Internet video, iPhones, explosive growth of mobile phones in Asia, flat-rate broadband pricing… these and more have sent capacity demands on the Anywhere Network through the roof in the past year. Many of the packets these activities generate end up queuing for intercontinental transport via one or more of the Earth’s submarine cabling systems.

In London last week I had a chance to catch up on the implications of demand and approaches to submarine cabling finance from an Anywhere industry insider, Vinod Kumar. Vinod is President and COO of Tata Communications and a long-time communications sector leader. Among many other submarine cable activities, Tata Communications operates SEACOM, the big cable that recently reached the shores of East Africa from Mumbai, opening up network capacity in Africa in a big way.

Bandwidth demand is booming around the world right now. Do we need more undersea cabling?

“If you wanted to write a check for more right now, I’d say the Atlantic Ocean needs another cable. Not necessarily because of bandwidth demand in total, but rather because of the rise in demand at various landing spots. I’d run one from south Florida at one end, to southern Europe at the other. South America needs another, so I’d run a branch cable down there off of the new one.”

Public markets aren’t enthusiastic about financing big speculative projects right now – and the debt that supported private equity backers is harder to get now, too. How are these projects getting funded these days?

“They can take $250M to $1B at a go. In the old days, the way it used to be funded was through the formation of massive industry consortia. Tata [via the 2006 acquisition at its core, Indian state-run long-distance network firm VSNL] was involved in quite a few. You’d get 60 to 80 firms to commit up front to the commercial demand for the capacity when the cable got laid, in order to get the project financed. But these cable consortia are tremendously complicated to manage; for one thing, you need to control how a consortium’s members push for capacity upgrades before the bulk of the project cost has been recovered.”

“Then you had the speculator model, which boomed in the late ‘90s… for instance, the private equity firm Blackstone funding SEACOM. Rather than go through all the hassle of securing demand in advance, proponents of this model had a ‘build it and they will come’ approach. That boom, though, led to several busts, when the investors didn’t sew up enough commercial commitments before proceeding.”

“Tata then pioneered a model which seems to bring some attributes of each of those models towards the middle. Maybe you’d call it the ‘private club’ model. We own the main intercontinental cable we lay, and various landing parties own the various cables that branch off regionally to local waters, like to Vietnam or the Philippines. It’s less complicated than the consortium approach because there are fewer members. The main asset is 100% owned by Tata, but about 60% of the demand for its capacity is covered by the club members who run branches off it. It’s better for Tata, since we ourselves only have to risk 40% of the investment cost and it’s easier to manage a much smaller group. It’s better than the completely speculative model for the club members, since they get to buy the capacity at our cost plus a limited markup, less than 10%, and since Tata is an experienced undersea cable operator, they can hold us to extremely strict SLAs [service level agreements] to get comfort about reliability. Since we’ve started doing that, others have mimicked the model and it’s become pretty popular.”

But with exploding demand, and Tata’s balance sheet, aren’t you tempted to go the speculative route yourselves?

“Traffic is growing at 60% a year — but no one foresaw the irrational pricing that’s driving some of that. We’ll never take a speculative undersea cable project to Tata’s board — because we don’t need to. We tell the board what our own organic load will be, and we can find the rest of the funds to keep it prudent. It’s a small industry. We have investments in almost 80 cable consortia, so people know us, and we’re good at the work itself, like figuring out how to put cables where other cables aren’t. Those sound like small details, but the earthquake off Taiwan earlier this week disrupted several cables – not ours.”

My conversation with Vinod was on a day when he and other members of the firm’s management team were showing how far the formerly India-only operator has come in the provision of global connectivity. Vinod’s ambition: for Tata Communications to become ‘the Singapore Airlines of network services’. In an episode that reminded me of those times when you suddenly start hearing about the same movie or restaurant multiple times within a few days, a lot of the rest of our talk was about the new models for wholesale network services. I’ll do another post on that shortly.

Farewell to the Noughties, a decade sandwiched between two crises: The dotcom bust and the current – but sputtering – downturn.  In that time, Europe accomplished much: The Euro was adopted, DSL went mainstream and telcos went NGN.

