& cplSiteName &

Nolle: In 2017, Cost Per Bit Exceeds Revenues

Carol Wilson
1/9/2017
100%
0%

This is the year when most telecom network operators will see their revenue-per-bit fall below their cost-per-bit, says a veteran industry analyst, and that financial reality is going to reverberate through the industry for at least the next two years, prompting further consolidation and cuts by network gear makers, as operator capex budgets shrink.

CIMI Corp. CEO Tom Nolle, noted for his candor, states this pretty matter-of-factly in an interview with Light Reading, and in this January blog post. Nolle has been tracking these numbers since 2013, having been prompted by a conversation with then-Verizon Communications Inc. (NYSE: VZ) exec Stu Elby -- now with Infinera Corp. (Nasdaq: INFN) -- to question the 47 operators he regularly surveys on their cost-revenue convergence numbers.

"Everybody came back with a surprising amount of convergence, nearly all of them crossed over at some point in 2017, one or two in 2016 and another couple in 2018," Nolle says. "It's clear running through the numbers that all of that crossover pressure is pretty universal -- it is somewhat affected by regulatory positions and the mobile-wireline balance, and things like that. But it seems pretty universal across all of the operators in all of the service geographies."

Companies such as AT&T Inc. (NYSE: T) have been very open in saying the revenue-cost crossover drives their aggressive transformation efforts, because they recognize it is impossible to meet bandwidth requirements of the future doing things the way they've been done in the past.

But Nolle also points out that such transformation effort, focused on adopting SDN and NFV, are not moving nearly fast enough to get out ahead of the revenue-cost convergence. So operators are having to cut back on spending instead.

"With operators facing this kind of cost-revenue convergence, the first and easiest answer is to spend less on infrastructure, because no one is going to hemorrhage money, what they are going to do is they are going to spend less," he says.

That will mean continued price pressure on equipment vendors, Nolle maintains. He points to declining revenues, quarter over quarter, for companies such as Cisco Systems Inc. (Nasdaq: CSCO), and to the fact that Huawei Technologies Co. Ltd. is alone among vendors in growing its revenues because it is a price leader in many categories. The analyst expects 2017 and 2018, at minimum, to be pretty bleak years for the telecom equipment space.

On a potentially brighter note, Nolle does expect the "remedial efforts" in the NFV/SDN realm will take hold after that and prevent service deterioration in the long run. In the meantime, he believes more operators will seek to expand operations outside their existing footprint -- he points to Telefonica's moves in Latin America as an example -- and they will push harder to make automation a key part of their transformation efforts, as many have started to do already.

Nolle had much more to say about why he thinks the NFV-SDN transformation has been mismanaged, and we'll be sharing some of those insights going forward, along with industry reaction.

— Carol Wilson, Editor-at-Large, Light Reading

(24)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Page 1 / 3   >   >>
kq4ym
50%
50%
kq4ym,
User Rank: Light Sabre
1/19/2017 | 11:21:28 AM
Re: usage based billing
Yes, it's always a bit scary to try to predict the future, even based on what seems to be some rational arguments and data. Whether the current data is predictive or just a randomness in the long term, we'll not know for sure until the future is behind us. It will be interesting to watch who was on the winning side of the investment vs. revenue business planning.
brooks7
50%
50%
brooks7,
User Rank: Light Sabre
1/11/2017 | 10:42:42 AM
Re: usage based billing
 

Thanks Gabriel.

The Service Provider community is awesome at throwing up the we are in trouble card.  It is also used by proponents of one thing or another to justify what they do.  I know Tom is talking about NFV and SDN, but the transformation and change thing has been around the industry for 15 years.  And nothing happened to put them out of business or transform them.

seven

 
Gabriel Brown
100%
0%
Gabriel Brown,
User Rank: Light Sabre
1/11/2017 | 3:31:32 AM
Re: usage based billing
If Tom is talking about IP transit, as someone mentioned down thread, the assertion makes more sense.

There's a good piece here on "The Death of Transit": http://www.potaroo.net/ispcol/2016-10/xtransit.html It's fair to say the author is not amassive fan of CenturyLink buying Level 3.

