U.S. Service Providers Spin off Assets as the Core Business Shifts

Brian Washburn

Summary Bullets:

• AT&T, Verizon, Windstream and MegaPath all share asset divestments in their recent history, shedding non-core assets through outright sales or moving them to OpEx.

• Over the long term, market forces can conceivably push asset buyers and asset sellers to evolve in different directions.

Earlier in February, Verizon reached agreements for two major sales: a roughly $10.5 billion divestment of incumbent local GTE telephone properties, and a $5 billion long-term lease/manage/purchase arrangement for its 11,300 wireless towers (see “Frontier Lands the Rest of Former GTE Telephone as Verizon Cuts Deals to Raise $15 Billion,” Feb. 9, 2015). The wireless tower long-term lease details resemble a similar arrangement AT&T reached with Crown Castle in October 2013.

Web Client Accelerators Evolve into Cloud Applications Acceleration

Brian Washburn

Summary Bullets:

• The underlying caching and content acceleration concepts developed by turbo-charged dialup Internet services have found new life, addressing unpredictable wireless connectivity.
• These tools had a low profile among enterprises until Sprint Cloud Optimizer, which improves the Microsoft Office 365 experience for roaming workers.

Anyone who has been following Internet trends in the past decade will likely remember web accelerators, which stretched the shelf life of dialup and low-speed broadband Internet access. These services were installed on desktop computers and used a combination of tricks – such as prefetching and caching content, compressing images and data, and optimizing TCP – to achieve a perceived fivefold or greater performance throughput. A similar grouping of caching and acceleration technologies launched the WAN optimization business, using dedicated devices at the customer premises.

Distributors Take Their Logistics and Delivery Model to the Cloud

Brian Washburn

Summary Bullets:

• Large distributors may seem disadvantaged when markets go to cloud; they have benefits of customer relationships and clout.
• WAN providers’ cloud services are uncommon in distributors’ portfolios: may want to consider whether this is a conscious decision.

The distinctions between technology vendors and service providers used to be more clear-cut – until they weren’t any longer. We’ve all seen the impact of some leading technology companies in cloud, for example Microsoft selling Azure and Office 365 services on one hand, and the Azure-derived Cloud OS platform for service providers on the other. We’ve also witnessed how IBM and HP have reorganized their business around the cloud opportunity, aligning cloud-related software, hardware and services so they don’t cause friction with each other. VMware with its vCloud Hybrid Service is yet another example.

Everyone’s Getting in on Flexible WAN/Cloud Connectivity

Brian Washburn

Summary Bullets:

• Many providers have placed their MPLS WAN service edge inside data centers, offering secure connectivity with class of service support.
•  The expanding list of competitive offers means enterprises do not have to look far for flexible WAN/cloud connectivity options; pricing should only get better.

When it comes to connecting the enterprise WAN edge directly into the data center, it seems many of the major global and U.S. network providers are now in on the action. Just in the past several weeks, Verizon upgraded its Cloud Services Interconnect to Secure Cloud Interconnect, adding granular visibility and management control to connectivity in major Equinix locations worldwide and select U.S. Terremark facilities. XO announced Bandwidth-on-Demand, a service that supports dynamic bandwidth across the company’s WAN PoPs, including those terminating in data centers. Similar types of services have been launched by AT&T (Cloud Network Enablement and NetBond), tw telecom (Intelligent Network), Level 3 (Cloud Connect), and Orange Business Services (its long-established VPN Galerie). While these offers’ approaches and features differ, they all offer the security of transporting traffic all the way into the data center via an enterprise WAN and honoring class of service (CoS) support. Most of these WAN-to-cloud services have usage-based billing, to handle moving big workloads. Many also support bursting with CoS performance up to double, triple, or many times more bandwidth.

Will New Types of Cloud Apps Spike Bandwidth Demands? Better Not Bet On That

Brian Washburn

Summary Bullets:

• New innovations in cloud services are mostly bandwidth conservative: basics such as video streaming and a richer web are demand drivers.
• If you must bet on where your company’s future networking demands will come from, look at existing app types, not revolutionary cloud apps.

We’ve all seen Internet traffic growth statistics: those ‘hockey stick’ charts aren’t doubling every year anymore.  However, given the enormity of today’s traffic volumes, a sustainable compound annual growth rates of 23% (such as projected by Cisco Systems) still makes for mind-boggling increases.  VoIP, video (streaming and conferencing), richer web experiences, mobile devices, M2M: there’s always a new device or application to fuel traffic demand.  Enterprise buyers end up in a rough equilibrium; every year, bandwidth prices go down, but Internet/WAN traffic goes up and the overall contract remains roughly stable.