Not least, consumers woke up to the pleasures of mobile content, although it’s questionable whether MNOs will ever see a fair return for their expensive 3G licenses. Roaming charge crackdowns and market saturation haven’t helped financials either.

Time again to put a nebudchadnezzar on ice? There’s plenty under the tree for 2010:

1. Ethernet will be everywhere. Ethernet is in the LAN, it’s in the WAN, it’s transforming mobile backhaul economics, and it’s converging the datacenter. Fiber remains best, but clever vendors (see Hatteras, Actelis) are delivering copper-bonded Ethernet in the first mile. And new Ethernet exchanges (see CENX and Equinix) aim to speed order to cash with their interconnect services. Want a unifying communications fabric? Well duh!

2. The CDN bubble will burst. Telco CDNs can offer compelling features, but how many service providers can the market sustain, even if video traffic is exploding? Many partnerships are already in place: Tata Communications with BitGravity, Verizon with Velocix, Deutsche Telekom with EdgeCast and Global Crossing with Limelight Networks and EdgeCast. If you’re not in the game now, you’ll need deep pockets to buy in.

3. The cloud’s hot air will expand. Resilient, liquid (and probably Ethernet-based) connectivity is going to save the outage-prone cloud. To invest in cloud services enterprises require robust network as well as applications-specific SLAs, as well as network redundancy, say Yankee Group enterprise surveys. Offering on-demand VPN connectivity to cloud services (on a wholesale or retail basis) could help defuse concerns about their security and resilience.

4. Equipment vendors will want to be your new best friend. The ratio of CAPEX to revenue currently stands at 12.6 percent among European operators, according to Yankee Group analysis. It’s not going to recover much. That’s why European equipment vendors like Alcatel Lucent, Ericsson and Nokia Siemens Networks are on a charm offensive with managed services propositions and aims to transform telco business models. Listen to their pitch. And talk to Huawei:  With a new SDP partner program and growing software division, it’s got more in its arsenal than cheap kit.

5. Smart wholesale will become sexier than dumb wholesale. Get big, get niche or get out. Embrace revenue-sharing models with non-traditional partners. And work mobile angles: International remittances, GRX to IPX interconnect, content transcoding, white-label mobile UC and M2M are among many rich avenues of investigation.

Best wishes for the New Year – and decade – look forward to continuing the conversation!

Given the opportunity to join IBM’s Global Executive Forum again this year, I jumped. Past experience has proven that it’s an intimate, powerful gathering where C-level execs from global communications and media firms convene to mull key questions in leadership.

Last week we convened in the foggy but serene wilds of rural Hampshire, U.K., for two days of discussion about how to succeed in the new economic environment. The challenges offered by IBM were capture in the subtitle for this year’s event: Taking Risk and Finding Opportunity in Unprecedented Times.

My favorite remark of the sessions, one that I’ve repeated several times already, concerned the need for change in our legacy communications networks to embrace exploding demand for video, data, and new services. In the past I’ve heard a defensive posture from network leaders, rationalizing slow progress in the face of rapidly rising threats. But Jean-Philippe Vanot, EVP for innovation and marketing at France Telecom, said, “It’s no longer a question of if, but when.” Amen to that. Eelco Blok, KPN board member and managing director of its business and wholesale operations, talked about the imperatives to change that his firm’s leadership saw as early as 2005, triggering the brave decision to invest in an aggressive move to an all-IP network infrastructure despite a very challenging financial situation.

I shared this slide, from research that YG analyst Camille Mendler did earlier this year with the Telecommunications Executive Network (TEN), surveying network operators. She asked them what they believed the core selling proposition of a network operator is.

What 50+ network operators think they provide

Thank God, I observed, that the most popular answer was the correct one: a service management platform. Operators of networks who see their mission as providing a platform for the creation of network services of any stripe, offered either by them or by third parties, have the best opportunity to contribute to the increase in collective smarts around the world.

