Commentary: Surprise, surprise! The latest data from the European Telecommunications Operators Association shows that expenses are up and revenues are down, and the report's author wonders how long this imbalance can go on without compromising spending. Then again, maybe it already has. We recently noted that Acme Packet's weak fourth quarter could be a symptom of a capex problem with operators' network investments. There's more indication now that this is true, based on Juniper Networks' latest earnings report.
Juniper -- which pre-announced revenues, earnings and margins lower than expected -- has been seen by Wall Street as a player in the Internet's success. The problem is that while the Internet has been a consumer success and has driven a host of over-the-top players to astronomical heights, the Internet has been a mixed blessing for network operators.
On one hand, operators needed a source of consumer revenue beyond voice and they got one. On the other hand, that new model and network investments have utterly commoditized bandwidth and transformed network services from mere connectivity into "experience delivery." Juniper and other networking vendors reaped the same rewards of this network transformation, but they're also all now facing the downside of bit commoditization.
The general view of the Street is that there's both an industry problem here (which is true) and a Juniper problem (true again). Our surveys started showing that Juniper was losing strategic influence in Layer 3 network investments -- the router layer it so needs to sustain. This loss was, in our view, a result of a failure to mature their content monetization, mobile/behavioral monetization and cloud services portfolios. Competitors that had better credentials there -- especially the cloud -- were able to gain share. Some financial analysts think the proximate cause of the Juniper disappointment was that Cisco Systems took market share. This is likely true, but the issue of why that happened is more relevant.
Cisco has the most solid cloud provider position of all the network equipment vendors, and my survey work is showing that the cloud projects are being accomplished faster than other monetization strategies simply because operators know how to move them. There are operators we survey that launched content projects and then cloud projects, but the content projects have yet to advance even to trial. The cloud projects are awarded, however, and in many cases to Cisco. The question is whether Cisco won those deals or Juniper lost them. Both companies need to try to push the outcome in their directions.
About the author: Tom Nolle is president of CIMI Corporation, a strategic consulting firm specializing in telecommunications and data communications since 1982. He is the publisher of Netwatcher, a journal addressing advanced telecommunications strategy issues. Check out his blog for the latest in communications business and technology development.