Automated Trouble Resolution: Changing the IT/Network Management Game Proactively

Brian Washburn

Summary Bullets:

• Expert systems have transformed into an IT/network outsourcing alternative for larger enterprises.
• Specialty provider IPsoft is both natural partner and potential competition to adjacent CRM and BPO sectors.

Current Analysis subscribers to our IT/network services content, and attendees to our year-end trends webinar, know that I’ve been pounding the table for months now about industry trends that will come together and change the way service providers do business. I’ve whittled my obsession down to five major industry vectors: One of those trends is a combination of evolved expert systems and analytics, with big data support. Today I’ll just look at the expert systems element, and what it alone is doing in the industry.

Why AT&T Sponsored Data Isn’t the End of the Internet as We Know It

Brian Washburn

Summary Bullets:

• AT&T Sponsored Data has a strong corporate applications angle. Annoying mobile ads may be a concern, but it’s not out to destroy the Internet.
• If AT&T Sponsored Data seems a product of wireless data caps set too low, competition and market forces – not regulations – should correct that.

On January 6th, AT&T debuted its Sponsored Data service. The service is a way for businesses to let AT&T’s wireless customers access content of the business’ choice on their mobile devices, across AT&T’s 4G network for free. In this case, “free” means that AT&T Mobility customers don’t count Sponsored Data transfer volumes over AT&T’s 4G network against their monthly bandwidth caps. AT&T Sponsored Data has some initial sample applications and intriguing possibilities. A colleague, Kathryn Weldon, published a business services report about Sponsored Data that is accessible to subscribers of Current Analysis content here: AT&T Helps Business Customers Engender Loyalty via Sponsored Data Service, Jan. 6, 2013).

Pertino: Meshing Remote Access Flexibility with Corporate IP VPN Manageability

Brian Washburn

Summary Bullets:

• Pertino uses software clients to build overlay IP VPNs that support mesh networking and add easy-to-use management, targeting mainly SMBs.
• NTT Communications looks to have some similar concepts, to strengthen its upcoming IP VPN service, designed to support enterprises.

Back in February 2013, Pertino, a startup out of Cupertino, CA, released its flagship Cloud Network Engine, which the company described as a ‘SDN-powered cloud networking’ service.  At first glance, the technology looks almost like old-fashioned SSL or IPsec VPN remote access: it’s an overlay VPN that connects to an array of common computer and mobile device platforms.  The difference is in Pertino’s use of its own downloadable app, which adds features that you don’t usually get with remote access.  The software client is currently available for Microsoft Windows client and server operating systems as well as for Apple OS X and Ubuntu Linux clients; an Android client has been released, and an iOS client is in the works.

Thoughts on an AT&T Vodafone Bid: A Powerful Vision with Many Hurdles

Brian Washburn

Summary Bullets:

• The AT&T blueprint for acquiring Vodafone lines up neatly, but undercurrent factors are going to be a challenge.
• AT&T’s bold vision for a Vodafone acquisition is commendable, but it’s not clear why Vodafone would cooperate.

In our day jobs, we analysts tend to rein in speculation based on rumor, and instead address more immediate, concrete issues. But when media sources break a story like AT&T’s reportedly building a case to bid for global wireless giant Vodafone, it’s too tempting to pass up. The pieces for the business case fall neatly into place. For a while now, AT&T reportedly has been on the lookout for wireless partners abroad. Vodafone is finally unraveling its Verizon Wireless stake, clearing a potential conflict-of-interest issue. Vodafone is not tied to national interests that could quickly scuttle a deal (see America Movil’s recent rejected bid of KPN). AT&T might ease financing an acquisition by tapping the pile of cash Vodafone inherits after unraveling of the Verizon Wireless stake. AT&T could sell Vodafone operations in Africa/Middle East, Russia/CIS, Asia and Latin America to partners, to defray the costs further and make the acquisition more affordable.

Sprint Rallies with New Wireline Business Services Developments

Brian Washburn

Summary Bullets:

• Wireline revenue erosion aside, Sprint continues to invest and keep its wireline services portfolio fresh.
• Sprint returns to transport with Ethernet Wave, but there is little room to differentiate in this highly competitive space.

For many years now, Sprint has been meeting its challenges in wireless while facing ongoing struggles in its wireline business services.  As a wireless provider, Sprint has household name brand recognition.  Fewer people know the company as a still-major national and global provider of an array of business services.  In wireline, the provider has focused on retaining existing customers with high-quality service instead of investing heavily to recruit new clients.  Sprint has shown very high customer satisfaction for its business wireline services.  However, factors such as falling prices, discontinued legacy services and natural attrition have taken their toll: For H1 2013, for example, Sprint’s net wireline revenues were down 10% year-over-year from H1 2012; wireless now represents about 90% of Sprint’s revenues and profits.