(However, the second most popular answer to her question is just total puffery, to put it kindly. Brand is not a selling proposition for any company, whether it runs networks or makes toothpaste. Brand is rather a means to an end. A valuable brand helps a business do things — reach a target market, for instance, or instill confidence in the minds of buyers that this toothpaste will whiten their teeth better. But brand isn’t something valuable on its own. Operators who identify brand as their selling proposition are more likely to invest in brand promotion and identity ahead of the non-trivial work of transforming their core networks. Brand is thus a dangerous red herring in a converging world.)

I like IBM’s Smarter Planet mantra; I believe in it. But to have one, we need smarter networks. In the words and reported deeds of network and media leaders at GEF, coupled with the early, admittedly modest, green shoots in the global economy, I see progress.

The downturn is forcing tough decisions about what remains core. In the past week, three telecom operators made their choice: KPN’s Belgian subsidiary BASE is outsourcing network operations to Alcatel Lucent; Nokia Siemens Networks will run Orange’s UK and Spanish networks; and Vodafone UK will hand over network maintenance and operations to Ericsson along with 350 employees.

They are not alone: Globally, deals are escalating in size, scope and length, according to our historical analysis of more than 800 telco outsourcing transactions since 2002. Operators will double annual expenditure on outsourced and managed services from $16 billion today to $32 billion by 2013, as noted in my report, Redefining the Core: Outsourcing and the Virtual Telco.

But let’s not get carried away. Outsourcing can bring rapid balance sheet results, but that doesn’t automatically translate into long-term business value. There’s a vast difference between externalizing to achieve financial re-engineering versus business transformation. Yet this is exactly where many operators and their investors are getting confused.

Scattergun usage of outsourcing as a weapon to cure all corporate ills is more than unwise, it’s dangerous. A vendor can nearly always be found to undercut internal operational costs – and how attractive if they can also rebadge employees, or pay a success fee up front to win the business.

While this might improve the bottom line, it won’t drive top line growth. That’s the real issue that operators must address – with or without external help.

Last month, I wrote a piece discussing the growing trend (and growing importance) of carriers entering and reshaping the CDN market. Well, here’s an update: The march continues, unabated.

Just within the last month, the following things have happened:
•    Global Crossing officially expanded its CDN reseller program to include both EdgeCast and Limelight Networks.

•    BT indicated that it will enter the CDN market by the end of 2009 with an internally developed offering.

•    TeliaSonera is expected to announce next month that it will enter the market in some fashion.

Full credit for both the BT and TeliaSonera news goes to Dan Rayburn at streamingmedia.com.

I cover in the previous piece what has happened thus far and how the carrier offerings will differ, both from each other and from pure-play CDNs. What I want to make note of here is the velocity at which this is happening. This makes four major global carriers (Deutsche Telekom, BT, TeliaSonera and Global Crossing) that have thrown their hat in the ring since the beginning of the year, in addition to further announcements from Verizon and AT&T that relate to the CDN space. Yankee Group has spoken to multiple other carriers that have yet to announce anything publicly, but are likely to produce some manner of CDN offering (most likely resale or whitelabel at first) within the next six months.

Also of note is where this activity is occurring. There was a time at which many international operators dismissed this trend as a concern primarily of their US colleagues. The argument was that CDN was of most strategic importance in the US, as that is where the majority of high-demand online video content is created. Therefore, it would be the US carriers that bear the greatest burden and have the most to potentially gain (in terms of cost and bandwidth reduction, as well as potential revenue) from a CDN offering. This supposition was buoyed by the fact that Level 3 and AT&T were the two notable first-movers.

Yet we know this argument to be false. We’ve now seen major incumbents in EMEA and APAC join the fray as well, and there are ongoing discussions from multiple carriers in Latin America and other parts of APAC about how they might sell CDN services. The reason? Even if high-volume content is still often produced in the US (and that is becoming decreasingly true, as a matter of fact), it is consumed globally. Therefore, any carriers with significant long haul assets charged with carrying a large amount of global traffic are gravitating towards this market.

