The issue could be the difference between service providers making a healthy return on investment or facing a "very ugly" financial future, according to the study, which analyzes the impact of current campaigns in the U.S. to roll out 100-Mbit/s connections to 100 million homes and offices by the end of the decade.
If nothing is done about prioritizing traffic, then service providers will face a bill of $840 billion over the next five years to upgrade their optical transport infrastructures to cope with the deluge, the study says. With prioritization, capacity could be used much more efficiently. A reduction of more than 40 percent could be made in optical transport infrastructure expenses.
The impact on profitability is even more dramatic, according to the study:
If you assume a 2002 IP services market size of $6B and a 2002 profit margin of -20%, in either scenario, revenues increase to $613B by 2006. In the [unprioritized] scenario, industry costs increase to $554B by 2006 (10% margin); in the [prioritized] scenario, industry costs only increase to $422B by 2006 (31% margin)...
Cumulative profit over the 2002 to 2006 period is also dramatically different: The [unprioritized] scenario yields $114B (less than 15% of the CapEx) while the [prioritized] scenario yields $267B (45% of the CapEx).
In order for prioritization to work, carriers need to deploy MPLS rather than Internet Protocol (IP) services, according to Telechoice. And they need to come up with a way of forcing users to also deploy MPLS and categorize traffic so that the prioritization schemes supported by MPLS are actually brought into use. It notes that previous technologies such as Asynchronous Transfer Mode (ATM) have supported different grades of service, but users haven't been penalized for calling all of their traffic important. That's going to have to change, Telechoice says.
If you search the study for keywords MPLS, save, and billions, you cannot recreate the heading as quoted. In fact, the study really had nothing to do with MPLS, however I'm sure we can all agree that MPLS is a technology ripe for heated discussion on a site focused on optical technologies. I don't always agree with Bill O'Reilley (http://www.foxnews.com/oreilly/), but I like his hard-driving delivery of facts; he stirs controversy with analysis backed by his own research.
Contrast this with Sally Jessy Raphael (http://www.sallyjr.com/) who will toss out whatever word combination sticks together well ("He slept with the babysitter").
I'm not sure what makes more money, but as someone who is modestly "clueful", I feel the more relaxed and care-free journalism style is doing the industry a disservice. (and yes - I take liberties in my insinuation: pot is calling kettle black - somewhat)
As for the report: the message to the average carrier/xSP is is indisputable. Traffic patterns hold vital information to the operational side of the business on making money. Equipment providers can (and have) done well in understanding these patterns, and so can the service provider. In fact, doing so is a matter of survival if they want to make money pushing bits down a piece of glass. This is the nugget worth discussing. Of course, I'm also making an assumption that people want to be productive with their time in front of LR's website.
I think that those involved in this discussion should take a step back and look at reality from a holistic POV. Rather than from your own POV.
You are all correct of course but you are all missing a few vital cogs in the system that will make it all work.
IP Service revenue is indeed low today and I believe it will stay low for a long time to come. This is due to the reasons given surrounding the predominant technologies being Frame and Leased Lines. The reason is that not all traffic generated by Enterprises is IP, much of it is legacy protocols (IPX, SNA etc.) the larger the company the more likely they are to have legacy protocols therefore they require an L2 service rather than an IP service, making Frame, ATM and Leased Lines very attractive. Encapsulating all these protocols in IP is costly and makes the IP VPN (2547-bis) services prohibitively expensive. Not to mention the exhorbitant costs of CE and PE devices in the market to make them happen. You can trace the deployment of 2547 IPVPNs along a deployment curve that has lead many providers to go bust. We should all thank Cisco for this.
With that in mind we have to answer the question of what will replace Frame and Leased Lines.
Firstly does it need to be replaced? Well the answer is yes and no. NO (in many cases) in the access layer where line rates are quite small This way MPLS will enable operators to save "Billions" on layered SONET, IP and MPLS networks. Remove the SONET and let the MPLS flow.
And how do we know this is true, Cisco are trying to sell it to their customers!!! Chambers you should be ashamed.
"We've been listening to this MPLS everywhere BS for what seems like a lifetime now and we're not buying it anymore (and coincidentally neither are the successgul carriers). Well with the exception of folks like Cogent and Yipes. (Funny story: Yipes is actually what the investors said the first time they saw the business plan.)"
YIPES FILES FOR CHAPTER 11 Citing "the unprecedented pessimism affecting providers of capital to the telecom market," Yipes filed a voluntary petition for reorganization under Chapter 11 in US Bankruptcy Court. Yipes has made arrangements for debtor-in-possession financing, enabling it to continue offering services. The company said that while customer demand for its metro Ethernet services is exceptionally strong, a "perfect storm" is now battering the telecom industry. Without substantial new funding, Yipes faces a cash squeeze in meeting fixed obligations such as fiber infrastructure and real estate. The Chapter 11 filing is aimed at restructuring those obligations to reflect current market values. http://www.yipes.com/buzz/PressRelease158.html#TopOfPage Yipes, March 24, 2002
Frame/ATM revenue essentially translates to IP service revenue. AOL - what is it's bread and butter, IP Service revenue, and all the rest of ISP's. They buy ton's IP equipment and then turn around lease lines or fat pipe from service provides such as UUNET (now MCIWorldcom) You are mistaken if you think IP is irrelevant for service provider's that is a stupid comment. All this boom that occurred for what, not because of voice it was all data and IP data. Most of ATM switch networks are pure data networks or your so called IP services. Problem with carriers has been drop in prices Cost of T1 line has dropped from $3000 to few hundred in matter of 3 years (just like PC's) Carriers or Service providers are just taking a breather because of too much investment in infrastructure and also user growth has been slow. DSL/Cable or broadband end user growth (or $50/month from growth of $20/month for basic internet service) has not happened to massive scale as expected. Basically data revenue hyped growth rates did not occurr. However over longer term end user brodband demand and growth will occur, just like mobile phones affordability has become today - with a family people can have 2 to 4 phones. Give it time.. it will happen.. For carriers to drop cost to maintain there earnings, they have to buy next generation cost effective equipment which these days is pretty much IP centric.
