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KimPerdikou

What’s Hot and What’s Not

by Juniper Employee on ‎04-24-2009 11:40 AM - last edited on ‎04-24-2009 11:48 AM by

In my role, I have the pleasure of speaking with people in all different lines of business directly or indirectly related to what we do here at Juniper-everyone from our service provider customers to press and financial analysts who have their own unique stake in our business. It's the latter two groups that have been asking questions about whether service providers can or will "run their networks hotter" to preserve capital expenses in these trying economic times. I'm not sure who coined the term, but it seems to be gaining traction as our esteemed competitor referenced it on their last quarterly earnings conference call.

 

At first glance, the idea makes sense: service providers build their networks with some capacity "headroom" so that spikes in traffic can be accommodated seamlessly. Instead of investing in more capacity, why not just reduce the amount of extra capacity headroom built in and run networks closer to their maximum capacity? Obviously this would have an impact on service quality in times of congestion, but everyone has to make sacrifices in these times. Customers will deal with the occasional loss of service quality, right?

 

Not exactly. Let's look at this a little closer. Most service providers serve one or more of three basic markets: wholesale, enterprises and consumers. Many of the large global providers serve all three; smaller players will often focus on one or two segments. Each of these markets in turn uses services that can be broken down according to the value they provide to the end user and whether that value is based primarily on cost or quality. Cost based services are typically "best effort," and examples of these include basic Internet access (enterprises and consumers) and pure bandwidth services (wholesale).

 

Value-based services on the other hand require an assured user experience. Sometimes this experience is guaranteed contractually via SLAs (managed services, virtualized services); other times the nature of the service, consumer fickleness and the pure competitiveness in the market serve as a virtual SLA of sorts. For example, residential consumers of IPTV and VOD services will quickly switch back to cable if they perceive quality issues. 

 

Will service providers run their cost-based services hotter? Probably some will. They can't keep it up for long given the continued growth of network traffic, but realistically it will happen.

 

Value-based services that depend on an assured experience on the other hand cannot "run hotter." Service providers simply can't afford it - meaning they can't afford breaking an SLA in the enterprise and wholesale markets, and they can't afford losing residential consumers to competitors with higher quality services.

 

Interestingly-and this is where I can't help but get a Juniper pitch in-if you look at the types of networks that support each of these service types, it's the value-based services that require the high-performance networking infrastructure Juniper delivers. Cost-based services require another scale when run on IP-which is also Juniper's DNA! So when you hear people talk about running networks hot, it would be good to consider where this type of cost-saving maneuver would happen-in legacy networks, supporting declining businesses, or in the high-performance IP networks that support the services of most value (which today only makes up less than 10% of all capital expenditures)? I won't answer that question here, but you might consider AT&T's announcement on March 10, 2009 an interesting indicator.

 


Message Edited by ac on 04-24-2009 11:48 AM

Comments
by GG on ‎07-17-2009 03:12 PM

I like your response on the issue of SP's running their networks "hotter".  While I agree with your analysis, the astounding figures I find interesting revolve around not just running hotter and oversubscribing but what I call the current "carrier's dilemma".

 

In recent discussions with some of our common carrier accounts such as Verizon, BT, BCE, they have all struggled with the notion that while everyone knows bandwidth is growing significantly driven by rich media (IP video for one), social networking appls., 3G/4G mobile data usage growth etc. - the cost to upgrade the network is difficult to justify ROI as none or few of them can anticipate the appls that will drive utilization of their infrastructure.  Recently AT&T's CTO referred to their "60/30/3" rule which means they look at 60% spend on upgrading the core/metro, 30% in edge/access which results in only a 3% increase in revenues.  Thus the carriers dilemma of how do you make the returns sufficient to make money on the infrastructure buildouts when end-users aren't willing or able to pay for bandwidth (MOU's vs. flat rate data plans).

 

Analysts and vendors always focus on CAPEX spends--or declines the vast majority of potential impacted dollars for a carrier has and continues to be OPEX.   Having been a carrier guy in my prior life, a few relevant facts:  Nearly 71% of a carrier's service revenues are OPEX related which recent studies indicate--equates to a whopping $77B nationally.   I'm sure any Network guy or gal would love a crack at that for build out budget.

 

While Juniper is well positioned--address needs for low latency/high performance networking resources that can accomodate major swings in usage.  OPEX is a going to be a "must address" area as the CAPEX impact is minimal vs. OPEX opportunity.  We all know the bandwidth problem continues to worsen as for example mobile handsets/IP devices continue to proliferate with carrier unlimited data plans causing major wireless backhaul problems and end customer "fast busy" due to no open voice slots and/or turtle-like download speeds.  Yet fiber to all those towers is a ways off...

 

Whats up w/your JNPR marketing buzz on addressing the larger problem of OPEX?  Maybe that's why service providers biggest problem is always the back office OSS excuse?  I see a huge opportunity in the area of network visibility in an IP world.

 

Cheers,

 

GG

 

 

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  • Prior to Juniper acquisition, Ankur was the Founder and CEO of Contrail Systems Inc - a pioneer in standards based network virtualization and scale-out networking software. Ankur has over 15 years of experience in building world-class networking products and leading high performance teams. Prior to Contrail, Ankur served as Chief Technology Officer and VP of Engineering at Aruba Networks, where he played critical roles in the rapid expansion of team, products, and global businesses. Before Aruba, Ankur helped drive Juniper’s initial entry into and expansion of the Ethernet Switching market. Ankur received his MSEE from Stanford University & BSEE from the University of Southern California.
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