Let’s face it, we have a distorted view of our own industry, but it’s a forgivable bias. We see it from the consumer side, either as consumers or as people dedicated to making someone else a consumer of our stuff. The fact is that the industry is driven by consumers only indirectly, and in a strategic long-term sense. In the near term, and even at the practical level, it’s viewed by investors.
The big players in networking, the service providers and the equipment vendors, are public companies. Legally, they have a responsibility to shareholders, the people or institutions that own their stock. That’s also true of the businesses that consume network technology; they have their own shareholder demons to face. All these groups do things that, primarily in the next quarterly financial reporting period, will make shareholders happy and boost their stock prices.
The most revolutionary thing impacting networking, obviously, is the Internet. Back in the 1980s, consumers found in the Internet, and in particular the worldwide web, a reason to buy data connectivity. This was critical to service providers because up to then, consumers were only interested in voice calls, which consumed 64kbps channels. As network technology improved and faster networks became possible, regulators tossed a change into the mix with the global push toward “privatization”, ending the monopolies that telcos enjoyed. More and more players entered long-distance voice competition, so telcos really needed a way to sell more bits. The Internet provided that, but it sowed seeds of change across the whole spectrum of networking.
Back in the late ‘80s, cable companies were in a better place to reap benefits from consumer Internet interest than telcos were. Cable TV had become a major consumer priority; remember the commercials that talked about “when heaven was wired for cable?” CATV cable could be pressed into service to provide broadband connections to the Internet, and this meant that for most of us, cable broadband was the first and best available.
In this same period, mobile services were growing. I can recall my first “cellphone”, as big as a lunchbox, and how if I was making or receiving a call from my car (no hands-free in those days!) people would stare at me. For decades, mobile voice was a premium, profitable to providers and vendors alike. When the iPhone brought smartphone technology to us, it linked mobile and the Internet and kept the boom going.
Well, as the song goes, “They say that all good things must end some day.” The problem with almost any technology is that there’s a TAM, a total addressable market. You can make more money every year on selling broadband Internet or network equipment only if either there are more customers or the customers pay more. What’s driving networking now is the exhaustion of the return on investment that all those companies with shareholders need to think about, and you can see the effect in articles like this one.
Worldwide, there’s no market where easy-to-find, profitable-to-serve, new broadband customers are plentiful. All the service providers are fighting for the same market, and that pretty much eliminates any pricing power. The big winners are operators who can reach new customers with new technology, which are mobile operators who can offer FWA. The big losers are the cable companies, whose CATV broadband advantage is defeated by both FWA and FTTH. Streaming video over broadband is defeating linear RF video over cable. Telcos had the same problem with copper loop, where technologies like DSL couldn’t hope to deliver competitive broadband, but they faced that problem when mobile telephony was still strong. Cable has to face it now; they have to shift from a profitable TV market they largely owned to a broadband access market that’s way less profitable. But cable or telco, these providers are fighting for revenue scraps.
Business networking, which used to be almost half of telco revenues, isn’t in any better shape. Enterprises tell me that their network spending has been in maintenance mode (sustain what projects you’ve already gotten approval for, but don’t launch much in the way of new ones) for at least a decade. Nobody wants to suggest a radical reform of network technology that would drive up their own spending to drive up equipment/service revenues. One CIO told me decades ago that “the worst project you can propose is a conversion. It’s all cost and no benefit. The best you can hope for is that nobody knows you did it.” But new network benefits are hard to achieve unless you have something new for the network to deliver. Why are vendors like Cisco and Juniper jumping on AI networking? Because it is there, which alternative new missions are not.
Think back to those 1980 days, when telcos needed a way to sell more bits. The Internet came along, and like the hero in another song, “With the strength to carry on, and you cast your fears aside, and you know you can survive.” The hero was the Internet, a new mission that drove a new network opportunity. Technology didn’t save vendors and markets in the 1980s, it threatened them. Standards and regulations did the same. Does that sound familiar? We are reprising that period right now. We need that hero again.
We can expect that telcos will turn increasingly to FWA to open new TAM. We can expect that cable companies will spend more to counter the FTTH/FWA threat. But this spending won’t help the network vendors much because it’s all access, just getting to the customer, and that sector has the lowest ROI of all, so price pressure will be staggering. Tech can only cut costs, sustain players in a period of commoditization. It can’t be the hero.
The failing we face now is the failing of network vendors to recognize and accept that the solution to their problems lies outside their current scope of operations. That means it will require their thinking outside the box, which is something that big companies do very badly.
The interesting thing here is that, at least IMHO, all the technology elements of a new hero are already identified. They are IoT, digital twin, metaverse. There’s even a low-apple target to apply these technologies, in the point-of-activity empowerment of the 40% of the workforce who have been bypassed in our efforts to improve productivity through information empowerment.
Both Cisco and Intel have announced massive layoffs. I have to wonder what would have happened if either or both had assigned those people to developing the three in-waiting technologies, if they’d worked on what was needed to empower them, and on how widespread use of IoT, digital twins, and the metaverse concept could reshape consumer behavior. We might then be looking at a 2025 where all the pressure on network operator profits, and those of their vendors, released. A new age? Perhaps, and it’s too bad that idea didn’t carry the day.
Why didn’t it? If public companies are responsible to their shareholders, what’s wrong with cementing a great future? Answer: A less-than-great present. After the dot-com bubble, Enron, WorldCom, and so forth, Congress passed the Sarbanes-Oxley Act (SOX), whose 66 pages set standards designed to discourage the wild excess that created that series of messes. It had the effect of forcing companies to look at their feet rather than at the horizon, and you can call it coincidence, but the periodic waves of IT growth we’d seen up to then never came again after SOX. It’s hard to say whether SOX stamped out bad behavior, and Wall Street still loves a bubble, but it may very well have made it much more difficult for public companies to undertake something speculative like my trio of in-waiting technologies. Even if the result might save shareholders losses in the long run.
This may be a startup/VC opportunity, but it’s not the sort of quick-flip thing VCs like these days. Another possibility is a spin-out, meaning that a major player (like Cisco) would essentially let employees leave to form a startup, and if they were able to make a go of the concept that drove them, the major player would buy them back in at a later date. Could this happen? I’m not hearing stories about it yet, but it’s possible.
Technologically speaking, I think Nokia has the clearest vision of this “next big thing” of all the vendors, but their challenge is that they don’t have the enterprise account validation of others like Cisco, HPE, and IBM. They would probably have to take massive positioning/PR steps to make all this exciting, and most telco-centric vendors aren’t any better at generating excitement than the telcos are.
I’ve worked with vendors for a very long time, and I’ve got some friends of over three decades who are now in high places in their companies. One of them, commenting to me on one of my blogs about the “metaverse of things” fusion, said “Tom, you have to do a better job of making this exciting, so vendors will get behind it.” Others don’t agree. Responding to that same blog, the CIO of a big enterprise said “I agree with your points, but I need to see them productized by a vendor I trust.” OK vendors, the ball is in your court.
