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

Wi-Fi – “the toy that grew up”

Reprinted from the Wireless Broadband Association: Industry News Roundup

Wi-Fi – “the toy that grew up”

Historically, Mobile Network Operators (MNOs) looked at Wi-Fi as a toy, a low-end technology that was great to off-load data from networks. Now Wi-Fi is having a strategic impact on MNOs across the globe. Now the question is LTE or Wi-Fi: remind me which one’s for off-load?

Yet, as with many technical innovations, the low-end always wins. Wi-Fi is a classic example of this theory. Through a combination of Moore’s Law, economies of scale, R&D investments and free market dynamics Wi-Fi is king of the hill. In most developed countries people and things can access a Wi-Fi network in 80% of locations. Companies, such as Devicescape, have created virtual networks based on “ambient’ Wi-Fi networks. Hotspots are so ubiquitous that Opensignal launched an application to find the best one out of the many available.

Wi-Fi and Hotspots are becoming strategic to all carriers (fixed and mobile) as they have realized the importance of keeping traffic on their network for quality of experience and billing purposes. The market for carrier Wi-Fi gear continues to grow as carriers look to exploit these opportunities.

Today, high- speed access to the Internet is as fundamental as indoor plumbing. People expect it and city and national governments view it as mandatory for many economic development and quality of life issues. With the ubiquity of Wi-Fi enabled devices and the simplicity of Wi-Fi deployments it is no surprise that Wi-Fi is a leading candidate to achieve this. Even in remote,rural and under-developed regions, Wi-Fi leads the ways.

Even with fierce competition from ZigBee and other alternatives Wi-Fi is also a leading network technology for applications using IoT technologies. Wearables are no exception. LG smart watches use Wi-Fi and researchers are looking to Wi-Fi for an entire body network. We could all become Wi-Fi access points.

Yet success breeds challenges. Wi-Fi uses attractive unlicensed frequency bands and the licensed crowd wants in as the LTE community is looking to use the same 5 Ghz frequency band. Trying to head off a battle royale, the U.S. FCC has already entered the fray.

Wi-Fi, the toy that grew up, continues its momentum to solve real problems for consumers, businesses, service providers and governments. It was often said never to bet against Ethernet, I’d like to add never bet against Wi-Fi.

Greg Whelan, ACG Research

To discuss this and other strategic technology issues impacting the global service provider market please contact me

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.

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

Is VoLTE Worth the Investment?

Mobile network operators across the globe are moving to deploying VoLTE (Voice over LTE) systems.  The reasons for this are as expected.  They include:

1. Better voice quality
2. Protect voice revenues
3. Leverage IMS investment
4. Be able to provide billing services (Leverage their billing system)
5. Migrate 2G and 3G voice services to LTE

However, given the successes of over-the-top (OTT) services over wired broadband and in current wireless networks is this billion dollar investment prudent?  Consider the following:

1. OTT has won, or is winning, the battles.  Skype and Netflix are two good examples.  WhatsApp is another case in point of OTT success. 
2. OTT services are “good enough”.  The majority of the market is unwilling to pay for QoS when a free, or near free, service is sufficient.
3. When a consumer experiences poor quality for an OTT service they blame the service provider and not the OTT provider.
4. QoS can only be guarantee when the “call” is completely on-net.  As soon as the voice call leaves the originating SP all bets are off.  Why spend the $ billions only for a subset of calls?
5. Voice revenue and now SMS Text revenues are crashing.   Why spend $ billions to chase a losing battle?
6. Service providers are moving away from call-based billing (i.e., CDRs (Call Detail Records)).  Although the NSA loves them.  Unlimited calls and texts are the norm. 
7. Data limits are prevalent.  A few Youtube videos or one Netflix movie will dwarf a month’s worth of phone calls from a data usage perspective. 
8. When Google deploys their fiber optic networks (e.g., Kansas City) they do not offer voice services.  The reason is to avoid the mountains of regulations required when offering voice services.    Does that mean people in Kansas City don’t make voice calls?  

It is understandable why a service provider with decades of legacy voice experience would want to consider VoLTE.  After all, they have decades of legacy voice experience.   Similarly, it’s not surprising that service providers that have spent $ billions and years deploying and perfecting IMS want to leverage that investment in time, money and careers.  It’s difficult to face reality that IMS is a “sunk cost” and therefore should not be factored in when evaluating VoLTE investments.

The OTT trends and successes cannot be refuted.  Service providers continue to face the fact that they cannot compete effectively against every segment of OTT services.  The $ billions they would spend on VoLTE would be better spent on: 

1. Increasing bandwidth per subscriber
2. Providing industry leading network security to protect their subscribers
3. Fighting the short sighted Net-Neutrality laws that make regulators “feel good” at the expense of long term viable markets.
4. Creating an infrastructure where OTT’s want to pay them for QoS in a fair, open and non-discriminatory manner. 

I’ve spent 20 years working on technologies with the goal to ensure service providers do not become a “dumb pipe”¹.   I am fully biased toward ensure the success of SPs and believe that “net neutrality” is unfair to them².  However, SPs should not spend $ billions on VoLTE just because it’s voice.  High speed, high quality broadband is the future.  Don’t fight it.

To discuss this please contact me at gwhelan@greywale.com

 Notes:       

1.  http://greywhalemanagement.blogspot.com/2012/07/if-sps-become-dumb-pipe-everybody-loses.html
2.  http://greywale.blogspot.com/2014/02/net-neutrality-overruled-win-for.html

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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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