It’s about time. I ran an interesting google trends search this afternoon, which ranks, in simple relative terms, the number of times “telecommunications” has been used as a search term, starting in 2004 and ending today. Search frequency has dropped by about 75% over that period. In other words, the average schmo is about a quarter as likely to satisfy some level of curiosity about telecommunications as he was five years ago.

Telecom Search Term Trend

Tiger Woods Search Term Trend

By comparison, searches for “Tiger Woods” have grown more popular by about 750%. Particularly in the last two weeks.

Go figure.

So based on our own small sample of interest in things telecom, I’m compiling a list of the top ten reasons why I believe telecom is at an inflection point — a very interesting one at that — and why the google trend curve for 2010-2015 (or whatever replaces it from the google labs) will look much like a mirror image of the 2004-2009 version. I’ll post the first five of these today, and follow up in the next few days with the remainder.

Number 10: Mobile data demand drivers will force a business paradigm shift. All-you-can-eat data may be becoming unaffordable (see the interesting article by John Paczkowski in All Things Digital). It’s going to get worse with video. Someone’s going to have to pay for all the upgrades and new backhaul. The people with expensive unlimited data plans (the kind of people who write news articles and blog a lot) aren’t going to like it.

Number 9: The mainstreaming of VoIP and multimedia will force a technical and architectural paradigm shift. The IMS platforms that are rolling out to deliver VoIP and other services work in the lab, but they aren’t ready for prime time operations. The management tools aren’t there yet. Demand for new tools and new methods and procedures is going to fuel innovation and new entrants. Some of the new kids are going to be newsworthy success stories.

Number 8: One or more major service provider networks will suffer a catastrophic security breach. It’s going to make big news, spur bloviating politicians to hold Very Important Hearings, and refocus attention on securing the net. The vulnerabilities — either in the internet or in closed service provider networks — are just too glaring to ignore. Some bozo hijacking a Tier I network will make good fodder for 60 Minutes.

Number 7: The US industry is ripe for reregulation. The Obama Department of Justice was widely rumored in July of this year to be investigating antitrust violations in US telecommunications. The long silence since then may be an indication that the rumors were greatly exaggerated, but whether in antitrust enforcement or in new net neutrality regulation, the long arm of the law is about to get longer. Lawyers, rejoice.

Number 6: The intersection of Google, Apple, and global service providers like AT&T, Verizon, and Vodafone is going to force a restructuring of players and roles. The hunger for content and advertising revenue, the interdependencies among the networks, platforms, and developers, and the extremely capital-intensive nature of the needed new infrastructure will force a historic realignment. The “communications service provider” of 2009 will be unrecognizable in a few short years.
to be continued…

There are a lot of other cases that can’t yet be disclosed publicly, but they all involve management of networks that are undergoing various stages of disaggregation. In the consumer VoIP example, over 20 individual classes of network element (media gateway controllers, routers, access managers, etc.), deployed in multiple instances, replace a single centralized switch. The new architecture is vastly more flexible, and takes advantage of the inherent efficiencies of packet-based transport, but the flexibility and efficiency come at a cost in terms of increased management complexity. Rev levels, patches, parameter settings, backups, and security in the disaggregated environment can’t be managed without new infrastructure and new methods, and these are often improvised at rollout rather than being baked into the plan.

( photo credit: http://www.computerhistory.org/)

It strikes me that what we’re seeing among service providers — and in the management systems that support them — has a lot in common with the evolution of enterprise computer and network architectures — in fact, it’s nothing more than a delayed reflection, played out in an industry that has vastly longer investment cycles and vastly slower technical evolution. The movement out of the 1970s mainframe-centric world and into the ‘peer-to-peer’ minicomputer networking world of the 1980s (the origin of the internet) and then further into the evolution of ubiquitous computing in the 90s and 00s, gave rise to a whole new multibillion dollar industry devoted to management support — network management, PC desktop management, server system administration, and so forth. It created an opportunity for rapid development of hundreds of companies, many of which became billion dollar plus players (CA, IBM’s Tivoli, and BMC for example).

