What’s ahead for Telecom in 2012?
Lots of exciting new technologies and services, for one thing. And continued diversification, for another.
And a still-crummy economy that will hamper a good amount of the growth that should be taking place.
Reuters reported in early January that telecom firms around the world are expected to slash spending on networks over the next 11 months. Carriers in the U.S. are expected to “slow their frenetic pace of mobile investments.” As Cedric Pointier, a portfolio manager at Natixis Asset Management, told the news agency, “We expect only very weak growth this year and continued pressure on prices. In tough economic times, telecom operators choose between seeking growth and protecting cash flows, and they usually just adjust their capital expenditures to maintain cash flow.”
Things have gotten more difficult, through no fault of the industry itself.
“It used to be that you could provide a product or a service,” says Jeff Oberschelp, Vice President and General Manager of CenturyLink Inc., a provider of broadband, entertainment and voice services, in Nevada. “Now you can’t do that; you’ve got to diversify your portfolio.”
Due to factors both within and without the industry, the telecom business overall “is changing,” confirms Mike Ballard, CEO of OneVelocity Inc. “It actually is getting better here in Nevada.” The reason, he explains, has to do with both the industry and the economy. “Number one, the economy is getting better. Number two, I think customers, local businesses, have more choices. There are more ways to customize your telecommunications solutions than ever before. There are ways to be more effective and be able to build in more reliability than ever before.”
1Velocity provides ethernet private lines and Internet access to businesses and governments in Las Vegas and Reno.
Cox Communications announced in mid-December that it had entered into an agreement to sell to Verizon Wireless its 20 MHz Advanced Wireless Services (AWS) spectrum licenses covering 28 million post office protocols (POPs – a protocol used to retrieve email from a web server) for $315 million. The sale, according to the company, is “an important step to ensure that consumers’ growing demands for mobility will be met.” Cox and Verizon Wireless will also become agents to sell each other’s residential and commercial products and services through their respective sales channels. Cox executives said they also expect to enter into arrangements with the innovation technology joint venture formed by Verizon Wireless, Comcast, Time Warner Cable and Bright House Networks to better integrate wireline and wireless products and services.
“These agreements provide Cox customers with key enablers to mobility, such as access to Verizon Wireless’ 4G LTE network and iconic wireless devices,” said Pat Esser, president of Cox Communications, in a release. “We look forward to the many benefits this will bring to customers.”
Still more signs of growth: in early December Switch, which builds and operates data center and technology ecosystems, announced it would begin construction of the Switch Las Vegas-North Campus. The new location will have over 300,000 sq. ft. of data center space to be located roughly 15 miles north of the Las Vegas Digital Exchange Campus (LVDEC) near the intersection of Cheyenne and Buffalo. SwitchMOD, a modular, component-oriented, rapid-deployment data center model developed exclusively by Switch, will comprise the build-out. The expansion, according to company officials, is being driven by the demand for Active-Active environments that require redundant data centers to be roughly 15 miles apart to satisfy latency requirements.
“Our customers are continuing to evolve and adopt the latest enterprise configurations,” said Missy Young, Executive Vice President of Colocation for Switch. The addition of Switch Las Vegas – North will provide customers with three separate data center ecosystems that satisfy the latency ranges for Active-Active solutions.
Here’s how diversification has been accomplished at CenturyLink, the third-largest telecommunications company in the United States, behind AT&T and Verizon. It began with the spreading out of its customer set to include consumer business, commercial, government and wholesale. Notes Oberschelp, “You’ve got to look at a diverse revenue stream.”
Next on the list is developing a product set that meets the market demands “and the customer demands,” he says. “We’ve recognized that the evolution of the wireless phone and tablets have changed the way that people consume – and their expectations for – information and entertainment. Basically, customers want their stuff in their device wherever they are.”
To that end, CenturyLink has built a product set that allows for consumers to get their entertainment, which is television, over the internet on multiple devices.” Americans, Oberschelp points out, “are pretty sophisticated today. They are pretty good at rooting through all the options and selecting the ones that work best for them. So our job is to make sure that we’ve got those options available.”
