Afternoon sessions for Stream A, Fixed Access Advancement, focused on FTTx networks in the Asia-Pacific region. Speakers included service providers from China, Japan, Malaysia, Indonesia, and Vietnam along with FTTx component and equipment vendors and consultants to the FTTx ecosystem.

The presenting service providers are all in the midst of FTTx deployments, and while several are further along than others, the discussions were focused on services rather than on technologies or theories.

The focus is seamless services, not technology

All the network operators discussed value-added services and improving ARPU. There were no discussions around technologies, PON-based subscriber devices, or next-generation PON. The mantra was that subscribers care very little about the technology behind the services.

Subscribers want connectivity in the home, outside the home, and, ideally, seamless connectivity between the two environments. Many want the option to remain on the same device between the home and outside world, with devices being smart enough to switch automatically from one type of network to another.

Becoming savvy about customers, services, and partnerships

What’s the toughest challenge in FTTx deployments? Knowing how to develop and market services. The participating service providers discussed their use of subscriber surveys and analytics, similar to those applied in other retail industries. They talked about price elasticity of demand and competition from free Internet-based services.

The service providers also addressed challenges in forming win-win partnerships with content providers. As one operator stated, bundled services require multiple partnerships. Don’t expect any single partnership to increase ARPU, reduce the cost of content, and reduce churn.

Don’t forget the underserved

In Malaysia, the government regulator requires that service providers “donate” a set percentage of revenues into a government account that then funds broadband for the underserved. The government’s goal is simple: broadband penetration in rural areas should match broadband penetration in urban areas.

FTTx network operators will support mobile operators for backhaul

As mobile traffic continues to grow rapidly, mobile operators are facing huge operating and capital expenditures. According to Ovum’s Wireless Backhaul Forecast Spreadsheet: 2012–17 (April 2012), with business-as-usual approaches, operators in 2015 will spend on an annual basis:

• $183bn in backhaul transport (opex)
• $17bn in backhaul transport equipment (capex).

In other words, the current mobile traffic backhaul approaches are becoming prohibitively expensive.

There was a basic assumption among the presenting service providers that their respective FTTx networks will support mobile backhaul traffic, including cellular networks and Wi-Fi networks. As one service provider stated, FTTx network operators will see tremendous revenues from serving the mobile traffic backhaul market – the power is in the fiber network.

Foreign suitors are circling European telcos

An undercurrent of foreign takeovers is currently sweeping across Europe, fuelled by cash-rich buyers from emerging markets. While the recent news about Carlos Slim’s interest in increasing his stake in KPN to 28% has jolted the market, it is an example of an ongoing trend.

Egypt’s Naguib Sawiris is at the vanguard of this trend. In April 2011, he sold Weather Investments (including Wind Italy) to Russia’s Vimpelcom, and also ceded control of Greece’s Wind Hellas. However, he has returned to the market, and is seeking bargains in the region. He and his Austrian investment partner, Ronny Pecik, have purchased a 20.1% stake in Telekom Austria, which gives them a foothold in eight European countries. He also bid $1.5bn for France Telecom’s Swiss operation, but was beaten to it by a $1.6bn bid from private equity players.

Another suitor is Hong Kong billionaire Li Ka-shing. Having sought to either sell or IPO his existing European telecoms operations (especially 3 UK and 3 Italia) in the past, Li is now looking to buy again in Europe, albeit in countries where he has existing operations. In February 2012, he paid €1.3bn for Orange Austria, which he then merged with his 3 Austria business. In Ireland, where he already owns 3 Ireland, he has made a €2bn bid for Eircom, the country’s former incumbent telecoms operator that filed for bankruptcy protection in March 2012.

There is a strategy to the acquisitions

Two things are clear from these acquisitions. Firstly, they are multinational in nature. KPN has operations in the Netherlands, Belgium, and Germany, and would provide Carlos Slim with an opportunity to gain a foothold in Europe’s largest market. With Telefonica being the main rival to his America Movil operations in Latin America, it will also give him a platform to target Telefonica’s home region. Likewise, Telekom Austria has operations across eight European countries, and would provide Sawiris with a route into several Eastern and Central European markets. For Hutchison Whampoa, the prospect of a viable pan-European operation suddenly looks promising, rejuvenating the optimism that led the 3 Group to launching 3G operations across Europe.

Secondly, the acquisitions are tentative and opportunistic. To avoid a public outcry, the buyers are only approaching telcos that are struggling, and are starting off by purchasing minority stakes. By adopting this strategy, the buyers appear as saviors rather than predators. It also helps to avoid political opposition. While most European governments have abandoned the golden shares that enabled them to block telecoms acquisitions, governments still have the ability to block any potential takeovers.

KPN has been in the public eye for the past 24 months due to the management issues that it has faced and the significant hit it took from WhatsApp. Eircom’s M&A debacle has gone on for over a decade, ultimately leading to its recent bankruptcy. France Telecom has suggested that it will dispose of its assets where it does not have scale, which explains the sale of its operations in Austria and Switzerland. Telekom Austria’s weak operating performance has already led to a ratings downgrade, and the telco announced in December 2011 that it was halving its dividend forecast for 2011 and 2012.

Growth remains the missing link

Regardless of whatever strategic justification there is for these acquisitions, the buyers will have to face up to the lack of growth in the European telecoms market. On a year-on-year basis, European mobile telecoms service revenues have fallen steadily, declining by 3% in 2009, 1% in 2010, and 3% in 2011. Ovum’s forecasts indicate that this trend will continue, with flat growth or a small decline expected over the next five years. Fixed telcos face a similar outlook, and while fixed broadband remains a growth market, fixed voice revenues have been falling for a number of years, regardless of the recession. The impact of OTT players and a stringent regulatory climate have been further dampeners on growth in Europe.

This lack of growth could prove decisive in the near future. Current projections indicate that most of these acquisitions will require significant investments, which will be a major drain on the finances of the buyers. With LTE and fiber rollouts due across Europe, the investment bill could be considerable.

For those seeking to purchase a bargain, the lack of growth erodes hopes for value accruement. While private equity firms may have exited profitably from Denmark’s TDC, achieving a successful exit strategy, especially in the face of continued economic problems in the region, can not be taken for granted.

Mobile content and apps in emerging markets are changing rapidly

The mobile content and application segment is undergoing significant changes in emerging markets. The segment is dominated by value-added services (VASs) such as ringtones, ringback tones, wallpapers, and other information-based services, which contributed revenues of approximately $11bn in emerging markets in 2011. The ecosystem around SMS and VASs is dominated by mobile network operators (MNOs), and there is little financial incentive or room for developers to innovate. However, the dominant position occupied by emerging market MNOs is coming under increasing pressure, and operators are beginning to face the same problems that their mature market counterparts have faced in recent years. Several factors are contributing to this disruption. Consumer habits and consumption patterns are changing, with increasing awareness of, access to, and desire to take advantage of the latest apps and content services. The device landscape, which is dominated by basic and feature phones, is also changing rapidly.

“Smarter” feature phones will gradually erode operator control

The feature phone market is receiving a lot of attention from vendors such as Nokia and Samsung, which are working to “smarten” up these devices. Smartphone vendors are also looking to introduce affordable, entry-level smartphones in emerging markets. The lack of device subsidies in most emerging markets means that consumers typically have to purchase a device in full. This is a fundamental difference to mature markets, and means that emerging market users typically choose devices that are both affordable and provide an end-to-end user experience that includes a superior user interface and access to apps and content. The increased capabilities of these devices are eroding MNOs’ control of the content ecosystem as consumers are increasingly able to connect to the Internet and access apps and content beyond that offered by MNOs.

Shifting developer focus is weakening operator-driven ecosystems

Developer attention is shifting away from MNOs as content providers look to more attractive distribution avenues such as mobile browsers and app stores. Consumers are also increasingly going beyond MNOs’ walled gardens to browse or access the Internet through apps. As a result, developers are moving away from MNOs as they see greater opportunities through app stores driven by device manufacturers and third parties. MNOs are doing their best to counter these threats by investing in their own app stores, working with browser companies such as Opera, and trying to build their own developer communities.

Despite these attempts, Ovum believes that the app economy will eventually dominate in emerging markets, and MNOs will not retain their prominent position in the ecosystem. However, operators will succeed in some segments, and will adopt more collaborative approaches with developers and device manufacturers in others. Regardless of their size or geographic reach, emerging market MNOs must embrace the changing environment. There is plenty of scope for operators to offer their own branded app stores, especially for local apps and content. However, they must not be seen as obstructing consumer access to popular content that they don’t have any core competence in themselves. If anything, MNOs can generate additional revenues by investing in telco billing assets as well as entering into revenue-sharing agreements.

Mobile entertainment will grow fastest, while mobile utilities are a future opportunity

Ovum expects mobile entertainment services (gaming, music, and video) to grow in emerging markets. Despite the threat from device manufacturers and over-the-top players, MNOs have a significant opportunity to shape the mobile entertainment landscape in many markets. MNOs will face monetization hurdles from piracy and users’ inability to pay for expensive services, especially in content categories such as music. However, effective pricing strategies, offering localized content, and adapting services to local markets will enable operators to make the most of the growing consumption of video, music, and gaming services.

Mobile utilities provide an opportunity for MNOs, content providers, and application developers to engage with emerging market subscribers, offering them access to practical content and services that will have a positive impact on their lives. From an MNO perspective, the increased traffic and revenues generated by these services and applications will strengthen the business case and return on investment for improving network coverage and expanding to rural areas. However, mobile utility services will require a different approach. M-health services will need to be rolled out through partnerships with governments or NGO health agencies, with MNOs possibly offering discount rates for bearer services such as SMS. Mobile agribusiness services will provide MNOs with a greater possibility of being able to commercialize applications due to the benefit to both small- and large-scale farmers.

The industry is undergoing significant change to confront challenges on all fronts

The expiration of numerous patents, know as the patent cliff, combined with poor research and development (R&D) productivity, pricing pressures, payer cost-containment initiatives, and increased regulatory scrutiny, has contributed to a perfect storm for the pharmaceutical industry. As a result, the industry has been undergoing significant change to address these challenges. Large pharmaceutical companies have been divesting themselves of R&D assets and production facilities, leading to a fragmentation of the value chain. Investment in R&D steadily increased during the last decade, but this investment failed to produce sufficient new products that demonstrate greater efficacy than existing medications in maintaining growth. The realization that Big Pharma’s R&D departments are not necessarily the best or most optimal source of novel medications and innovation has led to this divestiture, along with the externalization of R&D to contract organizations, academia, and other life science organizations. Furthermore, pharmaceutical manufacturers are increasing their strategic partnerships, not only for the commercialization of drugs, but also in the earlier discovery and development stages of the drug lifecycle. Life sciences companies are engaging in “pre-competitive collaboration” – externalizing or sharing knowledge, capability, or previously proprietary assets with other life sciences organizations to spur innovation. Also, life science companies are beginning to mine large patient de-identified data sets to improve drug discovery, development, and safety to further translational medicine.

Oracle envisions a complete, open, integrated application suite from discovery to care delivery

Oracle’s vision for the industry is to “build solutions to support a collaborative health sciences industry delivering patient-centric, value-based healthcare.” Oracle’s vision is certainly in tune with developments in the industry, as the environment shifts towards a patient-centric model and payers demand safer, better-value therapies from pharmaceutical manufacturers. Oracle’s strategy to implement this vision is to “provide a complete, open, integrated application suite and related services with industry-leading customer ROI and satisfaction.” Oracle envisions a value-chain-wide integrated application platform to foster collaboration with access to near-realtime data. The fragmentation of the value chain and the myriad of point solutions used across the drug lifecycle certainly creates the need for an open, integrated platform. It is, however, an ambitious goal, but Oracle is already one of the leading life science technology companies and is investing $4bn per year in research and development of their products. In 2011 alone there were 27 Oracle releases in the health sciences vertical market, some of which constituted the beginning of integration efforts among disparate drug development applications. To further foster collaboration, Oracle is launching online communities (i.e. Oracle Social Network) and harnessing mobility and gamification to improve results. The Oracle Health Sciences Cloud will act as a high-availability secure repository and platform for scientific and clinical data as it seeks to better connect clinical trial data with clinical practice data to further translational medicine. While these are ambitious goals, Ovum believes that they are precisely what the industry needs to further innovation and fuel the data-driven era of healthcare.

Tealeaf will strengthen IBM’s Smarter Commerce initiative

Venture-backed to the tune of $46m, Tealeaf, which was founded in 1999 as an SAP spin-off and is part of a cadre of web analytics startups to emerge from the dot-com bubble, will strengthen IBM’s online campaign-management capabilities with better insight into online customer behaviors and experiences. This is especially important for e-commerce providers, whose websites rely on traffic and stickiness. Tealeaf’s software helps by dissecting online interactions, capturing and recording in real time what each online customer is doing and seeing in web pages and across all site visits. Both quantitative (web clicks) and qualitative (contextual, website reaction) details of interactions are analyzed to improve website design, functionality, and performance, in turn improving the customer experience. A typical analytics use-case for Tealeaf is isolating and analyzing the online behaviors that led to a customer session ending either prematurely or with a successful purchase, and it is particularly useful to spot patterns where online promotions and transactions succeed or fail, or where customers struggle to complete the process without friction. It provides a “video replay” of the entire actual customer session, whether online or mobile, so that that a company can pinpoint the struggles, and by analyzing the exact sequence can resolve issues when a customer does not complete a transaction.

Tealeaf’s technology will bolster IBM’s Smarter Commerce initiative that was launched in March 2011. Built on a foundation of automation and analytics, Smarter Commerce is about providing a real-time analytics lens into consumer behavior and experience in order to respond more quickly and intelligently to shifting customer buying patterns and trends. Smarter Commerce is connected to a broader analytics initiative targeting governments, education, healthcare, and civic institutions. IBM has already made three acquisitions in this area in the past year, and six since 2010, representing a total spend of over $3bn. Already in IBM’s arsenal are Coremetrics (web analytics and marketing optimization), Unica (enterprise marketing management), and DemandTec (cloud-based retail analytics), technologies that form the nucleus of expanding Smarter Commerce group of products managed by IBM’s Enterprise Marketing and Management Group.

IBM already has Coremetrics under its wing, so why did it opt for Tealeaf? Coremetrics is a largely quantitative solution that helps identify what is happening on a website. Tealeaf, however, provides a more qualitative capability that enables users to understand why customers are challenged in completing processes or transactions. Another area of differentiation is that Tealeaf’s scalable, real-time analytics focus specifically on customer service. Regardless, IBM will inherit a base of 450 customers from Tealeaf to sell its Smarter Commerce vision to, including 30 of the Fortune 100 (including Dell, Wells Fargo, Orbitz, Best Buy, Expedia, and ING Direct), which should be a lucrative opportunity. IBM expects software to deliver half of its earnings by 2015, and a big chunk of this is expected to come from its Smarter Commerce initiative, which IBM says is now a $20bn market. The next step for IBM will be to figure out a clear integration roadmap for Tealeaf with its other digital marketing suite, especially Coremetrics and Unica.

Tealeaf’s functionality will be of special interest to digital marketers

IBM is targeting the marketing piece of its Smarter Commerce initiative that is aimed at chief marketing officers (CMOs) and online digital marketers, both of which have different macro/micro-level needs. CMOs are concerned with driving profitable marketing and sales channels, notably optimized website and mobile channels that turn clicks into dollars. Online digital marketers (e-commerce and customer service professionals) are more concerned with the mechanics of improving each online interaction to drive greater customer experience and satisfaction. Tealeaf will provide a key component of the toolkit that both need.

Tealeaf’s value proposition is by no means new, and in fact IBM is seizing a very old idea. The dot-com era in the late 90s introduced e-commerce as a business model that not only flattened the business world, but also provided entry into markets at a relatively low cost. That bubble of course burst, but the companies that had the additional clicks-and-mortar infrastructure to survive still continue to battle for customers online. With more and more purchasing happening on websites, accessed through PCs and increasingly from mobile devices such as smartphones and tablets, understanding online behaviors is critical to the success of e-commerce websites. A big part of this is ensuring a relevant and consistent customer experience, which is where Tealeaf’s technology comes into play across website and mobile interaction channels.

IBM’s acquisition streak in analytics is starting to turn the screw on rivals such as SAP and Oracle, which are both vying for the same market. The acquisitions of Tealeaf, Coremetrics, and Unica could well push IBM ahead in discrete areas such as e-commerce analytics. IBM also has an opportunity to integrate Tealeaf’s technology and insights into its service center solutions as well as its Lotus Group’s Exceptional Customer Experience Suite.

Anything that simplifies APM is a plus

Ever since computing added distributed tiers, piecing together all the parts to get a coherent picture of how an application is performing and why, it has traditionally required multiple monitoring engines and probes. Over the past few years Compuware has added to its core APM business built around the data center performance-monitoring product formerly known as Vantage with the acquisitions of Gomez, which provides SaaS-based web performance monitoring, and more recently, DynaTrace, which provides a bottom-up transaction-monitoring view. Compuware promotes its breadth and depth of views of application performance, from the edge of the Internet through the cloud to the data center. Its data center product offers a combination of monitoring views, including actual performance from the perspective of the end user, which Compuware brands DynaTrace Data Center Real User Monitoring (RUM), and synthetic scripts that are used for benchmarking and troubleshooting.

While Compuware has correlated each of these pieces on a unified dashboard, the new release consolidates the probes that detect performance on the network and distributed application tiers. The result is a useful step toward reducing the complexity of APM. Compuware has also begun to add self-learning “zero configuration” capabilities from the recent DynaTrace acquisition that in effect reduces nuisance alarms. With the new capability, instead of requiring a person to calibrate the alarms, the system performs pattern-matching analysis to detect what is normal and what is an outlier.

Compuware is addressing the new APM concerns: Big Data and DevOps

Compuware’s PurePath technology is a new generation APM approach that provides end-to-end tracing of single and aggregated transactions, with the capability of drilling down to source line code detail for troubleshooting. The capability to process these signals in real time makes the solution suitable for large-scale installations that would otherwise be swamped by data. This is critical because many organizations are looking to adopt Big Data approaches to their analytics and operational systems. While many approaches are placing analytics and operational functionality inside the data store, it won’t be the case for all Big Data implementations. Many organizations that implement Big Data will require more holistic views that also factor in the application tier.

Another trend in APM is the need to address distinct IT communities. With the rise of DevOps, there is the need to support Agile processes that cross development and move into operations. APM solutions need to cater to all communities and their specific needs, such as developers with source line detail, operations with end-to-end monitoring and analytics, QA with performance testing, and IT services administrators with SLAs and business impact dashboards. Compuware’s solution is designed to address the demands of the different communities.

Compuware shifts branding again

With the new release, Compuware is rebranding its APM offerings under the new Compuware APM Platform brand, which includes two sub-brands: Compuware Gomez for SaaS-based web performance monitoring, and Compuware DynaTrace for the data center side. In effect, this extends the DynaTrace brand over the former Vantage data center product. The branding changes haven’t occurred in a vacuum. A year ago, Compuware performed a similar rebranding, placing all of its APM products under the faster-growing Gomez brand. Compuware is shifting gears because, ironically, Gomez’s strong brand identity in the SaaS-based web performance monitoring space was too strong and was therefore not a good fit for the Vantage business. The rationale for the new rebranding is that DynaTrace is at least associated with the data center.

With this release, Compuware has taken important first steps toward incorporating the core DynaTrace PurePath technology into the former Vantage/Gomez data center product. If an issue is isolated to the application or web tier, customers can drill down to the PurePath view of what’s happening at the transaction level. Compuware is also leveraging the PurePath technology with synthetic monitoring, where all synthetic transactions can be viewed at the same transaction level. Integration is not yet totally seamless because the PurePath views still occur on a separate DynaTrace screen. However, the links are a good start, and replicate the process by which Compuware previously integrated the Gomez and Vantage views. Ovum expects Compuware to finish the job in the next release.

On a recent visit to the company’s Johannesburg data center we saw the partnership with airline network association SITA in action. From its mining and industrial customers, meanwhile, we heard strong evidence that Orange Business Services has followed up on its commitment to enterprise networking in Africa and the Middle East.

Fix the fixed network first

Orange Business Services’ experiences in Africa remind us that building and operating a fixed WAN is not easy, and that before rushing to create a new world for the corporate smartphone we should prove that we can get the job done for the enterprise in the global WAN. The fact is that fixed WAN is complex, especially when building a platform for IP services.

The challenges that Orange Business Services faces in Africa are no different from those other operators see in mature markets: meeting new regulators, the need for market intelligence, training and skills, end-to-end infrastructure and SLAs, utilities, and facilities. These challenges are just more numerous, and tend to coincide. As with telcos’ service evolution from managed bandwidth to complex ICT, emerging markets are at different stages in the evolution that all countries are taking to full-service networking.

To an enterprise with a managed services requirement, Australia and Singapore also look a lot like emerging markets: international connections are good, but locally you have a choice between an incumbent integrated telco and a wireless competitor. If you have even a slightly sophisticated requirement, say for process plant telemetry with data storage, you might be able to get the elements from different sources, but securing a contract with end-to-end SLAs is another matter. Understanding and dealing with these environments all around the world is exactly what service providers like Orange Business Services bring to the table.

Service providers follow their customers

Of course, an operator would not choose to scale up the challenges to this level unless its customers required and expected such services: the reason Orange Business Services is taking on these challenges across Africa and the Middle East is because that is what its customers want it to do. Multinational enterprises understand perfectly what it means to operate in remote places, and they have the same issues in distribution and marketing. This was emphasized by the CIO of Anglo Gold Ashanti, for which Orange Business Services is providing a range of managed network services, including IP VPN, managed security, and data center IT services, helping support the company’s ERP systems (for SAP) to the remotest sites across South and West Africa, South & Central America, and Australia. The service provider also has contracts with African companies in the brewing, industrial automotive distribution, and regional community banking sectors, and is engaged with enough customers to have a defined verticals strategy in MEA.

Anglo Gold Ashanti and other process-led industrial customers are being moved to Riverbed-based enterprise applications management to help secure consistency in their operations. In the financial services, Orange Business Services is building customer-facing service platforms including a regional IP VPN across West Africa (Mali, Benin, and Nigeria) and LAN infrastructure with security and governance for a newly-formed regional banking organization. Together with Cisco, it is also developing a call center infrastructure for another bank. In that instance, switching, data center, and UCC technology in the CPE layer provide a virtual call center platform for services that can be deployed across West, Central, and East Africa.

Africa number one

On the face of it, doing business in Africa is easy if you have a good operation in South Africa. The country houses 70% of Africa’s major companies, and it accounts for more than half of Orange Business Services’ revenues in Africa. However, it is fast becoming an A-end market, with South African companies requiring connectivity across sub-Saharan Africa. Overall, 68% of IP VPN endpoints in Africa are provisioned due to B-end requirements for European companies; for every 100 IP VPN links ordered from Europe into Africa, only five are ordered into Europe for connection to an Africa-based VPN.

However, 14% of all IP VPN connections ordered are for connectivity within Africa. Even two years ago Orange Business Services had a minimal pipeline across the Middle East & Africa, but at current growth rates it will soon be above $1bn. MEA has an important place in the France Telecom group’s strategic plan to produce revenues of more than €1bn per year from emerging markets by 2015; Africa alone will provide 20% of that growth revenue. Orange Business Services has put 60% of its overseas investment into MEA, and it aims to be the number one provider of choice for corporate buyers of ICT across Africa.

No going straight to IP

We need to be realistic about the Middle East & Africa. In Africa, customers and operators have to go further, and it takes longer. That has an impact on service provisioning and support; lead time to connect (LTTC) is being reduced, but still it averages 84 days. From the service provider point of view, the wait from order to bill is longer, while from the enterprise perspective RoI is slower.

We also should not pretend that there is an advantage for the enterprise in going “straight to IP”. Orange Business Services is turning down business with companies that do not accept that they need to think as hard about the platform needed to support IP as the IP services they want to put on it. On the other hand, professional services has taken off well, precisely because the network supply needs more planning. Heavy lifting services such as data centre hosting and management look further off, with the industry’s data centre build still to come. Customers say they do not have expectations for cloud services for now.

Two heads are better than one 

It is no secret that online learning is a disruptive force in the education industry. In 2011, MIT released its MITx online learning platform as a next step on from OpenCourseWare (OCW), which it released a decade ago. Despite not having a platform as such, Harvard has also delved into the digital world before, by offering distance learning courses in some of its schools, such as the Harvard Extension School and the Harvard Medical School. Harvard has evidently taken notice of the capabilities of MITx and would like to dig deeper. Two institutions that understand the importance of technology in education and how it can strengthen the student experience have the potential to change how students interact with their courses. Though deeply rooted in the traditional, residential model of education, Harvard and MIT also see the transformative but not incompatible power of an online delivery model for education. Ovum believes that by continuing to experiment with the latest pedagogical technologies, institutions will improve the education experience not only for on-campus students but also for learners around the world. Video lesson segments, online laboratories, embedded quizzes, and immediate feedback are just a few of the things that edX will offer. However, as these courses are not credit-bearing and not part of a program of study, Ovum cautions the industry to think carefully about how such offerings will benefit students that are desperate to find less expensive alternatives to traditional higher education. Ovum is certainly not opposed to students enhancing their knowledge and learning simply for the learning experience. Acquiring more knowledge, and for free, is beneficial, but if it is at the expense of pursuing a degree, then the long-term value to the student is questionable.

Increasing educational opportunities with open source software

With the increasing promotion of openness in education, the edX platform will be released as open source software so that other institutions can host the platform. Alternatively, interested institutions could join edX with their own educational content, which will increase the opportunity for students and faculty to collaborate and share resources. Ovum believes this is good for students and faculty using edX, because additional content provided by other institutions could make up for what Harvard and MIT lack in their offering and, as result, the platform will attract more students. In return, the edX team will provide support to other institutions that wish to add content or host the platform. A first set of courses is due to be announced in the summer and will most likely include courses from the Harvard and MIT schools of Arts & Sciences, Public Health, and Law.   

Harvard and MIT will be looking to research the way in which technology can aid teaching and learning. With 120,000 students subscribed to one prototype online course already, edX will enable the institutions to analyze which teaching methods and tools are most successful. One of the benefits of these “Massively Open Online Courses” (MOOC) is that with so many students using them, they can get statistically significant results. Ovum is enthusiastic about this practice because understanding how technology can be used in both virtual and “bricks-and-mortar” settings can help synthesize a better educational experience. Both Harvard and MIT are aiming to answer the fundamental question of how students learn. Moreover, instead of just asking how students will perform in an exam, Harvard and MIT want to find out how well students acquire and apply information months after a course has ended. Ovum believes the success or failure of this research will depend on the use of the data obtained and how long the venture will be able to sustain itself, considering edX is a free platform. Other elite institutions have attempted online programs in the past, but these were abandoned due to financial problems. With no plans to monetize edX, both institutions will need to support the platform using existing budgets. Ovum thinks that although it is admirable that edX is not profit-driven, it is necessary for both institutions to confirm a business and revenue model for the platform, in case they find themselves subject to the whim of shifting institutional priorities.

Extending the reach of education and democratizing learning

Ovum believes that established institutions have much to give to, and gain from, a world hungry for learning. By lowering the hurdles for students to take courses on topics about which they care, platforms like edX could restore the genuine enjoyment of learning that is quite often missing in traditional classrooms. More often than not, students follow a predetermined sequence of courses alongside, or ending with, a carrot-and-stick grading system, in order to graduate and secure employment. Platforms like edX give anyone in the world with an Internet connection the opportunity to gain affordable access to learning materials with a pressure-free learning experience. The edX platform is a work in progress with the potential to build a global community of online learners. However, if institutions and vendors truly want to extend the reach of education, Ovum recommends that the path to achieving this should not be riddled with poorly conceived and poorly structured applications, which will only serve to discredit the promise of technology in education.