rjmcmahon: I believe this occurs because its the only way a network owner knows how control their monopoly - not because consumers don't like to buy electronics.
dbriere: Well, I don't think it is that subversive. Yes they want to control the endpoint, because by controlling the endpoint, they can more easily extend features in their network to the end point and therefore the customer. If you have to live within a 'standardized' end point, then it's hard to differentiate your offerings.-danny --------------------------------------------
Completely disagree with dbriere. The service providers do not want control because "they can easiy extend features in their network to the .. customer"; they like the control because they can levy an added tax. A more open market for end points provides far more "features" (i.e applications people want to use) than service provider provided end points.
To prove this, look at the public Internet vs AOL. AOL controls the end-point (i.e the AOL client on your PC). Until the Web came along, AOL used to charge both sides heavily - content providers for providing content, and per minute user charges for accessing that content. Would anyone argue that AOL controls the end point in order to make it easier to introduce new services? Would you argue that AOL offers more "services", or for that matter any service, that can't be found a lot cheaper in the open Internet?
When the phone company supplied everyone's phone, how fast was the innovation? Only when the instruments were freed up, we got the minimal amount of innovation that exists in wireline voice telephony (cordless phones, memory phones, answering machines, ...) Was the phone company even capable of coming up with these? If they did, they would charge an arm and a leg (answering machine = $10 a month extra, memory dialing = $5 a month extra etc). Indeed, they do charge $6/month for their voice mail, and $5 a month for caller ID.
TeleChoice: your argument is so flawed that unfortunately I have to question your motive here. I apologize if it causes offense, but your breezy argument simply does not fly.
the telco equivalent of the nighttime water loading is content ____________
Not really.
The storage pump is an efficiency game which can be played due to the relative ease energy (Joules) can be translated to different forms. Joules, which all originate from our Sun, have inherent value no matter what form they take, except for the excess heat which causes our global warming. (Figuring how to convert that heat back something useful would do us all a favor, in the meantime we need to be more efficient with what we use)
Information in bytes are one form of human organizing, storing, and distributing ideas. Bytes as a canonical form do not have inherent value. The interpretation of the bytes can have value but that requires a much deeper understanding beyond what a motor or generator is capable of.
In the analogy, content is the reservoir, the container, while the water, the form temporary holding the value, seems to be the missing piece. Hence why I suggest Google which helps give some value to the bytes ;-)
the public doesn't care and is misinformed right now because the press doesn't cover the issues with broadband at all. ____________
The public will care once they understand that their and their children's economic condition isn't likely to get any better until we figure this problem out. If ivy league grads can't find jobs, who can?
Its my understanding that today's freelance press gets paid by regional distribution agreements. This may help explain their lack of honest reporting. We can only hope that one day they will speak freely and honestly and get paid for this type of expression. These ideals taking a back seat to salary needs hurts us all.
rjm comments: "How to present them to the municipal leadership remains the question in my mind. "
I agree. The municipal model is the best overall model for the broadband future. Unfortunately there are many local gov't officials with, shall we say, "ties" to the monopoly cable and telcos that are willing to block any attempts at new networks operating under different models.
I think pressure from the public is needed, but the public doesn't care and is misinformed right now because the press doesn't cover the issues with broadband at all. They beat ridiculous, empty stories to death for weeks, but never anything covering the ongoing issues of broadband vs. fraudband. I doubt HR1542 would have passed the House if there was greater public awareness and outrage at the House members that were essentially bought off by the RBOCs: http://www.opensecrets.org/alerts/v6/alertv6_44.asp
Well, it appears that meaningful discussion around the topics that we intended to prompt with our paper has pretty much subsided.
I want to thank everyone for contributing with hard questions and meaningful insights. It's been great - I've enjoyed it - I've been challenged - and I've learned and grown through the experience.
Just a final side note. We have an e-mail newsletter that we send out every few weeks. (It has no external ads - although we do use it to mention that we do offer some consulting services. And we don't use the mailing list for other purposes. We certainly don't sell the list.) This newsletter comes in two forms - a short summary of interesting industry trends, and a longer in-depth analysis of a single topic.
We plan on taking the discussion that we've had around this topic and using it as the basis for one of our upcoming deep-dive issues.
If anyone is interested in subscribing (of course, you can unsubscribe at any time) - send a message to TeleSparks@telechoice.com with the word Subscribe in the subject.
There are a few angles to address this from. ________________
These angles work for me.
How to present them to the municipal leadership remains the question in my mind. I believe their emotions of fear and greed need to be exploited before they will act. The perceived loss of local revenue due to the zero inet sales tax and the fear that high speed porn will hurt their communities drives many of their behaviors in the wrong direction, in my opinion.
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