What is wrong with service provider CAPEX? Specifically I am referring to commentary from CIEN this week and ALU in July. I think I have been writing about this trend for over a year, but I am going to summarize it (read through prior postings for more details):
– Connected devices (i.e. computers, tablets, smartphones) cause vastly more bandwidth to be consumed inside the data center than over the network
– Wifi off-boarding removes RAN congestion
– CDNs position content closer to the consumption point
– Bandwidth is deflationary
– I have coverage at my residence for video (TV) from: Comcast, RCN, Verizon, DirecTV, Dish
– I have coverage at my residence for my mobile devices from: ATT, VZ, Sprint, MetroPCS, Boost, T-Mobile, VirginMobile and I think three others
– Every two months Comcast, Verizon and RCN mail me offers and canvass my neighborhood knocking on doors offering more for less
– ARPU is really capped by disposable income. Here is a link to a chart at the St. Louis Fed. You can play with it, but the general up trend from 1959 was decisively broken in 2008. We are now just recovering. I am not sure how much more consumers can pay to providers and content providers like Netflix, Apple, Amazon, etc.
– Recent CAPEX trends in terms of expansion and contraction are decisively in favor of content companies like Google, Amazon, Yahoo, Apple and Microsoft. Traditional service provides still spend a lot of CAPEX, but it is to maintain and expand a transport network. Content providers are spending
This is what I call the compute conundrum.
– The unspoken or ignored trend is the ability of content companies to (1) build their own data centers for compute, (2) store user data and desirable content in these data centers, (3) build their own networks by leasing fiber and (4) off load the access business (which is deflationary) to the service providers.
– Every year we hear the siren’s song for a CAPEX rebound on lazy reasoning like “billions of connected devices, trillions of streaming videos, transformational network projects” and what we get is a lot of spending at lower prices.
* It is all about the network stupid, because it is all about compute. *
** Comments are always welcome in the comments section or in private. **