Financial performance looking good in Q1 for CRM outsourcers

As noted in the Industry Financials section of our upcoming “Q1 CRM Outsourcing Quarterly Briefing”, a number of players in this space improved their performance year-on-year, although unsurprisingly, none reported above single-digit growth. Most notably, Convergys’ Q1 revenue increased 7% from the same quarter in 2011, and Sitel’s revenue rose 6%. Teleperformance’s growth of 3% was also decent, considering the volume of business it turned over through the quarter (€542m compared to €526m last year in Q1). Stream Global Services continues down the path of financial comeback, posting a marginal increase during Q1 this year over the same period last year. And, while Ovum notes that there were some disappointments among CRM outsourcers between January and March (StarTek’s revenue dropped 14%), the recent spate of positive performances is reason for cautious optimism in Q2 and beyond.

Picking the right markets key to sustaining revenue growth

Ovum believes that if CRM outsourcers want their revenues to continue heading in the right direction, identifying the right markets will be crucial. There is no doubt that maintaining a focus on North America, Australia, and the BRICs (Brazil, Russia, India, and China) will be important, especially as these locations continue to show improvement in economic outlook and consumer confidence. By being implanted now in countries where consumer activity is expected to increase will pay dividends for outsourcers because this will fuel demand for their customer-facing services.

Not so obvious, however, is what to do about the European question. The European economy, according to Wachovia, is expected to barely escape recession in 2012 (0% growth), and only anemic growth (1.3%) is expected in 2013. Many CRM outsourcers have significant deployments in Europe, where significantly higher administrative overheads coupled with very limited growth opportunities could force some to look at rationalizing their operations, following the example discussed in another Ovum opinion piece: “Sykes’ EMEA downsize shows commercial prudence”. And while it may be tempting for some, especially those with no European legacy, it is doubtful that any will choose to withdraw wholesale from the region.

The fact is that Europe’s economies will come back, and Ovum feels that outsourcers need to be prepared for this. No silver bullet exists in terms of sustaining the current tough economic times, but a prudent solution for vendors would be to avoid as much onshore human delivery as possible by offsetting it with offshore/nearshore capacity and self-service automation. While not ideal for every European client, in a region noted for heavy overheads this will go far in terms of minimizing costs and will give outsourcers at least some financial flexibility until the worst is over.

Integrating “big transaction data” is a major theme

Although the Informatica 9.5 platform is not solely about Hadoop integration, the four “V”s of Big Data (volume, variety, velocity, and value) are common themes of the release. Informatica uses the term “big transaction data” to emphasize that this release is not only intended for early adopters of Big Data, but also for the mainstream of its installed base (large enterprises) that are managing transactional data both on-premise and in the cloud. Examples include:

• Data discovery. Informatica Data Explorer, which highlights anomalies in structured and unstructured information and detects dependencies, now detects business entities and automates the profiling of hundreds of sources at a time for enterprise-scale projects.

• Natural-language-based probabilistic data parsing. Informatica Data Quality adds text-based entity-identification capabilities that are aimed at deciphering variably structured social media. On the horizon, Ovum expects that this technology could be extended to provide probabilistic data cleansing of text entities, an approach we predicted would emerge (see Ovum report “Data Quality and Big Data: From Discovery to Precision”).

• Integration of the recently acquired Wisdom Force technology for higher-performance change data capture (CDC) and continuous, current (Informatica would call it “real-time”) replication.

• Data virtualization to reduce or eliminate the need to move data, which can be critical for data sets of tens or hundreds of terabytes and more.

• Integration with Ultra Messaging. With this release, Informatica Ultra Messaging is integrated with the rest of the data platform, which allows organizations, typically capital markets trading into data warehouses for historical analytics, to selectively strip off key data from high-speed feeds.

• Data masking now has a unified console for managing policies for both persistent and dynamic data masking, and is also integrated with data discovery to detect sensitive data that might be hidden.

Going native with Hadoop

For now, excluding IBM and Oracle, many data platform providers are placing Hadoop at arm’s length. They view Hadoop primarily as a staging area where some preliminary MapReduce sorts are performed, with result data sets loaded to Advanced SQL analytics platform targets where the real analytics of all kinds of data, including variably structured, are performed. In Ovum’s 2012 Big Data Trends to Watch report, we predicted that Hadoop would very soon become a prime analytics platform in its own right. We predicted that 2012 would see a repeat of the same script that played out in 1995-96 when modern data warehousing and BI emerged, and tooling became available that made analytics and OLAP data stores easier to use by the mass of SQL developers.

Informatica has taken on the challenge. Following up on the release last year of HParser that provided one of the first commercial tools to make it easier to organize raw Hadoop data, the 9.5 platform provides additional core capabilities to make it easier for enterprises to adopt Hadoop.

Key enhancements in the 9.5 release include replication where Hadoop can be managed as a source or target by Informatica’s replication tools, including Informatica Data Replication, Fast Clone, and PowerExchange CDC. It is managed as part of the same engine that also includes relational data stores, both on and off-premise. In so doing, Hadoop can be seen not only as a source, but also as a near-line data warehouse that complements higher-performance interactive or real-time data stores.

Informatica is also introducing additional pre-built transforms native to Hadoop, beyond HParser. These include identity resolution, profiling, matching, cleansing, natural-language processing, and data transformation, and will be complemented by a visual IDE (integrated development environment) that reduces or eliminates the need for knowledge of Hadoop’s Pig scripting language. Specifically, these transformations will work inside Hadoop with Hadoop data and automate generation of MapReduce, Hive, or Pig scripts to organize and manage data. These capabilities will be in beta in the July timeframe. Currently, Informatica is supporting the Cloudera, Hortonworks, and MapR Hadoop distributions.

Lowering the barrier of entry for Hadoop

Informatica has taken the lead in developing tooling for taming Hadoop for mainstream SQL developers. For now, on the open-source side, most of the tooling has been specialized and aimed at early adopters with Hadoop skills. The Informatica 9.5 platform extends tooling to bring integration of Hadoop and manipulation of its data into more familiar environments. Of course, on its own, the 9.5 platform does not eliminate the need for skillsets that understand how Hadoop distributes data, nor does it deploy and run large scale-out clusters (for those not using appliances or cloud services), and of course it does not overcome the knowledge gap for data science.

Informatica is clearly the first to start bringing Hadoop inside a familiar data-integration platform, and Ovum expects that by year-end IBM and Oracle will respond in kind.

Flash is rescuing storage from its performance problems

In one respect, disk drive technology has rocketed forward over the last half-century. When IBM launched the first disk drive in 1956, it cost $10,000 per MB of capacity. Now, some disk drives cost 200,000 times less per MB. But while disk capacity has increased at a rate matching Moore’s Law, disk performance has been stagnant for some years, making storage a bottleneck for application performance. Server and desktop virtualization have exacerbated this problem, for technical reasons linked to I/O patterns. Indeed, the biggest hurdle in desktop virtualization at present is achieving adequate storage performance at a reasonable cost.

Fortunately, the cost of flash memory has plummeted over the last decade, because of the explosion in production volumes needed to meet demand for flash memory in phones and other handheld devices. Price and performance vary greatly, but flash devices are approximately 10 to 100 times faster than disk, and 75% cheaper than DRAM memory. This has made flash a new tier of storage, sitting between disk and DRAM in terms of performance and cost. As well as boosting performance, in many data center applications flash can actually reduce both capital and operational costs.

As processing power continues to rise, the need for flash will also increase. Combined with the fact that flash prices are falling at around 25% per year, this means that flash is set for a big future in the data center. Because the per-GB price of disk is set to continue falling rapidly, flash will remain far more expensive than disk, and as a result will not entirely vanquish disk from the data center. However, it will become a very common means of storing performance-sensitive data.

EMC is accelerating the charge into flash

In 2008, EMC became the first major vendor to offer flash drives that could be fitted to disk arrays. Other suppliers rapidly followed suit. Take-up of flash drives was later accelerated hugely by the emergence of automatic data movement or tiering systems, which ensure that flash drives are put to best use by storing only the hottest, most in-demand data. Now, over half of EMC’s mid-range disk drives ship with flash drives.

Earlier this year EMC launched another way to use flash, as flash drives fitted to servers but controlled by disk arrays on the other side of a storage network. At that time EMC also said it was developing an all-flash storage system under the project name Thunder. Xtremio’s technology will be used in those Thunder boxes, which are slated to ship later this year. When EMC launched its server flash drives, other storage vendors immediately said that they had plans for similar products. EMC’s purchase of Xtremio could now prompt other big storage suppliers to buy one of the clutch of Xtremio’s specialist rivals, such as Texas Memory Systems, Whiptail, Nimbus Data, Avere, Pure Storage, and Violin Memory.

Xtremio is a dark horse in a small but developing field

Storage systems based entirely on flash drives have been shipping for about three years, and while sales have not been spectacular, they are growing. Because of their cost, they are used to store data only for specific applications that need accelerating. AMD is using Whiptail all-flash systems to reduce from days to hours the time taken for regression testing of chip designs. There are, however, less exotic uses of all-flash devices, for example in desktop virtualization, sometimes by relatively small organizations without large IT budgets. All-flash storage systems are also a strong contender for data analytics. Xtremio has so far only outlined its promised products. However, it has said that like other all-flash systems, its devices will be particularly suitable for database and analytic applications, database development and test, and server and desktop virtualization.

The technology within all-flash systems is evolving, and the major development focuses are the reduction of overall costs, and increasing scalability. Xtremio has said that like some all-flash systems that are already shipping, its products will use data deduplication to reduce the size of data, and therefore the effective cost of its systems. In addition, Xtremio has promised to use thin provisioning of data volumes as another means of reducing capacity consumption, and that its systems would involve a scale-out or clustered architecture. These are also features of mainstream disk arrays, but in all-flash systems they are implemented in very different ways. Even if Xtremio’s planned products do not see the light of day exactly as originally envisioned, their underlying technology will become part of project Thunder.

However, the deal is not enough to suggest that the European outsourcing market has returned to growth as yet, as the socio-economic framework in Europe remains fragile. But the fact that the deal originates from an economy and sector severely challenged by the credit crunch and that it constitutes new business offers a glimpse of hope for service providers. Ovum will analyze the dynamics of the European outsourcing market in detail and offer guidance in a forthcoming report.

Short-term outlook for outsourcing market remains uncertain

The deal needs to be analyzed in the context of the stagnating European outsourcing market, but the matrices for analysis remain inconclusive. Looking purely at total contract value (TCV), the lack of mega-deals (defined as above $1 billion) continues to hold back the market. Conversely, when looking at first-quarter European earnings from the leading service providers, the picture appears less bleak, even though Logica and BT Global Services have reported underwhelming results.

Examining the market from a macro perspective, two issues stand out: first, the dependency on mega-deals, but at the same time the inherent distortion they cause in the market; second, the saturation of mature markets, such as the UK. Mega-deals have often distorted the dynamics in the wider market for better or worse. At the same time, deals such as the Atos-Siemens merger or the Everything Everywhere contract that masked the impact of the recession in Europe were really not an addressable market for the supply side. Given that T-Mobile is part of the Everything Everywhere joint venture, T-Systems was always likely to win the tender. Thus the constraints for the market will be exacerbated as many contracts in the key UK market are coming up for renewal. Data from TPI suggests 80% of the time deals are renegotiated with incumbent providers and the incumbent provider typically retains about 80% of the scope. Consequently the addressable market for competitors will remain constrained.

HP’s largest European BPO deal

Within that context the UniCredit deal is a major coup for HP as it represents the biggest HR multi-process award since 2008, only rivaled by Logica’s contract with BAE Systems. The win against Accenture and IBM is even more significant as UniCredit has IBM as incumbent single-source full outsourcing provider for its subsidiaries HypoVereinsbank, Bank Austria, and Ukrainian bank Ukrsotsbank.

The logic of the deal focuses on standardizing the HR applications of UniCredit’s main operations and its subsidiaries and using HP’s global sourcing capabilities. The BPO processes included in the deal include payroll, time & attendance, workforce administration, recruiting, learning & development, and travel & expenditure. The fixed price nature of the deal suggests that standardization and guaranteed cost savings are more important to UniCredit than the flexibility that other delivery and pricing mechanisms could have provided. HP is eying significant upsell potential as the arrangement will first be implemented in Italy and Austria, and then potentially followed by Germany and other locations.

The importance of UniCredit as a reference client for financial services for HP is underlined by the fact that the vendor will be taking on significant numbers of UniCredit staff as part of the contract. While one swallow does not make a summer for the European outsourcing market, there could be rich pickings for HP if it manages to execute the deal to the requisite level of quality. The deal could also prove a catalyst for the HR BPO multi-process segment, as the market is just rebuilding after years of underwhelming provider performance. But the relevant reference point is the disappointing performance of the market since the financial crisis began rather than over-inflated expectations of a return to double-digit growth. Last but not least, the supply side needs to demonstrate that the multi-process HR BPO proposition has really overcome previous deficiencies. And only if we see these benchmarks will the market return to significant growth rates.

Proliferating SaaS and traditional applications make integration difficult

The dark side of SaaS and cloud is that while they are relatively easy to procure and deploy, it is difficult to integrate them with existing enterprise applications and other SaaS offerings. What makes integration even more challenging is the proliferation of SaaS deployed within an organization as line-of-business managers procure point solutions to their specific needs that really should be integrated with other systems in order to maximize value and manageability. This becomes a challenge for IT and the vendors who are faced with a plethora of public and private APIs that require brute force to integrate. Integration is expensive, with estimates of $8 of integration work for every $1 of SaaS subscription or software license.

Vendors should explore MuleSoft to flip the cost of deployments

For SaaS and traditional enterprise applications, MuleSoft’s Mule iON SaaS Edition offers the ability to create pre-packaged integration modules that will give them a compelling story during the sales cycle without dramatically increasing costs or long-term maintenance. For example, HR talent management SaaS vendor PeopleMatter used Mule iON to create a new hire onboard module that connects with ADP payroll processing through ADP’s private APIs.

For systems integrators, Mule iON SaaS Edition offers the ability to create reusable connectors for a variety of horizontal and industry-specific applications and SaaS. This not only reduces the cost of integrations, which can be a competitive advantage in a sales cycle, but also gives the SI the opportunity to sell more value-added consulting as the focus of sales discussion moves away from brute force integration to maximizing the business value of enterprise applications or SaaS.

IT should encourage SaaS vendors to investigate MuleSoft

There are two plays for IT organizations with regard to Mule iON SaaS Edition. The first is to acquire the iPaaS offering to be used by IT’s internal development team. The more interesting opportunity is that IT should be pushing SaaS and enterprise application vendors to look into Mule iON SaaS Edition to create the needed connectors and integration apps. This approach could reduce IT’s integration burden by shifting it to vendors who have in the past shied away from assuming this responsibility.

However, it is not enough for IT to communicate to vendors the potential of Mule iON to reduce integration burdens. Because lines of business are increasingly acquiring point solutions via SaaS, IT should reach out to colleagues and educate them on the advantages of pushing Mule iON to potential SaaS providers. IT will need to position MuleSoft-style integration connectors as of value to the lines of business, such as the fact that integration between various SaaS offering and existing on-premise applications will make the LOBs more efficient and effective.

Huawei targets telcos globally with its SDM solution

SDM is a converged solution that enables centralized management of subscriber data to help operators effectively manage the vast amounts of data they collect. SDM benefits operators by reducing operating expenditures over time, improving their understanding of subscriber usage patterns, and speeding up service innovation, thus creating more value and profit from subscriber data. SDM can help telcos make the shift from “dumb pipe” to ”smart pipe” with a true 360-degree view of subscribers.

Huawei is currently targeting markets across the globe but sees a lot of opportunity in Europe and emerging markets such as India, Chile, and Venezuela. North America also represents a huge opportunity but, despite years of effort, Huawei appears to have failed to establish itself in North America and must change its strategy to achieve a different result.

The vendor also discussed its investment plans in user behavior analytics (UBA). Though Huawei’s solution can perform offline analysis, it currently lacks advanced capabilities such as realtime analytics. Huawei plans to add advanced analytical capabilities such as UBA by 2014. Until then, Huawei can partner with providers such as IBM, Oracle, and SAP to provide an end-to-end SDM solution.

Huawei’s SDM solution includes software tools for gathering customer data from network and IT databases, but the solution will need more market-leading use cases if it is to thrive. While the SDM solution has made advances in the past year, Huawei must continue to develop it to compete with players such as NSN, HP, and Alcatel-Lucent, which are making huge investments in the CEM space.

Huawei discussed various technical and strategic challenges that are holding back operators’ SDM investments

One of the biggest challenges that telco-focused IT vendors face in SDM is that operators lack an understanding of the topic. Vendors from the network and IT domains have created different definitions of SDM, making it confusing for operators. Network equipment providers call their solutions ”subscriber data management”, while IT vendors term it ”master data management.”

In addition, global economic conditions are making it difficult to convince operators to invest in SDM, in spite of huge operational expense savings that accrue over time. Short-term cost-benefit analysis does not support the capital investment required to fully implement a SDM solution, which includes the challenges of migrating data from legacy systems to new platforms.

SDM projects are long-term projects that require an overhaul of business processes, which can be risky and may not work out as planned. Operators need vendors to cooperate and invest further in their relationships. They want their vendor partners to walk with them on the journey. Ovum recommends that Huawei becomes a true partner with its customers in SDM deployments by sharing some of the financial risks.

Huawei needs to revisit its marketing strategies for SDM solution

Undoubtedly, Huawei has a strong brand image and a strong SDM offering. Nevertheless, it is not among the best-known vendors in North and South America. Ovum believes that one of the biggest reasons for this is that Huawei has not had an effective SDM marketing strategy in these markets. Huawei needs to highlight strong use cases and other global case studies on its website to improve its global image. Huawei must also highlight its success in the IT domain to establish itself as a provider of IT solutions, not just network equipment. It is also important for Huawei to emphasize the business benefits its customers have achieved with its solutions. The vendor must improve its analytics tools, as this is one of the capabilities most desired by telecoms operators.

Success in the corporate commercial claims market will require different strategies from those used for commercial insurers

Technology vendors’ strategies to offer commercial claims software solutions to UK corporations should differ from their approach to selling to commercial insurers. Ovum realizes that technology vendors will offer UK corporations a mix of generic and customized claims management or fraud analytical management components. However, Ovum believes that technology vendors that take the time to customize their go-to-market strategies for each corporation, or at least for each major industry segment such as telecommunications, pharmaceuticals, or manufacturing, will have a higher likelihood of succeeding in the UK commercial claims corporate marketplace. Specifically, technology vendors offering claims management software or claims fraud analytical solutions in this corporate marketplace must base their strategy on: each corporation’s reason for not using the claims management services of commercial insurers, their claims management philosophy, their claims management resources, and their claims management services.

For example, to help fine-tune a go-to-market commercial claims strategy for corporations, a technology vendor approaching BT would discover the following.

• BT turned away from commercial claims management providers because it believed the recovery rates were inadequate and it was not satisfied with the claims service it received.
• BT’s claim management philosophy is to be “firm and fair.”
• The BT motor claims management area works closely with BT’s fleet management area to use the services of repair shops, rental motor companies, and, if required, rehabilitation medical providers for injured drivers. Moreover, BT’s commercial drivers know they are required to report a claim quickly, and do so. Although BT does not provide an application for mobile devices, it has responded to a motor loss event in as short a timeframe as 18 minutes.
• BT decided it had the skills to manage large-volume claims and, specifically, commercial motor claims, internally. This has proven to be a good choice, as the BT claims management area has continually received praise from the corporation’s auditors.

What commercial claims management solutions will corporations expect?

Corporations will expect claims management solutions to protect their firms’ brands, enable efficient and effective claims adjudication, and integrate with their enterprise risk management (ERM) systems. Beyond this, the claims management solutions offered to corporations should, at a minimum, support:

• collaborative capabilities during the claims notification, adjudication, and remediation processes (such as repair of damaged vehicles or other property, and medical treatment and rehabilitation of injured people) for corporate client risk managers, fleet managers, and any other authorized corporate staff, and for use with third-party claims adjustors;
• transparency of the claims adjudication process so that risk managers or other authorized corporate staff can determine what has been completed and what has not;
• fraud analytics that are easy to use, integrate with applicable corporate claims and financial information, and provide interactive visualization capabilities to delve into requisite granular detail to minimize loss payouts, determine if a corporation’s employees have been dishonest, and protect a corporation’s reputation;
• best-of-class customer satisfaction for the claimants, whether employed by the corporation or not, and all involved corporate departments.

Will corporate-controlled claims management captives squeeze commercial insurers out of the market?

BT told Ovum that the future might encompass a federation of corporations that collectively provide claims management services to each other across a spectrum of commercial risks. BT sees this federation as one in which each corporation specializes in claims management for specific commercial risks, such as motor, personal injury, property, or employment claims. Ovum thinks this vision represents a logical future state of the commercial corporate insurance space. A corporate claims federation would be similar to the commercial insurance captives that have existed for decades. But instead of the captives being a federation of corporations self-insuring one or more risks, they would be claims management services captives offering each other more satisfactory, efficient, and effective claims services than those they receive from commercial insurance companies. Ovum believes corporations that self-insure one or more risks are likely candidates to join the federation. Moreover, Ovum believes it is not that much of a stretch to consider that corporate insurance federations that self-insure and also self-manage claims could eventually replace parts of the large commercial corporate insurance marketplace that commercial insurers currently take for granted.

The virtualized database leverages virtualization and storage technology

The concept of a virtual database appears odd at first because the term is sometimes used as an alternative name for a federated database system that is designed to look like one large entity. However, the virtualized database exists as a distinct concept, where the production database is virtualized in copies and users can work against that copy as if it were the original. The Delphix system manages the changes (or deltas) and isolates users between the instances.

Delphix works by creating a single, highly compressed copy of the original data files, then serves this data to multiple database management system (DBMS) servers, where, for example, development, unit testing, QA, and others may all have their own virtual database to work against. Each DBMS receives its own fully functional read/write database, and the results are transparent to applications and users, with each virtual copy operating as a distinct database. The Delphix system uses standard APIs in the original database to update the virtual copies. This approach of only storing changes to the original means that the Delphix system also keeps a history of changes and can roll back to any point in time. Rollback is facilitated by a time slider that makes disaster recovery simple.

A number of benefits can be derived from using Delphix. Development teams often have to make do with a development or test copy that is not a true reflection of production data, whereas Delphix is an exact replica. In addition, the time, cost, and administration hassle of procuring a replica production database is reduced, and there are reduced storage space and costs. You don’t need all of the ancillary backup and failsafe storage that can be multiples of the main instance storage size if you are just making a virtualized copy. Recovery risk is also reduced as a result of the ease with which a virtual database can be rolled back.

Agile development benefits from virtualized databases

Agile development has progressed in the last decade with concepts such as test-driven development with extensive use of unit testing, the practice of continuous integration and testing, and, most recently, with DevOps and continuous deployment. Delphix’s capability for Agile teams to rapidly provision a database and work against production data reduces the risk of a mismatch between development, QA, and production, a typical cause for applications to break upon release despite passing testing. The DevOps movement aims to reduce disparity problems between development and operations environment configurations, and the use of virtual databases promises to help in this process.

The database vendors are the natural rivals to Delphix

The approach Delphix has taken would seem to be the natural home for the database vendors themselves. Virtual concepts do exist in this community. Oracle, for example, has the Virtual Private Database, which allows different users to access a single schema, but restricts the areas they see. JBoss has the Teiid project, which although similar in concept to the federated database, offers a relational abstraction of multiple data sources. Idera has an SQL virtual database product, but it attaches to Microsoft SQL Server backup files so is not a true and live replica of the production database.

It would therefore appear that Delphix has few rivals, but given the advantages of this approach, Ovum believes this might not be for long.

BT’s primary goal continues to be to stabilize its financials

BT saw revenues for the year ending March 2012 drop by 4% for the second year in succession (-1.9% excluding low margin transit). A continuing weak domestic and European economy, coupled with the anticipated impact of new regulatory charge controls for some of its wholesale products, will make its goal of returning to growth in 2013 harder to achieve. This target has instead been replaced by the less ambitious but perhaps more realistic aim of improving revenue trends over the next two years.

What surprises is BT’s continuing capacity to cut its opex at a rate above its revenue decline; in the last financial year it increased its EBITDA by 3%. Ovum’s KPI analysis has consistently shown that telcos in a growth phase tend to increase costs at a faster rate than revenues. As more and more begin to exit this growth phase, so the need to reduce costs will escalate across the industry. Financial stability is the name of the game for BT, and alongside double-digit growth in free cash flow, the reduction of net debt is a priority for the business; it is targeting a BBB+ credit rating in the medium term.

Openreach grows revenues and passes 10 million homes with fiber

Financially, Openreach was the most impressive performer, with revenues up 4% in the year and EBITDA up 8%. It also reached the significant milestone of 10 million homes passed with fiber earlier than expected. Openreach saw strong demand for Ethernet, LLU, and fiber products, along with a resurgence in copper line growth: the number of lines increased for the fifth successive quarter. Ian Livingston explained this trend in terms of the continued demand for fixed broadband to support growing bandwidth demands, which mobile broadband cannot yet fulfill, as well as the fact that the UK population, in contrast to many other developed countries, is growing.

Despite its lack of content in comparison to Sky and Virgin, BT Retail continues to pull in broadband and TV customers. This indicates consumers’ preference for a strong bundle of services, and shows how much BT’s fiber offering is proving to be a differentiator. With its planned update to Vision 2.0 currently being implemented and the launch of YouView expected in the summer of 2012, BT is ensuring that its IPTV service and overall bundled broadband-plus-content offering remains a draw for customers.

However, increasing pricing pressure from rivals saw an accelerated decline in fixed voice subscribers in 4Q11. Despite this, BT is sticking to its guns and not looking to follow suit, which makes sense given that it has tended to differentiate more on quality than on price.

BT Global Services’ operating cash flow is “unacceptable”

BT Global Services’ financial performance is still clearly a worry for the company, with finance director Tony Chanmugam stating that operating cash flow for the 2011 of approximately £200m was “unacceptable” for a division with revenues of close to £8bn. Legacy network migration is progressing slower than expected, and this is impacting the division’s ability to cut costs. Despite that, the order book remains strong, with a large number of smaller (and one would imagine less risky) deals signed in 4Q11. Furthermore, the addition of around 450 new hires in BT’s investment regions of Asia-Pacific, Latin America, and the Middle East & Africa will help it to capitalize on opportunities in these fast-growing markets.

A common meeting ground for sys-admins and developers

P4Sandbox is the middle path for developers and systems administrators. P4Sandbox does what its name says and provides developers with their own private sandbox to experiment with code and publish only when the code is ready for mass consumption. It also solves the problems of distributed development by allowing developers to work on their local machines even when a network connection to the project’s master repository (shared versioning service) does not exist. Developers get all the benefits of version control on their code, and can sync it with the master repository as and when required. P4Sandbox is one step ahead of the offline mode available in previous releases of Perforce because it allows for a local copy of the codebase for the developer to experiment with, whereas the offline mode enabled only offline operation with all changes saved to the master repository during sync. With P4Sandbox, developers can choose what to push to the main repository.

A few years ago, repository replication and mirroring were the most common approaches for facilitating distributed development. Open-source distributed version control tools changed the game by eliminating the network (the limiting step in most cases) from the equation. Distributed teams of individual developers could operate and be productive in a peer-to-peer model of collaboration, while working on individual copies of the entire project codebase, and could share changes with each other as required. The network was not involved in most operations because the repository and the version control tool resided on developers’ local machines.

While this model works well for open-source projects, the problem is that the tools themselves, such as Git, Mercurial, and Bazaar, do not provide a workflow to maintain codebase integrity. Users have to designate one repository as the master, and create a branching model that ensures its integrity, so that only the development leader can integrate (pull) changes from individual developers and push changes to the master.