The following graph shows the top 13 providers worldwide in terms of total IP traffic carried in 2008. It reads like a who’s who of providers that have entered the CDN market in the past two years. Level 3? #1. Global Crossing? #3. NTT? #5. AT&T? #7. TeliaSonera? #8. And so on.

Credit for this goes to Earl Zmijewski at Renesys (the original article that accompanies these rankings is fascinating as well, and can be found here).

This is certainly not an exhaustive list, but the salient point is that there is both rhyme and reason to why this is happening, and it’s not just about carriers mimicking the actions of their peers or seeing a potential revenue stream. Those providers with the greatest amount of responsibility for IP transit are looking at the changing nature of content delivery and asking how they can streamline their own processes. Augmenting a large IP network with a dedicated CDN to cache and serve high-demand content locally has significant benefits in terms of capex savings, network efficiency and (some) revenue generation. Take a look at who are the other operators with large IP backbones worldwide, and you’ll get a pretty good sense of who might be kicking the tires on the CDN market in 2009. Or at least who should be.

A warning to anyone standing in MWC’s serpentine sandwich queues: The jamon iberico baguette isn’t worth €6 – and someone might be listening to what you say.

• Will a mammoth nationwide LTE deal from a North American operator be announced at MWC? The deal is a make or break for at least one equipment vendor.
• Is the demand for hefty upfront success fees a worrying new trend in the enterprise managed services market? A €16 million upfront fee was reportedly paid to secure a €350 million contract that’s recently been in the news.
• Did the executive from a bankrupted equipment vendor use airmiles as he sat in the business class section of Iberia 4189 from London? His peers in economy want to know; so might the administrators.

I’m currently drafting a piece of research on the role of network operators in providing content delivery network (CDN) services. Traditionally, CDN has been the purview of third-party players such as Akamai or Limelight, who cache internal enterprise or consumer-directed content at local servers to avoid the latency, speed and quality issues that can arise with content traversing the network backbone. These players in turn lease long-haul capacity from carriers, and these leased capacity costs typically comprise roughly 30% of a CDN’s cost structure.

Increasing, operators are looking at the CDN market and asking why they can’t do this themselves. In an effort to control bandwidth on their own networks, operators such as AT&T, Verizon, Level 3, Tata, Reliance and others have already made movements towards this market, with countless others kicking the tires on CDN in one form or another. It’s mostly a cost and capacity saving proposition for these guys, though there are certainly a few bucks to be made here as well.

The reason I bring it up today is that there was a notable announcement by CDN-provider Velocix to address this trend. Velocix finally debuted its “Metro” offering, which has been known about in some circles (and highly anticipated) for a while but not publicly announced. Essentially, it’s a direct pitch to the ISP community, offering up Velocix as either a provider of CDN services to them or as a partner to use in offering the ISP’s own CDN offering. It’s a fascinating play, though not an entirely unique one, as other CDNs are looking at ways in which they can develop a reseller or white-label model to position themselves as a partner to the encroaching service providers…as opposed to a competitor that is about to see their market turned upside down. I just spoke to a Malaysian-based CDN that is getting ready to launch in January with a business model entirely predicated on attracting mid-tier ISPs.

There is one particular aspect of the Velocix offering that caught my eye though, and that is the different way it is manifesting itself in the US and in the UK. In the US, Velocix has already announced a notable partnership with Verizon, whereby Verizon will resell Velocix’s CDN service to content providers. Essentially, the pitch is, “Dear content provider X. We are using this CDN to handle our own FiOS content. We would be happy to handle your content in this preferred fashion as well…for a nominal fee, of course”. So from Velocix’s point of view, the ISP is the carrot to attract content provider customers.

In the UK, the situation is inverted. Velocix has a strategic relationship with the BBC, whose iPlayer P2P service represents a huge glut of traffic for the operators. Velocix is going out to ISPs like The Carphone Warehouse and Virgin Media with its Metro offering, and the pitch is, “Dear ISP X. We have a relationship with the BBC whereby we can locally cache iPlayer content. We would be happy to do this specifically for your customers that are consuming this BBC content and weighing down your network…for a nominal fee, of course”. So from Velocix’s point of view, the content provider is the carrot to attract ISP customers.

