1Q15 Worldwide Video Infrastructure Markets at Crossroads: Where to Invest

Video impact on both fixed and wireless networks key driver for new deployments

The Worldwide Video Infrastructure markets decreased revenue in Q1 and year over year because of a general slowdown in service providers’ capital expenses, uncertainty with mega-mergers and accelerated competition. The Q1 Total Worldwide Video Infrastructure market posted revenue of $3 billion. Set-Top Box Worldwide Market Shares, which includes IPTV STBs, Cable STBs, and DTAs, increased 3.3% quarter over quarter but decreased 12.0% year over year. Cable Set-Top Box Worldwide Market Shares, which includes SD, SD+DVR, HD, HD+DVR, and Hybrid STBs, increased 8.6% Q-Q but decreased 15.5% Y-Y.

U.S. capex was down 14 percent in 1Q and is projected to be down 10 percent in 2Q. The second half of 2015 is expected to be positive, with capex ranging from 2 to 6 percent, but overall for 2015, U.S. capex is projected to decline 4 percent. Europe is projected to increase approximately 5.8 percent, APAC will be up 6 percent and CALA, which was down 4 percent last year, will grow 2.2 percent.

Service providers are at inflection point as to what to do and where to invest and are debating about staying with current infrastructure solutions, adding incremental features and capacity to current installed base. “The realization that video is just packets, albeit a lot of packets, is impacting video specific investments,” states Greg Whelan, video analyst, ACG. “Service providers are driven by content acquisition as OTT momentum continues and access network upgrades to address real and imagined gigabit competition.”

TREND and DRIVER HIGHLIGHTS

• Service providers are reluctant to make major investments in current technologies as market uncertainties weigh heavily; this is illustrated in the CMTS market, down 15% q-q and y-y. New deployments are minimal with most being upgrades and additions. New architectures such as CCAP, DOCSIS 3.1 and Remote PHY are very appealing, causing MSOs to be hesitant to commit CAPEX to existing technologies.

• The industry is doing itself a major disservice by selling on bit rate and not the value and experience of the services they provide; it is akin to digital camera megapixels. More the better? Consumers do not understand that beyond 6 Meg it really does not matter for 99 percent of the use cases; the huge file size of 10+ megabit images is less desirable and arguably useless to consumer. Same is true with gigabit.

• Content acquisition is top video priority: Big issues are all about providing compelling content and “skinny bundles” emerging as key force in industry.

Click for more information about Greg Whelan.

Contact information@acgcc.com for more information about ACG’s video services.

Greg Whelan
gwhelan@acgcc.com
acgcc.com

Two Major Vendors Shift Risk Categories: 1Q 2015 Vendor Financial Index Results

Ericsson Jumps into the Med-Risk Category and ALU Moves from Medium Risk to High Risk

ACG Research has released its 1Q 2015 Vendor Financial Index report, which delivers independent information about the sustainability of a vendor or company to help providers assess the risk of selecting the right vendor to meet their business requirements and to ascertain a risk level on the stability of the vendor regardless of technology innovations.

Low-risk vendors for the quarter are Adtran, Brocade, Cisco, and Juniper. Characteristics of low-risk vendors include strong revenue outlook, high operating margins because of sales, solid gross margin and expense discipline, low debt dependency, and high receivable efficiency ratio.

Adtran’s performance is predicted to improve in 2015 as a result of higher carrier expenditure in U.S. and Europe. Tier 1 U.S. and Tier 2, Tier 3 carriers’ business is expected to grow. Broadband Access platforms will drive growth. Brocade’s SAN revenue is expected to be down by 8% to 11% QoQ. IP networking revenue is projected to be up by 3% to 11% QoQ. Global Services revenue is expected to grow 2%. Focus for new business is on large enterprises and cloud service providers. The firm is collaboratively working on Dell’s new open standard NFV platform. Cisco’s Vision is strong for Application Centric Infrastructure (ACI) and InterCloud. ACI and APIC are predicted to be the cornerstone of the next generation of networking architectures. The volatility in service provider and emerging markets will continue to be a concern. Order growth in SDN will add to revenue in 2Q15. Juniper’s strategy is focused on Cloud Ecosystems and High-IQ Networks segments. Partnership with Vmware will enable highly automated cloud datacenter solutions for both service provider and mission-critical enterprise network.

