The Future of Broadband CPE: Part I

At Stake: Who Controls the entire home, the service provider or the web company?

The network-terminating CPE device provided by the access network service provider is at an inflection point: it’s at the intersection of service providers’ business drivers and emerging technologies. What’s at stake is control of the entire home and all the revenue generating up-sell opportunities, including emerging Internet of Things services. Access network service providers must decipher this paradigm or risk being usurped by the web companies.

Customer Premise Equipment or CPE historically meant customer owned equipment. In the case of a T1 circuit the service provider would terminate the network with a CSU/DSU and would connect to the customer-owned access router. If there was an issue, the SP would perform a loop-back test to the CSU/DSU and if it passed the test they were done with support. The same is true with legacy home telephony. If there’s a dial tone at the Network Interface Device, the gray box attached to the outside your home, the telco is “done.” If you still have issues beyond that it’s your home wiring, which the ILEC’s no longer manage (for free anyway).

In the early days of broadband, the service provider, telco and cable company would terminate their connections with a DSL or cable modem. The premise facing interface was Ethernet (Layer 2 interface). When consumers wanted to connect more than one device to the Internet they would acquire a Wi-Fi router (Layer 3) through the retail channel.

Today, service providers are combining the modem functionality with the Wi-Fi routing functionality in to a single device. Interesting to note is the SP is taking ownership of the Wi-Fi network, something historically they were loathed to do and could not do for regulatory reasons. The more functionality an SP takes ownership of the more they are responsible for. This leads to the inevitable increase in help calls.

Competition is forcing them take ownership of the total customer experience. A poor experience combined with lackluster customer support is the number one reason for customer churn. Now the CPE or broadband gateway is taking on the dual role of terminating the network and controlling the home network and ultimately the devices and things in the home.

This is not without precedence. The set-top box has always had this dual personality. It terminated the SP’s video network and controlled the home video experience. This is even more prevalent with whole home DVRs. As far as cable companies were concerned the STB was part of the network when it was convenient and CPE when that was convenient.

Now and in the future the SP provided CPE device needs to do two things well. First, it must terminate the access network (Layers 1 and 2), hence the term “network terminating CPE”. Second, it must control and manage the entire home experience (Layers 3-7+). It can and will do the network terminating part well, but it also MUST do the home experience well or risk churn where competition exist or having a web company usurp them.

In future articles I will address numerous issues including:

1. Virtualization Options and Realities
2. IoT and Smart Home Implications
3. Distribution of Intelligence (Cloud, Network and CPE)
4. Distribution of Intelligence (CO/HE, Outside Plant and CPE)
5. Wi-Fi & LTE Convergence
6. Business Models, Value Chains and the N-Dimensional Ecosystem Dynamics

If you would like us to help you navigate the future of broadband CPE industry-wide dynamics and opportunities contact Greg Whelan at gwhelan@greywale.com

Access Insights™ At the Intersection of Service Provider Business Drivers and Emerging Technologies

What is “access”?  Simply put, it’s people and things accessing the cloud and each other. 

Access is no longer Fixed or Wireless.  Access is about connecting people and things to each other and to applications and service in “the cloud”.   Thus, access is about Fixed and Wireless.  It’s about having the right combined architecture on a neighborhood-by-neighborhood basis.  This “combo” trend is having, and will continue to have, major impacts and disruptions in the access market and in the entire service provider ecosystem.  New technologies, architectures and business models will emerge. Market realities are forcing carriers to offer (up to) gigabit speeds and incumbents have billions of dollars in deployed assets and architectures.  All this makes Access challenging for both technical/architectural and business decision making.    

I’ve determined that attention deficit disorder (A.D.D.) is a truly global phenomenon.  Therefore, I will present my points in terse salient bullets :-)

Top Access Insights to Ponder

1. The future of Access is Fixed and Wireless… not “or”
   1. SPs need to adapt organizations, so do vendors!
2. Gigabit Deployment Strategy
   1. Is timing everything? Plus...real strategic implications to the @$# Speed Test.
3. Next Gen Broadband CPE architecture and business models are being disrupted...
   1. Big risk to incumbent service providers and Vendors
4. Wi-Fi: The “toy” that grew up: Strategic implications abound
   1. Wi-Fi: Further proof that the “low end always wins”
5. Voice over Wi-Fi
   1. Nothing but upside to Cable Companies. Nothing but threats to MNOs.
6. LTE vs. Wi-Fi
   1. Remind me which one is for off-load?
7. Next Gen Cable Access Networks …
   1. PON Greenfield is redundant, DOCSIS Greenfield is an oxymoron
8. CPE vs. Carrier Gear (Plastic vs. Metal)
   1. Plastic companies building metal?
9. SDN-NFV in Access
   1. It’s coming… contemplations begin…
10. What’s the value of vendor incumbency at inflection points?
    1. Is Access different from any other industry?