Distributed version control tools solve some critical problems. They provide a superior model of change control, offer greater flexibility and speed in branching/merging operations, and provide much improved performance at the developer end. Bypassing the network for common repository operations is arguably the most important contribution of these tools. However, open-source distributed tools were not created for enterprise use. This is not to say that they aren’t fit for enterprise use. Many organizations are using these tools internally and are looking for ways to bridge the gap between distributed versioning tools and incumbent centralized version control systems. Moreover, several usage models where both distributed and centralized tools coexist have started to emerge. However, these tools were created for open-source developers whose collaboration requirements were naturally peer-to-peer, and this isn’t the case with enterprise development teams that often function in a hierarchical model.

The problem of facilitating distributed development workflows is being approached from different viewpoints by different vendors. However, the core issue is the same: to provide a method of giving remote workers high-speed access to development artifacts. Most software change and configuration management (SCCM) tool vendors are trying to bridge the gap between centralized version control systems (vendors’ tools) and distributed versioning tools popular with developers by creating bespoke integrations. Some vendors have even opted for providing repository-hosting services.

Nuanced approach to distributed version control

Perforce’s approach to distributed version control is more nuanced than that of most vendors in the market. P4Sandbox combines the must-have features from the open-source distributed version control world, such as greater flexibility and improved performance, enhanced branching, and merging operations, with enterprise-friendly features such as agile workflows, sync between local and master repositories, and, more importantly, guaranteeing the integrity of the master repository. The feature set isn’t exclusive. Integrations of centralized version control tools with open-source distributed tools offer similar functionality. The crucial difference, however, is that the distributed component (P4Sandbox) is also Perforce’s proprietary technology, and this is in addition to Perforce’s custom integration with Git (git-p4).

By creating a distributed tool of its own that works under the aegis of a centralized Perforce repository, the vendor has accelerated the adoption of distributed versioning and has preserved its market share. P4Sandbox gives Perforce clients the ability to deploy a distributed tool as the front end without compromising the benefits of Perforce’s centralized approach. In addition, by creating a custom integration with Git (git-p4), the vendor has given its installed base the freedom to choose between Git and P4Sandbox as the front end to Perforce’s centralized version control system.

For large globally distributed development organizations, the combination of P4Sandbox and Perforce server is, in Ovum’s opinion, the ideal setup for flexibility and performance on developers’ machines, and provides the right level of enterprise control. This model of a proprietary distributed client for local access and versioning, along with a centralized version control and change management server, may be adopted by other SCCM vendors. However, for now, Perforce has taken the lead.

Strong opposition forces CPUC to extend smart meter opt-out programs in California

The CPUC has been under sustained pressure to halt further installation of wireless smart meters in California. An increasing number of citizens, mostly based in PG&E’s territory in north California, have raised concerns over privacy and data security, the potential health risk from exposure to radio frequencies, and inaccurate meters. This pressure puts the CPUC in a precarious position: on one hand it has to protect customers, on the other it recognizes the importance of smart meters to the state’s energy policy; without smart meters there can be no demand-response programs, so new-generation capacity will have to be built to cope with peak load. In February 2012, the CPUC approved a smart meter opt-out program for customers of PG&E. This judgment was followed by another ruling in April 2012 that customers of SDG&E and SCE could also opt out of their utility provider’s smart meter program. Customers opting out of the smart meter program will have to pay an initial $75 one-time fee and $10 per month; low-income customers will have to pay an initial $10 one-time fee and $5 per month. These extra charges cover the cost of manual meter reading and associated operational and billing activities.

Smart meter opt-outs are becoming the norm

Smart meter opt-out programs are gaining momentum across the world. For instance, Georgia Public Service Commission passed a bill in March 2012 that will enable consumers to opt out of smart meters, and the Public Utilities Commission of Nevada approved a smart meter opt-out plan in February 2012. Other markets that have announced smart meter opt-out programs include Maine, Michigan, Quebec, UK, and Netherlands. Unless regulators and industry players put combined effort into increasing the confidence of customers on smart meter programs, these opt-outs could soon become the norm across the industry.

Customer opt-outs create extra costs for utility companies and slow down the grid modernization process. Moreover, a large number of opt-outs in one area will create gaps in the mesh network, which can lead to problems in the communication network. Utilities will have to deploy additional network devices to fill these gaps.

Engage with customers to minimize the number of opt-outs

PG&E’s smart meter program has received considerable negative feedback from its customers. The company did little to educate its customers on the benefits of smart meters and did not tackle customer complaints properly. PG&E might have been able to limit opt-out numbers if it had carried out proper public awareness campaigns before starting deployment. Given the depth of ill feeling regarding PG&E’s meter program, it is realistic to expect that large numbers of customers will opt-out of the program.

On the other hand SCE took customer engagement seriously from an early stage. It conducted initial consumer surveys to discover its consumers’ level of understanding of smart grid technology and is currently following a multi-faceted customer engagement approach to create awareness and understanding of its smart meter program. The company has already installed four million smart meters, and as yet, only 20,000 customers have expressed an interest in opting-out. The company does not expect the opt-out program to affect its smart meter deployment much.

In this challenging environment, it is important for utility companies to educate their customers on the benefits of smart meters and clear their doubt related to privacy concerns, health issues, and higher electricity bills. The different experiences of PG&E and SCE in California demonstrate that well-informed customers are less likely to opt-out of smart meter programs.

Utility companies should understand that the true value of smart meters can only be realized if their customers are properly engaged and informed. They should run public information and awareness campaigns at an early stage to maximize the number of customers participating in a smart meter program.

Fox’s tenure as CEO was a success

If Fox’s time as CEO of Convergys were to be evaluated, it would be seen as “net positive”. There are a number of reasons for this, not least of which is the change in Convergys’ financial performance. Ovum notes that during Fox’s term, Convergys ended a cataclysmic streak of annual revenue drops, showing a performance improvement of nearly 3% between 2010 and 2011. This is further highlighted by the company’s Q1 results, which show a year-on-year revenue increase of 7%. Ovum also notes that Fox recently oversaw the divestiture of Convergys’ information-management division to NEC, a move that was certainly overdue considering the inability of the division to turn a profit over the past two years. This was in addition to Fox’s decision to sell off Convergys’ HRO division to NorthgateArinso in 2010.

New CEO’s challenge is to continue on the right track

In Ovum’s opinion Fox was instrumental in re-establishing Convergys as a leading CRM outsourcing player. For too long, the organization had a confused presence in the outsourcing industry, and was viewed as a “jack of all trades but master of none” in terms of the services it supported. With improved financial performance and having sold off peripheral divisions, Convergys is well placed to return to a position of prominence in the contact center services space. Therefore, the decision to replace Fox with Convergys veteran Andrea Ayers, who until recently ran the company’s customer-management division, should come as no surprise to industry-watchers. By promoting someone from the CRM-related ranks, Convergys has declared unequivocally that it is playing to win in the domain of contact center services. What is less clear, however, is how the enterprise sector will respond. While Convergys remains one of the most recognized names in the contact center outsourcing space, it faces stiff competition from long-time market leaders including Teleperformance, TeleTech, and Sitel, in addition to the newly minted NCO, which recently incorporated APAC Customer Services into its fold. However, it is Ovum’s view that, going into what appears to be a period of increased consumer demand in the US, Convergys is now better positioned than it has been for some time.

For video to truly proliferate within the enterprise, the tools for video communications must move to the desktop. Today, IT departments face an onslaught of employees attempting to use their own technologies for video on the one hand and high-priced, single-function “executive” desktop video solutions on the other. But a new option is emerging: desktop video endpoints that merge with standard desktop equipment.

Telepresence has a specific, but not widespread, use case

Ovum’s forecasts show the immersive telepresence market to be booming. Pegged to grow at a compound annual growth rate of 19%, immersive telepresence revenues will jump to more than $1.1bn by 2016 (for more information, see Ovum’s Enterprise Business Video Forecast: 2011–16). However, telepresence will account for less than one-third of the total video market. The technology is great for situations with intense interactions, such as product development, or for times when participants truly need a high-definition view of other parties to effectively perform their jobs, such as negotiations or interactions with top executives.

However, as enterprise employees become more acclimated to using video for communications and collaboration, either through increased exposure in their personal lives or because of a generational shift in the workforce, demand for day-to-day tools will rise. Telepresence and non-immersive room-based conferencing systems force employees to treat collaboration as a separate part of their work day: they need to leave their desks and go to a special room to meet. If video is to truly become part of workaday collaboration, employees must be able to access that communication channel without breaking stride or mentally changing states from “working” to “meeting”. This creates a growing opportunity for high-quality video communications at the desktop.

Mobile and BYOT will drive a good chunk of video communications

Although Ovum strongly believes video communications will also increasingly become the domain of mobile clients residing on mobile devices, those clients will likely not become the dominant channel for video communications when workers are not mobile. Employees seated at desks prefer to use their desktop technology for communications, allowing them to continue a non-disruptive workflow. This means that desktop computing environments will need to incorporate high-quality video communications.

Employees will often try to solve this problem by adding consumer-grade applications to their desktop, part of the “bring your own technology” (BYOT) movement currently driving corporate IT to distraction. IT departments clearly need to address BYOT and mobile issues, but they also need a near-term solution that allows them to support a relatively sane number of technology configurations. Desktop-based collaboration and visual communication tools, although they may be only a stopgap measure, look to be a promising way to provide that function.

“Executive” systems will eventually merge with standard desktop monitors

Most vendors of telepresence and high-end videoconferencing do currently offer personal/desktop videoconferencing technologies. At the high end, small, single-screen telepresence units can be deployed for top executive systems; lower down the organizational chart, technology providers such as Aastra have standalone videoconferencing units designed to sit alongside existing desktop equipment. The low end of the space is littered with videophones, once thought to be the future, but now perilously close to languishing in the dustbin of history. All of these endpoints, however, are expensive enough that enterprises will only consider deploying them for the elite few in the organization. They are also single-purpose: employees use these tools only for communications and some lesser forms of collaboration such as screen-sharing.

Ovum contends, however, that the future of desktop video will not be standalone, single purpose devices. Conferencing providers ranging from Chinese heavyweight Huawei to startup StarLeaf have already created so-called executive systems that incorporate a high-definition camera into a specialized, thicker-than-normal monitor. These devices are dual-purpose: in one mode, they act as a high-definition videoconferencing endpoint with collaboration capabilities such as screen-sharing, and in another mode they operate like any other computer monitor. Employees can move, usually with a single button push or mouse click, between everyday desktop tasks and videoconferencing. They need not leave their physical or mental workspaces to engage in a video-based collaboration session. These devices are clearly a step in the right direction, but are still too expensive for wide-scale deployment.

The cost, however, will fall. Following Moore’s Law, the processing power that can be incorporated into such dual-purpose endpoints will increase rapidly. Typically, however, technology manufacturers take advantage of Moore’s Law to introduce new, more powerful products at prices similar to their older tools, thus keeping their profit margins relatively stable. We believe that many of the current crop of videoconferencing suppliers will initially follow this pattern, which will create market opportunities for suppliers willing to create similar functionality to today’s executive systems but at lower prices.

The videoconferencing market has already seen a slew of new entrants, including office imaging equipment manufacturer Ricoh, which just launched a portable, standalone, room-based system. These new lower-cost monitors-cum-conferencing-endpoints would allow corporate IT departments to influence employees to use corporate-provided tools rather than their own technology; IT could provide a high-quality video endpoint as part of the standard desktop setup for all new employees for about the same cost as providing a high-end monitor. This could well create a second wave of competitors in the space, potentially drawing from the ranks of office equipment vendors, current desktop monitor manufacturers, and newly minted startups. These new competitors would, of course, face numerous challenges, including a need to create mechanisms for keeping collaboration in context, essentially removing the need to switch from desktop applications to a video session and back. Additionally, these providers face the issue of interoperability with existing room-based systems. But as stated above, Ovum believes the use case for such room-based systems is somewhat limited: savvy enterprises will focus on what can meet the needs of the many. And that will eventually be video on the desktop.

The costs of PON in China keep on falling

Wei Leping has the authority to speak openly about the costs of FTTx in China. He previously held the positions of CTO and chairman of the Technology Steering Committee for China Telecom and is now serving in a top position with China’s Ministry of Industry and Information Technology.

Wei noted that the total cost of FTTH per household is $180 in low-density areas and $160 in high-density areas. The cost of a CPE terminal (ONT) is between $40 to $60. At these cost points, China Telecom intends to stop DSLAM deployments this year and focus exclusively on PON deployments for access. We will watch this closely, since sometimes city and province subsidiaries do not follow directives from above.

Given these cost points, let’s use PON for other applications

Afternoon sessions focused on applying PON for smart grids and mobile backhaul traffic. The China State Grid has several trials under way using EPON with OLTs in substations and ONUs at customer electrical power terminal points. According to Quan Nan, project manager for the China Electric Power Research Institute, the smart grid is supporting 86,000 users over EPON currently. To speed up the smart grid deployment, the leasing of fiber infrastructure is being evaluated.

Given the explosion in mobile data traffic, the use of FTTx networks for wireless backhaul is progressing, albeit slowly. There is consensus that current backhaul solutions will become prohibitively expensive as mobile data traffic continues to grow quickly. Service providers along with PON component and equipment vendors are working on solutions to enable faster adoption of PON-based wireless backhaul.

WDM PON was discussed but did not secure the spotlight

In keeping with what we saw at OFC in March and FOE in April, the conference included several presentations outlining the advantages of WDM PON for access networking, but not from China’s service providers. China is focused on TDM PON deployments right now. At some point China Telecom may begin to evaluate WDM PON in earnest and work with component and equipment vendors on standardization. In the meantime, China’s operators are focused on FTTx network builds and bringing subscribers onto those networks.

See you next year in New Zealand

Next year the FTTH Council Asia-Pacific Conference will be held in New Zealand. While most Council members will have to travel far to get there, the board believes in geographic parity. The upside is that participants will have the chance for a first-hand look at deployment progress at Crown Fibre Holdings, an example of public-private partnership in the FTTx world.

The majority of clinical information is unstructured

Most healthcare analytic tools have focused on the easiest targets, such as electronic health records (EHRs) or billing data, which only represent a small part of overall medical data. Examples include insurers utilizing analytics to formulate health programs to prevent the onset of certain types of illnesses, or to identify fraud in healthcare claims.

So-called “unstructured” (or variably structured) data has been estimated to account for 80–90% of all medical data today. Such data is mainly found in written text such as doctors’ or nurses’ notes, discharge or referral letters, patient history, pathology reports, tweets, patient surveys, text messages, claims and case management data, and emails.

For medical information that is already in digital format, a wealth of data is at the disposal of healthcare practitioners, insurers, public planning authorities, and others. This data could help generate valuable insights into how to improve clinical and operational outcomes.

The deployment of this type of analytics can touch on both clinical and operational outcomes. In the clinical space, it has the power to support the diagnosis, help better clinical interventions, foresee (detect and predict) the early on-set of disease and condition deterioration, and improve disease management. In the administrative space, predictive analytics has the potential to help prevent readmissions and support patient discharge, follow-up care, and claims management. However, its usage has almost been untapped so far. In the US, the looming penalties for hospital readmission within a 30 day-period, which will become effective as of 2013, pose an important use case for analytics, particularly as, according to the New England Journal of Medicine, approximately 20% of readmissions are preventable. The usefulness of this tool is certainly not limited to determining the causality of hospital readmission across diverse illnesses or across the US. The leveraging of unstructured data can be used to prevent and detect fraud, or to determine which patients would do best in certain wellness programs. It can also be used to facilitate patient discharge and follow-up measures, to better target clinical care interventions, and to understand the spread of hospital-born infections.

Until recently, the wealth of unstructured data could not be analyzed due to a lack of adequate tools; this has changed with the availability of NLP.

Natural language processing opens new areas for applying analytics

At the end of 2011, IBM launched a solution that is capable of analyzing unstructured or variably structured data in digital format. At the heart of this offering sits the natural language processing capability that is inherent in IBM’s Watson supercomputer. This solution has been coined “IBM Content and Predictive Analytics” (ICPA). Rather than simply answering specific questions with weighted probabilities based on data already stored in Watson, ICPA deploys analytics to reveal and visualize trends, patterns, deviations, anomalies, and unknown relationships in structured and unstructured data. In this way, predictive insights, such as future, negative health outcomes, could be generated. ICPA also preserves the context of the original data to enable advanced analytics.

Although IBM has been a leading force in this development, it is not the only player to pursue healthcare analytics on unstructured or variably structured data. InterSystems is about to launch its version of an analytics tool to evaluate unstructured data, based on its health information exchange offering. As this is mostly untapped territory, applications for analyzing unstructured data are vast. Ovum expects healthcare providers to unlock the wealth of knowledge hidden in unstructured medical data by applying analytics as a means to provide better, more-efficient care.

A successful business case: Seton Health cuts congestive heart failure readmissions

IBM’s ICPA solution has already been met with a lot of interest. Seton Health, based in Texas, is a healthcare provider with five medical centers and four smaller hospitals in the area. It is part of Ascension Health, a catholic healthcare provider active across the US and open to innovative use of healthcare IT. Seton deployed ICPA for a period of eight weeks to gain a better understanding of why patients suffering from congestive heart failure (CHF) had been readmitted. After analyzing 113 indicators (structured and unstructured), Seton found that in this case, structured data sources were less reliable and revealing than unstructured. This is due to the rigid way questions were asked and the range of answers allowed. Seton’s analysis revealed that social factors were contributing to whether or not a patient was readmitted, namely assisted living and drug and alcohol abuse. This information, which only exists in the form of unstructured data, emerged as a key indicator for readmission. Based on these insights, Seton will be able to identify patients likely to be readmitted and initiate measures to cut costs, improve the quality of life, and even reduce mortality rates among its CHF patients.

Salesforce joins the trend towards government ecosystems to allay security, standards, and regulatory concerns

Salesforce has had a visible and varied presence in government agencies for some time now, with 70% of US cabinet-level agencies claimed as customers. The new announcements are a culmination of the buildup of a full “social, mobile, cloud” value proposition for government that has been battle-tested in the private sector. Substantial interest from agencies points to increasing confidence in the utility and security of the public cloud.

Salesforce’s new Government Cloud includes a dedicated, FISMA-compliant public cloud instance (to be released in 3Q12) and supporting AppExchange. This satisfies most civilian agencies’ privacy requirements at the federal, state, and local levels. It also provides the multi-tenancy that is useful for agencies that have trouble keeping up with innovation on their own, allowing them to instead rely on regular updates over the cloud. Agency IT decision-makers are increasingly comfortable with security in the public cloud as more case studies prove its value and programs such as FedRAMP make certification easier. Nonetheless, many agencies are still more comfortable with private cloud offerings and will likely continue to be so for the short term.

The government partner accelerator program may level the playing field for SME SaaS providers in the Salesforce ecosystem

The new government partner accelerator aims to train 1,000 small and medium enterprises (SMEs) by the end of 2012 to hone their expertise and grow their business around the full complement of Salesforce public sector solutions. The actual impact it creates and the promise it holds for potential partners has yet to be seen, but it makes sense for Salesforce to introduce such an initiative. The firm’s Force.com PaaS offering, for example, has been the basis for the creation of a diverse ecosystem of SME SaaS vendors building on its platform to cater to the needs of its private sector customers.

In the public sector, there are strong policy arguments to encourage the growth and development of smaller ICT firms to boost local jobs, but smaller firms tend to struggle to win government business due to onerous procurement processes that favor the large global vendors. The availability of a robust and widely adopted PaaS platform within a FISMA-compliant government cloud could help level the playing field for SMEs, enabling even small companies to sell to agencies via the Salesforce cloud.

Salesforce recognizes that seeding an ecosystem of app developers targeting the public sector will be good for its long-term prospects, particularly when aiming to expand the AppExchange for government. It also positions the company to help governments increase value-for-money from ICT spending while also supporting the local ICT industry.

Salesforce has an opportunity to create the ‘social agency’ market in countries that have not yet been broached

It is telling that ex–US federal government CIO Vivek Kundra’s new title as a Salesforce executive is EVP, Emerging Markets. Kundra has spoken about the move towards cloud computing and the “social enterprise” on a global basis, spreading Salesforce’s vision of the benefits of public cloud services for government agencies. It seems, therefore, that Salesforce intends to address the vast yet barely scratched opportunity presented by foreign government technology markets.

There are clues around the world, particularly in Latin America and Asia-Pacific, that reveal a growing demand by governments for cloud-based solutions that are engineered for the Internet-age world of social computing, mobility, and analytics. Governments are moving beyond the efficiency logic of e-government programs into the more overtly innovation-enabling ambitions of smart cities and ICT-enabled transformation of public services. Fiscal constraints prevail, however, so most governments are also looking for new, more cost-effective ways to source the ICT capabilities needed. As the cloud story matures, it becomes increasingly attractive to governments as a faster, better, less expensive, and less risky alternative to traditional in-house and outsourced systems development.    

In Ovum’s view, Salesforce’s overall value proposition around government has reached the point where it is well positioned to begin converting latent demand around the “social agency” market into real commercial value in emerging markets. It is one of the first cloud providers with the potential and narrative to do so.

Balancing global public cloud efficiencies with local trust is the challenge

Outside of the US, however, a big sticking point of public cloud adoption in government is concern over data sovereignty. While many agencies use public cloud services hosted outside their jurisdictions, most would prefer that data remained either within their country or hosted in countries with trusted legislative and regulatory environments. This parochial instinct is also partially driven by the imperative of governments to be seen as supporting local ICT industry players (notwithstanding free trade agreements). Salesforce’s US cloud announcement further reinforces the fact that, for governments, the undeniable preference is for the cloud to be multinational rather than global.

The challenge for the leading public cloud vendors is to deliver both the global efficiencies of public cloud services and the trust that is inevitably associated with local presence within the jurisdiction of choice of individual governments. This will require a clear multinational strategy – and a way of prioritizing when and where Salesforce will deploy additional government cloud offerings in a particular geography. In which country will Salesforce’s Government Cloud touch down next?

Programming in Scala allows the blending of traditional object-oriented Java with a functional programming style. Typesafe as an organization is modeled on Red Hat in terms of its business model, with subscription-based services on top of a host of open-source projects that take Scala to new levels. Typesafe Stack 2.0 is the latest version of a set of integrated tools that offer a Rails-type web development framework called Play, with Akka, a middleware framework for scaling Scala workloads horizontally across multiple machines. Future releases of the Typesafe Stack will include Slick, a database connectivity tool.

Multicore and cloud make parallel and distributed programming the new norm

A prime driver for innovation in programming is the rise in both CPU and GPU multiple core machines that requires an approach that exploits concurrency. While Java and other object-oriented languages do handle concurrency using threads and asynchronous programming, they are difficult concepts to implement and can easily lead to deadlocks, race conditions, and difficult to reproduce side-effects. This is where a functional programming style wins out. The key concept is that in imperative programming, such as procedural and object-oriented programming, variables can be reassigned values multiple times during the running of a piece of code, whereas in functional programming, a variable is assigned a value and this remains fixed and is immutable. The advantage of immutability in parallel programming is that it leads to a reduction in errors as a result of unexpected variable changes. Furthermore, the order of execution is of much less importance in functional programming, which again is advantageous in parallel programming where workload is divided across multiple cores. Functional programming therefore allows for superior partitioning of workloads and provides much stronger encapsulation than that in OOP objects.

Scala will automatically detect multiple CPU cores, and will apportion workloads across these without the programmer needing to make any changes to a normal style of Java development. However, to fully exploit the potential of multiple cores, the programmer will exploit Scala for its functional programming advantages, as well as design algorithms for optimum parallel performance. Typesafe is still researching the potential for general programming on GPUs (GPGPUs) and it is highly likely that in future Scala will be able to exploit these additional cores that vastly out-scale the CPUs on typical machines.

Another challenge for developers is distributed computing, and Typesafe has addressed this with its Akka event-driven middleware for distributed cloud applications. The Play web framework brings a Rails type of experience to Scala, as made popular in Ruby on Rails, and makes it easy to rapidly create sophisticated web applications. The Typesafe Stack integrates these tools, and in future releases, Slick, the database connector, will enhance the capabilities of Scala in multiple dimensions including web, parallel scalability across multiple cores, and horizontal scalability across multiple machines.

Typesafe’s roadmap indicates the maturing of Scala

Scala’s ranking on the TIOBE index at number 45 belies its popularity on open-source projects as indicated on repositories such as GitHub, where it lies in 12th position. The number of jobs available for Scala developers has tripled in the last year, and the community is estimated at 100,000 developers. Typesafe and its partners run Scala training services, both in open enrollment sessions and on-site at customer locations.

Notable Scala user success stories include Twitter, which was originally built on Ruby on Rails but ran into scaling issues and transferred its core messaging service to Scala, allowing the service to grow by three orders of magnitude, and LinkedIn, which runs over 400 million transactions per day on a Scala platform.

The Typesafe Stack roadmap is for delivery in the third quarter 2012 of version 2.x, which will add the Slick database connectivity framework to updates of Scala, Akka, Play, and Typesafe Console that were included in Typesafe Stack 2.0 released in March 2012. The Typesafe Console is designed to provide performance-monitoring tasks for Java and Scala applications running on the Typesafe Stack, and will be built on over time to provide management capabilities, such as moving workloads across cores.

The Scala ecosystem covers multiple libraries donated by users such as Twitter (libraries Finagle, Kestrel), LinkedIn (Kafka, Norbert), and many others. Development plug-ins are available for Eclipse, NetBeans, IntelliJ IDEA, and more. On top of these capabilities there is the existing Java ecosystem that can be pulled in to a Scala application with a direct call. Alternatively, Scala can be invoked from a standard Java application.

In Ovum’s opinion, as multiple cores (both CPU and GPU) continue to increase, Scala is the future of Java, making the move to parallel programming even more of a necessity.

Aster Data shifts the emphasis from platform to solution

Teradata is now making the Aster platform more consumable, extending vertical industry frameworks (data models), analytics, and functions that it has built over the years for its core enterprise data warehousing (EDW) products.

Barely a year after the Aster Data acquisition, the Aster platform is just beginning to penetrate the core Teradata customer base. Teradata differentiates Aster from its core EDW platform in several ways: the SQL-MapReduce capability that allows MapReduce processes to quickly and inexpensively tear through data and perform complex analytics and transformations through an SQL interface, and the ability to process large sets of data in faster, more interactive modes, along with the ability to handle “multi-structured” data types in native format through late data binding at query run time.

As expected, Teradata has added appliances to the Aster product line. This is very much in line with the strategies of Aster’s major Advanced SQL rivals including IBM Netezza, EMC Greenplum, and HP Vertica. Appliances are a response to the fact that while commodity hardware for scale-out clusters is relatively cheap, the skills and expertise for deploying and managing them are not.

Teradata’s Hadoop relationship still a work in progress

At a recent analyst summit, Aster Data co-founder Mayank Bawa outlined the company’s still-emergent thoughts regarding the role of Hadoop and the status of partnership plans with Hortonworks. Significantly, Teradata, like SAP, still doesn’t consider Hadoop to be ready for production analytics. Both see a modest analytics role for Hadoop, viewing it primarily as a staging area for SQL targets.

Teradata promotes a pattern where data is transformed in Hadoop. Structured and variably structured data is then loaded into Aster where exploratory analytics could be performed with its patented SQL-MapReduce framework. Teradata could conceivably eventually position the Aster engine itself as a replacement for Hadoop’s HBase column store to leverage the versatility of the Aster platform and the raw power and scalability of Hadoop.

Although Hadoop is lacking in performance, security, and easy-to-use tooling, it still has one key advantage over Advanced SQL platforms such as Teradata Aster: its underlying file system can more readily handle diverse data types, such as rich media with graphical and alphanumeric data. While Teradata Aster already handles web logs and XML data, it would need to be extended to support images and video.

Teradata’s views on Hadoop accurately reflect its current limitations, but Big Data platforms are a moving target, with Ovum expecting that:

• Teradata Aster will gain more flexibility in storing mixed data types.

• Teradata’s original enterprise data warehousing platform continues to add capabilities similar to those of Aster. It has already begun to implement columnar support, and we expect that it could eventually support SQL-MapReduce.

• Tooling will tame some of Hadoop’s rougher edges, making it more accessible to non-computer scientists.