Alcatel-Lucent, which was a medium risk last quarter, Cyan, Ciena and ZTE are high risk, which is characterized by low inventory turnover ratio, revenue decreases and low value of equity to debt ratio. Alcatel-Lucent, soon to be called Nokia, saw a decrease in revenue in 1Q (21.5% sequentially) because of a decline in spending in the North America market and increase in cost of sales. The merger with Nokia will shift ALU’s priorities to include expanding Nokia-ALU’s optical networking portfolio with the introduction of high-capacity metro optical networking platforms and a scalable wavelength routing technology.

Ericsson, which moved from low risk to medium risk, is expected to see slow growth in its North American mobile broadband business. The company’s investment focus is in both core and new businesses in IP networks, cloud, OSS, BSS, TV and media to capture new markets.

For more information about ACG Research’s Vendor Financial Index service or other syndicated and consulting services, contact sales@acgcc.com.

Ray Mota

rmota@acgcc.com

www.acgcc.com

Nokia-ALU: Long-Term Market Share Impact Will Definitely Shake Up the Market

Before we discuss Nokia-ALU and the impact this new company will have on the market, let me first clarify in case there is any doubt: this is an acquisition, not a merger. As for Alcatel Lucent, well, there are $5 billion reasons (Nokia’s cash) as to why this acquisition makes sense for the company. ALU has been cash strapped for years and had initiated its Shift Plan to reduce its costs and improve its margins.

What does this buyout mean for ALU? The company’s IPD (routing/IP technology group) will see a major impact and benefit albeit slowly. Recently, Juniper Networks stated that the company does $190 million in router revenue through Nokia, which will now transition to ALU.

Nokia fully intends to transition ALU into its company, having learned a lesson that Ericsson failed to learn with its Redback acquisition. Rather than assimilate the acquisition, Ericsson stayed too agnostic. Their failure has resulted in Ericsson selling more Cisco/Juniper routers than their own.

Nokia has learned from this failure and intends to transition 100 percent of the $190 million to ALU’s IPD group. Nokia will no longer promote Juniper and will offer refresh rates, but the goal is to move this revenue to ALU, which will result in a significant market share shift.

Another positive: Although Nokia has trended down many of its groups, the company has focused on mobility. There will be slight overlaps with ALU but together they will bring in more segments of mobility that they were not in before.

An impact? Definitely, but not immediately. When two companies of this size merge there are long-term adjustments. The market will not see anything in the short-term but by 2020 this acquisition will have a definite affect on the market and will cause major shifts in shares.

A word of caution, when Ericsson bought Redback neither company retained its IP talent. The result was a lack of visionaries in the IP segment. When ALU bought TiMetra, having learned from the Ericsson debacle, ALU kept its staff and successfully assimilated the new staff into its group. Whether this happens with Nokia, who knows? Merging the existing Nokia group with ALU’s IPD group, which has a 2.4 billion run rate, could end up being a big challenge because you now have a Swiss company and a French company, and it is anyone’s guess how personnel will shake out. Insiders, however, state that only 12 percent of ALU’s workforce is in France, and a there is a similar number out of Finland, which indicates that they will have less exposure and affect to hiring practices and HR related issues.

Again, time will tell.

For more information about ACG’s routing and switching services contact information@acgcc.com.

For more information about Ray Mota, click here.

Ray Mota

rmota@acgcc.com

www.acgcc.com

1Q Worldwide Mobile Infrastructure Markets Driven by LTE

LTE-Advanced deployment is a major industry, voice over LTE activities and high interest in end-to-end VoLTE solutions is driving the mobility market

The Worldwide Mobile Infrastructure market decreased revenue in Q1 and year over year. The Q1 Total Worldwide Mobile Infrastructure market posted revenue of $87.4 billion. Although mobile broadband net sales were primarily driven by radio technologies, and specifically LTE, the market downturn is attributed to the Ericsson’s North America decline, as most operators have completed their LTE deployments. But it is anticipated that the fast-rising data traffic could eventually require further upgrades of U.S. wireless networks to LTE-Advanced, generating opportunities for vendors.

