from Cisco as factors influencing its quarterly results. 

Vendor	Q-Q MS Point +/-	Y-Y MS Point +/-
Cisco	+0.8	+1.0
Alcatel-Lucent	-0.1	+1.8
Juniper	+0.5	-1.0
Tellabs	-0.1	-0.4
Huawei	-0.2	-0.2

In the US the threat of the “fiscal cliff” is creating a tremendous uncertainty and service providers are monitoring it closely in order to get some visibility on what kind of impact it will have on consumer, small, mid and enterprise business spending. The threat of another recession could potentially extend service providers’ build-out of new services that, in turn, could impact their CapEx spending. ACG plans to monitor this closely in 2013 with our service provider capacity index service, which tracks the rate of change in capacity and how “hot” SPs are running their networks.

QUARTERLY TREND and DRIVER HIGHLIGHTS

• Core network traffic is growing in excess of 50% per year and new services such as content-rich digital media, cloud and mobile placing new requirements on the network.
• Competitive factors such as lower pricing and reduced margins are putting pressure on the routing segment.
• Interest in mobility and cloud computing continues to grow, especially with SPs that recognize that to have a cost-effective, scalable, automated data center that enables them to offer new services/products they need technology that can deliver significant operational savings.
• In a recent ACG survey, 78% of respondents reported that they have SDN plans that were either under discussion or were planned deployment. Interest in SDN has increased in momentum for two primary reasons: 1) a less than positive macroeconomic environment and 2) providers are searching for a new way to deliver new services and realize significant operational savings while increasing service velocity.

For more information about ACG Research's Router and Switching service, click here or contact sales@acgresearch.net.

Ray Mota

rmota@acgresearch.net

www.acgresearch.net

Optical Market Decreases in Q3 2012

In addition to economic uncertainty, vendors in the optical market are dealing with more intensive competition and diminishing profit margins as well as seeing their largest customers cut spending and delaying purchases.

The Worldwide Optical market decreased 3.7% quarter-over-quarter and remained relatively flat year–over-year. We project that 2012 will post revenue of half a billion dollars below 2011 total spend as service providers have informed us that we should not expect a CapEx flush in the last quarter of 2012.

Bright points in the numbers show BTI continued its upward growth quarter-over-quarter (15%) and year-over-year (45%). Infinera also posted very positively, up 27% quarter-over-quarter and 10% year–over-year. Both ECI and Alcatel-Lucent were down.

We expect market consolidation because of price erosion. Some vendors will merge or sell off assets or will have to terminate product lines. All options are being explored to bolster cash balances to more normal levels. 

For more information about ACG Research's Packet Optical service, click here or contact sales@acgresearch.net.

Eve Griliches
egriliches@acgresearch.net 
www.acgresearch 

Medium-Sized Businesses Buy in to Carrier Ethernet Services

In  his most recent FierceTelecom article, Michael Kennedy, ACG Research business case analyst, discusses why medium-sized businesses are now embracing Carrier Ethernet. No longer satisfied with limited bandwidth requirements provided by a few T1-based access facilities,  businesses are demanding high-speed and high-quality data services. To read more, click Medium-Sized Businesses Buy in to Carrier Ethernet Services.

For more information about ACG Research's business case analysis service, click here or contact sales@acgresearch.net.

Michael Kennedy
mkennedy@acgresearch.net
www.acgresearch