The reasons for this dichotomy have to do with the relative power of ISPs in the US versus the UK due to local-loop unbundling, as well as the sheer volume of traffic that BBC’s iPlayer generates. But the model of some sort of three-pronged relationship between content provider, network operator and CDN is one that is consistent across the regions, and a viable direction for the overall content delivery market moving forward.

Now the question is what does this mean when measured against the specter of net neutrality? Is it legal for a service provider to ask a content provider to pay extra for delivery, and then give that content preferred status over those that won’t pay-to-play? I’ll leave that can of worms for another time…

As I spent much of Boston’s rain soaked weekend inside recuperating from a terrible cold I was able to catch up on some television. After finishing my DVRed content I was forced back to endure the commercial laden landscape of live television. Naturally, most of the content was indistinguishable from the rest but one stood out, the “next phase” of post Jerry Seinfeld Microsoft commercials.

To be honest I wasn’t a fan of the Seinfeld commercials. I appreciated their quirkiness but I felt they failed to connect with the average viewer. One critique I read that rang most true was “If Microsoft is just now connecting with real users, how can their existing software meet the needs of the everyman?” A great point. Even Microsoft recognized this and decided to revamp, which seemed a good sign, but the new commercials fell even flatter.

Beginning with a “PC” from the Apple commercials, the narrator informs the viewer that he is a stereotype of a PC user but as we learn – many other people are PCs too. And this is where the whole campaign concept goes off track.

The problem is – Microsoft isn’t losing consumers to Apple because PC users are being pigeonholed as an unflattering stereotype. Consumers are smarter than that. Microsoft is ceding ground to Apple because Apple focuses exclusively on digital entertainment and Anywhereness, two increasingly important attributes for users.

According to Yankee Group’s Anywhere Segmentation – Actualized Anywheres, the early adopters that influence the mqarket are the prime constituents to be attracted to Apple’s ecosystem. They then pass this newfound behavior on to the masses behind them, which will yield further gains for Apple over the course of years.

The problem for Microsoft isn’t an inability to provide these services, but a failure to stitch together the components into a compelling  message. It’s nary to find an Apple product without an i in front of it, Microsoft has disparate product lines: Live, Xbox, Zune, Windows, Office, Home Server, etc. which fail to translate into an ecosystem.

This isn’t to say that Microsoft is positioned to become the next great digital lifestyle company – more acquisitions will be needed for that to happen. In addition, Microsoft must better leverage the productivity piece as a lifestyle solution, not just an entertainment solution. Not just entertainment or productivity but both.

One failure of Microsoft is different user interfaces and experiences on all its devices while its competitors continue to consolidate experiences to make transitioning from one device to another easier. Microsoft must follow suit.

For Microsoft to effectively compete in the Anywhere world they must find a way to better tie together its product lines, consolidate experiences, and message the ecosystem to the user. Perhaps choosing the Xbox moniker for all its entertainment products would help Microsoft accomplish this. The Xbox Music Player, the Xbox Game Console, the Xbox photo editing quite. OK, maybe Xbox doesn’t work but the concept is an important one. Then use the brand to find hooks into the productivity piece to create a perception seperation between work and play while building a knowledge base that Microsoft can meet all a users needs.

Apple has done an amazing job of creating an ecosystem, and Google is gaining steam as well. Now Microsoft must do the same. Tie together the pieces to help elucidate the image of a Microsoft world. Focus on the choice consumers get by bragging about the hundreds of form factors available. Talk about openness of the platform. Share how all the pieces fit together. But don’t focus on who uses the device. People already know that.

Lost in the hubbub of Apple’s revamped iPod line-up last week was the announcement of new Zunes. While some of the features offer differentiation the most interesting aspect of the announcement was the inclusion of free WiFi at McDonalds.

In an age where more devices are coming equipped with WiFi there is finally a recognition that consumers want easy access to the internet when they are beyond the home. Without providing the means to fully utilize WiFi, manufacturers leave their devices crippled. I fully expect that other manufacturers will begin or continue to develop partnerships with WiFi hotspot providers to provide free connectivity for their devices.