Mobile spending was flat in the quarter and is attributed to carriers in the phase of planning to prepare for new deployments and network upgrades. Current trials with the different forms of LTE could potentially slow down spending until MNOs are convinced of the added value they bring to the networks with carrier aggregation. 3G remains strong and continues to grow as developing economies upgrade and invest in this technology. Mobile infrastructure will continue to be a highly dynamic market for the next several years as vendors and carriers are getting ready to offer new technologies such as VoLTE, network function virtualization, small cells, Hotspot 2.0, millimeter wave backhaul and DAS. Vendors with a plurality of solutions will need to have solid strategies and execution plans in this demanding environment.

“It has been an interesting quarter as the LTE key revenues shifted from North America and EMEA to Asia, which is becoming a very vibrant market across all the mobile technologies because of the large deployments and tremendous demand for mobile data,” states Elias Aravantinos, principal analyst, ACG. “However, there is ongoing 5G preparation and services convergence trend across all leading operators. This trend will result in high-performance networks. Providers are trialing new LTE forms, NFV, and virtual services as well as addressing densification affecting the small cell market and creation of a new IP voice services that support VoWiFi and VoLTE as complementary services. This is expected to increase operators’ spending the coming years.”

TREND and DRIVER HIGHLIGHTS

• Network innovations will facilitate bandwidth increases by expanding the capacity of the access network, reducing service providers’ costs, and creating new incentives for subscribers to stay on-net. For example, the benefits of LTE-Advanced include optimized heterogeneous networks with a mix of macro cells and small cells to improve coverage and reduce costs and use of multicarrier to support higher data rates.

• LTE worldwide initiatives will remain strong by the end of 2015, driving the demand for mobile backhaul, evolved packet core, and edge routing solutions; however, there will be a decrease in the mobile backhaul business when LTE roll-outs end. In 1Q some vendors benefited from a second round of investments in LTE backhaul infrastructure to raise capacity for demand. LTE TDD is gaining traction, as the LTE-TDD mode with unpaired spectrum continues to develop in all growing regions, particularly in China. LTE-Advanced systems commercially launched in more than 30 countries, expected to double in 2015.

• Market is expected to grow as operators start implementing their plans, upgrading networks because of mobile data access pressure and the LTE subs explosion. Online video will add to this data pressure because more than two-thirds of the global mobile data traffic will be video by 2017. VoLTE service and its growing demand will require, mainly in APAC and North America, more Small Cells for better coverage. Global machine to machine will triple its revenue growth mainly from international businesses.

Click for more information about Elias Aravantinos.

    

    Elias Aranvantino

    earanvantino@acgcc.com

    www.acgcc.com

1Q Worldwide Optical Markets Affected by Capex Decreases

The growth rate of 100G optical interfaces remains steady and the trend to support 4G and mobile Internet services is driving expansion in all regions

The Worldwide Optical Networking market decreased in 1Q15 to $2.9 billion in revenue, dropping 13.3 percent q-q but increasing 4.1 percent y-y. With the exception of the Packet Optical Transport segment, which was up 3.9 percent q-q and Sonet/SDH segment, which increased 0.5 percent, all segments of the optical market posted quarterly declines.

The POTS segment, after slow growth for several years, is beginning to see an acceleration driven by the transition from legacy services and operators that need to transition their installed base. In the SONET/SDH segment most Tier 1 service providers have stopped building out or capped spending on SONET/SDH as they transition to newer technologies; however, in other global markets and low-tier carriers, E1 interfaces are still fundamental to operators’ businesses. Legacy players tend to dominate these businesses with development support limited to maintenance.

U.S. Capex in the first quarter was down 14 percent and the second quarter is projected to be down 10 percent. The smaller capex spending in Q1 had a direct impact in the overall optical market. Capex allocation for optical equipment has decreased from 9 percent to 4.3 percent during the last 5 years.