• Innovations in the Apache project address many of Hadoop’s shortcomings, such as performance, and to a lesser extent security. Ovum expects commercial tools to retain the edge in this area.

Within 12 to 24 months, the capabilities of Teradata EDW, Teradata Aster, and Hadoop will overlap. Many Aster workloads might run on Hadoop or the Teradata EDW. At this point, Teradata will need to refine Aster’s value proposition as a lighter-weight, interactive analytics platform than Teradata EDW.

Regarding Teradata’s partnership with Hortonworks that was announced a couple months ago, neither side yet has any concrete plans to announce. Ovum expects both to break their silence in the second half 2012. At minimum, we expect management tooling interoperability to enable the operations of both platforms to be coordinated.

Teradata’s Fast Data strategy stops short

In Ovum’s research note “Fast Data goes mainstream” we pointed to the emergence of business cases requiring the need for quick analytics and decision-making. Teradata established a foothold here with its solid-state-drive-based Advanced Data Warehousing Appliance, which can hold more than 15 terabytes of data. Teradata is hardly alone in this space, with players including SAP and Oracle having made well-publicized rollouts of in-memory systems, and established players such as Tibco promoting a two-second advantage with data in motion.

Unlike its rivals, Teradata is selling itself short with event stream processing (ESP), the aspect of Fast Data where events are parsed, analyzed, and decisions made, without necessarily persisting the data into a database (its announced strategy is to partner). Admittedly, Teradata is a database company first and foremost; but in the long run, event processing is a logical extension of its operational and strategic analytics mission. Implementing Fast Data solutions will not necessarily be an either/or question when it comes to caching (for example, event streams) or persisting (for example, solid state or in-memory databases). There will be cases for stripping off selected data from events to populate Fast Data stores that can combine event and historical analysis. SAP has already announced plans to move forward with the integration of HANA with Sybase’s event processing products.

We believe that Teradata should make acquisitions, rather than form partnerships, to keep pace in this space for several reasons. First, there are few independent event-processing vendors with a large enough installed base to make partnering worthwhile. Second, most of its major EDW rivals already have this capability, and third, owning the capability will provide the seamless solution that customers requiring Fast Data solutions will ultimately need.

TU ME takes the best of pure OTT communications apps and then adds a bit more

TU ME is an OTT application, initially available for the iPhone but with Android set to follow shortly. It is not limited to Telefonica customers. The application has been developed in-house by Telefonica, based on its Jajah VoIP acquisition. The look and feel of the application is like a synthesis of the best elements of Viber, Voxer, and WhatsApp. All usage is free. It works wherever there is an IP connection, but the benefits will be most strongly felt in the context of non-metered data charging, notably over WiFi when roaming.  It can support multiple simultaneous sessions, so it is possible to be sharing content with one friend while on a VoIP call with another. It is strongly cloud-oriented too, in that all contacts, content and communications history are stored off the device, for a year. Communications history is presented as a threaded timeline, an innovative approach that shows that Telefonica has really understood the appeal of OTT, which is as much about extending the paradigm of person-to-person communication as it is about saving money. But Telefonica insists that the security and governance of personal data will be to telco standards, rather than those of OTT players.

TU ME is part of a bigger plan to adapt Telefonica to the evolving communications landscape

Perhaps more than other operators, Telefonica seems to have a clear understanding of the threat that OTT communications applications pose to its future. It has already made several moves to respond with its own OTT apps, and it is a committed supporter of the GSMA’s Joyn/RCS initiative, with plans to launch services based on Joyn in Spain this year. TU ME is part of this picture. Extensions to it are already planned, including conference call capability, interconnection with regular telephony services (equivalent to Skype’s SkypeIn and SkypeOut), and access from other platforms including browsers on non-phone devices.

There are some hints that the threaded timeline model could be extended to cover all of a user’s communications history, not just history of usage within the TU ME service. Such a development would be a powerful response to OTT VoIP; it is curious, to say the least, that the only way that users can interact with their telephone services via the Web is to use OTT applications, of which Phonedeck is probably the best example. We are not aware of a single alternative provided by a telco.

If you join them, they may yet beat you

In our forthcoming report on The Future of Voice, we consider a number of strategies which operators can adopt in response to the challenge of OTT voice and messaging, one of which we have characterized as “if you can’t beat them, join them” – essentially, for operators to launch their own OTT apps alongside those of the main OTT players. Telefonica has already put several pieces on the board here, including O2 Connect and Jajah, but TU ME is its strongest play yet. Nevertheless, the risk remains that the net effect will be to educate its customers in the ways of OTT VoIP, and to build a market from which others will ultimately benefit more than it does itself. Loyalty in OTT is very real, but it is a complex and chaotic phenomenon, with sudden mass migrations between platforms. As it stands TU ME is a good first step, but it will need to be followed with others to ensure that customers remain anchored to Telefonica as a communications provider.

Remember, FTTx network deployments are construction projects

FTTx conferences can easily get caught up in endless technology debates unless you enlist service providers that are in the midst of massive, multibillion-dollar FTTx network deployments. These deployments are literally construction projects, whether laying fiber in neighborhoods or pulling it into homes. Like most construction projects, funds are spent long before money begins to flow back in from subscribers.

Dr. Farid Mohammed Sani, chief strategy officer at Telekom Malaysia Berhad, discussed the importance of government financial support, particularly at the beginning of a project. Telekom Malaysia Berhad plans to spend around $2.9bn over 10 years while the Malaysian government is providing $790m over the first three years.

Graham Mitchell, chief executive of Crown Fibre Holdings in New Zealand, provided a similar perspective. The government of New Zealand is providing funds to help kick-start its FTTx network project, which will reach 75% of the population by 2019. New Zealand’s very low population density makes the economics of FTTx deployment quite different than in Japan, South Korea, or Singapore. 

Remember the subscriber perspective – even in the midst of the build

While building an FTTx network is a construction project, the end point is the subscriber’s living room. As Shanghai Telecom’s chief engineer Zhang Jun stated, not all homeowners understood that equipment would be mounted on a prominent wall in the living room.  

The service provider presentations focused on the need to keep the subscriber perspective in mind. Subscribers do not care about the enabling technology; they care about the enabled services. Traditionally, service providers focused on telephony services and data. Very few have experience with content and value-added services, and they must quickly learn how to handle content in terms of operations and marketing.

Managing the network, maintaining the network

In previous years, most presentations by service providers ended with subscriber goals, but this year ongoing managing and maintenance were discussed. Again, the construction project theme appeared – buildings need to be managed and maintained efficiently and effectively, and so do FTTx networks.

FTTx network management and maintenance was echoed in presentations by component and equipment vendors. The focus is on embedding management functions, thereby enabling end-to-end network management and maintenance without prohibitively high costs.

Chinese hiring binge flattens average vendor revenues/employee at just over $345,000 in 2011

In 2011, our sample – Acme Packet, Alcatel-Lucent, Amdocs, Broadcom, Cisco, Ericsson, Huawei, Juniper, Nokia, Qualcomm, Tellabs, and ZTE – had total employees of 675,000, from 629,000 in 2010, or 503,000 in 2007. Huawei, Ericsson, and ZTE accounted for most of the 2011 growth, adding 30,000, 14,000, and 10,000 employees to their workforce, respectively. Huawei and ZTE are used to this growth; between 2005 and 2007, for instance, Huawei’s labor pool expanded from 35,000 to 81,000. After the initial pain of such investments, both vendors eventually benefited in market share growth (see slide 4 of Telecom Vendors’ Earnings and Strategy – 4Q11 & 2012 Outlook), and they hope to see similar results this time.

Ericsson’s 2011 growth is due to a mix of absorbing the Telcordia staff (2,600), a little organic growth, and continued insourcing under managed services projects. While the additional staff bring new complexities, being able to absorb telco employees has become critical for some projects. Many competitors do it too; Huawei, for instance, insourced roughly 1,200 employees in Indonesia last year from XLCom.

Many newly insourced employees are in emerging markets, where costs – and revenues – are relatively low. These lower-cost services employees, then, may end up over-represented corporate-wide: Ericsson, for instance, got about 37% of its 2011 revenues from services, but 56% of its employees are in services. But plenty of large managed services deals have been signed in high-cost markets such as the US (e.g. Ericsson–Sprint in 2009), so this gap may not remain. What’s clear is that professional services offerings are central to being a full-service vendor. NSN, for instance, may be exiting some business lines but it is investing in services, which accounted for 50% of its 2011 revenues worldwide.

Some vendors did shrink their workforce in 2011. Cisco was down 14% (~9,000 fewer employees) between 4Q10 and 4Q11. Alcatel-Lucent and Nokia (including NSN) cut more modestly, each shedding roughly 2% of their employees in 2011. This cut, though, was the tip of the iceberg for Nokia, as it plans to reduce its employee base by another 17,000 (or 13% more) by 4Q13.

Chip companies booking higher-cost employees and R&D/revenue ratios, but yielding higher margins

Two vendors in our sample are chip/component vendors. They both had average revenues/employee in 2011 of above US$750,000, more than twice the sample average. Relatedly, they both spend heavily on R&D: Broadcom’s R&D expense in 2011 was 26% of revenues, while Qualcomm’s was also high at 20%. Both have relatively high margins: Qualcomm’s 2011 EBITDA margin was 39%, far above all others in the sample (Acme Packet comes closest, with 27%). Broadcom isn’t as impressive but 2010–11 margins were both in the mid-teens (%). High margins at the bottom may encourage further R&D investments, yes, but they also push up costs further up the food chain. That helps explain why both Huawei and ZTE are investing heavily in internal chip and component development, across most product areas. Time-to-market improvements are relevant, but they also see this as helping with cost control – bypassing Qualcomm, Broadcom, Mindspeed, Vitesse, etc. – and becoming more truly full-service. Cisco, Alcatel-Lucent, Juniper, and select other non-Asian vendors also have at least some captive production of optical components or chips – but on a smaller, more targeted scale than the Chinese envision.

Transition to full-service vendor model unlikely to be painless

Service providers are struggling to manage growth efficiently, to focus on the customer experience, and to lower the risk of market ups and downs. All of these needs support vendors’ professional services propositions. The fact that many hardware markets are seen as commoditized has made services more important. For this and other reasons, in our Telecoms in 2020: network infrastructure report, our core message was that by 2020, market evolution will narrow options to full-service vendors/system integrators on the one hand, and specialized vendors on the other. But services is a much different business than hardware, requiring lots more partnering and project management. It also can bloat a workforce, if vendors prove too eager to win a deal. Operators are struggling now with opex, particularly network/IT-related opex, and may push vendors to do more than they can handle. They will have to focus on profitable growth, and seek projects they can leverage to penetrate new accounts, or new countries, or new deal types, or simply develop new in-house expertise. Otherwise, very soon we may be talking about the vendors’ opex problem.

An impressive, yet complex, network transition

There are always two ways of looking at these updates. On the one hand, what Sprint is attempting to achieve is an enormously complex and messy set of simultaneous transitions, including the decommissioning of its iDEN network, rollout of LTE, expansion and performance improvements on CDMA, and eventual winding down of WiMAX (through Clearwire). The fact that Sprint is deploying LTE in three separate spectrum bands – two through its own holdings and one through Clearwire’s spectrum – further complicates matters. Sprint is suffering as a result of two past decisions: the poorly conceived and executed merger with Nextel, and the shortsighted choice of WiMAX as a 4G technology.

On the other hand, Sprint’s strategy and plan for this transition is impressive. It is moving very rapidly to execute on this plan, and progress to date has been quick and effective. However, the risk of such a rapid rollout is that there will be problems post-launch, as we have already seen with Verizon Wireless, so we will have to wait until after launch to see how the network fares. Some 9,500 sites are in the works for the Network Vision rollout, while some 9,600 iDEN sites will be decommissioned as Sprint thins its network footprint there in response to a dramatic drop in customers over the past few years. It is planning to move its iDEN customers onto a CDMA-based alternative for push to talk, although competitors such as AT&T are readying competing offerings, which will be targeted at dissatisfied former iDEN customers.

Battling the legacy of WiMAX

All of this means that Sprint will be launching LTE this summer, months after AT&T and years after Verizon Wireless (though ahead of T-Mobile, whose plans were put on hold as its merger with AT&T was pending). There will be significant risks in terms of customer confusion as Sprint has to educate customers on the new meaning of 4G as it moves from WiMAX to LTE, and Sprint’s early-mover advantage on 4G will be eroded entirely as this happens. It will be going from being the first to deploy a technology marketed as 4G (WiMAX) to being one of the last carriers to deploy the 4G technology of choice (LTE).

Gaining a full view of the student

Social media has the potential to deliver considerable value to institutions across academic disciplines and service areas. However, only a small subset of the sector has moved beyond taking tentative steps toward using this new communications channel. With millions of tweets, blogs, posts, and Facebook comments appearing each day, many institutions struggle to adapt to the new demands of the digital student. Ovum believes that understanding students’ and other stakeholders’ preferences for social media is key to identifying the best practices to encourage student engagement and development, and build institutional brand and presence in strategic and meaningful ways. Radian6 has been implemented by 500 institutions globally and is used in many different applications. It gives institutions the power to listen to the conversations of current and potential students as well as stakeholders and influencers, to improve the service they offer. Social media data is delivered straight from the source in realtime. Consequently, institutions are more aware of the buzz, discreet issues, and general discussion trends about them and better enabled to take more timely action when necessary.

Communication and crisis management

Institutions are only starting to discover the use of social media as a communications tool in times of crisis to provide consistent and timely information and updates to students, faculty, alumni, parents, and the media. A February 2012 study by the Council for Advancement and Support for Education (CASE) surveyed 219 senior communications professionals at higher education institutions on this topic. According to the study, the top three social media channels used are Facebook, Twitter, and YouTube. Of the respondents, 99% allow public comments on their social media pages, and 62% plan to use social media to provide official information updates. However, only 17% of the respondents’ crisis communication plans include guidelines for monitoring or responding to social media pages not officially affiliated to institutions during a crisis or emergency, such as an event during which there is the potential for damage to an institution’s reputation. Ovum believes the report’s most valuable recommendation is that institutions implement a social media monitoring or management system. When a major event or crisis occurs, social media monitoring and management solutions better equip institutions to diffuse and manage negative or incorrect information published by others using social media. Radian6 is a pioneer in social media monitoring and therefore ideal for this. However, it is important to note that while the technology is mature and used widely outside of higher education, few institutions have made the leap to using social media monitoring and management solutions for strategic brand management, and still fewer are using it for responding to service requests.

True costs and privacy

Radian6 and some other advanced social media monitoring tools provide institutions with extensive analytics and can be integrated with an institution’s customer relationship management (CRM) system. Recognizing the fiscal challenges facing the non-profit and education sectors, SFDC launched the Salesforce.com Foundation, which offers significant discounts on its products, including Radian6. While these discounts – as much as 50% – are generous, licenses are only one element of the total cost of adopting a social media strategy. Institutions must construct a comprehensive services and communications strategy and then plan for its tactical execution, including allowing for sufficient human resources and the integration of social media monitoring and management with key mission-critical solutions, such as CRM solutions and student information systems (SIS). Ovum thinks the big challenge is that most of the CRM solutions that institutions are using do not have the sophisticated, corporate sector, social media monitoring functionality that SFDC can deliver with Radian6. A fair number of institutions are using SFDC and the solutions built on its Force.com platform. If the higher education sector gets up to speed in its understanding of the advantages of, and its ability to exploit, true multi-channel capabilities, particularly social media, then Ovum expects to see a greater rise in adoption of solutions such as SFDC’s.

With regard to privacy, institutions must take an “in loco parentis” role in a context in which the rules and norms continue to be in flux. Ovum recommends that institutions have clear guidelines about what to do if a student reveals information on social media sites that incriminates them, or whether the institution will use that information. The higher education trade press is filled with stories about institutions being at odds with students after misconduct has been revealed on popular social media sites. As they are educational institutions, helping students to understand the public nature of these channels is well within most institutions’ mission statements. Additionally, Ovum suggests that institutions be mindful about overstepping the mark in the social media sphere; it is unclear how tolerant students, parents, and others are of “big brother”-type monitoring. There is still a fine and undefined line between what is considered exciting in social media and what is considered infringing on privacy.

When a new wireless technology comes to market, the first vendor push is on the infrastructure – in this case macro base stations. But as the market matures and operators become more familiar with the technology, those base stations are taking a less central role. Instead vendors want to highlight how they can help operators move beyond just coverage and focus more on helping their clients better monetize their investments. These next steps around experience, application, and small cells may seem more incremental than the initial network build, but they indicate a healthy market. The shift in focus away from macro base stations shows that vendors and LTE are progressing in the right direction.

It is interesting that BroadSoft was chosen by more than 500 mobile professionals as the best solution. In recent months, a lot of unified communications services have hit the market. Many of these incorporate mobile apps or are based on a cloud-hosted solution. Their core aim is to tap into the growing market, as evidenced by Skype, for communication solutions that work across multiple platforms.

But confusion looms in this market. As Ovum’s innovation radar shows, several telcos are launching such services. Likewise, many OTT players – such as WhatsApp – are making a push too. But this is a service whose value is tightly tied to scale or interoperability. If providers of such solutions can reach Skype or WhatsApp scale, then they may have a chance. Otherwise, the only route to market success will be in embracing an industry standard such as the GSMA’s RCS Joyn.

It is Ovum’s view that this is a positive step for both enterprises and customers. It will help enterprises to move forward with the integration of customer care and mobility, and has the potential to significantly improve the mobile service experience for customers. However, implementing the solution will not be all smooth sailing. Forthcoming Ovum research shows that in many businesses there is a disconnect between the internal stakeholders. Interactive Intelligence must either convince enterprises that ownership and development of mobile applications should sit within customer service, or else encourage greater collaboration between departments.

Interaction Mobilizer gives enterprises powerful mobile development and management tools

Interaction Mobilizer goes into general availability at the end of 2Q12 for Interactive Intelligence’s existing contact center customers. It works with the vendor’s Customer Interaction Center (CIC) call routing engine, enabling enterprises to build and manage mobile applications that connect directly with existing customer data. The solution incorporates the ability to pull all of the relevant contextual information from the mobile app into a screen pop delivered to the agent. This alone is a big deal; it is an opportunity for designers of customer care interactions to make them richer and more satisfying for customers.

Interactive’s platform also allows developers to create each application as a single “container” that is, effectively, a single code base for uploading to all the major app stores. The actual applications remain on the CIC servers. When a company wants to upgrade or change the mobile app, it happens invisibly to the end user; the enterprise does not have to process a “changed” application through the app stores’ overview processes.

The announcement of this mobile integration platform is a good move for both Interactive and its client base. When customers engage with mobile apps they create a great deal of contextual information that can be used to improve an interaction and the overall experience. Some of this information is manually input (name, account data, authentication passwords, etc.), and some of it is managed by the phone itself (GPS location, applications opened and used, etc.). It makes sense for this information to be part of the interaction when and if that customer escalates to an agented call via a contact center.

The most prominent barrier to adoption will be ownership of mobile application development

Interaction Mobilizer is an advance in mobile customer care, but there remain two barriers for businesses seeking to create coherent strategies:

• uncertain ownership of the budget for mobile/care integration and development
• the need to jettison the existing mobile app code base to implement the newer, simpler apps created by Interaction Mobilizer.

By implementing such a solution, the two divergent stakeholders in the mix – the IT/Marketing departments with existing apps, and the contact centers with existing interaction methodologies – will be forced to work together to coordinate strategy. This requires a degree of internal interdepartmental collaboration that is unusual within most businesses. One further challenge is the need to recode existing apps for the new platform. However, once the ROI of the new platform has been proven, this is unlikely to be a significant threat to adoption; the advantage of having a centralized management system that links directly with routing and agent desktop tools outweighs the disadvantage of the additional work needed to migrate the code base.

Enterprises need to integrate mobile apps with customer care

Customer care professionals should be thinking of the mobile phone as a window into the behavior and intentions of their customers, and as a way to shepherd them through more complex self-service interactions. Ovum believes that enterprises should take advantage of the data available in their care centers; at the very least it could help them to understand how customers are using existing mobile applications. They should strongly consider implementing a mobile management solution such as Interaction Mobilizer to make interactions more efficient and leverage the contextual customer information that exists behind the scenes. With some time and experience, it is likely that they will be able to use the data more adventurously, turning the mobile device into a fully fledged, bi-directional customer service portal.

While on the surface Russia may not seem like the obvious expansion location for Neo, we believe that it may represent a sound corporate strategy. The Russian telecom and datacom markets are growing. Russian investment firms have funds for investments. And Russia has skilled labor in photonics.

Neo managed an IPO but public life has been tough

This analyst was wrong when she published her first Ovum brief back in January 2011 titled “What are Neophotonics’ chances for a good exit?” Neo went public on the NYSE in early February 2011 and generated net proceeds of $88.2m before offering expenses. But perhaps I was not entirely wrong, as the IPO priced at $11 per share and was trading at $4.27, representing a market cap of around $110m before Neo announced its 1Q12 earnings after market close on May 3.

Neo’s 2011 revenues reached $201m with a net loss from continuing operations of $15.4m and a net loss from operations of $28.5m. The difference in net losses was largely due to other income of $14.2m, much of it relating to a gain on purchased shares of Ignis ASA in 2010 and the selling of those shares in 2011. This was a nice gain but unrelated to building value in Neo’s technology, products, or markets.

For 1Q12, Neo achieved revenues of $54.2m, a decrease of $3m from 4Q11. Loss from continuing operations for 1Q12 was $11.8m.

Growth in Russia’s telcos and Russia’s economy – positives for Neo

Russia’s telecom operators are growing in terms of revenues and spending capital. Capital intensity (measured as capex divided by revenues) was 21.4% for Russia’s operators compared to a global average of 16.0%. Russia’s operator revenues reached $46bn in 2011 compared to $40.6bn in 2010, and while still small in comparison to other operators, the trend is positive.

In 2011, Russia’s gross domestic product grew by 4.2% compared to 3.0% for the US for 4Q11 and 2.2% for 1Q12. Russia’s economy, while not without problems, is faring quite well. Russia’s main export is oil, and with record-high oil prices, there comes a tremendous influx of cash.

Russia investment outflows; foreign corporation inflows – matches Neo

Not all export-related, oil-generated cash stays in Russia. In April, Russia’s Economy Minister predicted $10 to $20bn in net capital outflows in 2012. A small amount of that money is being invested directly into non-Russian high-tech companies, such as ThinkGrid, FiberZone Networks, Capptain, Stop The Hacker, and now Neo.

In parallel, a number of non-Russian firms have announced the openings of R&D centers in Russia, recent examples include:

• IBM and Bauman Moscow State Technical University, or BMSTU, announced the opening of a smarter-cities development and education center in Russia.

• EMC Corporation plans to establish an R&D center in the Skolkovo Foundation’s Innovation Hub in Russia that will focus on development of cloud infrastructure solutions.

Bottom line – deal is a positive for Neo

We believe that Rusnano’s high-valued, strings-attached investment is a positive move for Neo. While Neo continues to focus on growing revenues and achieving profitability, it must develop a longer-term growth plan that moves the needle substantially. Russia and its Eastern European neighbors are building and expanding their communications infrastructures and moving to optics-based high-speed solutions for both data centers and operator networks.

Neo is not the first optics company to focus on Russia. IPG Photonics has had success with its manufacturing facilities in Russia.

Neo now has the opportunity to take advantage of Rusnano’s strong presence in Russia and investment resources.

HTCpro will include enterprise-level security enhancements, management, and productivity features, which HTC can use to ensure that its entire portfolio of devices is business ready. For example, HTCpro will incorporate IBM’s portfolio of social collaboration applications to deliver seamless integration on HTC devices.

This all seems familiar. Not too long ago, HTC was a robust player in the enterprise space, especially with the Windows Mobile. And so, it seems that it is returning to its heritage as a provider of devices used in the enterprise.

Such a commitment to providing enterprise services contrasts with what other Android vendors have done. Android vendors have made little effort to court enterprise IT departments so far, with the exception of Motorola. A few announcements of partnerships here and there have not amounted to much.

As such, HTC’s announcement signifies that it recognizes the need to educate both end users and IT managers on the benefits of supporting enterprise users, since these devices are increasingly in the hands of people who want to use them for work.

HTC’s efforts are in their early stages, but the combination of device capability, an online education effort, and direct and channel-based outreach is a good start.

On the face of it, filling these two roles is a good move. It was critical that RIM fill these key positions, since marketing and operations are two of the areas where it has really struggled in the past couple of years.

RIM desperately needs leaders with a proven track record in achieving results in operations and marketing, who have the pedigree to awe a market that is increasingly deaf to RIM’s exploits. But bringing in key people from one of the less successful device vendors (Sony Ericsson) and a struggling carrier (LightSquared) is unlikely to change that.

Beyond the fanfare, there were no big surprises in the list of partners. For gamers, Angry Birds and EA are offering to re-create their titles for Nokia smartphones. Other partners include PayPal, Time Magazine, Newsweek, and Box. The PGA Tour, ESPN, Groupon, AOL, and Tripdots claim to be offering new apps exclusive to Nokia’s Lumia, but it is not clear how markedly different these are to existing titles, or whether they offer any new significant capability.

Ultimately, it is all part of plans to ensure that best-of-breed apps are available on the Windows Phone Marketplace, which Nokia’s Lumia uses. The Marketplace already has over 80,000 apps in its catalog but Nokia must ensure that customers using the Lumia have access to the sort of apps they would get on Apple and Android-based devices.

• awarding a $4bn LTE network deal to Ericsson and NSN
• announcing an expansion of its HSPA+ network
• updating the market on the uptake of its Bobsled Messaging platform.

Ericsson and NSN will provide and install state-of-the-art, Release 10–capable equipment at 37,000 cell sites across T-Mobile’s 4G network, increasing signal quality and enhancing performance beginning in 2012.

The network deal is particularly good news for NSN, which has struggled to win a major LTE deal. NSN was already the incumbent base station vendor for T-Mobile’s HSPA network, so the deal is more of a continuation. It will also justify NSN’s decision to focus on North America, Japan, and South Korea as growth regions for its turnaround. NSN will supply its high-end base station – the Flexi 10 – opening up the deployment to support a C-RAN configuration.

But the marketing confusion over 4G continues, with T-Mobile announcing that its HSPA+ network (which, contrary to Ovum’s definition, it calls 4G) has been expanded to well over 220 million people in 229 markets.

The performance of the Bobsled Messaging platform, which has had more than one million users since April 2011 (with more than 10 million calls having been made with the application) demonstrates how telcos can use cloud-based voice services to counter the threat from OTT players.

A new marketing term for traditional integration outsourcing

Many proponents of integration brokerage claim that it is the only way to ensure that IT focuses on more important business-related activities and not on cloud service integration. A close look at their claims reveals that integration brokerage is nothing more than a term that has been coined as part of an effort to sponsor the re-branding of traditional integration outsourcing services. Integration brokerage services have been primarily used in B2B and application-to-application (A2A) integration scenarios that involve SaaS-to-SaaS and SaaS-to-on-premise integrations, but this is nothing new. In the last few years, several projects have been executed as extensions of traditional B2B and application integration projects. It is difficult to believe that these arrangements can bring cost savings and significantly reduce the time for completion of integration projects.

There is nothing new in this business model

Integration brokerage services providers aim to ease the implementation and management of B2B and application integration projects that include SaaS integration scenarios. The only difference in the composition of integration brokerage and traditional integration outsourcing services is the integration infrastructure that enables B2B and A2A integrations. While traditional integration outsourcing services were delivered on top of on-premise integration middleware, integration brokerage services offer cloud-based integration platforms for fulfilling the needs of hybrid integration projects.

Large enterprises implementing large-scale B2B and/or application integration projects often look for suitable outsourcing options because integration is beyond the core competencies of their IT organization. The proposition of maintaining dedicated and skilled resources to support integration requirements is not attractive, and is beyond the IT budgets of most organizations. Integration-as-a-service and B2B integration vendors have been quick to understand this, and have partnered with system integrators and managed service providers to fulfill integration needs, and integration brokerages have a similar business model.

