38 / 96
Consider international and long
haul capacity across North America,
for example, a product essential for
a growing number of content and ap-
plication companies. Virtually every
statistic you see about demand shows
skyrocketing volume. From 1983 to
2016, for example, user bandwidth
has grown 50 percent per year, ac-
cording to the Nielsen Norman Group.
So the easy assumption would be that
enterprise buying of capacity prod-
ucts, and therefore channel partner
and service provider revenue from
such sales, has continued to grow.
Not so much. A huge percentage
of those requirements no longer are
supplied by “public network suppliers”
but instead are fulfilled by enterprise-
owned-and-operated private networks.
That is a huge change, as a dispro-
portionate share of global traffic and
capacity now is driven by a handful of
hyperscale app and content providers.
Firms such as Google and Face-
book build and operate their own
private networks, and relatively rarely
must buy capacity (retail or wholesale)
from long haul capacity suppliers.
Also, the structure of demand
has changed: most businesses now
mostly need local access to local
Internet points of points of presence,
not long-haul capacity. So retail and
wholesale capacity demand has
shifted to “metro” connections, not
wide area connections.
Also, prices for any required ca-
pacity have fallen steadily during the
last two decades. So margin com-
pression and product substitution
are key issues affecting both service
providers and channel partners. Not
only do legacy products cost less,
they are used far less, as business
customers have substituted Internet
access for legacy data products.
In turn, the market for long haul
wholesale and retail products sold by
channel partners arguably is smaller
than it used to be. Also, businesses
have made big shifts in the types of
communication products they buy.
In addition to price declines and
margin compression, plus the shift to
local access as the key capacity prod-
uct, mobility now represents a huge per-
centage of business communications
spending. Nearly half of all enterprise
spending is for mobility, where there
is no need to separately buy “long dis-
tance voice” capacity or services; those
are simply part of the base service.
In addition to the fact that busi-
ness data services in most cases
involve Internet access, which is a
“local” service, not a “long haul” ser-
vice, managed services increasingly
use cloud mechanisms, which like-
wise only require local access to the
nearest Internet point of presence.
Overall, retail “capacity” services
for businesses increasingly require
only local access to a point of pres-
ence, not dedicated capacity across
the long haul network.
Some 50 years ago, nearly all
that traffic would have moved over
the “public” (telecom) networks. Dur-
ing the last 20 years, much long-haul
traffic has shifted off the “public net-
works” and onto private networks.
In fact, as much as 60 percent
of trans-Atlantic traffic now moves
over private networks operated by
the likes of Facebook and Google,
according to Jonathan Hjembo, a
senior analyst at TeleGeography.
On Latin American routes, about
70 percent of total traffic now moves
over private networks. In other
words, only about 30 percent of un-
dersea, long haul traffic actually is
sold to customers who use “public”
networks, according to Erick Contag,
Globenet CEO.
On trans-Pacific routes, over-
the-top app providers account for
about 33 percent of lit demand on
the “public” networks, says Jonathan
Kriegel, CEO of Docomo Pacific.
And these are private networks
that generate no revenue – whole-
sale or retail – for public network
service providers.
That now seems to be a promi-
nent theme in telecom industry dy-
namics: even as usage grows, mar-
kets for “paid” services shrinks, as
a percentage of total usage. In the
long haul capacity markets, a grow-
ing percentage of traffic (33 percent
to 70 percent) now is removed from
the “public” markets.
Efficiency also now is an issue.
Businesses these days often find
they can spend less than they used
to, and achieve higher performance.
That applies to any long haul product
as it does to any computing product.
Also, some spending might now
be avoided because consumers use
their own tools and apps, and such
spending is not captured in busi-
ness accounts, or applications have
no retail price (consumer versions
of Google Docs, Sheets or Slides,
for example).
On the other hand, a hosted or
cloud service provider obviously has
to recover its bandwidth charges of
supplying a retail service, so some
amount of “long haul” costs actually are
Source: RAD-INFO INC
Examples of Decling Broadband Prices
Source: US Telecom; Well Fargo: Merrill Lynch data
The Market Segments, Pick One
Source: IHS Markit
Average Wired Price per Mbps
Wireless
Wired
Average Wireless Price per MB
1-4 employees
4-10 employees
11-20 employees
21-50 emp
51-99 emp
<100-250 emp
<250 emp
$0.08
$0.06
$9.03 per Mbps
$0.07
per MB
2010
$1,515,000
$802,000
2015
$3.02
-67%
-82%
$0.04
$0.02
$0.00
$10
$8
$6
$4
$2
$0
Cloud Technologies Offer Huge Cost Savings
Source: BCG
-47%
48%
23%
13%
16%
41%
25%
11%
23%
Today
Future
Network
IT infrastructure
IT software
IT labor
ANNUAL IT SPENDING OF A MEDIUM-SIZED RETAILER
Companies
typically
reinvest savings
in cloud usage/
new services
$0.01
Lab tria
5G Technology Chall
Source: IHS
1ms latency
1000x bandwidth per unit area
Perception of 100% coverage
Perception of
99.999% availability
10 to 100x
connected devices
1G to 10G connections
to end points in the field
90% reduction in energy use
Up to 10 year battery
life for low power
machine-type devices
Challenges
0%
Datace
Source: 451
What are t
Agin
Incre
Fro
Incr
N
Upti
Increasin
I/O
Nee
Automatio
Increa
Zettabytes
Channel
Vision
|
March - April, 2017
38