The addition of a television product this year, he explains, was a major step. “You asked how the industry is changing. Television used to be a stagnant medium; it got pushed out to you and you watched it whenever it came to you. Today, people are watching it in a way they call time shifted; they do that through DVRs and/or watching on the internet.”
Looking at 2012
The months ahead will see a telecom industry that continues to grow increasingly competitive, in Oberschelp’s view. “That means the consumers and businesses win because there are more products available out there. We are seeing an uptrend in high-speed internet and data sales. We finished strong in 2011. We continue to see a demand for broadband and high-speed and data applications.”
Another interesting change, he foresees, is that “more and more is going to the cloud.” (So-called cloud computing is basically the delivery of computing as a service rather than a product. Shared resources, software, and information are provided to computers and other devices as a metered service over a network, typically the Internet.)
In July, CenturyLink and Savvis, Inc. completed their merger, creating a managed hosting and co-location provider with global scale to meet customer demand for outsourced IT and cloud services. The deal, according to Glen F. Post, III, chief executive officer and president of CenturyLink, “helps us meet the accelerating demand for cloud-based services through a robust hosting presence, including 48 data centers in North America, Europe and Asia.”
CenturyLink has worked to integrate its hosting business with Savvis’ managed hosting and cloud services to focus on increasing CenturyLink’s market share in these services. The integrated hosting business, which executives said will operate under the Savvis brand for the foreseeable future, is based in St. Louis.
“We think that’s a shift,” says Oberschelp. “More and more businesses are going away from housing everything at their facilities and pushing it off to a cloud facility so they don’t have to make the big investments in equipment.”
Evolution will take telecom “more into the cloud,” Ballard predicts, “putting more of your applications out into the internet, which allows for greater redundancy resiliency.” Also in the offing will be more California companies turning to Nevada for services – data-center and telecommunications services, specifically. Companies will also continue to relocate here, he adds, “just because they’re raising taxes at such a great rate in California.”
Also looming on the horizon is what Ballard terms a “national battle over some of our internet freedoms. There are people who want to regulate it, and there are pros and cons to that regulation.” He is referring specifically to the Stop Online Piracy Act (SOPA) and the PROTECT IP Act (PIPA), anti-online piracy legislation currently moving through Congress. (see this month’s commentary, page 4)
Businesses, says Ballard, will continue to expand their bandwidth usage. “Nationally it is expected to grow by 2,500 percent in five years. Mobile phone carriers will struggle to keep up as cell sites don’t have capacity.” Businesses, he adds, will also expand storage by 800 percent over five years. “It’s easier to buy more hard drive space than it is to get everybody in our company to delete emails.”
Many will move their telecom services to the cloud, Ballard predicts. “Many businesses have gone from hosting their email on their local networks to outsourcing it to Google – gmail.” Others have gone from having Quickbooks accounting software on their in-house PC to doing it online.
“Going to the cloud makes it less complex,” Ballard emphasizes. “My sense is 20 percent of companies that will go to the cloud have put about 20 percent of what they can put in the cloud to the cloud. This means that (only) four percent of what will move to the cloud has moved to the cloud.”
Industry watchers will also see more companies going to data centers rather than trying to keep their servers in-house. This year, says Ballard, will see several new data center companies entering the market “to give Switch Communications some needed competition.”
Profitability should be somewhat easier to achieve this year than last, according to Ballard. “Today’s reality is the new reality. We’re starting from where we’re at, and we have what I think is a more stable statewide economy to build our businesses on.”
There was concern about stability, Ballard notes. “Most of the companies have shaken out; if they’re going to die, they’ve died, and the ones that are going to grow are going to grow.”
There are also better tools available, Ballard adds. The cloud computing “actually provides a more stable option if you design it right. With cloud computing we’re just starting up the bell curve.”
Better tools have all but become a given. A better economy in which to market those tools would be nice.