Integration brokerage is a poor fit for current integration requirements

Small and medium-sized enterprises (SMEs) are constantly facing the need to “do more with less”. These organizations are interested in following the most cost-effective and time-efficient approach to SaaS integration. For them, packaged integration is ideal, and end-to-end SaaS solutions are almost ready for deployment and offer other benefits such as flexible pricing and easier upgrades. Integration brokerage services do not fit the bill for the B2B and application integration needs of SMEs.

A shift to SaaS solutions is primarily driven by advantages such as reduction in upfront capex, easier software upgrades, faster deployment, and flexible pricing models. Likewise, organizations want integration between SaaS and other on-premise and SaaS applications to be carried out simply and efficiently. Integration brokerage adds costs associated with implementation, project management, and maintenance of integration projects to the TCO equation of SaaS applications, precisely what organizations want to avoid.

While packaged integration comes with the assurance that upgrades to functionality will be delivered as part of the standard agreement, integration outsourcing arrangements fail to address such basic requirements. In outsourcing contracts, the chances of negotiation, both in terms of expenditure and service-level agreement (SLA), are minimal. Integration brokerage is a good option only if the scale of integration is too large to be achieved by discrete solutions and if the management of vendor and service provider relationships is too difficult and time-consuming.

Meanwhile, the Forum also announced the availability of its hosted small cell emulator for use by mobile developers globally as well as the inclusion of its FemtoZonal Awareness API within the GSMA’s wider OneAPI program. This means that mobile developers anywhere in the world can build small cell–enabled applications using the GSMA’s OneAPI and then test them using the Forum’s emulator, which simulates a small cell environment.

Overall, this is a more activist push by the Small Cell Forum following its rebranding from the Femto Forum. By offering developer APIs and tools, it is seeking to tap into the developer ecosystem, leveraging the talents, skills, and innovativeness of developers to improve the market opportunities for small cells. This expansion of scope, beyond femtocells as a kit to improve a customer’s connectivity, is certainly a trend to watch.

On the whole, this represents a positive move as AT&T seeks to tap into the “smart home–connected home” trend. Leveraging its clout and capabilities in the marketplace, AT&T aims to integrate diverse devices and services into a seamless solution for homeowners. AT&T said its Digital Life group will feature devices such as alarms, cameras, appliance power controls, door locks, and sensors. These will be wirelessly enabled, with Z-Wave technology, to connect to the IP-based AT&T Digital Life platform inside the home.

But some things still need to be clarified and improved. For example, it seems that AT&T is missing an opportunity for synergistic features and enhancements for existing AT&T mobile or home service customers. Also, the kit requires an engineer’s visit to install, which will surely slow down adoption. Also, given that the alarm systems will go to an AT&T control system, it puts AT&T in direct competition with companies such as ADT that already have huge installed bases of monitored alarm systems. We note also that, unlike Comcast’s Xfinity, the system does not seem to incorporate an energy monitoring system.

IBM’s analytics is increasingly focusing on specialized analysis

A significant portion of the $14bn that IBM has spent on acquisitions since 2005 has helped the company to assemble one of the broadest business intelligence (BI), analytics, and enterprise performance management (EPM) stacks in the industry. This investment has paid off, with revenue from IBM’s entire business analytics and optimization business growing 16% in 2011, and the company expecting revenue from business-analytics offerings to reach $16bn by 2015. However, competition is fierce in the core BI analysis space, and core query, reporting, and multidimensional (OLAP) analysis software is increasingly becoming a commoditized business. Over the past two years, IBM has shifted tack to more specialized and advanced forms of analytics that provide higher business value for enterprises, and potentially higher sales margins for IBM. This is reflected in its acquisitions of companies including Algorithmics, Clarity Systems, OpenPages, and SPSS.

Varicent, a relatively young company founded in 2003, certainly fits into this strategy. SPM is still a relatively specialized branch of EPM that revolves around financially oriented analysis of sales compensation determination and planning, sales territory and crediting assignments, sales channel management, setting realistic sales quota distributions, and standard sales performance reporting and analytics. Organizations typically collect, store, and analyze this data in silos, often in separately managed spreadsheets that do not talk to one another. Varicent’s software breaks down these silos, knitting together the data and the inter-relationships into a single application.

Varicent’s suite of software provides this functionality in offerings for both large enterprises and small and medium-sized businesses (SMBs) as on-premise or software-as-a-service (SaaS). While these capabilities might have been possible to craft using generic performance-management tools, Varicent gives IBM a dedicated out-of-the-box application that it can also apply to its expanding cloud-based solutions. Varicent also hands IBM a healthy roster of about 140 customers, comprised mainly of banks, insurance firms, and retailers that fit nicely with IBM’s key industry focus for its analytics software business.

Opportunities exist to strengthen and smarten IBM’s CRM initiatives

Ovum believes that Varicent’s technology will be highly complementary to IBM’s CRM strategy. IBM does not own any CRM applications per se, but it can leverage Varicent’s pre-built integration with Salesforce and Microsoft Dynamics CRM platform to expand its presence in this important space.

Perhaps the more immediate opportunity is to closely align Varicent’s technology with its Smarter Analytics Signature Solutions, which are pre-packaged solutions that incorporate both consulting services and software. These solutions are currently offered in three distinct areas: consumer experience optimization, financial performance analysis, and fraud detection. IBM could use Varicent to expand its “Smarter” footprint into a new and related area (SPM) to help companies to monitor and close deals and optimize sales operations and workforce, both of which are critical for any organization. Because all of Varicent’s employees are expected to be retained, IBM will gain the SPM domain expertise across sales, marketing, and development.

Admittedly, IBM has some way to go to have a full-fledged and IBM-branded CRM and sales force automation (SFA) offering, but SPM will at least help from an analytics angle. The secret sauce could well be a custom as opposed to a packaged approach, utilizing the domain and vertical expertise of its Global Business Services (GBS) division with its Business Analytics Optimization (BAO) systems integration and consulting practices.

Competitors will be forced to follow suit

IBM is not content with battling for leadership of the mainstream BI and business analytics market, which is becoming increasingly commoditized. Instead, increased R&D spend in 2011, together with the acquisition of a cadre of analytics technologies, has enhanced its portfolio. IBM is now eyeing much more advanced analytics uses-cases, as can be seen with its Watson-based solutions. Watson is a supercomputing system (named after the company’s founder) that is capable of mining over 200 million pages of content in seconds using techniques such as natural language recognition, machine learning, real-time information retrieval, and game theory.

IBM, of course, has an enviable professional services punch that will allow it to wrapper domain and industry expertise around its advanced analytics solutions. Looking to the future, Big Data analytics will also provide a focus for IBM’s big-margin business, and we expect IBM to make further bolt-on acquisitions in this space that will apply advanced analytics to front-line operations including sales, customer service, and marketing.

New CRM solutions for a new era in pharmaceutical sales

In the pharmaceutical industry, revenue growth is under pressure from cost-containment strategies, loss of patent protection for many blockbuster drugs, poor R&D pipeline yields, competition from generics, and government regulations. Furthermore, the pharma sector’s traditional marketing approach of one-on-one meetings with physicians is becoming less common and less effective, as healthcare professionals have less time to meet with sales reps. The emergence and increased adoption of new communication channels by healthcare professionals, such as email, websites, and social networks, is also making the environment much more complex for pharma sales and marketing departments. The latest CRM solutions for the life sciences industry allow marketing departments to optimize the communications channel mix they employ to match specific healthcare professionals’ preferences, while SaaS-based deployments allow them to scale rapidly as needed.  

Expansion into emerging markets takes pharma’s sales and marketing personnel into new and unknown markets that have different attitudes, customs, and regulations. Sales force effectiveness and optimization will be priorities, and CRM solutions can help deliver return on investment (ROI) by enabling marketers to gain greater insight into new markets and optimize campaigns. Choosing the best CRM solution fit is a high priority for executives as competition increases and pharma delves further into new emerging markets for growth.

A narrow but highly competitive CRM market heats up

The market for CRM solutions that provide the necessary extensions to support pharmaceutical field reps is not extensive, but the quality is high and competition is fierce. Vendors in this space are spending significant resources on constantly updating their products and developing innovative solutions. Ovum’s report reviews the solutions offered by five top vendors: Cegedim, Oracle, StayinFront, Veeva, and Update CRM. Using qualitative and quantitative assessments of their influence in the market, the quality and breadth of the technological features that they offer, and the ability of their solutions to support the future evolution of the pharma market place, Ovum found that all vendors had a high level of performance, but varying degrees of market penetration and innovation. While all vendors recognized the importance of support for mobile devices for pharma’s sales reps, some solutions were more intuitive than others, and most vendors had built device-specific native applications to focus on user experience. 

With the rapid rate of technological advances occurring in the market place, particularly with mobile devices, and the continued evolution of the pharmaceutical commercial model, enterprises will need to consider not only the current functionalities of a product but also the vendor’s ability to develop and to provide innovative solutions in the future. In this respect, the larger vendors are better equipped, from a resource perspective, to continually update and improve their solutions, while smaller vendors have the flexibility to cater to the unique needs of some enterprises or specialized sales forces more quickly. Ovum recommends that enterprises review their existing CRM implementations with respect to their go-to-market strategy for the next three to five years, and evaluate the latest versions of solutions to address any identified gaps. Enterprises opting not to change their existing implementation should periodically review developments in the market for CRM solutions, as vendors’ extensive investment in these products guarantees a prolific release schedule during the next three to five years.

New discovery capabilities added to IBM’s Big Data portfolio

The two announcements give serious credibility to its Big Data offerings and its Smarter Planet initiatives. Big Data analytics differs from traditional analytics, which tell the user “what” has happened from a subset of normalized information, by providing the ability to explore much larger data sets to get a better, more reliable picture of what is happening and why. By definition, one of the major problems in discovering the information “nuggets” in Big Data environments is that the volume of data is large and consequently difficult to traverse or search using traditional enterprise search and retrieval (ESR) tools that require the creation and maintenance of indexes before a query can be made. Vivisimo’s offering indexes and clusters results in real time, and its scalability enables dynamic navigation across results delivered, as well as the automation of discovery, reducing the burden/time of analysis.

Despite its small size, privately held Vivisimo, which was founded in 2000 by researchers at Carnegie Mellon University, brings with it a very credible 140-strong customer base including Europe’s Airbus, LexisNexis, and the US Air Force, with the software also used by the USA.gov website. The acquisition also validates Ovum’s prediction in its 2012 Trends to Watch analysis that vendors would invest in tooling to help organizations navigate Big Data.

While the value of the acquisition was not declared, it is reported that IBM has now spent in excess of $14bn in the last seven years on analytics-related products and companies, and now appears to have more than one of everything, although Vivisimo does bring new capabilities such as federated discovery and navigation.

Vivisimo: the Big Data search engine

With the acquisition of Vivisimo’s technology, questions will rightly be drawn on the future of IBM’s own Content Analytics with Enterprise Search (formerly IBM OmniFind Enterprise Search) offering, which is based on the open-source Apache Lucene. During the press call around the announcement, Arvind Krishna, general manager of information management at IBM Software Group, stated that while there is the potential for integration, the company will maintain two product lines, and IBM Content Analytics with Enterprise Search will remain IBM’s lead offering for enterprise search and search-based applications. However, even though IBM is good at supporting multiple products, Ovum believes that when IBM customers recognize some of the advanced out-of-the-box features that come with Vivisimo, such as federated discovery and navigation based on entity, metadata, or even numerical graphs, they will want to swap out IBM Content Analytics with Enterprise Search even if they don’t have a Big Data strategy.

Death of the independent ESR tool

Of the seven independent ESR vendors that Ovum reviewed in its 2011/12 ESR Technology Evaluation and Comparison (TEC) report, four (the other three are Autonomy, Endeca, and Exalead) have now been acquired and their technologies are rapidly being integrated with their purchasers’ “stacks”. There are two drivers for this, first, vendors want to fill “holes” in their functionality, and second, organizations no longer want to undertake or pay for integration between products, sometimes described as “stitching together broken glass”. Of the significant independent ISVs left, such as Recommind and Funnelback, it can only be a matter of time before they too become part of a larger company’s offering.

The market spoke: IBM finally accepts Cloudera

With this release, IBM has certified the first commercial Hadoop distribution offering for BigInsights. By listing Cloudera, IBM has responded to customer demand, reflecting Cloudera’s success in establishing a commercial market for Hadoop distributions. IBM’s arrangement with Cloudera is unlike Oracle’s, which is fully OEMing and reselling Cloudera. For BigInsights, the Cloudera distribution will sold and supported separately.

IBM is clearly positioning BigInsights based on other unique features that surround the core of Hadoop: optimized compressions, open-source Lucene-based indexes, a workflow scheduler, a spreadsheet-like interface, and other extras. We were a bit confused initially by IBM’s assertion that it was not in the Hadoop distribution business because it included its own supported distribution in BigInsights, and it spoke of future availability of a proprietary file system option that would be optimized for shared-nothing, massively parallel clusters. With this release, IBM’s positioning is clearer. It will support the Hadoop distributions that have hit critical mass demand from its customer base. We therefore expect that in due time IBM will also certify the Hortonworks Hadoop distribution once it gains market traction.

Rapid development of Apache Hadoop is addressing shortcomings

The market is clearly voting in favor of the core Apache Hadoop distribution over proprietary alternatives. EMC offers the MapR proprietary file system alternative to HDFS, while IBM has spoken of future potential with its own GPFS counterpart. However, both position the core Apache distribution as the mainstream option, with proprietary alternatives targeted at special high-end, higher-performance use-cases.

The fly in the ointment is that while the Apache distribution has become the default option for the market, the Hadoop project has so many sub-projects dedicated around individual components that it can be difficult to see the wood for the trees. The Apache Hadoop community is still struggling to define which components will become the de facto “kernel” of Hadoop. Nonetheless, while the market has voted in favor of the Apache distribution, this still leaves opportunity for innovations for specialized add-ons above the core open-source stack.

Consider the needs of both customers and support staff

Different customers have varying needs, so adapting to demand in terms of how they are supported is therefore important. It is just not possible to characterize a single customer profile. A task that may take minutes with one customer could take much longer with another, and the service desk must consider this when proactively managing demand.

It is also essential to encourage a collaborative culture by considering the physical positioning of analysts. This may be a less obvious factor when considering how to adequately staff the service desk. The physical positioning of analysts is important, though, and if effective it can certainly help in times of high call demand. Seating first and second-line teams close to one another can encourage collaboration and potentially reduce the number of calls requiring escalation. Having the service desk positioned near the ops team provides a similar benefit, improving communications that can speed up the resolution time and customer experience delivered during instances of application outage, for example.

Process maturity and automation can improve efficiency

If automated self-help systems are in place to action common service requests, this will alleviate pressure on service desk analysts and make more resources available to the service desk. Manually managing routine tasks such as requesting authorization in response to a request is often a pain point for service desks because it can consume a lot of available resources. Automating such tasks can save the service desk a lot of administration time, freeing up resources to work more proactively.

Process maturity is also a crucial aspect. If the processes that analysts work with are mature, tasks will be completed more easily and in less time. However, if processes are chaotic, analysts may spend a lot of time following up tickets that they have escalated. The process to resolution needs to be as lean as possible, ensuring an efficient service desk that has adequate resources to deal with demand.

Be flexible and have the ability to adapt quickly

No two organizations are the same. Factors such as customer/staff technical competence, knowledge and experience, process maturity, and escalation processes are all key considerations when deciding how to adequately staff a service desk. Be flexible in terms of staffing. When struggling to cope with demand due to high abandon rates or excessive waiting times, consider recruiting additional members of staff. If budgets do not allow this, seek help from second-line support teams in times of high demand. Also ensure that automated alert messages are in place when response and waiting times are too long, directing customers to the knowledge base if possible. This can help reassure customers and provide them with information about additional resources that may help with their enquiry. In addition, when planning shifts, remember to factor in peak times.

Galaxy S III looks a sure fire hit

In all likelihood the Galaxy S III would sell well even without the massive helping hand Samsung is giving it in terms of marketing bucks. The company has been steadily building its reputation as the foremost provider of Apple-threatening Android smartphones since the launch of the first Galaxy S in 2010. That device’s slim-line form factor, high-end specification (especially its Super AMOLED display) and subtle customization of the Android user experience via Samsung’s TouchWiz user interface set a new benchmark for Android smartphones that has remained true through the S II and now the S III.

The momentum that has built up behind Samsung’s efforts has grown and grown and there’s no immediate indication that it will suddenly collapse – hence our confidence that the Galaxy S III will break Samsung’s own Android sales record in the months ahead. But our job is also to look further out and try to understand what happens next. Samsung has some major decisions to take in the next 12 months if any subsequent Galaxy S IV is to keep up the tradition.

Value-add concerns need addressing

Ovum’s greatest concern for Samsung is that while smart device purchasing behavior is clearly heavily led by the design and specifications of the device itself, it is at least as dependent on the promise of what a particular device actually delivers the user in terms of functionality. Devices that lack integration with key applications, content, and services start with a disadvantage compared with the category benchmarks.

RIM’s and Nokia’s current predicaments and Palm’s nosedive into obscurity bear this out, all being at least partially attributable to a lack of downloadable applications (or least of the apps that users wanted). Neither did any of these companies really crack the magic formula for other forms of content, with no equivalent of Apple’s iTunes, let alone Google Play.

Persistent, high-profile marketing can go a long way in the short term towards rectifying a shortage of value add – at least for those mega-vendors that can afford it (Samsung is a worldwide partner of the London 2012 Olympic Games, for instance). However, this will do little to hold back the tide once user expectations for smart devices move on. This is even more acutely so at the top end of the market, which Samsung has so ably made its home.

Certainly it is here that Samsung’s only obvious smart device weaknesses lie. Its own value-added service offerings, largely in the form of various content “Hubs”, appear uncompetitive with those from rivals such as Apple and Amazon, for instance. As such, we expect to see Samsung dramatically beef up its content strategy during the next year, a strategy that at least involves little risk.

Platform independence is high risk but potentially high gain

Of more concern longer term is Samsung’s dependence on Google (and to a lesser extent Microsoft) for its device operating systems and much of its value add for consumers. This dependence both limits its ability to differentiate relative to other OEMs (which mainly use the same platforms) and dramatically scales back its influence over the broad ecosystem of application developers, content providers, and others.

This is not necessarily a problem; assuming Samsung is happy simply providing the means for Google to execute its Android strategy it can still have a very worthwhile business. However, it does mean that its fate is closely tied to that of Google and Android, whose own future success cannot be assured. It also clearly positions the company lower down in the value chain than either Google or Apple and paves the way for a more consolidated attack from below from others such as Huawei.

By pitching itself so successfully at the high end of the smart device market, Samsung has literally demanded itself to step up its efforts here. The company’s continued interest in the LiMo/MeeGo-derived Tizen software platform as a possible alternative to Android clearly indicates its awareness of this problem. Samsung is, we believe, keenly aware of this anomaly and we expect it to move to rectify the situation in the coming year.

Would such a strategy succeed? It’s clearly a high risk one where many “old-school” handset OEMs have tried and failed over the years. That said, Samsung has had a far better opportunity to observe and learn from its peers while gaining considerable experience with the market-leading smartphone OS. And if its commitment to taking on Apple on a marketing level is an indicator of what it might spend on developing a competitive platform and ecosystem then it has a better chance of success than any OEM since Apple itself.

Deals are smaller, more compact

The typical telco contract for multinational services signed in the first half of 2011 came out at just under $9m, a year-on-year increase of nearly $2m per contract on average. However, the average TCV of the 250 biggest contracts was down sharply, from $43m in 1H10 to just under $30m in 1H11. It seems that enterprise customers are looking for smaller, more compact deals, and not just because they want total cost of ownership (TCO) reductions on renewals (although that is a factor in the first half of every year). There were fewer big deals above $100m. Verizon is the standout performer in the deal rankings, not just because it took the single biggest share of the deals going into the pipeline, but because it showed consistently the biggest deals in complex managed services with multinational and multiservice requirements. Looking down the lists, it has been harder to find end-to-end contracts including services across the spectrum, from bandwidth to hosting, and applications to IT, although conversely it is easier to see value-added services from the applications and IT end of that spectrum. It looks like enterprises are readier to add to their range of services in the contract, which is good news for the service providers that are moving up the value chain.

Emerging companies in multinational services: the buyer profile is changing

The first of our 2011 contracts reports bears out what we saw in our enterprise surveys of CIOs and telecoms managers: the increasing presence and influence of large enterprises and potential multinational corporations based in emerging markets. These companies are starting to grow regional and global operations, and themarketingand business systems associated with them, and they are signing their first managed ICT agreements. At this stage, their deals are relatively small when compared to the standards of US and European multinationals, which is another reason for the shrinkage of the average TCV number, but they are important growth opportunities for service providers. 

2011 deals confirm the impact of challengers

The “Big 5″ telcos (AT&T, BT Global Services, Orange Business Services, T-Systems, and Verizon) have shown their commitment to emerging markets, with several announcements of investments in regions such as South & Central America and the Middle East & Africa; Mexico, South Africa, and Turkey are particularly hot targets. However, the Big 5 are not going to have things all their own way. Challengers such as Telefonica and Tata Communications (TCL) have also won business in these markets. Telefonica led the charge: its major deals grew at a significant rate, enough to muscle in on the Big 5 at the very top end of deals, while TCL’s investments in high-definition and immersive videoconferencing have put it on a level playing field with the established players. The Indian operator’s strong ratings on network performance in our user surveys show also that emerging players are catching up fast. It is up to established telcos to persuade the enterprise customer that the global telco can offer account management, service desk, and professional services that immature players cannot. Customer service support is fast becoming the new battleground.

We expect operators to provide guidance on how they will move beyond deploying LTE to making money from their new networks, now that running an LTE network is becoming table stakes in the North American market. Struggling device vendors will have to prove that they have the right strategies to turn their performance around, starting with the US market. Enterprise vendors and service providers will continue to tackle the challenge of employees using their own devices for work, and the opportunities associated with M2M. And infrastructure vendors will likely flesh out broad announcements made at Mobile World Congress in February with North American specifics, while also trying to gauge the market to see if Q1 financial results will be the exception or the rule for 2012.

Our analysts will be providing their take from CTIA through our CTIA microsite (http://ovum.com/section/ovum-at-ctia-wireless-2012/) and through the @OvumTelecoms Twitter feed throughout the event.

US operators need to look beyond LTE

Operators at CTIA will be focused on the increasing pressures they face to deal with the rapidly increasing demand for mobile broadband and the resultant traffic. Now that all the major US operators have embraced LTE and are well into building their networks, LTE is no longer the significant differentiator it promised to be just a short time ago. Operators’ attention must quickly turn to execution, finding solutions, and dealing with some of the more nuanced strategic challenges.

One of the most pressing issues we expect to hear about is how operators will redefine commercial strategies that exploit customer demand in profitable and effective ways. This includes considering how to deliver mobile broadband beyond unlimited and tiered price-per-GB consumer plans. It also touches on questions around whether operators can realistically expect content providers to share the cost of delivering data traffic. How Wi-Fi fits into the equation, on both the commercial and network sides, will be prominent too. And finally, operators will no doubt be vocal about how US policies on issues such as wireless spectrum, net neutrality, and roaming will impact their business.

Struggling device vendors will showcase turnaround strategies

The last few months have seen a decline in the fortunes of a number of major device vendors such as Nokia, LG, RIM, HTC, and Sony (formerly Sony Ericsson). The US market is crucial to the long-term success of each of these vendors, and each of them is having to cook up revised strategies to turn themselves around. We expect to see evidence of this at CTIA, with an update from Nokia on its Lumia Windows Phone strategy, numerous “One” series phones from HTC, demos from RIM on some of the BlackBerry 10–related news from its major event this week, and new devices from some of the other vendors.

We are also likely to see some US specifics on the latest Samsung Galaxy device, including carriers, launch dates, and pricing. The Galaxy series has been crucial to Samsung’s ability to avoid the doldrums affecting many of the other vendors. Lastly, we hope to see the latest from the major Chinese device vendors, Huawei and ZTE, who have been making steady inroads into the US device market, even as they have failed to penetrate the network infrastructure market stateside. Launching Windows Phone devices, and devices that use their own rather than carrier branding on the big four networks, are crucial objectives for both companies in 2012, and it would be good to see progress on both of these fronts at CTIA.

BYOD, M2M, and LTE applications will drive enterprise agenda

Ovum expects to see more managed mobility, MDM, and M2M developments and announcements including ongoing BYOD, Dual-Persona software, and service enhancements. From the operators and mobile application providers, we expect to see some early enterprise applications that use LTE for more than just the basic voice and data mobile services. Mobile security will be a major horizontal theme across many applications and services for enterprise customers beyond just basic device management. We also expect to see some crossover of the MDM and M2M platform providers trying to expand into each other’s markets and applications. And we expect to see some (but not major) momentum for additional support for Windows Phone within the enterprise ecosystem vendors. VoLTE will be part of the conference “buzz,” but firm details on VoLTE deployment or service packages will be few and far between.

An Americanized Mobile World Congress for infrastructure vendors

The 2012 spring edition of CTIA should be much like February’s Mobile World Congress (MWC), highlighting major trends including small cells, carrier Wi-Fi, network optimization, and monetization. The big difference is that infrastructure announcements coming out of CTIA will be more North America-focused.

A perfect example of this is Nokia Siemens Networks’ (NSN) May 2nd announcement that it has added CDMA support to its Flexi Multiradio base station family. Multi-standard base stations such as the Flexi aren’t new. But, with North America being one of the largest markets in the world for CDMA technology, it only makes sense that NSN waited until CTIA to make this announcement. Portfolio announcements will be focused on the regional needs of North American mobile operators, such as the addition of regional spectrum bands to their existing base station radios.

Also of great interest at CTIA will be the mood of representatives from infrastructure companies. At MWC, their mood was rather positive, but since then, these vendors have released their earnings and the results have been underwhelming. Alcatel-Lucent, Ericsson, and Nokia Siemens Networks all reported that their 1Q12 infrastructure revenues were down versus the previous year and quarter. It will be interesting to see if CTIA provides any guidance to the rest of the year. Was Q1 just a singular bad quarter or does it forecast the start of a challenging year?

The band, which is currently used by broadcasters, could become available from 2018. This spectrum is being used more and more often for the rollout of mobile broadband in many countries, including the US. Ofcom sees freeing up this additional spectrum as a potential solution to the increasing demand for mobile data. Ofcom’s proposed approach seeks to maintain the delivery of Digital Terrestrial Television (DTT), while also making the band available for future use by mobile services. The consultation will close on June 7, 2012.

As the uptake of smartphones increases, the demand for data has placed networks under strain

Spectrum is a finite resource, and managing demand for it poses a significant challenge for the regulator. UHF bands IV and V (which range from 470–862MHz) were previously used for analogue television, but parts have recently been freed up following the UK’s digital switchover. Increasing demand for this spectrum stems from mobile broadband, which is being driven by the growing number of smartphone and tablet PC users. Ofcom has predicted that the level of demand for data could be as much as 300 times higher by 2030, under a high-level growth scenario. The regulator believes that meeting the current demand would bring significant benefits to consumers and the public at large. These benefits could include innovation, growth in the UK economy, and the delivery of next-generation video and data-based emergency service applications.

Operators could increase future capacity by using more efficient mobile technology, transferring mobile data onto fixed networks, or building (costly) mobile sites, and the regulator feels that a combination of approaches will be required. A further option could be to make available additional spectrum, which might reduce the number of new mobile sites that need to be built, and thus lower network deployment costs. Lower-frequency spectrum could provide a better quality of service in difficult to reach indoor and outdoor locations, and would therefore be of particular value to operators.

