New Moves Shaping Post Covid-19 Telecom/IT Industry

This Industry Viewpoint was authored by David W Wang

Telecom/IT proves to be the bloodline for business and personal life during the Covid-19 pandemic, and remote work and online orders become the new normal nowadays. As the result we see service providers are having busy backbone traffic and quickly adding up broadband service subscribers globally.

On the other hand however, this Internet traffic surge seems not translating into more equipment purchasing and network buildout, at least not yet. Right now, many service providers and enterprises have slowed down or paused their purchasing activities until they see clear light in the tunnel to prevail over the pandemic.

Based on Dell’Oro Group reports released in early June, global revenues from telecom equipment sales declined by 4% year-to-year in the first quarter following two years of growth, citing a cautious market during the coronavirus outbreak.

But overall, we deem this Covid-19 holdback will be temporary and recovery will come in 2nd half of 2020 and beyond, as services providers and enterprises assess in depth telecom and network’s indispensable values, big IT lessons learnt, as well as the obvious opportunity cost of doing less on digital transformation. All this will help to figure out the optimal networking/IT directions to go in the post pandemic era.

From technology trends, service models and legal/regulatory perspectives, some recent moves from a few major vendors may indicate well where the IT/networking industry and market are heading for.

In December 2019 Cisco made a strategic shift by launching its Silicon One chip and 8000 series routers to better serve and manage the future of the Internet and engage deeper with the modular trend of disaggregated cloud networking.

Recently IBM also announced its Power10 chips, which will hit the market in mid-2021, not only offering higher performance and data bandwidths than its predecessor, but also saving a third of the power consumption. The chips will target the hybrid cloud market where enterprises demand high bandwidth for processing financial transactions or AI inference.

Why suddenly major vendors like Cisco and IBM start to make chips on themselves vs. purchasing Broadcom, Intel and AMD’s off-the-shelf merchant chips? The driver is telecom niche and centric solutions boosting 5G, cloud edge, IoT, security performance, AI assistance, and reducing energy consumption, aka costs.

In addition to the form of legacy routers and servers, NFV powered white boxes nowadays also provide rich opportunities for Cisco and IBM to just sell the chips standalone and get engaged with the client side next-gen networking in one way or another.

Service model wise, recently Cisco claims its “as a service” offering revenues have reached 51% of the firm’s total revenue and they see cloud, software and AI will reign the industry’s future. Hence Cisco will enhance its “as a service” models and launch more services targeting more verticals in this aspect. The firm will even see into how to deliver the traditional networking hardware as a service over time.

Juniper recently also launched a new “as a service” offering with WAN Assurance, a cloud-based service that will gather telemetry data from Juniper SRX, Contrail and other WAN gear and pass that information to Marvis – an AI-based engine that features dynamic packet capture and machine learning to automatically identify, adapt to and fix network issues.

With all the software defined, cloud powered and AI assisting “as a service” hot launches taking place, there’s also a caveat from the recent door closing announcement of Lumina Networks who has started as a pure play vendor of open source SDN controllers but now losing ground. This makes a wakeup call on open source which turns out to be a double-bladed sword for software development, productization, and management.

On one hand, open source provides the flexibility, innovation and dynamics to develop, enhance and customize on the used to be locked and proprietary software codes, on the other hand, while most service providers consume open source internally, they don’t want to offer it in their products for profit eroding and client churning concerns.

From the customer standpoints, while they like the open source concept in general, they may run into particular support, upgrade and integration issues from open source software and products.

The best practice in this regard seems to be the so called “managed open source” approach, meaning a certain vendor while offering an open source product to the client in some selected modules of the software, also manages a pool of open source developers and support for the client. In this way, the vendor still maintains the baseline control of the software product, meanwhile can assure the client with open source on time support availability, quality and relevance whenever in need.

Lastly, the legal and regulatory landscape is still going through drastic and dramatic changes, for instance, with more strict and comprehensive bans on Huawei’s network products and 5G solutions from the US, UK, Australia and other countries. This proves that cybersecurity and digital safety remains a top priority during the ongoing 5G and digital transformation globally.

Such legal/regulatory changes would open up quite a door in months and years to come for carriers and enterprises to look for alternative equipment and networking solutions, and equipment vendors to step in and fill out the gaps. Situation may vary country by country basis and a granular approach to assess the impacts and opportunities associated is due diligence.

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Categories: Industry Viewpoint · Software · Telecom Equipment