The top five worldwide players in 1Q were Huawei with 15 percent market share; ZTE, 15 percent market share; Alcatel-Lucent, 12 percent market share; Ciena 12 percent market share and Cisco, 8.5 percent market share respectively.

TREND AND DRIVER HIGHLIGHTS

Web 2.0/Webscaller/Co-location capex is expected to grow in 2015 in the $36 billion range and will be a new growth area for selling virtual routers, DCI optical and packet solutions. We expect to see growth with web scale companies growing their capex.

Data center interconnect positively impacts both the optical and packet domain. Currently, ACG sees six to eight percent of edge routers being dedicated to DCI. ACG sees three main areas that will be the foundation for DCI: Optical, Layer 2 and Layer 3.

MSPP solutions continue to decline as subscribers transition from legacy protocols such as ATM and TDM based technologies to the IP/Ethernet environment continues.

100G in metro applications in high demand, which will help drive growth in overall optical market.

For more information contact sales@acgcc.com.

Ray Mota

rmota@acgcc.com

www.acgcc.com

Carrier SDN: Networks as Agile as the Cloud

Operators need more agile ways to deliver network services if they’re to fully realize the benefits of cloud computing. And many see Carrier Software-Defined Networking as the way forward.

Enabling Carrier SDN

Most of us know that remarkable gains in creating and deploying new services efficiently and at scale have been made in the cloud computing community. But in the network operator community we also know that a significant impediment to delivering new services with the agility of the cloud is the rigidity of the networks we deploy and the processes we use to define and instantiate the services.

Vendors have expended a great deal of effort in recent years to enhance network flexibility. Solutions have begun to appear that address parts of the problem, but they have typically been constrained to a particular function or domain and have not actually solved the overall agile service delivery problem for networks.

I’ve just had the opportunity to study the new Alcatel-Lucent Network Services Platform (NSP) and believe it has attributes that will interest operators who aspire to deliver services in a new way by enabling Carrier SDN.

What it is

The NSP is a unified solution that creates agility in network service delivery. It brings efficiency and flexibility to the front-end problems of new service creation and the immediate downstream problems of operating those services efficiently and intelligently in a multilayer, multidomain, multivendor network. It does so in a unified and holistically designed solution.

What I liked about it

NSP breaks the OSS/BSS logjam in network service creation. It uses open RESTful APIs northbound for OSS and BSS integration and important data modeling standards and templates for network and service representation. Services and networks are represented once to multiple OSS and BSS applications, eliminating the need to define the same service multiple times to different modules so they can talk to a range of vendors’ platforms.

1. NSP associates service policies and tenant contexts with newly defined services, and applies them broadly across the target network infrastructure. We analyzed development of a new bandwidth calendaring service by a representative operator and discovered that NSP brings improvements over 50 percent in both time and resources definition compared to present modes of operation.

2. As service templates travel southbound they’re converted by a versatile mediation engine into the semantics and formats needed to work with each IP/MPLS and optical network platform being managed. This auto-conversion dramatically simplifies and streamlines the provisioning process for service offerings across network layers, vendors, and domains.

3. Communication southbound with NSP is supported by multiple important multivendor standard protocols:

• BGP-LS

• PCEP

• NETCONF

• SNMP

• OpenFlow, future, where used

Special cases for vendor CLI support are also included for simplification.

4. NSP bridges the gap between service automation and network optimization. On-demand service provisioning becomes network-aware and makes best use of available network assets during service placement. Dynamic network optimization uses network and service health to drive changes that ensure ongoing service quality and network efficiency.

5. Alcatel-Lucent has integrated functionality derived from 1,000s of operator deployments in both optical and IP/MPLS layers to enhance NSP’s value. For example, three distinct path computation engines are available to meet operator requirements:

• Packet-oriented PCE (PCE-P) for use with IP/MPLS paths

• Optically-oriented PCE (PCE-T) for use with optical paths

• Multilayer PCE (PCE-X) for use in multilayer path optimization

PCEs define paths in line with service policies at provisioning time, and KPIs are monitored in real time to determine if adjustments of any sort are called for as operations progress.