You can't read across to thew whole of service provider business from this data point (for obvious reasons).
brooks7
50%
50%
brooks7,
User Rank: Light Sabre
1/10/2017 | 6:37:09 PM
Re: usage based billing
So, Carol...if the operators are claiming that they are losing money on bandwidth...what are they making all their profit on?  Verizon and AT&T both made over $3B in profit last quarter....so its coming from something....

seven

Edit and PS:  Carol the D stand for DISCARD not DETECTION.  Weighted Random Early DISCARD.  Its the kind of stuff that will make things get real...dicey....real fast with the whole usage based pricing.  For example, ever wonder how much data is used by those video ads on your phone when you surf the web?  You didn't want the video...but you are paying for it.
Carol Wilson
50%
50%
Carol Wilson,
User Rank: Blogger
1/10/2017 | 11:37:43 AM
Re: usage based billing
For the record, I was aware - albeit vaguely - that something called weighted random early detection existed, I just hadn't thought about it much, and especially not as a revenue tool. 
mendyk
100%
0%
mendyk,
User Rank: Light Sabre
1/10/2017 | 11:25:22 AM
Re: Revenue and cost per bit analysis
Agreed -- some CSPs have a stronger sense of urgency. And pain and suffering are part of just about any kind of transformation. It's good to hear that our collective empathy for network operators may be running dry.
Carol Wilson
50%
50%
Carol Wilson,
User Rank: Blogger
1/10/2017 | 11:14:31 AM
Re: Revenue and cost per bit analysis
I think it depends on your definition of "rushed." Companies such as AT&T and DT have certainly been moving much faster than they did historically to virtualize their networks precisely because they did see this coming. 

Tom Nolle also shared his candid opinions on that process, which - spoiler alert - are somewhat critical. But I'm getting input from other industry sources before sharing those here. 
mendyk
100%
0%
mendyk,
User Rank: Light Sabre
1/10/2017 | 11:00:00 AM
Re: Revenue and cost per bit analysis
There's probably a bit of "woe is us" going on here, and a bit of arithmetic sleight of hand. Even so, network operators have seen this coming for years, and yet they haven't exactly rushed to change their MO to adapt to changing times.
Carol Wilson
50%
50%
Carol Wilson,
User Rank: Blogger
1/10/2017 | 10:24:34 AM
Re: Revenue and cost per bit analysis
Actually the article does spell out where the information comes from - Nolle's direct survey of 47 global operators. This is what they are saying, and have been saying for some time now. They are talking about their overall costs, and it isn't broken down by access costs, transport costs or wireless versus wireline networks. They are looking at the macro trends of how they continue to scale their networks to meet demand for bandwidth, and seeing how the current method of building networks doesn't scale to meet future demand. 

 
brooks7
100%
0%
brooks7,
User Rank: Light Sabre
1/10/2017 | 9:23:24 AM
Re: Revenue and cost per bit analysis
Well, yeah if costs exceeds revenue then why is everybody making money?

seven

 
Page 1 / 3   >   >>
Featured Video
From The Founder
John Chambers is still as passionate about business and innovation as he ever was at Cisco, finds Steve Saunders.
Flash Poll
Upcoming Live Events
June 26, 2018, Nice, France
September 12, 2018, Los Angeles, CA
September 24-26, 2018, Westin Westminster, Denver
October 9, 2018, The Westin Times Square, New York
October 23, 2018, Georgia World Congress Centre, Atlanta, GA
November 7-8, 2018, London, United Kingdom
November 8, 2018, The Montcalm by Marble Arch, London
November 15, 2018, The Westin Times Square, New York
December 4-6, 2018, Lisbon, Portugal
All Upcoming Live Events
Hot Topics
Telco Job Prospects Go From Bad to Worse
Iain Morris, News Editor, 6/22/2018
Larry Ellison Laughed at the Cloud, Now the Cloud Is Laughing Back
Mitch Wagner, Executive Editor, Light Reading, 6/20/2018
Mavenir's Billion-Dollar Blueprint
Ray Le Maistre, Editor-in-Chief, 6/18/2018
5G Transport – Where Do We Start?
Ray Le Maistre, Editor-in-Chief, 6/21/2018
Animals with Phones
Backing Up Your Work Is Crucial Click Here
Live Digital Audio

A CSP's digital transformation involves so much more than technology. Crucial – and often most challenging – is the cultural transformation that goes along with it. As Sigma's Chief Technology Officer, Catherine Michel has extensive experience with technology as she leads the company's entire product portfolio and strategy. But she's also no stranger to merging technology and culture, having taken a company — Tribold — from inception to acquisition (by Sigma in 2013), and she continues to advise service providers on how to drive their own transformations. This impressive female leader and vocal advocate for other women in the industry will join Women in Comms for a live radio show to discuss all things digital transformation, including the cultural transformation that goes along with it.

Like Us on Facebook
Twitter Feed