Google, Facebook become target for network makers

Google and Facebook are becoming the target for global network and software makers such as Intel, Qualcomm, Ericsson, Huawei, Cisco, HPE, etc.

This is primarily because of the anticipated flat / drop in growth in Capex (capital expenditure) by telecom service providers. Research agency TBR, which considers global technology companies such as Google and Facebook as alternative network providers (ANP), says they will increase investment substantially as compared with telecom operators.

Capital expenditures of the social media network Facebook for the second quarter of 2016 were $995 million. Google does not share its Capex.

ANP vs telecoms

Telecom providers are increasingly collaborating with alternative network providers, moving ahead of the fact that the latter lead to disruption of traditional business model.

“There is a mindset shift in the telecom industry from viewing ANPs as threats to viewing them more as partners,” said Chris Antlitz, a telecom senior analyst at TBR. “Incumbent telecom operators and vendors are embracing collaboration with ANPs to drive industry development and address key challenges such as bridging the digital divide.”

ANP market 

Incumbents are viewing ANP innovations as critical and complementary to their core businesses as well as helpful in tackling a range of challenges, including reducing the cost per bit and enhancing quality of service.

With telecom Capex from traditional communication service providers forecast to decline through 2020, vendors are focused on tapping into adjacent growth areas such as the ANP space, where ICT Capex is forecast to grow at a 23.8 percent CAGR to nearly $24 billion in 2020.

Some vendors, such as Nokia, TBR and Ericsson, have made it a key initiative to sell to ANPs, and each of these vendors, as well as others, have put dedicated resources together to drive business in this customer segment.

Though ANPs have market opportunity, some are struggling to work different than traditional operators. Vendors willing to collaborate, use open source and customize their products tend to win the most ANP business.

The disruption posed by ANPs to traditional operators will add to speeding the transformation to software-mediated architectures and digital, programmable platforms.

Facebook accounts for 16 percent of a mobile carrier traffic in North America, trailing only behind YouTube at 20 percent, according to a December 2015 report from Sandvine Inc.

Current Projects

Operators are working with initiatives established by ANPs such as Google Fi and the Telecom Infra Project, the Open Compute Project and Free Basics program.

Facebook recently revealed that it will collaborate with 30 partners including Deutsche Telekom, Intel, Nokia and SK Telecom for its Telecom Infra Project with Intel and Nokia contributing in an initial suite of reference designs, and Deutsche Telekom and SK Telecom aiding the deployment of the technology.

AT&T is adopting software-defined infrastructure using equipment from Ericsson and Intel, which were 5.7 percent complete in 2015 and would be 30 percent complete by the end of 2016.

The Telecom Infra Project (TIP) from Facebook has a similar goal to AT&T and has teamed up with Nokia, Intel, and several telecoms to create an open source hardware and software platform for the telecommunication industry designed to make it easier and faster to build communications networks.

The program is modelled after a similar effort the social network created five years ago for its data center.

If successful, the project will help operators build networks using a more modular approach, and will also change the economies of telecom equipment providers such as Ericsson and Cisco.

Facebook has joined with Intel and Nokia alongside carriers including Deutsche Telekom AG to share information about designing cellular networks, and to make these blueprints available for anyone to use and improve.

By launching the initiative, Facebook also conveyed that it wants to work with telecom firms rather than replace them.

Facebook has strategies of building a simplified network architecture using modular components joining hardware and software, replacing the current equipment.

But in the telecom industry, the acceptance of the Telco Infra Project remains to be seen, with vendors like Cisco Systems warning the users about the threat of open source switches, Open Flow, and other elements leading to interoperability between vendors and their gear.

In April 2011, Facebook launched the Open Compute Foundation, an effort to build open source servers. The goal was to eliminate unnecessary server equipment that adds to the cost of components and power. Facebook, with more than ten thousand servers, conveyed that saved it more than $2 billion with this project.

While Dell and HP were initially Open Compute partners but not benefiting much from it owing to lower margins, Nokia is the only leading member of TIP.

Ericsson has joined the Open Compute Foundation, but for other providers set on selling their equipment as a highly integrated system, such modularity may be a risk.

Facebook with Globe has created the first pilot network using the TIP gear in a small village in the Philippines, with estimates that more networks will be tested later this year.

Also, recent investments by Google are pointing towards it building a global telecoms network in competition with current telecoms operators. With the recent investment in international fiber networks and with 50 data centers in four continents, it has a global content delivery network spanning 100 countries, a fixed network operation, an MVNO business, and an operating system for smartphones.

All the initiatives of Google are leading towards it interconnecting all elements required for a telecom industry.

The addition of this segment to the telecom industry will lead to increase in the competition.

Google is investing into assets that are core to its business and initiatives that do not directly support its core business, like Google Fiber, Google Fi, and Project Loon.

Google Fiber was announced in 2010 but was launched commercially in 2013, offering a 1Gbps symmetrical network and service, in an industry first.

Google Fi is an MVNO project utilizing the signal coverage of mainstream carriers including Sprint, T-Mobile, and U.S. Cellular. Google Fi in Europe is also under discussion with the usage of new reprogrammable SIMs, cutting down on international roaming.

Project Loon, an R&D initiative to provide Internet access to rural and remote areas, uses high-altitude balloons placed in the stratosphere to bring the Internet within the reach of people. Though the deployments have been slow, the project can lead to a radical approach to reduce the cost of connectivity.

Indian Scenario

Facebook is launching a new scheme to bring cheap internet access to rural India, while currently testing Express Wi-Fi. The Express Wi-Fi allows people to buy economic data packages instantly.

Contrary to TRAI rejecting the Facebook Free Basics program owing to more than a million registered complaints about the plan, this new model is being encouraged by the population who believe it could add to transforming rural India.

Also, Facebook still plans to launch Free Basics to India with CEO Mark Zuckerberg saying that Facebook would make another effort to bring the service to India once it has been successfully rolled out in other parts of the world.

“We have had setbacks in a couple of countries, India of course being the biggest. With a billion people in India not online, it’s the most important country to get right,” Zuckerberg said.

At the same time, Google will be offering free high speed WiFi at 100 railways stations of India by the end of 2016, to become the largest public WiFi service in the world.

Though recently, Project Loon by Google has not been approved by the regulator, due to chances of it interfering with cellular transmissions of mobile operators in India.

Indian telecom companies will benefit from the carrier billing partnership with Google, which is the dominant mobile applications store provider, aiding in monetizing investments and promoting digital services.

Both groups are responding to market reports that the internet usage in India could double to over 730 million by 2020.

Vina Krishnan
[email protected]