6. Alcatel-Lucent has incorporated unique and innovative algorithms for resource optimization. For instance, self-tuned adaptive routing for LSPs helps the network adapt allocations in real time according to policies and service delivery needs, producing further efficiencies and revenue-generating capacity.

The NSP seems to supply a missing link in solving the wide area network agility problem by leveraging the benefits of Carrier SDN. service providers will be interested in how its combination of functions has the right attributes for turning WANs into agile service delivery platforms. And it’s likely to be a major contributor to many operators looking to make their networks as agile as the cloud.

Click here to download Paul Parker-Johnson’s business case.

For more information about Paul Parker-Johnson, click here.

Click here for more information about ACG’s SDN service.

Paul Parker-Johnson

pparkerjohnson@acgresearch.net 

www.acgresearch.net

1Q Worldwide Router and Switch Markets Affected by Lower Global Capex Spend

Global capital expenditure is expected to increase only two to three percent in 2015.

The Worldwide Carrier Routing & Switching markets decreased revenue in Q1 but was up slightly year over year. The Q1 Total Worldwide Carrier Routing and Switching market posted revenue of $2.8 billion. The core routing segment had revenues of $570 million, increasing 1.2 percent q-q and up 3.6 percent y-y. The edge/switching segment posted revenue of $2.2 billion, down 8.0 percent q-q but up marginally 0.2 percent y-y.

Worldwide Carrier Routing & Switching Markets 1Q15

U.S. capex was down 14 percent in 1Q and is projected to be down 10 percent in 2Q. The second half of 2015 is expected to be positive, with capex ranging from 2 to 6 percent, but overall for 2015, U.S. capex is projected to decline 4 percent. Europe is projected to increase approximately 5.8 percent, APAC will be up 6 percent and CALA, which was down 4 percent last year, will grow 2.2 percent.

Disruption continues to affect the router and switching market; social, mobile, analytics, and SDN/virtualization adoption has resulted in more data being transmitted and stored through mobile and computing devices. “Currently, carriers have infrastructure that is complex and is somewhat inflexible,” states Ray Mota, CEO of ACG. “This means they have to be very risk adverse. Carriers must start transitioning their architectures to so they just program the services, not rearchitect the network every time they have a new service. Service providers are looking for low-risk deployments while doing their network transformations and are looking at hybrid networks, a network that utilizes both the purpose-built Physical Network Function and Virtual Network Function, which are targeting almost all segments and functions of the network.”

TREND and DRIVER HIGHLIGHTS

Network innovations will facilitate bandwidth increases by expanding the capacity of the access network, reducing service providers’ costs, and creating new incentives for subscribers to stay on-net. For example, the benefits of LTE-Advanced include optimized heterogeneous networks with a mix of macro cells and small cells to improve coverage and reduce costs and use of multicarrier to support higher data rates.

LTE initiatives are also driving demand for mobile backhaul, evolved packet core, and edge routing solutions; however, there will be a decrease in the mobile backhaul business as LTE roll-outs end. In 1Q some vendors benefited from a second round of investments in LTE backhaul infrastructure to raise capacity for demand.

Wireline carriers remain focused on enhancing the fiber footprint, expanding its reach (FTTX) and capacity (100 gig) to facilitate improved broadband offerings, carrier Ethernet services, and cloud capabilities. Increasing traffic volumes at the network edge should drive demand for core upgrades, which may benefit sales of coherent transport products, OTN switches and core routers.

Data center interconnect positively impacts both the optical and packet domain. Currently, ACG sees six to eight percent of edge routers being dedicated to DCI. ACG sees three main areas that will be the foundation for DCI: Optical, Layer 2 and Layer 3.

For more information about ACG's router and switch services, contact sales@acgcc.com.

Ray Mota

rmota@acgcc.com

www.acgcc.com

SDN Requires a Standard Version as "a Prerequisite"

The networks programming process is quite challenging, as operators face several issues within Software Defined Networking (SDN) planning such as maintaining the five-nines reliability of telecom networks striving for reliability and high tolerance. Ultimately, a standard version of SDN is "a prerequisite" and operators are looking to deploy whatever can really interoperate not only with other pieces of the network but also with future networks. The SDN products, today, need to ensure full compliance with mobile-specific requirements in an identified and globally accepted proof of concept.