The second digital dividend is more internationally harmonized, potentially increasing its value

The 700MHz (694–790MHz) band is one of the most internationally harmonized spectrum bands. It is used in the US primarily for the rollout of long-term evolution (LTE) services, and Australia, New Zealand, and several Asian countries also plan to use this band for LTE. A new international agreement would be required, although there is now a global consensus behind the use of 700MHz for mobile broadband. In practice, only spectrum that has been internationally harmonized is likely to be used for mobile broadband as it increases economies of scale, which can widen the availability of handsets and lower prices.

However, any use of the 700MHz band could affect DTT and other shared services. The DTT platform plays an important part in providing widespread access to public service broadcasting content, and is likely to do so at the time when the 700MHz band could become available. Ofcom predicts that beyond 2030 IPTV may be able to replace DTT, but this is not a viable option for the timeframe discussed in the current consultation.

The concerns of broadcasters could be reconciled by moving them to the 600MHz band

Ofcom’s proposed approach aims to maintain the delivery of DTT, but also to liberate the 700MHz band for mobile broadband services. The regulator believes that the DTT platform will remain attractive over the next decade, meaning it is likely that any move to free up 700MHz spectrum will be opposed by broadcasters. Nevertheless, the 600MHz band (which covers 550–606MHz, and was released by the recent digital switchover, which also freed up the 800MHz (790–862MHz) band) has the potential to be a suitable replacement.

Ofcom had previously considered auctioning off the 600MHz band, which raised the prospect of an auction before the end of 2012 involving licenses lasting over 10 years. However, the regulator now believes that 600MHz could be used as additional DTT capacity, reducing the risk that the DTT platform would be unable to meet its objectives in terms of broadcast capacity and consumer choice. This use of 600MHz in a frequency re-plan for DTT would limit the ability to change its use in the future, but the harmonization for DTT across much of the world makes it the most attractive use for this spectrum.

Ideally, BT would like everyone to be in its own data centers

A financial extranet is often referred to as a community of interest: a group of market participants from the buy and sell side, as well as trading venues, clearing and settlement agencies, and companies that provide useful services such as risk analysis, which come together on a common network infrastructure that enables faster and easier communication than an array of discrete connections would provide. Of course, since many of them will be contending for business with others on the network, the extranet also foments competition.

As BT Radianz is operating the extranet and thus deriving revenue from it, it is, of course, desirable to have as many customers on it as possible, provided it can deliver the necessary bandwidth so that each customer receives a satisfactory service. Having all customers located in data centers that are operated by the same provider is clearly the easiest way to guarantee the quality of service, as every aspect of the service will be under the provider’s control.

HFT firms co-locate with venues’ matching engines

The reality of the market, however, goes against this idea. For instance, Equinix, a carrier-neutral data center operator that has 10 of its locations among the 40 announced by BT Radianz, has done a lot of work to attract some of the alternative trading venues to its facilities, such as BATS and Chi-X, which have sprung up to challenge incumbent exchanges.

When companies like these have their matching engines located in an Equinix data center, market participants, particularly those that rely on very fast access to those engines such as HFT firms, install their trading platforms there, too. At least one incumbent exchange, Deutsche Börse, also houses its matching engines in Equinix, while another, Nasdaq OMX, is housed in Verizon data centers. Most other tier-1 exchanges, such as NYSE Euronext and the LSE, own and operate their own data centers and offer co-location services within them.

BT now offers connectivity and managed services in third-party data centers

BT’s announcement of Radianz’s extension to third-party data centers therefore seeks to capitalize on the opportunity it has to provide connectivity, and even managed services, to companies whose trading infrastructure does not reside in their own facilities. As part of the announcement, BT unveiled a suite of three services with the umbrella title of BT Radianz Venue, to address this opportunity. They consist of:

• BT Radianz Venue Access, which is one part of the connectivity offering for third-party data centers. It would, for instance, enable trading firms with infrastructure at two different data centers to carry out co-ordination and deliver market data across Radianz;
• BT Radianz Venue Presence, which is a managed service offering. In essence, BT offers to manage a market participant’s infrastructure, even if it is located in a third-party data center;
• BT Radianz Venue Interconnect, which is perhaps the most significant element of this announcement. It recognizes that trading strategies relying on low latency across two data centers want direct links between them, rather than ones that go through a BT Radianz hub, thereby introducing an extra “hop” and incurring greater latency. Instead, it will now link those two data centers directly.

BT has woken up and smelt the coffee

Ovum sees BT’s move as a logical one, because it recognizes that some of the most demanding, latency-intolerant trading firms need to be in data centers operated by other companies, and that it needs to add services to address these firms’ requirements rather than try to shoehorn them into the standard Radianz service paradigm.

As to the overall impact of this move, Ovum sees BT Radianz as the market leader in financial extranets and, despite the entry of newer players such as Verizon, Orange, and IPC in recent years, it continues to maintain its position. Indeed, this latest addition to its services looks likely to further consolidate its position against these players. The other connectivity providers in low latency, such as AboveNet, TMX Atrium, and euNetworks, do not really compete with the Radianz offering, and Ovum does not expect BT Radiance Venue to have any significant impact on their businesses.

What is just as interesting is that this major move is happening below the regular news radar, with neither IBM nor SugarCRM doing the usual press and analyst outreach. However, as the implementation progresses, we expect IBM and SugarCRM to do this once they have proof points on business results and technology advances. For now, IBM is in the critical transition period of replacing a system from one major partner with that of another.

IBM adopts social selling

IBM has a number of internal transformation projects under way, all of which have been brought into the CIO’s office. One very significant transformation is the move away from a traditional sales approach of micro-managing the sales representatives, toward “social selling”, which leverages a variety of technologies, social and otherwise. When IBM started developing this next-generation selling method, the team was not focused on “social” but instead on dramatically increasing the productivity of the sales team. As IBM looked at the challenges of a typical sales team member, a variety of issues surfaced that began pointing toward using social, collaboration, analytics, and other technologies and applications, not only to increase the efficiency of sales representatives, but also to enhance internal collaboration as well as external conversations.

Any transition of this significance will require a refresh of the supporting CRM infrastructure, which often means displacing the existing system. This will result in an opportunity for smaller vendors with a disruptive approach, be it speed of innovation, technology used, deployment options offered, or business model, to win the business. At IBM, going with the emerging social-selling idea means creating a new CRM infrastructure using many parts of its portfolio of organic and acquired applications and technologies, but having SugarCRM at its core.

There is already a high level of familiarity between IBM and SugarCRM, in part due to the work done in the last two years in the context of IBM’s Global Alliances Partnership. However, a transition of this magnitude is never undertaken lightly and will take years to complete.

Implications for SugarCRM

Becoming the core of IBM’s new internal CRM platform is a huge win and challenge for SugarCRM. Because the new CRM will be rolled out to tens of thousands of users worldwide it means gaining validation as “large-enterprise-ready”. Naturally, this is a major deal that will add to SugarCRM’s top line. The win also means a potential new revenue stream as SugarCRM is included as part of a productized offering.

The challenges for SugarCRM are that it takes the IBM partnership to a much higher level with significantly more at stake. It’s a huge deal that raises the expectations of investors. Tens of thousands of deployments, even over years, will be complex, and SugarCRM will be receiving much deeper scrutiny from skeptical and experienced IT and business professionals at large enterprises and public sector organizations.

Recommendations for enterprise and public sector IT

While still a nascent concept and not yet productized, enterprises and public sector organizations looking for a new approach for taking their relationships with customers and constituents to a higher level should engage IBM in conversation. The outcome in the short term would not necessarily be to buy anything, but to use the insights for long-term IT and CRM strategies and planning.

Large enterprise and public sector organizations with a CRM procurement project under way or planned should definitely include SugarCRM on the vendor long list for evaluation along with other vendors they are considering.

SAP is no longer fixated on being number-two

At the end of 2011 SAP stated its intent to become the number-two database player by 2015. Ovum believes that apart from being overly ambitious, becoming the number-two database player is a counter-productive goal because there is scant upside in this mature and saturated market. However, SAP’s chief architect, Vishal Sikka, has since played down this claim and is instead emphasizing its HANA story.

For HANA, SAP’s long-term goal is to provide tighter interoperability between data and application tiers to make the SAP stack “stickier” to customers. The initial goal of applying HANA to improve SAP BW performance is a defensive move aimed at customer-retention. In the long run, SAP hopes to leverage HANA’s in-memory architecture to make its applications, including some of its new SMB and cloud offerings, more agile by performing complex transactions with embedded in-memory analytics.

SAP announced the expected

SAP HANA on BW is now generally available, and Sybase ASE, formerly the only major SQL platform that did not support SAP ERP applications, supports all major SAP business applications. SAP has also announced future integrations between HANA and Sybase SQL Anywhere as a way of backing up its mobile database with a more responsive real-time back end for mobile applications. In addition, SAP announced a roadmap to integrate the Sybase CEP event stream processing applications with HANA. This a logical pillar of an emerging “Fast Data” strategy that will allow CEP customers to selectively persist data from event streams to a database with minimal latency to marry event processing with historical analysis.

SAP announced a roughly $500m fund to subsidize the migration of customers to SAP data platforms. One-third of the fund is reserved for HANA migrations in the form of sales and services incentives for SAP and its channel partners. SAP is very serious about “buying” greater penetration for its data platforms, claiming it can make the migration “seamless”. Ovum has yet to be convinced.

The danger is alienating long-time partners Microsoft and IBM, which are both largely responsible for SAP’s ERP success. This leaves Oracle as the obvious target. While Oracle is not known for discount pricing, it won’t sit still should important enterprise customers be targeted by SAP. This should give more bargaining chips to customers who are willing to entertain the pain of database migrations.

Big Data strategy is incomplete

SAP is not the only player to maintain that Hadoop, emerging as the most popular NoSQL platform, is not yet ready to handle core analytics workloads (Teradata Aster has a similar view).

For now, Sybase IQ, a columnar data store built more than 15 years ago, is adding support of popular Hadoop programming languages including MapReduce and the R. This is in sync with most Advanced SQL analytic platform rivals. SAP is also providing capabilities to map IQ tables into Hadoop Hive, slotting IQ as alternative to HBase. This is similar to other strategies, such as Hadapt, to layer SQL into Hadoop’s fabric. Like most of the relational players, SAP Sybase also supports bulk ETL/ELT loading from HDFS to HANA or IQ.

The danger is that these moves will simply put Hadoop at arm’s length, and this, if not evolved, will limit customer flexibility. Ovum expects that the next 18 to 24 months will prove fruitful for Hadoop innovation around placing SQL constructs within the core file system or accelerating HBase performance. The key advantage to be gained with Hadoop is scalability. SAP, and others, should more seamlessly blend the Hadoop environment with their own data platforms, similar to what EMC is already doing with Greenplum, and promote analytics inside Hadoop, like IBM.

What about Sybase IQ and HANA?

SAP has astutely brought HANA and the Sybase database groups into one organization, which will help to rationalize their respective marketing positioning. SAP now needs to cross-fertilize both database technologies in a manner akin to what IBM Software has long done.

SAP has already concluded that HANA should coexist with ASE because its dynamic indexing technologies are incompatible. It has smartly decided to pair SQL Anywhere with HANA as a real-time mobile applications back end.

Where does this leave HANA and Sybase IQ? The question goes beyond whether both can perform analytics. HANA’s in-memory architecture is well-suited to hybrid architectures that restructure data sets into columns or rows, almost on the fly. Will this make IQ obsolete? SAP could position IQ as the bulk data store for HANA because disk will always be cheaper than memory. However, this ignores the threat that Hadoop poses as a more scalable near-line analytics data store. Therefore, while Sybase is positioning IQ to fit into Hadoop, it also needs to create a common HANA architecture to deliver a soup-to-nuts analytics platform.

Consumers will only truly benefit from LTE if there is competition between operators

The importance of bringing 4G to Britain must not be underestimated. The UK has committed to having the best superfast broadband in Europe by 2015, and mobile will have to play an important role in achieving that aim. The earliest route to 4G would be through EE’s 1800MHz spectrum, and Ofcom is right to consider this option, but consumers will only see the true benefit if there is competition between operators in the provision of services. This can only be fully achieved through the joint award of spectrum at 800MHz and 2.6GHz, which is planned for the end of 2012.

Ofcom now has the unenviable task of finalizing the design of that auction. Unless there are some material changes to the current proposals, such as H3G acquiring spectrum from EE and the subsequent removal of minimum spectrum portfolios, litigation seems almost inevitable. With no obvious way out of the deadlock, any legal challenge could send everyone back to the drawing broad. It may be that only a direction from the UK government could keep the auction on track.

Early access to 4G through Everything Everywhere could be possible, but would require additional thinking from Ofcom

As pressure mounts on Ofcom to allow EE to use its existing 1800MHz to offer 4G now, the regulator must consider how to safeguard competition. It has at least two. It could consider imposing a wholesale access obligation on EE to allow other interested operators the opportunity to launch services of their own. This obligation could be removed once the joint award of 800MHz and 2.6GHz spectrum takes place. However, this would not be a quick or easy option.

Alternatively, competition could come from whoever acquires the 1800MHz spectrum that EE must divest as one of the conditions of T-Mobile and Orange being permitted to merge in the first place. At the moment, the other operators do not hold sufficient quantities of 1800MHz spectrum to launch 4G in any compelling way, so Ofcom would have to hold back EE from deploying 4G at 1800MHz until it has completed the sale of this spectrum.

Clearly neither of these two options are ideal, which makes the joint award of new spectrum at 800MHz and 2.6GHz later this year that much more important.

Confusion around the availability of 4G is likely to intensify

There is often widespread confusion among consumers over the availability of 4G, which is not helped by its marketing. For example, some are touting as 4G what others classify as 3.5G. Technically, standards such as HSPA+ (which are being deployed by operators already) can be referred to as 4G, and this has happened in the US, but elsewhere others are keen to wait until “true” 4G, which uses technologies based on LTE, is deployed.

In both Australia and the UK, consumers appear to have been caught out by claims relating to the 4G capabilities of the new Apple iPad. The frequencies in which the device operates 4G (700MHz in particular) will not be available in the UK until 2018 at the earliest; LTE will most likely be initially launched in the UK in the 800MHz and 2.6GHz bands, neither of which are supported by this version of the iPad. It is reasonable to expect that by the time 4G is available in the UK, consumers will be able to purchase an updated iPad that does operate in these spectrum bands.

In general, this is an industry that is not known for best practice when it comes to marketing. There is much debate around the use of “up-to” broadband speeds and claims of “unlimited data”, given that the actual services rarely fulfill such promises. It is no surprise that regulators are increasingly turning their attention to marketing in this sector, and tightening the rules to the benefit of consumers.

Unbundling tariffs is unlikely to have a significant impact on MNOs’ profits in the long run

One of the key proposals outlined in Ofcom’s consultation is to separate the tariffs of calls to most non-geographic number ranges. This will help customers to better understand how much of the total price will be paid to the mobile operator, and how much will fall into the hands of the service provider (i.e. the company that customers call when they dial a non-geographic number, such as a bank’s customer service). In principle this is good for competition, as it will enable customers to easily compare the charges set by different MNOs for the same service. However, Ofcom’s research shows that users rarely choose a provider on the basis of the rates they charge for these types of calls. The most likely effect in the short run will be to increase consumers’ awareness of how much operators and service providers charge, and make them more likely to use their landlines to make these calls were possible. While this could potentially reduce MNOs’ revenues from these types of calls, it could also ensure that customers are not put off calling these services following an unexpectedly high bill. Increased clarity could be beneficial in the relationship between MNOs and customers in the long run, particularly considering that many users are going “mobile-only”, and will not always be able to make these calls from landlines.

Ofcom should carefully monitor the effect of retail caps

Further important aspects of Ofcom’s consultation are its proposal to make 080 numbers free from all telephones, including mobiles, and its introduction of retail caps for the 03 range, which would be linked to the price of a geographic call (01/02 ranges). In the short run this will cost MNOs since they will no longer be able to raise revenues from calls to 080 numbers.

Ofcom is dismissing remedies at the wholesale level, such as regulating termination rates for these services. This is despite input from operators that have noted an imbalance between originating communication providers and terminating communication providers in the form of a lack of countervailing buying power (the ability to negotiate better termination rates in light of mutual provision of the same service). The regulator argues that MNOs should not underestimate the benefits that come from a range of numbers that are always free to call. However, it will have to ensure that operators do not offset the reduction in those rates with a raise in the cost of other services, such as calls to geographic and mobile numbers. Ofcom’s own research shows that customers would not be happy to see the prices of the latter go up in return for a reduction in the rates of business or premium rate services that they rarely call.

Regulators are increasingly turning to improved transparency to protect consumers

Ofcom’s powers to propose these changes come from amendments to the Telecommunications Act that were introduced in May 2011 following a change in the rules at the EU level. The regulator may now set general conditions relating to the allocation and use of numbers, including tariff principles and maximum prices applicable to numbers for the purpose of protecting consumers.

In general, consumer protection seems to be moving up regulators’ priority lists. On the specific issue of non-geographic calls rates, regulators such as ACMA in Australia are following an approach similar to Ofcom’s. In a recently launched consultation, ACMA set out a plan to make “freephone” numbers (the 1800 range in Australia) free from mobiles, and to align the cost of “local rate” numbers (the 13/1300 ranges) with what a caller would expect to pay from a fixed service.

More broadly, Ovum’s recent research on consumer protection in fixed broadband has shown that regulators are seeking to ensure that end users enjoy clearer and more transparent information about advertising and contract conditions. Some regulators have left the improvement of transparency to self-regulatory initiatives, while others have, like Ofcom, taken a more interventionist approach, believing that competition will not be enough to address market failures. Operators should look to work closely with their regulators to ensure that no undue regulatory burdens are imposed, and should consider improving clarity on their own initiative.

Telcos’ need to enhance customer experience creates vendor opportunities

As competition for customers intensifies, it becomes increasingly important for telecoms service providers to retain the customers they already have. This task becomes more challenging as their product and service offerings expand and grow more complex. Compounding the problem is the fact that customers are demanding immediate answers to their questions and want to interact with their telco providers using a broader range of channels. Traditionally, telcos have been perceived as offering poor customer service, but now they are addressing this issue to improve the subscriber experience. Operators now consider customer experience optimization to be a key differentiator, central to their strategies to improve retention and efficiency, and drive new revenue streams. Gradually, CEM is evolving into a source of business intelligence functions which deliver performance and service delivery analytics to all management levels.

The market for CEM solutions is gaining momentum and investments in this area are likely to pick up in the next 12-18 months. According to the Ovum survey Telco Business and Investment Trends for IT, conducted in 2011, improving customer experience was a high priority for 68% of respondents.

Vendors can increasingly cash in on telcos’ growing need to automate business processes to enhance the customer experience, improve retention, and boost the bottom line. Such initiatives require investments in subscriber data management, advanced analytics, decision automation, identity management, social media platforms, and knowledge management, which will create further vendor opportunities.

Competition is intense as both network and IT vendors target the CEM space

CEM vendors come from different starting points in the network and IT domains. The market includes vendors ranging from large global network equipment providers to small analytics start-ups. Nokia Siemens Networks has unveiled its Insight & Experience Framework, HP has positioned its CEM portfolio as its Actionable Customer Intelligence (ACI) solution, Redknee has teamed up with Microsoft to develop enhanced CEM solutions, and Amdocs, IBM, and Alcatel-Lucent, among others, are investing substantially in their CEM solutions.

The biggest challenge for all of these vendors, however, is to demonstrate the clear business benefits of their solutions. Suppliers are still struggling to articulate their CEM strategies, but market dynamics should become clearer as vendors develop their CEM frameworks and as the vendor ecosystem becomes more defined. Technology suppliers that can best capture and harness the growing volumes of structured and unstructured data will become leaders in this space.

Vendors try to differentiate their offerings with advanced analytics functions

Given that CEM solutions must efficiently manage and analyze telcos’ massive data stores, the race to analyze data with analytics has already commenced, and will only intensify. Vendors see immense potential in this domain, and are increasing their focus on advanced analytics capabilities to differentiate their offerings. Vendors are integrating various elements of data stored in the networks and IT databases. Many CEM vendors are making analytics (predictive, realtime, behavioral, social media, and so on) a critical focal point, highlighting the positive impact on overall business processes and telcos’ bottom lines. In 2011, HP acquired Autonomy and Vertica to enhance its analytical capabilities. Many other vendors, such as IBM and Huawei, are making huge investments to enhance their analytics capabilities. Telcos can expect the rapid evolution of customer-experience-centric platforms to continue.

Teradata’s business has scaled in several directions over several years

It has been four-and-a-half years since Teradata became an independent software company. At the time it was entering a fiercely competitive analytics and data warehousing and analytics market, with IBM, SAP, and Oracle all aggressively vying for market share. With a market cap of over $10bn, Teradata has more than held its own, growing its employee base by over 50% to 8,600, and its customer base to 1,300, with revenue up 22% in 2011.

In its core enterprise data warehouse (EDW) market Teradata continues to hold a stronghold among Fortune 500 firms, adding 13 in 2011 alone, as well providing scaled-down offerings. Several acquisitions, notably Kickfire and Xkoto, have bolstered Teradata’s EDW performance and management capabilities. The company has also broadened out to address marketing analytics applications and Big Data management with its acquisitions of Aprimo and Aster Data respectively. Teradata also seems to be taking a greater interest in the “business of implementing analytics” following its acquisition of ClaraView, a BI consulting and professional services firm.

Teradata is not about to drop the ball in its core EDW business

Teradata is synonymous with building large data warehouses. This remains a core business for the company, which has continued to advance the core capabilities of its database platform. Teradata 14 is another huge release, packing in more than 80 new and enhanced features. One significant inclusion is a hybrid row-columnar capability that comes with enhanced compression and performance advantages. Columnar is not new and Teradata is somewhat late to the party, but its response is considered. Unlike other vendors, Teradata is not offering columnar capabilities as a separate appliance where data needs to be replicated and moved into it. Instead, it is offered as a physical design choice for applications where it makes most sense, notably selective queries on a mix of rows and columns in the same table. The EDW-Aster-Hadoop architecture is increasingly converging and will allow Teradata to creatively differentiate its offerings beyond just another nice Hadoop implementation.

These new capabilities are made possible by Teradata’s hallmark strengths in multi-temperature data management and balanced workload processing management, through flexible and intelligent compression schemes and granular priority scheduling and virtual partitioning of processing that is tied more closely with I/O subsystems. Although engineered separately, these capabilities are increasingly starting to overlap with Aster.

Teradata 14 also throws in improved (row-level) security to help customers grow their data warehouse footprints while adhering to regulatory requirements. In addition, it is easier to use and provides more automatic temporal capabilities and application portability and migration paths that encourage companies move away from competitive databases.

Pairing marketing analytics with Big Data is a key driver for growth

Teradata firmly believes that marketing functions in organizations are a key driver of analytics software adoption. This explains why the company developed its own multi-channel campaign-management suite 11 years ago. Recognizing that marketing is key to leveraging new, emerging types of data, Teradata sharpened its focus with its $525m acquisition of Aprimo in December 2010.

The Big Data part of the puzzle has been addressed by the acquisition of Aster Data. Teradata argues that it will be marketing departments that will be the pioneers for analytics innovation for new types of data being sourced from social media, mobile networks, and sensor-based devices. For Teradata the challenging thing about Big Data is not the volume but the complexity of the data, and how quickly it changes. Aster gives Teradata a leg-up in this space by offering a way to process Big Data using clever MapReduce extensions for SQL processing. Teradata will also work with partners including Cloudera and Hortonworks to enable closer integration and packaging with Hadoop.

These types of marketing-cum-Big Data analytics are commonplace across Teradata’s key industry sector focus areas: telecoms, financial, and retail. Teradata is also eyeing new analytics opportunities for Big Data analytics in areas including geo-science (seismic sensor data analysis) and utilities (smart metering).

Teradata has clearly placed a big bet on Aster’s hybrid SQL approach to taming Big Data analytically. This coupled with Aprimo’s marketing data management capabilities provides an immediate opportunity to help organizations better understand customer behavior and refine their marketing campaigns

Teradata is a Rolls Royce solution, but within reach of more budgets

High-end EDW has traditionally been an endeavor for large organizations with deep pockets of cash and IT resources. Arguably this is still reflected in Teradata’s customer base, which is dominated by large Fortune 500 brands. These are companies engaging in very high-end EDW and large-scale SQL analytics against huge data volumes, and Teradata’s petabyte club has now swollen to more than 25 organizations including AT&T, Bank of America, Walmart, Verizon, Dell, and Apple.

To tackle datasets that are rising in volume, variety, and velocity, the Teradata Big Data strategy leverages three technologies: Hadoop for fast data loading, ELT/ETL, and online archival, Aster for path pattern analysis and graph analysis, and the Teradata database for ad hoc OLAP and predictive analytics. Teradata has also expanded its family of EDW appliances accordingly with which to reconcile the data scale, ranging from data marts to “extreme” levels of performance, at a fit-for-purpose cost for customers and including a strategy called Unity to lower TCO in mixed/federated Teradata appliance environments. However, Teradata is not only filling out more price-points, it is also diversifying its EDW universe while at the same time driving a level of account protection by keeping customers under a single Teradata umbrella and not allowing rivals such as Oracle or IBM into accounts.

Finally, the traditional Teradata platform capabilities are also being offered as virtualized private cloud services, providing capacity on demand and elastic performance. This will make Teradata deployments easier to scale and swallow for more types and sizes of organization.

Abacus/Solvency II currently forms the cornerstone of BearingPoint’s expansion into the European insurance sector and is part of a wider “asset-based consulting” strategy which complements the company’s core management consulting and IT services offering. While the Abacus/Solvency II offering is a strong proposition within the reporting arena, it only addresses one element of Solvency II. BearingPoint will be competing against global vendors with greater technical resources, higher brand profile, and offerings that encompass the entire spectrum of Solvency II requirements.

Exploiting its product base is a key element of BearingPoint’s growth strategy

Since the management buyout of its European operations in 2009, BearingPoint has been steadily re-building the business, taking advantage of its strong European focus, independence, and mix of management consultancy and IT services to return a 8% CAGR over the last three years and achieve revenues of €515m in 2011. In 2010, management also secured the rights to the company name, so BearingPoint now refers only to the European operations.

The insurance sector currently accounts for approximately 10% of BearingPoint’s total revenues and it has approximately 400 staff focused on the sector. The Abacus/Solvency II product is the key element supporting BearingPoint’s expansion into the insurance sector during 2012/13, and reflects the company’s wider asset-based consulting strategy of utilizing its intellectual property and proprietary software as the core of a combined product and services offerings within key verticals.

BearingPoint has a number of internally developed assets, such as its EasyTax, FiMIS, LogEC, and Infonova R6 platforms, which will play increasingly important roles in client engagements. However, BearingPoint needs to ensure that its independent stance is not eroded in the eyes of clients and and it does not become seen as yet another service provider promoting its own products.

In Abacus/Solvency II, BearingPoint is exploiting a proven platform

The reporting requirements of Solvency II present insurers with significant challenges both in the frequency and granularity of information demanded. Much of the reporting is required on a quarterly basis and regulators want the ability to completely “look through” the information, from a top-level dashboard view to source data such as policyholder records. In addition, the exact reporting requirements are still evolving and significant differences exist between national regulators.

Abacus/Solvency II is BearingPoint’s Solvency II data model and reporting engine software, which validates and presents key risk-based capital indicators in the quantitative reporting templates (QRT) format defined by the European Insurance and Occupational Pension Authority (EIOPA).

Launched in November 2011, Abacus/Solvency II is derived from BearingPoint’s existing Abacus/DaVinci platform used to support the reporting requirements of Basel II within the European banking sector. Abacus/DaVinci has been in use for 18 years and has significant market share in Germany, Austria, and Switzerland, with some 150 European banks using it. BearingPoint estimates that 60% of the components of the Abacus/DaVinci platform are being reused on the Abacus/Solvency II platform.

BearingPoint has worked closely with the European Insurance CFO Forum in defining client requirements for Abacus/Solvency II, and a major milestone in building the credibility of the product was the completion of a group-wide implementation at Allianz in March 2012.

Abacus/Solvency II is a strong play but will face stiff competition from larger service providers

Abacus/Solvency II combined with BearingPoint’s services offers a strong proposition for a number of reasons.