Just like all other things connectivity we are still at the beginning. Apple and AT&T have teased us with free iPhone/iPod Touch WiFi at Starbucks and other AT&T hotspots for months and now Microsoft is joining the fray. Partnerships make sense because they bring foot traffic to a location, provide additional features to the consumer, and enhance the value of a device. The industry must be wary of exclusive partnerships for free service emerging as they would stifle the truly Anywhere nature the world is headed toward.

In the future devices will not be competing on who has WiFi and who doesn’t, instead they will compete on who provides the best experience and which offers the most free WiFi to its users. Becoming an Actualized Anywhere is becoming easier and easier.

Digital media adapters have failed for so many reasons; bad user interfaces, lack of access to free content, convoluted file format support, difficult set-up, and more. Covering this space for the last few years I have seen broken promise after broken promise by companies that assure consumers their solution will erase past sins. Yesterday, for the first time I finally saw a product that I believe will usher in the age of digital content on the TV; The Sling Catcher.

Many of you have probably heard about the Sling Catcher for the last few years as Sling Media has touted the product but failed to deliver. The delays appear worth it as Sling has created a solution that will offer the most robust digital media adapter (although I am very remiss to put it into that category) solution on the market this holiday season. In short, the Sling Catcher will allow users to watch all manner of digital content both personal and professional on their TV.

Sling accomplished this by using a number of different avenues to access content:

1. Sneaker Net. Users can move content from their PC to a Sling Catcher by downloading content to the HDD then physically moving it to the Catcher. While I initially thought this was a detriment, the speed in which content will transfer to a hard drive via USB instead of via WiFi, the ability to bring content beyond the home, and the likely need for the inevitable storage upgrade make excluding a HDD palatable, if not sensible. Additionally, Sling will have a solution that will inform users if content they are transferring is incompatible with the Catcher (it seems the only reason it won’t is because of those dastardly DRM restrictions).

2. Projector. This is the killer application. Unlike other devices, projector opens up streamed broadband content in a way unlike ever before. Users can stream content from ANY VIDEO SITE to the TV. Simply put, Projector is an application on the PC which allows you to pick the content you want to stream and then displays it on your TV. Finally all the content from ABC.com, Hulu.com, and even Sling.com can be watched is freed.

 3. Sling Box. If you have a Slingbox you can use the Catcher to connect to the box and play content on another TV. This could be simply extending the viewing experience in the home or taking your home entertainment with you on the road. This adds value to the Catcher and the Slingbox. I can see soft bundles on endcaps in Best Buy already.

Perhaps the most interesting part of Sling’s offering is the tacit understanding that not one solution is appropriate for everyone. Apple’s decision to marry iTunes with Apple TV is its saving grace but also its greatest flaw. Instead of one solution, Sling opts for multiple options but at its core recognizes that there is ample free content that consumers want to connect to.

Sling is a curious company in the age of Anywhere. They are one of the few that are actually enabling the three screen strategy with content users find personally satisfying – because it’s their own.  With a Slingbox and Catcher user will be able to access their content on their PC from anywhere, on their handset from anywhere, and on any TV from anywhere. All you need is a network and a device. These services are appleaing to service providers hoping to upsell broadband service tiers (higher upload speeds help), wireless carriers hoping to sell more data plans, handset manufacturers hoping to sell more expensive multimedia handsets, and content owners hoping for more consumer touch points. Everyone wins in this scenario.

As a CE company Sling is clearly on the forefront of delivering the Anywhere vision, and it hasn’t even fully integrated its web portal. Yet. Ultimately the biggest boon may be for Echostar which can embed Sling’s technology into their set-top boxes. This will prove a major  differentiator between itself and market leader Cisco and Motorola.

In a consolidated industry where differentiation is difficult the ability to offer something different than entrenched competitors is key. Service providers clamoring for service differentiation may consider new partners to more easily enable their subscribers to actually be Anywhere. On any screen. Courtesy of Sling.