Recently, Nokia Networks has laid the foundations for deploying SDN in mobile backhaul through a proof of concept developed in conjunction with Finland-based Aalto University and other industry partners. The proof of concept has centralized SDN controllers operating standard transport and packet core switches in a virtualized LTE network with all control software running on generic data centers to enable a global view of the network but also running mobile backhaul, transport and core entirely in the telco cloud.

Huawei is engaged in a joint innovation project with the China Telecom Guangzhou Institute. It has released new products under its SDN based mobile backhaul solution LTEHaul, supporting SDN capabilities through the release of its CX600 series aggregation router, its ATN910 series cell site router and U2000 network management system.

There are several ongoing projects and forums where vendors have been proactively participating in standardization efforts in collaboration with stakeholders, operators, equipment manufacturers and research institutions, to promote the application of SDN in end-to-end networks.

Some examples are the Open Networking Foundation and the OpenDaylight project where Intracom Telecom serves as Silver Sponsor, aiming to transform the most mature SDN controller to carrier-grade status by evaluating and enhancing its performance and stability for massive scale deployments comprising several thousands switches. Ultimately, the goal is to extend this project to wireless backhaul networks. Intracom Telecom’s popular MW nodes (OmniBASTM and StreetNodeTM) have been designed to be OpenFlow ready; new networking functions are being developed on the OpenDaylight Controller to facilitate a smooth shift to the SDN architecture

The use of SDN in backhaul networks allows MNOs to work more easily with a number of suppliers, but also allows them to consider flexible network-sharing arrangements to drive down deployment, capital expense and operational costs. SDN is expected to redefine the backhaul network’s ecosystem and value chain, but there are still questions of when and how to migrate the critical network elements.

    

    Elias Aranvantino

    earanvantino@acgcc.com

    www.acgcc.com

Small Cells: Ideal for Smart City Applications

“Digital urbanism” is rapidly becoming a central pillar for urban planners, technology architects, developers, and transportation providers, as well as in public service provision. For the last two years the UK has been pushing its smart cities concept and testing applications in collaboration with vendors and is, consequently, becoming an innovative test bed for smart applications. City councils throughout the countries are considering new high-capacity wireless and optical networks to efficiently support a wider range of end-user’ needs. The smart cities of the future could offer ultra-low latency connectivity for driverless cars, kilobits per second connectivity for machine to machine sensors to monitor the health of citizens with long-term chronic conditions, hundred megabits per second for ultra high-definition TV broadcasts, video surveillance and terabits per second data transfers for collaborative research and development programs between global universities.

Universities, which are a good place to look for future trends, are pushing hard to become “mini cities” and are frequently early adopters of smart city technology. One such example of “mini cities” is the University of Bristol, Cambridge, where staff is adding the new public platforms with the assistance of several vendors, such as NEC and Cisco. With small cells these “mini cities” could be easily rescaled to larger ones as they can effectively satisfy the requirement of a carrier-grade, high- capacity transport network in the urban environment.

The smart city technology architecture when boosted by the small cells should be able to deliver the following benefits:

• Simplicity and availability. End-to-end IP, high bandwidth guarantees high service quality and relatively low maintenance.
• Security. IP security mechanisms ensure a highly robust and resilient system.
• Multiservice. Solutions should place equal importance on data, voice, video, and sensors.
• Technological scalability. The new architecture should be designed to handle the large number of connected “things.”
• Business scalability. Solution should offer “pay-per-use” opportunities to enhance granularity so that it can be scaled as budgets allow.
• Manageability. The end-to-end nature of the solution makes maintenance easier by enabling greater visibility into the infrastructure.
• Flexibility. The architecture allows city managers and citizens to utilize the same services and information for their specific needs.

For more information about Elias Aravantinos click here.

 

    

    Elias Aranvantino

    earanvantino@acgcc.com

    www.acgcc.com