• It is based on proven technology and architecture designed to meet a similar requirement (Basel II).
• It offers strong source data validation capabilities with some 2,600 rules that highlight potential information and complex relationship errors. Data quality and validation is a key pain point for many insurers in achieving compliance.
• It provides comprehensive functionality such as implementation of all 63 QRTs and governance features such as authorized sign-off hierarchy, and conforms to national regulatory standards such as those enforced by BaFin in Germany and the Financial Services Authority (FSA) in the UK.
• The BearingPoint maintenance service will implement both overall and regional regulatory requirements as they continue to evolve.
• It is supported by a core team of approximately 100 consultants.
• It has a strong reference client with the Allianz implementation.
• BearingPoint has complementary assets such as the HyperCube solution, which supports risk analytics, and the Mike2.0 information management methodology.

However, BearingPoint will face significant challenges in establishing Abacus/Solvency II as a market leader in this space. While BearingPoint has the skills, it lacks the scale to deliver large numbers of implementations, particularly outside of its core markets of Germany, Austria, Switzerland, and France. BearingPoint is tackling this in a pragmatic way through internal and external expansion. It is utilizing its partner networks to meet demand, but in working with the likes of Tata Consultancy Services (TCS), careful channel management will be required to avoid tricky conflicts of interest.

Solvency II is the European insurance industry’s “Y2K,” with a host of vendors competing in the space, many of which have huge marketing budgets, are deeply embedded within major insurance clients, and have a broad Solvency II offering. BearingPoint lacks the profile compared to global and regional IT service providers such as IBM (particularly following IBM’s recent acquisition of Algorithmics), Accenture, and Capgemini. It will also face tough competition from some specialist providers such as Moody Analytics and Wolters Kluwer.

Huawei is expanding from its core telecom equipment market laterally into the larger adjacent markets of enterprise IT and consumer devices. It is also expanding in both directions vertically, relying increasingly on its own silicon supply from subsidiary Hisilicon and attempting to lead its carrier customers into value-added services. But don’t mistake these directions as simply ambition from a large and growing company. Huawei sees that no existing responses assure that the flood of data traffic can be met with adequate network investment. It has even named its new corporate R&D function “2012 lab,” not only after the current year but also the disaster movie.  

Could Huawei 2012 become the next Bell Labs?

Huawei responded to a drop in profits in 2011 by increasingly spending on R&D rather than cutting all expenses. Over the past few years it has continued to hire large numbers of engineers across the board, reaching a total of 62,000 with 11,000 added in 2011 alone. It believes it has matured beyond following or even leading the industry and now seeks to steer the industry direction.

Historically, industry-leading R&D has not been a pure numbers story. Earlier this year at the OFC conference, Huawei made a big push to demonstrate advanced technology both on the show floor and in prestigious post-deadline technical papers. At the time, we speculated that only Huawei is in a position now to take over the industrial research mantle from Bell Labs. We don’t know at the moment how many of the 62,000 R&D staff are part of the corporate 2012 lab. Whatever happens though, the new research lab is already sounding different from the 20th century model where top researchers were free to pursue their own directions. One of the stated purposes of the corporate R&D function, in addition to business unit R&D, is rapid response to changing needs – a sort of hybrid cloud model for engineers if you will.

Silicon and software architecture together are keys to future

The company itself may disagree with the above depiction that it is expanding through vertical integration. Instead it depicts a scenario in which price pressures are compressing the value chain such that the top and bottom layers are the only ones that retain value in the long run. One executive at the event responded to a suggestion that Chinese vendors’ aggressive pricing was “ruining the business model” by rebutting that the telecom business model was already broken and declining equipment prices were the result, not the cause. The only possible response, he suggested, was to use in-house silicon to reduce cost. Another spokesperson said that price pressure for handsets was such that no money could be made on phones, only on the chips.

But margin savings, economies of scale, andMoore’s Law can’t get ahead of a flood which is itself caused by the same enablers. The real potential lies in the ability to make radical innovations unconstrained by somebody else’s silicon or software. Huawei identifies four specific areas whose chips are critical to its destiny: network processors, photonics integrated devices, passive optical network chips, and wireless chips. Huawei uses its own chips only where it can find differentiation. It continues to use Intel and Broadcom chips, and it was an early adopter of merchant ATCA hardware platforms as well.

Enterprise and consumer businesses are similarly keys to telecom change

The message on the role of Huawei’s enterprise business was mixed. It showed a version of the classic ICT convergence Venn diagram where its current carrier network market lies at the intersection of enterprise and consumer devices. Its product business units are currently organized into these three areas. To investors, the message was that Huawei could leverage its current business for growth particularly into enterprise IT, whose total market size is an order of magnitude larger than its telecom equipment business. Yet market size is not sufficient reason to get into as competitive a market as datacenter servers and switches.

The company acknowledges its newEnterprisebusiness is a work in progress. Teams are trying to learn about specific verticals including public sector, power, finance, and transportation, hoping to find synergies or similarities to the special needs it has learned to address in the telecom vertical. Yet perhaps because it is too early to tell if it will be able to find appropriate special needs, it lists as additional “verticals” large enterprise and SME.

The more credible picture is that the three business units represent the end-to-end networking view where services originate at a consumer device and are provided by a datacenter with the carrier network in between. In addressing both ends, Huawei would like to help its carrier customers own the datacenters and profitable services rather than just be a pipe provider to over-the-top players. It believes it can make servers and switches that are better optimized for specific customer needs. The server offering makes more sense as an outgrowth from its ATCA servers towards still-customized but more datacenter-centric servers and network equipment.

This picture also puts Huawei in a better light. Instead of graduating into a bigger pond and starting over as just another fish, it becomes the telecom vendor with best end-to-end visibility. Ericsson has mobile but doesn’t play in servers. Cisco has the datacenter network and some devices but not mobile.

Mobile CDNs offer revenue growth and cost saving opportunities for operators

In February 2011, Ericsson and Akamai announced the launch of the Mobile Cloud Accelerator, which provides CDN and caching capabilities using Ericsson’s SmartEdge Border Network Gateway and Mobile Packet Gateway. Out of a handful of trial customers, Ericsson announced that Telkomsel would launch the first commercial service in February 2012. Telkomsel’s CDN offering reduces the download time of content by up to 70% compared to downloads from the same content sources without acceleration.

While CDNs are widely deployed in the fixed broadband market, they are yet to be widely used by mobile operators. However, Asia-Pacific operators such as Telstra, KT, SK Telecom, and KDDI are trialing CDNs for their mobile networks. CDNs are important for mobile operators as they can lead to significant international data transport savings. In emerging markets, international data transport costs can make or break the data business case. There is also a growing desire among operators in developed Asia-Pacific markets to reduce international data transport costs. As a result, Akamai and Ericsson’s platform could provide a considerable cost-saving opportunity for telcos.

However, mobile CDNs are more than just a defensive mechanism to reduce costs. They can also help to alleviate traffic congestion and provide a new revenue stream for operators. The Telkomsel deal is a case in point. Under this deal, Telkomsel receives a share of the service revenues collected by Thomson Reuters for the delivery of realtime and time-sensitive content. While Telkomsel does not sell its mobile CDN proposition directly to customers, other operators will prefer to directly interact with end users.

These customers could include large customer-centric companies (such as concert ticketing firms) that want to improve their rich-media website experience on handsets. The other key target segment is enterprises, which may want to provide a high-quality video service for their employees located around the world. A mobile operator with a strong mobile CDN strategy could potentially reduce churn and gain new subscribers based on its reputation for providing a superior QoS.

Net neutrality concerns may arise in some markets

We believe that the Ericsson-Akamai platform will face net neutrality concerns in some markets. CDNs don’t prioritize traffic, but instead improve QoS by having the content stored closer to the network edge. However, offering a better QoS for traffic that only comes from the CDN through a network gateway does effectively prioritize that traffic.

While the Indonesian regulators have not questioned Telkomsel’s approach, we doubt that regulators in other countries will be as lenient. Thomson Reuters has agreed to sell the service in Indonesia rather than Telkomsel, which is an attempt to overcome any net neutrality issues as content providers have traditionally been allowed to charge for premium content. However, as Thomson Reuters has partnered with an operator, the net neutrality argument could swing back towards telco involvement.

Convincing end users to pay will be the most difficult challenge

Pricing models that offer prioritization in the mobile space have previously failed miserably. The main marketing problem for telcos is that there are so many variables around mobile network performance that it is impossible to “guarantee” performance. This leads to the question of how does the customer paying for prioritization (be it an end user or content provider such as Thomson Reuters) prove that they have “better” performance?

As there are so many variables in network performance, application- or user-prioritized performance can only be measured relative to other apps or users. As a result, customers can still have a poor experience at certain times or in certain locations, but one that is not as poor as that faced by other apps or users. That is hardly a compelling proposition, especially for the discerning mobile enterprise market.

In the past, we have said that if application QoS is to work, operators must have access to realtime data from the network, and a way of presenting that data to the customer so that they have a meaningful way of assessing if they are getting value for money. Ericsson claims to provide such a service, which is a significant step forward for the market. However, it is still early days, and proving the viability of the model to end users will still take at least another two years. The Telkomsel deal shows that vendors are working on the platforms to provide content QoS, but convincing customers to pay more for something intangible will still be a difficult proposition.

Watson takes aim at Big Data

A large part of the Summit was focused on Big Data. During the keynote presentation it became clear that IBM wants to highlight that Big Data as not just a Hadoop issue. Rather, IBM believes that Big Data is something that needs to be approached from the ground up, from the ingestion and preparation of data all the way up to the exploration and presentation layer. With an abundance of data-governance, processing, and analytics solutions in its arsenal this is not surprising. However, the challenge for IBM is twofold. It has to map its deep solution portfolio (both proprietary and acquired) to several Big Data needs such as storage, processing, and exploration, and also has to integrate and package these solutions in a consumable way for customers.

In particular, IBM is looking to Watson for solutions for the Big Data market. With its machine-generated insights brought together through three components (deep content analytics, evidence-based learning, and natural language processing) it should be an interesting addition to the space. Watson showed its potential last year during its famed run on the TV game show Jeopardy, beyond analyzing just two sentences, to give insights from a larger and more complex set of data.

Since its run on the game show, IBM has worked to advance the use of Watson’s 41 underlying subsystems into industry-specific applications. It is focused first on the healthcare and financial services sectors, in collaboration with Wellpoint, Seton Health, and Citigroup. To win over more clients in these and other sectors, IBM will need to focus development on viable business use-case scenarios for Watson’s core capabilities.

Manoj Saxena, IBM’s general manager of Watson Solutions, acknowledges that there is still a lot of work to be done in this respect. However, IBM is confident that the first commercial implementations of Watson will roll out of production later this year. The plan is to introduce Watson to specific key verticals as service-led engagements. Implementation will be assisted by a program called “Ready for Watson” that will prepare clients for a full Watson Solutions deployment via key factors such as industry context, use-case alignment, data management prerequisites, and infrastructure issues including interoperability and integration with existing analytics infrastructures.

Another interesting point raised by Saxena is that payment for Watson will be based on an outcome-based pricing model. Although he did not go into detail about what this would specifically entail, earlier research published by IBM suggests that pricing will be dynamically formulated by the types of analytic insight that Watson can deliver to specific parts of the business, and the business outcomes that these insights drive. This will be achieved by IBM including more variables in addition to the production cost of Watson itself.

Ovum believes that IBM is opting for this pricing model because the company envisages that usage of Watson will vary greatly between clients. We also believe it part of a strategy to get customers interested in buying this technology by offering Watson at price points that closely match the investments to the expected business benefits. It will be interesting to see how this model evolves in practice. This is likely to become clearer as IBM figures out how to more accurately define and quantify “outcome” and as more commercial deployments of Watson are referenced.

Cognos Insight takes a serious stab at self-service BI

In the run-up to the Smarter Analytics event, IBM launched Cognos Insight, the latest member of the Cognos family. Branded as a “personal analytics” tool, it aims to help individual users visualize and explore company data in an easy-to-use drag-and-drop environment. The market for these types of self-service visualization tools is growing steadily, and competitors including SAP (Business Objects Explorer), SAS (Visual Analytics), MicroStrategy (Visual Insights), and Microsoft (Power View) already offer solutions with similar features that will compete with IBM’s offering.

Cognos Insight’s strong point might be that in addition to visualization and analysis, the user can also use built-in rules, or create their own, for “what-if” modeling. Data can be analyzed based on best-case, worst-case, and most-likely scenarios, and if leveraged correctly, should help enterprises make better decisions when looking ahead.

IBM to introduce Smarter Analytics Signature Solutions

IBM has extensive experience and expertise in the analytics industry, something it is now leveraging with pre-packaged solutions branded as Smarter Analytics Signature Solutions. Exploiting its experience, software, infrastructure, research, and consulting services, the solutions are aimed to solve the analytics needs of organizations.

Arguably, having adequate tools (software and hardware) is only half the battle for businesses to extract the most value from analytics. For these efforts to be fruitful, skillsets such as domain and industry expertise become vital. A company needs the system to store, process, and display the data, but also needs the expertise to turn this data into useful information and act on it by embedding it in the processes and culture of the organization. IBM sees a gap where organizations miss out on good data because they do not know how to best utilize their datasets with their current systems. Offering pre-packaged solutions that encompass both consulting services and software for a holistic approach to analytics therefore makes a lot of sense.

With more than 20,000 analytics projects under its wing, 9,000 dedicated consultants, and a vast software and hardware portfolio, IBM has both the experience and the technology to provide overall value to customers. Three solutions will initially be offered through GBS consultants: Customer: next best action (consumer experience optimization), CFO Performance Insight (financial risk estimation), and Anti-Fraud, Waste, and Abuse (financial fraud detection), and IBM is likely to target more areas throughout the year.

Big Data is a hot topic in banking strategy

In recent discussions with financial institutions across the Asia-Pacific region, Big Data has been a hot topic. Banks are asking common questions: what is Big Data? Is it all hype? What is truly different? Is there a first-mover advantage? Why should I bother? Who is doing what? How do I go about it?

The level of vendor announcements, new products, and aggressive promotion of pilot implementations further adds to the sense of hype and confusion. Banks’ reactions to the free lunches on offer range from a reserved “wait and see – we need to get our house in order first” to an open-armed embrace of multiple concurrent pilots with different vendors in different organizational units.

Currently, Big Data raises more questions than it provides answers for banking executives.

Defining Big Data

A tendency by vendors to re-label existing capabilities, and the lack of a widely accepted definition for Big Data, has compounded executive confusion over the topic. For the purpose of discussing Big Data in financial services, we can define it as: the acquisition and storage of huge volumes (>2 petabytes) of different types of structured and unstructured data, utilizing new technology capabilities (such as increased in-memory processing and natural-language processing), for analytical purposes (including machine-to-machine pattern detection and analytics). So, Big Data is all about sifting insight from massive volumes of data and acting on that insight to innovate.

Big Data is still maturing as a technology, so further confusion is created by the fact that there are two distinct approaches currently converging: Advanced SQL (the very big version of traditional structured data – think data warehouse on steroids), and NoSQL (an unstructured approach to managing and exploring data – think data-mining sandpits on very powerful steroids).

Is it different or is it hype?

Much of what is labeled as new capability can be done by existing information management and business intelligence technologies. Such capabilities – realtime analytics, data-staging areas, predictive analytics based on mathematical models to produce life-stage models (such as lifetime value), enhancing customer knowledge through analysis of transactional behavior, using mining tools to discover unpredicted trends in data, handling volumes of data up to petabytes, MPP (massively parallel processing) architectures, the ability to handle different data forms in one database, embedded in-memory analytics, and columnar computing – are all valuable and much enhanced, but not radically new.

So, what is truly different? 

Firstly, banks now have access to unprecedented torrents of different types of data. The disruptive explosion of mobile devices and online transactional services, combined with GPS data, sensor and machine data, security cameras, digital media, and text data from social media, means that virtually all new knowledge is now created and stored in machine-accessible format.

Secondly, banks now have access to the ability to keep and search or process that data at machine speed. Greater volumes of ever-more granular data create the ability to process and predict more accurately and more rapidly. Development in natural-language processing and social content management has meant a generational leap in the ability of machines to interpret and respond to speech (see Watson beat humans on Jeopardy). 

The loop then closes with the ability to send these results back into processes and activities in realtime. It is now economic to respond to individual interactions and tailor services and products at an individual prospect, customer, or transaction level.

Why are these new capabilities important?

For the past decade, competitive edge in banking has revolved mainly around the ability to execute “me-too” strategies. We almost forget that bold strategies have, in the past, led to sustained first-mover advantage. For example, CBA led the pack in Australasia with its NetBank and CommSec online services, and NAB cherry-picked high-net-worth customers and businesses with its targeted customer analytics.

The industry is now facing another, more disruptive wave of change as banks struggle to understand how to add distinctive value for customers in the age of Big Data. Early movers have the opportunity to steal a march with innovative new products, services, and channels. The ability to understand, analyze, and act on the insights contained in Big Data will become a critical cog in the machinery that banks need in order to compete in the digital economy.

Meanwhile, the threat from non-bank entrants grows. Companies such as Google, Facebook, Apple, and Paypal are cashed up and have already developed and refined the skills and capabilities needed to shape, and compete in, the digital economy. Banks do not have the luxury of sitting back and placing bets once the dice has rolled; they are no longer the biggest gorillas in the broader market for financial services.

The game is on – and the opportunity for first-mover advantage is back on the table.

100G deployments by European operators set to accelerate in 2012

Given the theme of the conference it’s no surprise that 100G was a hot topic, and there was no shortage of carriers who stated they were in early stages of 100G deployment. Carriers participating at the event included Bouygues Telecom, BT, Cable & Wireless, Colt, Deutsche Telekom, France Telecom–Orange, Level 3 Communications, SFR, TDC, and TeliaSonera.

SFR is the furthest along with 100G: it has completed an initial trial and is beginning construction of a dual-ring overlay upgrade to its national network with equipment from Huawei. Level 3 is the laggard, continuing to test the technology but insisting the price must come down before it deploys. Still, the overall optimism around 100G at the conference was very strong, with every operator in attendance at various stages of 100G trials and planned deployments commencing in 2012.

Deutsche Telekom detailed results from an IP-over-DWDM study showing that significant cost savings can be achieved by putting wavelengths generated by transponders on the routers directly on a network with colorless and directionless ROADMs, thus bypassing the OTN layer. The company tested solutions from Cisco and Juniper (with NSN and Adva) showing similar results and savings ranging between 36% and 46%. The company also stated that it was looking to deploy single-vendor or partner solutions in a dedicated overlay as opposed to an alien wavelength implementation over its traditional transport network architecture.

Cloud demands a new kind of network

Telecom is rapidly changing: data is migrating to the cloud, and users are demanding anytime/anywhere access to it. Huge amounts of data are being generated, resulting in the need for extremely high capacity. While the explosive traffic growth and the network bandwidth required to support it are easy to see, the predictability of the traffic is not at all evident.

Several speakers, including those from AIT (Athens Information Technology), Ethernet Alliance, OIF, and Microsoft, talked about changing traffic patterns and the necessity to reconfigure network assets to support unpredictable demand. Scott Kipp, president of the Ethernet Alliance, detailed the exponential growth in data center server output giving rise to “petabit data centers” and correlated rise in optical bandwidth. Network strategist Brian Swenson from Microsoft, along with optical equipment partner Infinera, presented that company’s challenges in addressing its cloud infrastructure, which supports over 200 cloud services.

The term “elastic bandwidth” was used frequently, denoting the rapid provisioning and reconfigurability of wavelengths for super-channels and bandwidth-on-demand, without manual intervention, and the automation of protocols for rapid (re)provisioning. Of course realizing this vision will require new optical network elements, updated network design/engineering algorithms, and a modified optical control plane.

Still an uphill battle

The acquisition adds to Vodafone’s revenue potential from global services by significantly increasing the number of addressable enterprise customers worldwide, giving it access to substantial international network systems and relationships that CWW built up over many years.

However, we see Vodafone facing an uphill route to profit. Most carriers find it difficult to integrate complementary telecoms service portfolios, networks, and business processes. Vodafone will have to make numerous tough decisions to build a competitive global services business, and the operator has yet to prove it can make such difficult choices.

With its money on the table, Vodafone must now act decisively to minimize its risk. However, the risks associated with developing its global services business will be substantially offset by the cost and efficiency savings it anticipates garnering in the UK and internationally.

Fiber for enterprise and backhaul in the UK

The deal, which still has to be approved by CWW’s shareholders, will make Vodafone the second-largest telecoms service provider in the UK based on each company’s last reported year of revenues, behind BT and ahead of Everything Everywhere. It will also make Vodafone the only owner of next-generation fixed and mobile networks in the UK, a position of strength it must exploit to minimize costs and increase efficiency while building enterprise revenue.

In statements to analysts and press, Vodafone’s chief executive, Vittorio Colao, stated that CWW’s fiber goes within 100m of a third of all Vodafone’s base stations and that the company would “edge towards” digging to the base stations. Owning one’s own fiber backhaul capacity has considerable efficiency and financial benefits. AT&T claimed that connecting HSPA+ base stations with fiber increased data throughput speeds by 35% over HSPA+ on the air interface alone. Furthermore, if CWW fiber goes that close to Vodafone’s base stations it will also be close to those of the other mobile operators. Vodafone can look at offering backhaul either on a wholesale basis or through backhaul-sharing options such as the one it has with Deutsche Telekom in Germany, especially when UK operators roll out LTE.

BT beware

With demand for backhaul growing exponentially, BT and the country’s altnets are looking to ride that wave. As things stand, Vodafone buys backhaul from BT, and BT uses Vodafone as the host operator for its enterprise mobility solutions, so it’s complementary rather than competitive. Colao claims that the relationship will remain positive, even suggesting that his first call would be to BT.

However, having its own national fiber network will fundamentally change the balance of power between Vodafone and BT in Vodafone’s favor. Unlike their previous relationship, the two companies would compete directly for Vodafone’s business and for wholesale contracts from other fixed and mobile service providers.

A significant anchor client                                 

On an international basis, Vodafone has the potential to provide the CWW network with its own very significant anchor client. Like its European competitors Deutsche Telekom, FT-Orange, Telefonica, and Telecom Italia, the Vodafone Group’s own retail businesses deliver economies of scale that benefit themselves and their customers.

As mobile data (and voice) drives the vast majority of growth in international traffic, the change of role for Vodafone is significant. Vodafone has the largest international footprint of any mobile operator, so what it does with its traffic counts. This does not mean that Vodafone will switch all of its international traffic to CWW’s network at the completion of the deal. Competitor carriers will continue to carry Vodafone traffic going forward. However, the combined negotiating power of CWW’s and Vodafone’s carrier business will affect everything from voice termination and IP peering to SLAs and VAS requirements. Like the UK’s fiber providers, Vodafone’s international carriers should brace themselves for tougher negotiations and stiffer competition.

At SDITS Ovum was impressed with Alemba’s Vfire service desk solution, which is easily accessible and presented in a way that makes it instantly familiar. Developed very much with the user in mind, the approach has been to make the solution visually appealing, using 3D menus to make navigation easy and fluent.

Also key to its appeal is the way in which it allows users to get to grips with the solution without the need for a large amount of additional training. When transitioning to a new ITSM tool this is important because it means that fewer resources are needed to help people understand a solution’s functionality. Vfire can be delivered via a SaaS or on-premise delivery model, and users can access the platform via a mobile device or desktop Internet browser.

Is ITIL 2011 an update or a new version? At Ovum we believe the most important change is the introduction of more strategic thinking.

The Strategy Management book has been modified, and ITIL appears to be adopting Michael Porter’s definition of strategy (Competitive Strategy, Free Press, New York, 1980) that says the essence of strategy is choosing a unique and valuable position rooted in systems of activities. However, much of modern-day business strategy is based on Gary Hamel’s and CK Prahalad’s definition (Competing for the future, Harvard Business Press, 1994) that says strategy is used to ease the tension between competing today and clearing a path toward leadership in the future.

Therefore, is ITIL’s approach to strategy relevant in today’s economy, and can it be made compatible with other approaches?

Most CIOs are very aware that in terms of operational metrics the agenda is driven by external forces. The large outsourcing companies have persuaded CEOs to ask questions such as how much a helpdesk call costs the company. While for the outsourcer these questions represent a way to demonstrate value and gain new business, for the enterprise they are disruptive and seen as cherry-picking the easiest operations. The problem for the CEO is that IT departments do not usually report on cost and value in ways that enable CEOs to evaluate the best-value options.

This issue has been a longstanding source of tension between IT departments and the rest of the business. To combat this, in its Day 2 keynote at SDITS, Ovum recommends that metrics are used in one of two main ways: as a comparison between direct competitors, or as a set of stand-alone metrics that are presented in a way the business can understand.

VMware vCloud environments are different to traditional virtualized implementations that are usually on-premise-only deployments. In a vCloud environment, conventional IT monitoring tools must be capable of tracking the dynamic resources that are being added, deleted, and moved between on-premise and remote IaaS or PaaS clouds.

Nimsoft addresses this problem by focusing on the application or service, and associating the resources that support it, regardless of whether they are physical or virtual and where they are located. Ovum considers this approach to managing hybrid clouds to be a pragmatic and natural next-step approach that most CIOs will recognize as being easy to implement with existing processes and IT structures. However, Ovum believes that in the long term, cloud management will become more automated and focused on ensuring service assurance, and will focus much less on the resources, which will be treated as an elastic commodity.

But they are also missing the point. There’s little objectively wrong with many of the products competing with Apple, Samsung, and Google/Android that greater customer awareness and a big-budget marketing drive could not cure. And European carriers need to do a great deal more to assist the underdogs if they aren’t to be the engineers of their own self-fulfilling prophecy of handing all power over their subscribers to the duopoly of Apple and Google.

Are Nokia’s smartphone products really to blame?

If the combined forces of Nokia and Microsoft are ultimately incapable of swaying consumer opinion away from the current zeitgeist – despite offering products that are the equal of and in certain aspects more advanced than those from the current industry leaders – then they most assuredly have a major problem on their hands. They also most assuredly need help if they are to challenge that orthodoxy. Failing to address these problems will almost certainly drive Nokia towards Android in an effort to save its business, while Microsoft’s strategy for interconnecting users and services across all connected devices will be dealt a potentially fatal body blow.

Although Microsoft was heavily castigated by industry observers over the “mini-desktop-on-a-phone” approach to smartphones it previously pursued with the Windows Mobile ancestral line, Windows Phone is a completely different beast than its predecessor. In Ovum’s view, and clearly also Nokia’s, Windows Phone is fully worthy – at least from a technical perspective – of similar success to that currently enjoyed by iOS and Android devices.

Objectively the only fair criticisms of Nokia’s Windows Phone devices (and by extension Windows Phone devices generally) are that they haven’t achieved the same amount of consumer uptake as rival products and that there are fewer apps available to download than on Android or iPhone.

In terms of user experience, Windows Phone has brought a great deal of genuinely new thinking and can safely be regarded as innovative, even if the Metro UI is not to everyone’s taste (but then nothing is). I’ve personally found it a delight to use, as have many colleagues, several of whom, like myself, have histories with smartphones running back to the original Nokia Communicator. It’s safe to say they’re not easily impressed.

While that should not be taken as an endorsement of Windows Phone, or for that matter a suggestion that Ovum doesn’t appreciate iOS or Android (neither of which is true), it does indicate to us that the product itself is not flawed.

Marketing money talks louder than technology

But if not the product, then what? The only reasons for the apparent failure of Nokia and Microsoft can be those of branding, marketing, and retail. And if that’s what’s wrong with Nokia’s Windows Phones, then operators are deceiving themselves if they think anything is going to change without a major ramp-up in their own involvement in brand building and promoting these devices. Any expectation that other OEMs or platform developers will be able to challenge the smartphone industry’s dominant providers solely through their own efforts looks increasingly misguided to us.