There’s, hopefully obviously to the reader, a lot of thought behind each of these points.  I’d welcome the opportunity to discuss them in more detail.  Please contact me if you’d like to schedule some time explore how these insights impact your strategies and how we can create actionable plans to address and exploit them.

Greg Whelan gwhelan@greywale.com

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Broadband Regulations: Be Careful What You Wish For!

Regulations are a critical factor in the access network. Unlike the “rest of the network” the access network is burdened with federal, state and local regulations and this is only getting worse. I’ve written extensively in the past that net neutrality is a bad idea and that Title II is a gigabit killer.

Why is regulation bad for everyone, including Google? The regulated monopoly “phone companies” depreciated equipment over 30 years. With asset-based pricing regulations you want to keep your asset base as high as possible. Thus, the innovation cycle of the regulated voice industry was 30 years. In the unregulated data networking industry the desired depreciation cycle is five to seven years with three to five years being a more common life span of equipment. Thus, the innovation cycle is three to five years. Today, service providers want to accelerate their innovation cycle to less than one year and ideally three to four months to be more competitive with the “web companies” such as Google and Facebook.

Until recently the net neutrality debate was focused on adverse traffic impacts such a throttling P2P traffic. It’s widely reported that as few as 10 percent of users consume upwards of 80 percent of capacity. The numbers have changed with the proliferation of streaming video but the issue remains. Mobile network operators have solved this problem with data caps. They also have program where web companies can pay so their traffic doesn’t count against subscribers’ data caps. (This may be illegal soon as well.) When an analogous program (for example, paid fast lane) was implemented in the broadband access market there was outrage.

Traditional content delivery networks (CDNs) can bypass much of the public Internet to improve quality of service. Companies that want to provide a better user experience can use CDNs and cache their content in select Tier 1 locations across the country. This helps; however, from the Tier 1 cache to the user is best-effort delivery. Once the traffic enters the local exchange carriers’ (LEC) network in a large metropolitan area the “last 50” miles are best effort.

With this model OTT companies cannot ensure the quality of their service. Why shouldn’t they be able to pay the LEC for better traffic treatment? The argument is that this benefits the large companies at the detriment of start-up companies. It’s just another challenge innovative start-ups must overcome. This actually benefits consumers as only those companies with a compelling offering will make it over the hurdle. Marginal companies with a marginal offering won’t flood the market and the network with garbage. This is a good thing. Isn’t the FCC all about protecting the consumer?

Can capitalism and the free market address the issue of a “digital divide”? Yes, a case in point is Comcast in the Boston area. The company offers $10/month broadband service to any family that has children on the free or subsidized school lunch program in the city of Boston. No laws, no regulations just a solid business driven move by Comcast.

Service providers have invested billions of dollars deploying and managing broadband networks. Data rates have continuously increased. Gigabit networks are being deployed around the world by a range of companies and organizations. The free market is driving them. It’s counter intuitive to expect them to spend limited CAPEX if their return on investment is regulated or uncertain. Today, regulators are faced with conflicting priorities. On one hand they want to spur gigabit investments but on the other hand they want to regulate broadband access. It’s obvious that you can’t get both.To repeat: Title II is a gigabit killer.

Nokia and Alcatel-Lucent: Who Should Buy Who?

Seeking Alpha reported that Nokia confirmed it is in talks to acquire all or part of Alcatel-Lucent and it is no surprise the companes are quibbling over valuation. Alcatel-Lucent has gone through some tough times and appears to be executing well on its Shift plan. Arguably, they are undervalued but investors are waiting for more tangible results, which will indicate that the plan is working. Current shareholders and employees can sense this positive momentum and are remiss to “sell-out” before the results of their hard work and commitment are fully realized. 

Consolidation in the equipment market is not unexpected. Communication service providers are consolidating too and are getting bigger. When this occurs large equipment providers tend to consolidate as well as they have fewer large customers and need economies of scale to be successful. This is truly a zero-sum game. Either you get 70 percent of the business, 30 percent as a second, keep the first one honest, source or you get zero percent. With the inherent complexities of SDN, NFV and virtualization, particularly in multi-vendor integration, it may be years before the “second’ source is even added.

Driving this buyout could be Huawei. The company is disrupting the entire global telecommunication equipment market. The industry has been aware of the company’s “grey area” business practices such as outright appropriating technology and intellectual property to giving eNodeBs away for free, with customers just paying the yearly maintenance fees (with a bonus of dozens of undocumented back doors). Although this is disturbing to the industry what really is of concern is Huawei’s huge product portfolio, their ability to throw “armies” at initiatives and their ability to take a long-term view to market (and global) domination.

