SAN FRANCISCO -- OFC 2014 -- For communications service providers, the opening plenary here Tuesday was either a rousing call to action or a gloomy signal to close up shop and go into the sports memorabilia business.
Gary Smith, Ciena Corp. (NYSE: CIEN) president and CEO, got things started on an upbeat note. "The network matters again," he declared. As the Internet has grown, content providers have gotten most of the value, with the network relegated to invisible infrastructure. That's changing as the quality of the network connection becomes a vital part of the user's overall experience.
Ciena also had product news out of OFC. (See OFC: Ciena Smartens Up Photonic Layer.)
Winners in the new model will have to change how they look at networking. Instead of building infrastructure and anticipating that users will come, providers will have to assess user needs and then build the network to meet them. And vendors will need to learn to interoperate in an open fashion, because no single vendor can do everything, Smith said.
That's hard work, but anybody who does the work is going to be fabulously successful, right?
Not so fast.
David Clark, senior research scientist at MIT Computer Science and Artificial Intelligence Laboratory, followed Smith. He described how demand on the network is increasing, but service providers don't have a business model that allows them to expand network capacity to meet demand.
Traffic on the network is exploding, driven by Netflix and other video streaming services, Clark said. "Video is so big that everything else we do fits into the interstices of video." (See Netflix: The Internet's US Traffic King and Netflix to Spend Big, Strike Cable Deals in 2014 .)
And video is likely to remain the main driver for broadband demand. The Internet of Things won't increase network saturation. "The Internet of Things is coming, but things don't have much to say." For example, a sensor on his home furnace reports outages -- once a year. And vehicle-to-vehicle automotive communications will involve relatively little information and be highly localized.
So video is driving huge demands for bandwidth, but consumers are paying the same amount for service, and Netflix and other video providers aren't paying significant amounts to consumer networks. (See Comcast-Netflix Peering Deal: A Game-Changer?)
So the revenue to fuel future growth isn't coming from anywhere.
"I pay my provider about $45 each month, whether or not they upgrade," Clark wrote on one of his slides. "So the ROI [return on investment] on an upgrade is zero." (Most depressing telco bumper sticker ever.)
Revenue for Internet service comes from consumer payments and advertising. And advertising isn't that big a deal -- advertising spend is $36 per household in the US, $10 in southern Europe, and less in the developing world.
"The consumer is your friend," Clark concluded. "The consumer is your only friend."
And yet the consumer is a poor friend to service providers. Rates aren't going up, and new users aren't signing on either. Wireline broadband access in the US is nearly saturated; just about everybody who wants Internet access is already signed up for broadband. (Europe has a different business model, with infrastructure and retail components unbundled.)
After concluding his description of the wintry business climate for service providers, Clark turned the stage over to Robert W. Tkach, director of advanced photonics research for Alcatel-Lucent Bell Labs. Tkach described the engineering outlook for future network growth. Summing up: The network is nearing saturation, and there are some promising channels for innovation, but nothing is guaranteed.
"We're very close to what we can wring out of single-mode fiber," Tkach said. Space Division Multiplexing (SDM) and multi-core fiber are likely candidates for future growth. (See A1, Coriant Trial Space Division Multiplexing.)
Or maybe the solution to the coming bandwidth shortage isn't fiber at all. "Maybe it's something happening at some other conference."
In conclusion, network providers face increasing demand for bandwidth -- without a business model to fund construction of the infrastructure needed to meet that demand. And even if the business model materializes, the technology to achieve the necessary capacity increase isn't there yet.
Is that depressing or inspirational? If you just look at the obstacles, you'll get pretty discouraged. But if you think of the situation as a technical and business problem that needs to be solved, well, the companies that solve that problem stand to make a killing. And that'll cheer you right up, won't it?
It's better than selling sports memorabilia.
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