We’re still in the early days of a massive transformation from a ‘mainframe’ era of telecommunications into a disaggregated era — based on IMS, LTE, IPTV, femtocells, and ethernet transport (to name only a few examples), with content and service originating from millions of endpoints around the network, not radiating out from its center. It’s time for a new ‘operations software foundry’ to start forging the tools and building the machines that will empower that transformation.

The news reports focus on AT&T’s exclusive iPhone deal, and the competitive harm these exclusive deals may cause for smaller carriers. I don’t think that’s the real issue, whether or not it will be the one motivating Department of Justice action (if ever the investigation comes to that). The real issue is that the de-monopolization of US telecommunications that began with the AT&T divestiture, and that reached its apotheosis in the great Internet bubble, must now be regarded by the current administration as a complete failure. More importantly, the telecom industry has become a convenient target for a newly reinvigorated Antitrust Division looking to reverse the prevailing tide of self-regulation. The iPhone issue is a convenient pretext. And one with a pretty influential sponsor in the Senate (see “John Kerry (D-Verizon) Whines about iPhone Exclusivity“)

The Department of Justice is not commenting publicly. The new Assistant Attorney General in charge of the Antitrust Division has, however, left a pretty clear trail of breadcrumbs to indicate her philosophy. In a speech given to the US Chamber of Commerce, AAG Christine Varney traced her lineage in the Division to Thurman Wesley Arnold, who filled the role in the thirties and early forties for Franklin Delano Roosevelt. Thurman was one of the first and most vigorous antitrust enforcers, reversing the prevailing tolerant policies toward trade associations and price collusion. In the wake of the “Great Recession,” Varney wants to end the era of ‘self-policing’ industries, and reset the equilibrium in favor of the consumer and the ‘little guy.’ Interestingly, Varney cites the US vs. Microsoft case as a good example for guidance in the application of antitrust law.

I’m no lawyer, and certainly no specialist on antitrust issues, but I have to believe that it would be pretty difficult to prove competitive harm in this case. Unless maybe Google were to join the DOJ as an amicus curiae, arguing that Android was being frozen out of the market by hostile exclusionary tactics.

Thurman, by the way, was eventually promoted out of harm’s way to a federal judgeship, which he found so stultifying that he left a short while later for private practice, stating “I would rather be speaking to damn fools than listening to damn fools.”

Hear, hear.

I just saw a review of one of the gadgets that’s going to keep driving data throughput up (and hence keep feeding the ravenous demand for faster backhaul). Over at engadget mobile there’s a review of a new “MiFi” device from Novatel that’s being distributed by Verizon Wireless. For a hundred bucks you get a credit card-sized WiFi router that gives access to five devices at EV-DO speeds. Engadget clocked it at about 1.8 Mbit/s down and 0.4 Mbit/s up — more than enough for the usual email catchup and web wandering. The access charges are low enough that for anyone who spends as much time on the road as I do, and gets as ticked off as I do about the absurd charges some hotels levy for net access, this looks like a no brainer. Time to cancel my Boingo subscription…

Yurgh. Venture investment in network hardware and software is on an asymptotic curve approaching zero. Maybe ‘getting ready for the post-voice environment’ really means ‘getting ready to get gobbled up by Google.’ The Tier I traditional telephony providers are going to have a very hard time sourcing the kind of technology they need to get ahead of the innovation curve over the next five years.

This morning’s WSJ brought it all back in an amusing flash when I read that T-Mobile is threatening to cut off Skype use by its iPhone customers. Some things will never change. It seems there is a disorderly, non-rule-abiding cabal that has decided not to pay T-Mobile’s eminently reasonable €4 per minute charge for a transatlantic call, and is instead rebelliously embracing the free alternative. A T-Mobile spokesman even claimed that using Skype over a T-Mobile Wi-Fi hot spot is a ‘breach of contract.’ These Skype users are probably the same anarchists that download music from iTunes instead of buying CDs at WalMart. They must be stopped. All 400 million of them.

