There’s a lot of comment these days that everything has changed, that there’s a new global order that cuts across economics and politics. It’s all likely true, though how profoundly it will change things is still a bit uncertain. Light Reading certainly has it correct when they say that “Nokia’s new boss must tackle Trump tariffs and mobile uncertainty.” There’s even more to worry Justin Hotard, though. Let’s take things in order.
Tariffs could certainly complicate things for global network operators, and for their vendors. I’ve seen estimates that network equipment could be expected to rise in cost by about 7%, but some say as little as 4% and some as much as 15%. It depends on what you’re buying, who you’re getting it from, and where it’s made and installed. It also depends on how things fall out with the tariffs over time, which depends on the goal in establishing them. If it’s to negotiate, then the impact may be smaller and a few vendors and telcos even tell me that costs could decline if threat of US tariffs result in cutting other tariffs. This happy outcome isn’t expected by many. If it’s to boost US manufacturing, then the impact could be real and long-lived.
This hits operators and their key vendors at a bad time. As I’ve noted in recent blogs, network operators tend to have the largest capital budget during periods of standards-driven transformation. 5G has been such a period, but it’s pretty clear that 5G has largely run its course, and that it was over-hyped in terms of profit impact, which limits the operator tolerance for massive capex. The passing of the 5G influence tends to put operators back into the profit-per-bit capex starvation they’d faced before 5G. And 6G, whatever it is, may not save them. Operators want it to be pure software, and of course vendors want it to fork-lift everything into the trash.
As someone on LinkedIn recently suggested in a comment on one of my blogs, it my be that operators have to face the fact that they’re selling commodity. True, but those same operators, their vendors, their customers, and the vast sea of OTT players have to realize that most commodity providers aren’t contending with unpredictable new demand sources, sources that a lot of tech and tech users depend on to continue the flood of new Internet-based applications, content, and missions.
The big question, I believe, is whether the impact of tariffs will have the effect of reducing operator willingness to capitalize new connection capacity in the face of further increases in cost and thus declines in ROI. If that happens, then the Internet experience may not stand up to any significant new demand, which could limit a lot of consumer and business spending that’s not strictly related to the services themselves. Do I need new TVs as much if streaming video gets glitchier instead of better? How about IoT, autonomous vehicles? The Internet is the new central nervous system of the global economy, and any limits in its growth pose a broad and significant threat.
What 6G needs to do to break this cycle is to advance the Internet ecosystem overall rather than to create some new supply-side vision of infrastructure whose connection with demand the global value is tenuous to say the least. Yes, it’s better that a 6G that’s yet another standard-writer’s intellectual exercise is limited to software to manage its cost, but utility maximization would be the best outcome. But…but…how do you do that? Operators really want to hunker down in the comfort of the bit-pushing business, and if they don’t embrace adding value, only cutting costs, then it’s impossible to fix the problem in the long run, and tariff increases will hurt.
Why couldn’t the 6G initiative, the 3GPP, fix things? Well, why didn’t they fix 5G, or 4G? Truth be told, standards in the telecommunications space have always been an extreme example of supply-side built-it-and-they-will-come-ism. Toss in all the political tensions of the world, including tariffs, and do you have a formula for a new level of enlightened cooperation? It sure doesn’t seem likely to me, and I’ve been a part of a number of international standards initiatives.
There should be no question that the Internet, as the central nervous system I described, is the foundation of global technology, and likely the foundation for the evolution of technology as an influence in all our lives. I think most would agree with this, and yet we build the Internet up from concepts that go back decades, perhaps as far as a century, and with business models at least that old. An agile top layer on a glacial core isn’t agile any longer, and so we need to be planning broadband infrastructure from the ground up, toward the service future we want to achieve.
How about “structural separation?” This has also gotten some attention on LinkedIn recently. My concern here is that, post deregulation in the US, we ended up with that very concept, under the guise of a “fully separate subsidiary” for “information services.” Where is all that today? The short answer is that regulatory uncertainties killed it off; if you impose a wholesale requirement on an industry you have an impact on their planning that’s similar to the impact a country has on business when it imposes nationalization. It’s hard to go back, because you’ve demonstrated you’re willing to do something destructive. Telcos are still trying to shake off the impact of rules that were intended to save others from telco-predatory practices, when today it’s the telcos we’re trying to save. We could have planned better then; it probably would have made things easier today.
Most telcos agree on an ideal infrastructure model, what I’ve called the “metro” approach. You set up major nodes in key metro areas (roughly 250 in the US, and another 800 in the rest of the world), multi-home or even mesh them with an all-optical core, then aggregate access onto fiber to reach users. In these nodes, you inject any high-level features you have, and also provide interconnect with other operator networks. This model could reduce cost and facilitate higher-level service participation, but it doesn’t depend on it, so it might be easier for connection-centric telco executives to buy into.
Communications is, at its heart, a cooperative process. In a world where cooperation may be getting harder to achieve, it’s going to take some enlightened effort to get things onto an optimum track, and keep them there.