The big issue for either Nokia or Alcatel-Lucent is who is going to compete with Huawei? Communication networks are a fundamental asset to nation states. They drive economic development, entertainment, education, national security, etc. Perhaps it’s time all governments treat them as national assets.

The Last Mile.. All local loops are local.

This is a great quote that captures the real challenges of the last mile.  Notice these challenges are not technical.  To adapt a quote from Tip O'Neal (Speaker of the U.S. House (D-MA)  circa 1980s) ....  All local loops are local. 

"The last mile. It sounds easy, it's only a mile, after all – but the problem is, there are just so darned many of them. Wireless or Fixed, the last mile is a massive, poorly-scaling problem that manifests itself with trucks, cherry pickers, tower climbers, backhoes, manholes, labor unions, vandals, and byzantine local regulations and by-laws. What's to love? But as wireless modulation schemes approach the Shannon-Hartley limit, the last mile will increasingly be where we see networks scale to meet the surging demand for mobile capacity. "

From a meeting notice of the Telecom Council of Silicon Valley.

Open Internet + Fast Lane: Win for Consumers: Yet Trust but Verify

The recent move by the FCC is a win for Consumers.  Yet, it's important the FCC "Trust but Verify".

Let's look at who will be the winners with the new FCC rules.  The Consumers.  Consumers will be the ultimate winners.  First, the ISPs will get a fair return on their capital investments and will have the incentive to invest in more bandwidth. Which enables wave after wave of innovation.   Second, those companies that pay for the fast lane will be those that consumers want and have a willingness to pay for.  Netflix for example.

Keep in mind that the FCC proposal STILL prohibits the ISP for degrading traffic.  Thus, those consumer applications in high demand get preferred treatment for the last 50 miles of the network (CDN Cache to home) and all other traffic gets treated the same it's always been.

The argument that small start up companies will be disadvantages is hollow.  It will force entrepreneurs to innovate more to deliver a compelling product to consumers.  It's just another market force to overcome.  It will raise the bar and eliminate the marginal applications from clogging the network.   This is no different than supermarket shelf space, a large barrier to entry.  Coke and Pepsi dominate.  Yet, look at all the upstart beverage companies that keep gaining shelf space.  They're doing this by creating innovative products that consumers want.  Not by whining to some federal regulator.

Why do industry pundits complain when Verizon, AT&T, Comcast, et al get  fair return on their investment and look the other way when Google, Amazon, et al make $1000's per second? 

Therefore, Consumers are the big winner here.  A) More bandwidth B) More innovation and C) Less marginal applications.

Given that the FCC is charted, via the Congress, to protect consumers this new Fast Lane approach is a step in the right direct.  However, the service providers must be careful not to over use this opportunity.  Hence, the "Trust But Verify" mantra.

Telco's and Cableco's must know that the FCC will be closely monitoring this new ruling (assuming it gets implemented).  They must adopt a high level of transparency to eliminate complaints from consumers.  Remember, all it takes is some savvy lawyer to get a single citizen to file a complaint.  To prevent endless litigation and legal costs that effectively eliminate the economic value to the "fast lane",  service providers need to provide this high level of transparency to avoid an FCC mandated higher level of transparency.

SPs should freely adopt a level of transparency that satisfies consumers and their advocates and limits the level of proprietary disclosure to their competitors.  They should ensure the "fast lane" does not, by design,  effectively harm all other traffic.  This can occur unwillingly using standard IETF IP Networking Protocols.

Therefore,  I believe the "Open Internet + Fast Lane" approach is worth implementing. It ultimately benefits the consumer and it's fair to the service providers.  Yet, and a "BIG YET", the FCC must Trust and Verify.

To comment on this or to discuss this in more detail please contact me at gwhelan@greywale.com

For additional articles and analysis please visit www.greywale.com

Net-Neutrality Overruled! A Win for Everyone!

Why this is good for everyone?

1. Market Reality
1. Service Providers are public companies
2. Broadband is not classified as a "common carrier"
1. If it was it wouldn't have been deployed
3. Google, et al, get a free ride and they generate tons of cashs
1. No one seems to complain about this.
2. It's not unfair to the small company
1. No difference than numerous other industries
1. Not everyone can afford to, or wants to, buy a Superbowl ad.
1. No outrage here?
2. This will force small companies and strat-ups to innovate harder
1. The consumer will benefit more.
1. FCC is all about protecting the US consumer
3. Service providers will have the incentive to invest in last mile bandwidth
1. They will get a fair return on their investment
2. Consumers will benefit again
1. So will Google
4. Consumers will benefit
1. More bandwidth
2. Better services
5. Yet, FCC must TRUST but VERIFY
1. FCC needs to ensure policies and "tariffs" are fair, equitable and non-discriminatory

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