Cox Communications has awarded a supply deal for its new wireless network to Huawei. The contract concerns CDMA equipment with a ready upgrade path to proto-4G. Huawei has been an incredible growth story over the past five years, with last year’s revenue growing by about 50% over 2007 in ‘contract’ terms (not the same as audited GAAP revenue, but who cares). What makes this all the more remarkable is the near-absence of US sales in the mix. While Huawei has established itself as a recognized Tier I supplier in Europe as well as in emerging markets, the rapidly consolidating US carrier environment hasn’t been as open.

Call it the “Great Wall of Washington.”

What will be interesting from a telecom software perspective is whether Huawei will follow in the ‘old world’ model of coupling proprietary EMS and support software to its equipment business, or whether it will use an open model to accelerate market adoption even further, and drive down the cost of integrating its technology into service provider networks.

Enterprise Search — Autonomy’s field — doesn’t bear a lot of resemblance to Nakina’s telecom vertical, but the article got me wondering about the truth of the ‘food chain’ hypothesis in general, and the resilience of telecom software in particular. We see a lot more activity in our pipeline today than six months ago, but we’re a small and biased sample, so it’s hard to draw any general conclusions. Is software at the virtuous end of a technology food chain (or if not virtuous, at least comparatively safe from predators and carrion eaters)? Is telecom software living in a decently furnished bunker or is it lying face down in a shallow ditch?

There’s a right way to answer the question, but that would involve research assistants, an appropriate methodological attitude, and a greater attention span than I’m willing to devote. We can also take out a virtual cocktail napkin and figure it out in the new old-fashioned way.

Take a look at the one year change in three indexes — semiconductors, technology hardware, and software — relative to the Dow Jones Industrial Average.

One Year Change in DJ Index

(data courtesy of bigcharts)

The broad sample of market indices certainly seems to support the food chain hypothesis, with software faring about ten points better than semi, and seven better than a (very broad) sample of technology hardware.

A lot of narrower anecdotal datoids seem to suggest that telecom capital spending — from which most telecom software revenue has to flow — isn’t necessarily drying up. Deutsche Telekom announced to Light Reading last week that it’s capital spending in ’09 would be maintained at a comparable level to ’08. That agrees with what Telekom executives have told us recently. Overall capital spending at Verizon may be past its 2008 peak (of about $18 bn), but that appears to be more a case of FIOS capital spending having reached its high point in 2007, rather than macroeconomic factors (next wave:  LTE). ATT plans to trim capital outlays by about 10%, but we also see them getting very aggressive about growth in new broadband services this year.

There are products that thrive in recession and others that are particularly vulnerable. Deodorant sales typically fall (fewer investment bankers partying all night) and cheap beer sales rise (Schlitz anyone?).  People stop paying for good wine before they stop paying their cellphone bills.   Software — and in particular software that helps networks to grow faster with fewer manual touches — looks like a good bargain when the Moët is gathering dust on the shelf.  And as for food chains, it’s always better to be the predator than the prey (or in Boston-speak, better a Fenway Fan than a Fenway Frank).

That about sums it up. When return to shareholders depends on achieving a more efficient network — for instance, highest return on network capital employed, and lowest cost of operations per unit of service delivered — then the incentive to take calculated risks on innovation goes up, as does the cost of doing nothing. When return to shareholders depends instead on favorable transaction reviews by antitrust authorities and beneficent telecom regulation — then the innovation incentive goes down (and the price of outside counsel hours goes up). Venture investors have backed away from the network space because the capital required to support multi-year sales cycles, and the increasing uncertainty that those cycles will ever come to a happy ending, make the projected returns prohibitively risky.

So as Shakespeare’s Dick the Butcher put it in King Henry VI should we all chime in with “First thing we do, let’s kill all the lawyers“? Maybe not yet, or at least not all of them.

The current macroeconomic crisis may ironically be delivering some early stage network tech providers (at least those who are adequately capitalized) with an unanticipated boon. ARPU pressure, accelerating loss of wireline revenue, and operations snafus that are killing IMS, IPTV, and broadband rollout schedules are raising the premium on network engineering and ops efficiency again. If you have a solution that makes networks roll service out faster with less manual intervention, and you can prove that it scales to meet meganetwork needs, you may be living the early stages of a telecom renaissance.