[CAnet - news] Structural Separation and Golden Age of Network Centric Computing

For more information on this item please visit my blog at 
http://billstarnaud.blogspot.com/
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[Here is a couple more of excellent reports from CIBC World Markets and Paul
Budde's blog about why it is in interest of the telco's shareholders for
them to be structurally separated companies in the last mile. The basic
argument is the same - that new technologies such as web services, Web 2.0,
P2P etc are allowing companies that are not linked to the network to offer
the same services that were traditionally offered by the carriers including
control and management of network equipment and facilities. Thanks to
Timothy Horan and Paul Budde for these pointers.  Some excerpts --- BSA]

CIBC World Markets Report

http://pull.tmr3.com/cgi-bin/pull/DocPull/1-6756/17769432/The_Golden_Age
_of_Network_Centric_Computing_(120406).pdf 

Paul Budde Blog

http://www.buddeblog.com.au/


The industry food chain is now in place to enable Network Centric (NC)
computing to become mainstream, or enter the golden age. NC
computing is well described by Sun's old adage that "The network is the
computer."
. Among other things, new cost-effective technologies are making legacy
telecom networks obsolete and enabling the broad convergence of
applications in four separate industries-communications, computing,
entertainment and consumer electronics.
. In this network environment applications and services and are being
provisioned by independent providers that are not linked to the
underlying network.
. NC computing is driving demand for basic communications services, but
it is also rapidly changing legacy business models throughout the
economy.
. While growing vertical integration has been the industry trend in the last
five years, which we believe should help earnings for the next few years,
a shift to a more horizontally segmented industry structure is inevitable
in the long term, in our view.
. Emerging service providers are best positioned to take advantage of
these trends. Incumbents will also likely adjust their business models to
capitalize on these solid fundamentals.


With respect to the large telcos, we expect them to report good earnings
growth over the next few years, partially aided by recent industry
restructuring. While the long-term business fundamentals are uncertain,
restructuring has helped pricing, improved service quality and lowered
costs. However, to maximize long-term shareholder value, we believe
integrated carriers should split themselves along business lines, such as
transport-only wholesalers (selling to other service providers) and
"customer-facing" service integrators (buying from other wholesalers to
build a complete bundle). The alternative, in our view, is sub-optimal
performance in one or both businesses.

If integrated carriers do end up separating their underlying "last mile"
pipes from their services' businesses, we believe it could be one of the
greatest value maximizing events in the history of the telecom industry.
This process will probably begin outside the U.S., because regulators cannot
point to robust cable competition, and the only real way to generate
long-term competition is through structural separation (horizontal
segmentation), in our view.

Other than the last five years of vertical integration, the industry has
been marching towards a more horizontally segmented structure for forty
years-T (SO) spun out its PBX business, Local Exchange, Computing, Wireless
and Equipment businesses. In this regard, we would note that the three major
steps taken by the old AT&T towards horizontal segmentation were some of the
greatest creations of shareholder value in its history: 1) allowing
independent telcos to interconnect with its LD network in the 1920s; 2)
allowing CPE equipment to be connected to its network, the 1968 Carter
decision; and 3)spinning-out the RBOCs in 1984. These steps were all forced
on the company by regulators, and interestingly all three were vehemently
fought bymanagement. In many ways, this is exactly what the net neutrality
principle is
all about.



As we have been writing for the last seven years, we foresee an
economy-wide shift to NC computing - driven by disruptive technologies.
Technologies such as IP/Ethernet, softswitches, optronics, and wireless
broadband, are driving traffic onto one multi-purpose IP network that
enables new applications (e.g., IT to small businesses) to be purchased
separately from network access (e.g., voice and video over IP). These
technologies have also increased broadband speeds and reduced latency.
Additionally, substantial improvements in computing power (Moore's law),
network security (authentication, intrusion detection, encryption, etc.),
compression and higher layer protocols are setting the stage for the golden
age of NC computing.

There are a lot of different names or segments of NC computing including the
Internet itself, Grid Computing (which has quietly become very popular),
Software as a Service (SaaS), Virtual Servers and Web 2.0. Regardless of the
name used, it basically means networking together and sharing computer
processing, storage and data, which can be accessed over the Internet using
thin devices at the edge of the network. This increases demand for
communications connectivity and boosts computer utilization and
efficiencies. 

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These news items and comments are mine alone and do not necessarily reflect
those  of the CANARIE board or management.


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