In Ovum’s view, if carriers want to see a more diverse, more competitive smart device market – which they undoubtedly do – then they themselves need to help make that requirement a reality. Of necessity this would include a greatly increased investment in helping market and retail such products, at least in the establishing phase of new software platforms (such as Windows Phone) or to reinvigorate weakened hardware players (think Nokia and RIM, especially). US carriers are typically more proactive in this area, although even they may well need to deepen their investment.

More vigorous involvement by carriers seems vital if the near-duopoly of Apple and Samsung/Android is ever to be challenged, let alone broken. The smartphone market clearly favors relentless and compelling marketing efforts that only a very tiny number of device-side protagonists can themselves muster.

Unfortunately for carriers, Apple and Google (in particular) are also the companies causing the most erosion to carriers’ relationships with their subscribers through their powerful disintermediating effects. As such, it would appear to be in the best interest of carries to provide a great deal more in the way of marketing and retail support to other smartphone OS providers. In return, grateful OEMs and platform providers would surely return the favor in terms of greater subsidies (and potentially other benefits) if they felt their efforts were being adequately supported.

CSPs are growing their data center–related service revenues

The challenges faced by wireline CSPs include fixed-to-mobile substitution, the commoditization of voice services, and unfavorable regulatory decisions in many countries regarding local loop unbundling. In 2010, CSP wireline revenues were flat. They grew 3% in 2011, but through 2017 Ovum predicts that wireline revenue will increase at a compound annual growth rate (CAGR) of less than 1%. While things look better on the mobile side (6% growth in 2010, 10% growth in 2011, and a 2011–17 CAGR of just over 3%), many markets are saturating.

To compensate, CSPs are looking to use their considerable assets to expand further into adjacent markets, including enterprise IT services. Data center infrastructure investment to support these advanced services, therefore, is becoming as important to multiservice CSPs (e.g. AT&T, NTT, Orange, Verizon, and Colt) as it has been to focused data center players. CSPs’ difference in these advanced offerings is the centrality of the network to their value proposition.

For multiservice CSPs, expansion of data center–enabled services is part of a broad strategy to complement their enterprise communications services. Expanded offerings include traditional co-location and hosting services as well as cloud services, application services, IT professional services, and security services.

Ovum forecasts the public cloud computing infrastructure-as-a-service (IaaS) opportunity at $1.6bn in 2011, growing to $15.0bn in 2016. Of the $1.6bn in 2011 revenues, no more than 10% was earned by communications service providers (CSPs). Using their data center and WAN infrastructure assets, CSPs have a significant new opportunity to compete against their IT rivals, including data center specialists, and capture more of this growing revenue source. Whereas 18 months ago Ovum counseled CSPs to learn from competitive suppliers (“Independent data center trends: what they mean for global carriers,” October 2010), their competitors can now learn a thing or two from CSPs.

Data centers are becoming a much more critical piece of ‘telecom’ infrastructure

CSPs are already major users of data centers, for their own internal purposes as well as in support of hosting and cloud services. The role of the data center has become ever more central as services have expanded. In fact, Paul Savill of Level 3’s Global Core Product Management group, at OFC/NFOEC in March 2012, noted that data centers are the “central office of the future.” Recent research by Ovum into the rise of data centers within CSP network infrastructure highlights the following:

• Data centers have become key network aggregation and confluence points for high-bandwidth traffic, through which terabits of traffic pass.
• Data centers are increasingly determining where and how networks are being built, to and between data centers.
• Market power is moving to carriers with data center access. Competitive CSPs have designed their networks to reach key data centers and have optimized their networks to minimize latency.
• Data centers in trading hotspots (e.g. London, Frankfurt, New York, Hong Kong) are “running hot.” Due to space-power limitations, real estate costs, and physical diversity needs, data center capacity, which was often co-located with downtown financial centers, is increasingly dispersed to places where real estate and power are more plentiful and cheaper, creating a greater need for interconnection.

Data center interconnection is a key part of full-service CSPs’ differentiation strategies

As CSPs increasingly woo MNCs with data center services, interconnection requirement are amplified. Whereas some dark fiber providers and specialist data center operators persist in a “just good enough” LAN extension strategy, the CSP approach is typically carrier-class, with all that implies regarding security, resilience, reliability, and data integrity. Supporting network investments, using Verizon as an example, might include deploying a 100G/MPLS network core to enable more 10G client traffic and enhance performance. Fiber routes might be optimized and diversified to differentiate on a combination of lower latency, resiliency, regulatory compliance (e.g. for disaster recovery), and siting proximity. One operator recently told Ovum that “enterprise clients won’t compromise on resilience for data center efficiency.” As Kerry Bailey, Verizon Enterprise Solutions’ CMO, noted at the analyst conference, “It gets interesting when you can tie the data center to the network end to end.” Ovum heartily agrees. Data center specialists will need to respond to CSPs’ network differentiation strategy.

I have had some very good conversations today with service-desk managers who are very much aware of how social platforms can be of benefit to them, but who need help to ensure these are successfully adopted by their user base. Engaging the business is vital to ensuring the success of a social platform.

Service-desk managers should speak to the business and make them aware of the social platform and how it can be of benefit to them, asking that they relay the message to their teams. Their insights into how it can be improved and provide additional value to them should also be gauged. This will not only ensure that the content is relevant and of use, but will also mean that the existence of the social network and its value is not just a message communicated to users by IT, but also via managers and team leaders within the business.

Increasing numbers of organizations are recognizing the value that social-networking platforms can potentially provide, but enterprise adoption of such platforms is still seen as a significant challenge. Ovum believes that enterprise IT functions, and especially the service desk, can be very much a driver of broader adoption of social-networking platforms.

The service desk is a facility that interacts with the majority of business functions, and it can therefore be invaluable in both illustrating and helping the business to understand the benefits of the given social platform.

The benefits of an adopted social platform also need to be communicated by others beyond the IT function. Ensuring that true value is gained from a social network requires business units to be involved and encouraged to “spread the word”, ultimately making a social platform more valuable.

Nimsoft has announced a global partnership under which Fujitsu has incorporated Nimsoft IT management-as-a-service (ITMaaS) monitoring and service-desk solutions into its Global Cloud Portfolio.

The ITMaaS offering is available in Australia and New Zealand, and will be rolled out across other regions in the coming months. Ovum considers the growth of ITMaaS to still be at an early-adopter phase, but that more and more organizations are recognizing the value of implementing “just-enough” management capability to match their requirements. The use of ITMaaS matches this shift in thinking, because organizations pay for the capabilities required as and when they need them. However, questions about performance and security must be fully investigated and understood before organizations commit to ITMaaS, and Ovum believes that the “just-enough” management approach will not be suitable for all use-cases.

Nimsoft also announced that ITMaaS has been integrated into HCL Technologies’ MyCloud Offering.

To achieve self-service success, IT departments must deliver a rich, intuitive online experience, and now is the time to challenge current IT thinking and to propose new and different ways of doing business.

At the Service Desk and IT Support Show, Biomni has announced the integration of its application programming interface (API) with ServiceNow. This facility extends the range of Biomni’s integration to cover solutions in the ITSM (BMC, HP, CA, ServiceNow, and Symantec), Cloud (VMware, Citrix, CloudStack, Amazon Web Services, Rackspace, Microsoft 365, and IBM SmartCloud), systems management (Symantec ITMS7.1, Microsoft SCCM, and Qwest Software), and package software (SAP, Oracle, and PeopleSoft) domains. With the new API to Biomni’s independent service catalog, organizations can now optimize ServiceNow operations and provide a single point of contact for viewing, and for users requesting new IT products and services. Ovum believes that by creating a wider ecosystem using cross-platform integration techniques such as this, organizations will be able to more quickly adopt newer services.

However, although realtime decisioning (RTD) technology has arrived (and is quite exciting), contact centers have been slow to adopt it. There are a number of reasons for this. Some are waiting for the technology to mature even further through better multi-vendor and multi-system integrations. Others are subject to internal political and cultural barriers that make it hard to coordinate the business processes required to adopt the technology. Still more are either confused or unaware of the potential benefits of realtime information, as the suppliers have yet to offer effective ROI studies and examples of best practices. However, Ovum believes that RTD will rapidly become a differentiator for enterprises looking to drive collaboration across departments and improve the customer experience.

The realtime decisioning market is still nascent

We are still in the very earliest days of development of RTD solutions, and there are few fully productized RTD solutions available. Vendors are approaching the marketplace with the (understandable) biases that come from their existing technology; most come from workforce optimization or CRM backgrounds. As a result, it can be difficult for companies to know which vendor’s offering presents the best fit for customer service. The most sophisticated offerings, notably those from Oracle and [24]7 tackle wider-scale problems of process management. These systems scale across hundreds of predictive models and data attributes to give planners full-bore automation of systems that go well beyond the contact center, including multiple channels, points of view, and internal departments. They function as adjuncts to customer relationship management (CRM) and business intelligence, and are designed to unify the many data silos that exist within a company.

Another element holding back broader adoption is the high level of integration required to collate data from multiple applications. The decisioning engine sits at the intersection of the data analysis resources and the routing infrastructure. This puts the onus on the vendor of the system to either supply or customize the connective tissue between systems that come from many other domains.  

The RTD engine will process input from systems as varied as back-office applications (billing and fulfillment), CRM and cross-channel analytics (customer data), knowledge management (product usage), and social/web mining systems. Output is then passed to the contact routing infrastructures, either via agent desktop screen pop-ups or to online systems in self-service situations. As many of the data sources come from systems owned by different internal departments, organizations must decide which team or department owns the RTD project, and find a way to integrate data from across all the relevant departments.

Ovum believes RTD will be a differentiator

Although most enterprises are not yet ready to deploy the technology, in time RTD will become an extremely valuable addition to enterprises’ analytic arsenals. Ovum believes that the more successful deployments of RTD will be those that combine a workforce optimization approach with full-scale enterprise data integration, including back-office tools, CRM systems, business intelligence, and customer analytics.

Ovum also believes that customer care will necessarily evolve into customer experience management, using data from a wider pool of sources inside and outside the contact center. RTD will be a key catalyst in driving integration and collaboration across the customer care, marketing, finance, and product development departments.

The rationale for investing in RTD comes from a need to better understand and influence the customer experience across different touchpoints. Customers expect realtime updates online, and agents need to match and exceed customer knowledge. The barriers to adoption will be overcome rapidly as vendors realize they have an opportunity to capitalize on the need for realtime information within the enterprise. Ovum believes that enterprises should deploy RTD solutions to enable more accurate decision making for agents and easier access to information for customers. However, they should also set objectives and develop an investment roadmap to complete the missing pieces of an RTD solution based on their existing analytics capabilities.

Attendees are open to new ideas, but also want the facts. Business decision-makers want to know how they can improve their security posture while continuing to operate safely. They are less interested in the shiny new layer of protection that the industry insists they must have to deal with the latest threats. They want business solutions.

This year the threat focus will continue to be on APT and hacktivism

The InfoSec threat headlines will continue to revolve around advanced persistent threats (APTs) and hacktivism and why these attack models are positioned as next-generation malware. In the last 12 months many security breaches have been classified as APTs and hacktivist activity, and several high-profile organizations have had their security breached.

It is important to know if APTs caused organizations to rush out and buy more technology. Similar questions should be asked about hacktivism and the need to strengthen defenses against an enemy that is not likely to go away at the first signs of resistance. Realistically, how good does an attack need to be to breach the average organization? Evidence suggests not that good. The vast majority of successful malware attacks are basic and can be delivered using off-the-shelf tools. There are also issues about how long it takes to find and fix security problems.

This year’s threat report from Verizon suggests that once a security breach has occurred, resolution continues to be measured in months rather than days, hours, or minutes. In many cases it is a third party that reports the problem rather than the organization’s own security systems. Therefore, if next-generation security systems are focusing on risk-based services and the use of analytics to deliver security intelligence and detect suspicious activity, where is the evidence to suggest that success is just around the corner? This is a question that the InfoSec community should be prepared to answer.

Clients will be looking for professional advice about mobile device management issues

Business clients attending InfoSec this year are going to be looking for professional advice about the management and security issues associated with mobile devices. In particular they will want help to deal with the growing bring-your-own-device (BYOD) culture and the associated mobile device management (MDM) demands that will be made on IT.

In many organizations, the decision about whether to allow employees to select a common device for work and personal use has been on the agenda for some time. Opinions range from accepting that BYOD has already happened and working to support user access rights, seeking to limit mobile platforms to those approved by senior management and IT, or insisting that only company-issued devices are allowed to access corporate systems.

Whatever mobile-support approach an organization chooses, InfoSec vendors are likely to offer a solution. The mobile protection market is one of the fastest areas of growth, but also one that suffers from a lack of maturity. When considering the mobile management and security products on offer, it is important to think about the range of platforms supported, the extent of device coverage, and the long-term ability to manage and, if necessary, selectively wipe business data from mobile devices.

The industry must focus on data breaches and improving business security

Organizations need to be protected from many different forms of malware. APT threats and hacktivist activity are targeting corporations and governments by conducting industrial espionage or undermining business and financial operations.

Threats from malware writers, cyber criminals, and internal misuse are not going to disappear. However, most organizations do not know enough about the threats, or how well they are equipped to deal with them. IT protection needs to be aligned with business risk while maintaining the ability to trade without the imposition of further technology constraints.

Although concerns about the targeting of business assets and individuals who may unwittingly provide access to valuable corporate information continues to be a problem, the bigger issue that must be addressed is the time taken to identify and react to security breaches. The average time taken is far too long, it is not being reduced by technology, and there appear to be few signs of immediate improvement.

The security industry must change in order to deal with vulnerabilities and operational support issues. Technology solutions must fit in with business operations and must be flexible enough to adapt to future operational requirements as business requirements move on.

The beauty of smart cities is, as yet, largely in the eye of the beholder

The smart city movement is picking up momentum rapidly. “Smart” means using networked systems, online services, sensors, and realtime data analytics to make cities more efficient and sustainable. Smart city systems, for example, aim to reduce energy and water consumption, smooth traffic congestion, cut crime, and make healthcare and education services more affordable. IBM claims several thousand projects have been implemented under its Smarter Cities program. Cisco’s Smart+Connected Communities solutions are being used by a growing list of cities to plan and execute smart city strategies. Leading examples include: Chongquing in China; Guayaquil in Ecuador; greenfield cities in the Delhi-Mumbai industrial corridor in India; Nusajaya in Malaysia’s Iskandar special economic zone; Songdo in South Korea; and Skolkovo in Russia.

United Nations population projections suggest that hundreds of new cities will need to be built in, what is now termed, “the urban century;” so the game is just beginning. However, like all complex multi-faceted trends, it is sometimes difficult to appreciate the significance of what is happening with smart cities; their beauty is, as yet, still very much in the eye of the beholder.

Some decision-makers clearly “get” the smart city story. For others, however, smart cities are seen either as an overhyped commercial bandwagon or “not relevant here.”  The rapid construction of shining new cities can seem uncomfortably similar to science fiction and techno-hubris for nations accustomed to city-building timeframes of hundreds of years. Executives scarred by past ICT project disappointments are perhaps also inclined to view smart city initiatives with skepticism. This sense of reserve is exacerbated by increasing fiscal austerity.

While their beauty may not be obvious to all, Ovum believes that executives should pay attention from two main policy perspectives. Firstly, smart cities herald significant changes in the dynamics of competition and innovation in cities. Secondly, they will transform the logic of the way ICT is procured and managed in government agencies and city administrations.

Smart cities will accelerate civic innovation

Globalization is increasingly pitting city against city in a competition to attract the best residents, businesses, students, visitors, and events. City leaders are now recognizing, like businesses CEOs did decades ago, that the way they utilize technology will materially affect their future prospects in an increasingly global competitive landscape.

Smart city technologies will make city operations more efficient and sustainable. This is perhaps well enough understood, and is an extension of decades of ICT investment and e-government projects.

What is often underappreciated, however, is that these projects will also enable policy-makers and citizens to make better, more timely, and more holistic decisions. Master-planned Internet-age smart cities will learn and evolve more quickly than their competitors because they will have access to realtime data for decision-making and better, more integrated, systems for executing policy and service innovations.

Smart cities will innovate more quickly, adding value to their natural geographical and cultural assets and developing new ways to achieve superior economic, social, and environmentally sustainable growth.

Cities that remain bogged down with 20^th-century technology, with piecemeal, fragmented systems and data, risk being outperformed and overlooked. It won’t happen overnight, but it will happen.

Smart cities will transform the logic of the way ICT is procured and managed

The accelerating pace of both green- and brown-field smart city projects is also acting as a catalyst for new models of ICT procurement and management. Historically, governments and city administrations adopted a “craftwork” approach to ICT. Each agency or city administration sought to autonomously buy, build, and run its own ICT, leading to piecemeal development of fragmented systems. Master planning and the rapid pace of smart city projects is creating both the opportunity and the necessity for a fresh start and a more “industrialized” approach.

The ICT industry is rapidly evolving towards cloud delivery models, where standardized applications and infrastructure are delivered as shared services over private and public networks. Cloud delivery models will fast-track the development of smart cities and vice versa.

Demand from smart cities will stimulate the creation of portfolios of cloud services specifically designed for government and city operations. These services will be better, faster, less risky, and less expensive than traditional ways of procuring and managing ICT, and will be available to any city across the network.

This approach is a major transformation in the logic of ICT, which will offer huge benefits for cities that can make the mindset shift from “owning and operating” dedicated ICT assets, to “sourcing and orchestrating” shared ICT services on a global scale.

“Big picture” threats and opportunities

From a “big picture” perspective, even if it may not appear to be relevant in the short term, Ovum advises government executives to pay close attention to the evolution of smart cities and their ecosystems of vendors and solution providers.

Smart city technologies will create a steady shift in the competitive dynamics of cities and regions. They will also create an “explosion” of cloud computing services that will empower cities to drive innovation and productivity.

Executives should be encouraging their CIO and ICT department to start gaining hands-on experience of cloud services. Becoming knowledgeable and confident about the cloud now is one way to get a head start on global smart city developments and to start training for the coming city-on-city competition.

Both smart cities and cloud computing are transformative trends in their early stages. It’s time to pay attention and get in shape.

At this year’s SDITS show I’ll be delivering the opening keynote: “Disruptive technologies: Creating harmony out of chaos by ‘socializing’ the IT department”. The general take-up of enterprise social networking solutions provides an opportunity for every business function to better serve the organization’s needs, and who better to lead the way than the IT department and, in particular, the service desk?

But can social software really improve the way the IT department interacts with its customers, or is it just another over-hyped distraction for front-line staff? In Ovum’s view, the answer to this critical question lies in the organization’s social strategy, something very few organizations have in place today.

For the IT department, opening the door to social media will not necessarily win it any prizes, but it will send an important signal to everyone within the business that says “we’re here to help and to serve you”. Adopting an “open-door” approach means you have to be ready to respond to the good, the bad, and the ugly, but Ovum believes that herein lies the opportunity to do things differently, and better.

The CME Group is a tier-1 reference customer

The new Verizon Financial Network Premier Low-Latency Service has been unveiled with a significant reference customer in the form of the Chicago-based CME Group, which is the largest futures and options venue in North America. The CME Group is using Verizon’s service to serve its co-location data center in Aurora, Illinois, which will allow customers there to perform transactions in New York. It should be remembered that Verizon also has Nasdaq as the anchor tenant in its US data centers.

The latency that Verizon is promising is 14.5 milliseconds, which refers to the round trip, or as the carrier explains “the time it takes for data sent from its entry point in the network to reach its destination”. In comparison, Spread claims a round-trip time of 13.1 milliseconds between the two trading centers. Aside from the disparity in the speed of the services, there are a number of differences between what the two companies are offering.

Spread offers dark fiber, which allows a capital markets company to lease capacity from Spread and light and manage it itself. It also offers two levels of Ethernet service (1GbE and 10GbE) on wavelengths lit by Spread itself. These will have slightly higher latencies, but won’t be as expensive and will have the benefit of being managed by the carrier.

In comparison, Verizon’s offering is a managed service that features network monitoring and “management for both latency and availability”. This allows a capital markets company to sign a service-level agreement that guarantees the latency on the link and that the link will always be available when it is needed. If the link does go down, Verizon will immediately switch the company’s traffic to another link. Verizon is not offering dark fiber.

Verizon will compete with Spread’s Ethernet service

Ovum believes that Verizon’s new service will not compete with Spread’s dark fiber offering. The most latency-intolerant firms in the high-frequency trading community have both the budget and the technical capabilities to light and manage their own dark fiber, and will continue to do so if they can get latency of 13.1 milliseconds. While there will be some additional latency from the processing that firms need to do to light the fiber, most will prefer to do it themselves rather than go to a provider such as Verizon as many will believe that they can do a better job of keeping the additional latency down.

Verizon’s service is actually aimed at the next tier down, which includes companies with trading strategies that still need low latency but do not need to go to the extent of leasing and lighting their own dark fiber. As a result, Verizon’s service is primarily designed to compete with Spread’s Ethernet services.

This is a sensible move by Verizon as it has no interest in getting into the dark fiber business. The addressable market in the tier that it is targeting is also much larger. Many of these companies will already take other Verizon services, meaning that the carrier’s sales representatives will be able to target them with considerable account knowledge. In addition, it is standard practice in capital markets to take two different providers’ services on the most critical links for failover purposes. Therefore, Verizon’s services may complement Spread’s offerings, rather than displacing them.

Multivendor strategy makes the RAN market more competitive

The week of April 15th saw two LTE deployment announcements regarding SoftBank of Japan. The first was from Nokia Siemens Networks on April 16. Ericsson announced its own LTE win at SoftBank the following day. Both wins involved building an FDD LTE network in the 900MHz spectrum band. Prior to those two announcements, September of 2011 saw both Huawei and ZTE announce TD-LTE wins with SoftBank. No doubt one of SoftBank’s motivators behind having so many RAN vendors is cost. By having four different base station vendors SoftBank can keep capex down through competition. While four RAN vendors might be more than most operators want to deal with, it serves as a reminder of how hard RAN vendors will have to fight to maintain market share.

Success in wireless infrastructure goes beyond the base station

Digging deeper into Ericsson’s and NSN’s announcements, one sees that both vendors are selling more than just LTE base stations to SoftBank. Ericsson’s deal includes an Evolved Packet Core (EPC) solution and network integration services. NSN’s deal includes an HSPA+ network upgrade, network integration services, and backhaul. Having transport and data network assets certainly helps build confidence that a vendor recognizes that a good mobile network is about more than just the base station. Service support, however, might be even more crucial given the increasingly complex nature of mobile networks. Strong service support can also help operators minimize the opex costs that come with running a multivendor network. Both Ericsson and NSN are well positioned in this area. According to Ovum’s ICT service market share data for 4Q11, the vendors were ranked first and second, respectively, in terms of vendor services to communication providers in 2011.

NSN’s and Ericsson’s wins cast doubt on ZTE’s position with SoftBank

In September 2011, ZTE claimed it was the primary network vendor for SoftBank’s LTE network. Ericsson’s and NSN’s announcements appear to be substantial and counter ZTE’s statement. Ericsson claims in its release that it will provide FDD LTE coverage for over half of Japan’s population. Huawei’s initial TD-LTE deployment will cover parts of Tokyo (the country’s largest city), Osaka, and Fukuoka. It is possible that ZTE will eventually deploy a TD-LTE network larger than Huawei’s, but that hardly makes it the primary base station vendor to SoftBank. ZTE isn’t the only vendor to have ever overstated its market position. However, that doesn’t mitigate the fact that it appears to have overstated its position in SoftBank, which hurts its market image and distracts from its true success. Just getting into SoftBank where it wasn’t the incumbent RAN vendor is a big success; greater restraint would have done more for ZTE’s image than aggressive marketing.

Connections: the US, Asia’s “big three”, and Africa will drive growth

While there will be sustained mobile connections growth across all the regions of the world between 2011 and 2016, the US, Asia’s “big three” markets (India, China, and Indonesia), and Africa will be the primary growth drivers.

We expect connections in North America, which is dominated by the US, to reach 460 million in 2016, growing at a CAGR of 4.9% over our forecast period. Africa will be the most prolific growth region, growing at a CAGR of 9.3% to reach 982 million connections in 2016. While connection growth in Asia-Pacific has begun to slow, the region will continue to be the greatest contributor to global connections. Asia-Pacific will have 4.3 billion connections in 2016, growing at a CAGR of 7.0% between 2011 and 2016. This growth will largely be driven by the “big three” emerging markets of China, India, and Indonesia. These three countries will have 3 billion connections between them in 2016, accounting for 69% of connections in Asia-Pacific and 37% of the global total.

However, even these markets are not immune from the growing trend of “emerging maturity”, and connections growth rates will decline rapidly towards the end of the forecast period. Developed markets will be especially affected by this trend, and multiple data connections will be the only reason for their continued connections growth.

Revenues: slowdown will shift the focus to revenue stabilization

While global mobile service revenues have slowly begun to recover following the economic downturn of 2008 and 2009, the overall trend still shows a slowing growth rate over our forecast period. With concerns surrounding the health of the global economy mounting, the need for revenue stabilization strategies will become increasingly important.

While the overall trend points to slower revenue growth, different regions and countries will experience varying results. Mobile revenues in Africa are expected to grow at a CAGR of 4.8% between 2011 and 2016, while revenues in Western Europe will decline in absolute terms by 6.0%. These are the two extremes, with the other regions expected to experience small growth rates over our forecast period. Mobile revenues will grow at a CAGR of 3.3% in South and Central America, 3.0% in Asia-Pacific, 2.8% in North America, 2.2% in the Middle East, and 1.7% in Eastern Europe

Services: the future is data, but the importance of voice should not be underestimated

Voice will continue to underpin global mobile revenues over our forecast period, generating $641bn and accounting for 59% of total mobile service revenues in 2016. However, non-voice services, particularly mobile broadband, are changing the landscape. Non-voice revenues will reach $444bn in 2016, growing at a CAGR of 7.7% over our forecast period.

North America stands out for its non-voice revenues. While we expect the region to have just 6% of global mobile connections and 22% of global revenues in 2016, it will account for 27% of total non-voice revenues ($119.6bn). However, the sheer volume of connections in Asia-Pacific and the presence of a number of developed data markets will make it the largest region for non-voice revenues in 2016, with its revenues of $152bn accounting for 34% of the global total.

Non-voice revenues are no longer considered to be supplemental to voice revenues, and operators must implement tariff strategies that make data plans profitable. Some players have already begun to adopt these strategies by abandoning unlimited data plans.

Operator strategies: market pressures will demand robust responses

As growth slows, market realities dictate that operators must find ways to serve their existing customers profitably rather than simply growing their customer bases. Over the next five years, service and tariff innovation will be key strategies in generating new revenues in the market, while LTE rollouts, network optimization, and creative approaches to partnerships and M&A will become focal points for cost savings. As discussed in our Telecoms in 2020 series of reports, the operators that are likely to emerge as SMART (services, management, applications, relationships, and technology) or LEAN (low-cost enablers of agnostic networks) players will become increasingly evident over our forecast period.

To position themselves for this future, operators will need to decide how to provide next-generation mobile network access. While our forecasts show that HSPA will be the dominant technology up until 2016, the uptake of LTE will gather pace over the forecast period. LTE connections will grow from just 0.1% of total global connections at the end of 2011 to 9.0% in 2016. Operators will have to solve issues around spectrum availability, but eventually a clear investment case has to be made for LTE. While being the first player to launch LTE in a market may not grant a sustainable competitive advantage, failing to launch a LTE service when other market players already have is likely to be disastrous for an operator. This is especially important in North America and Western Europe, where LTE is expected to account for 53% and 22% of total connections respectively in 2016.

At the SDITS show Ovum will introduce its new model for how to start the Lean IT journey. The classic Lean approach is based on a five-step process proposed in 1996 by Womack and Jones to guide managers through a Lean transformation. The five principles are: specify value from the standpoint of the end customer, identify all the steps in the value stream, make the value-creating steps occur in a tight sequence, let customers pull value from the next upstream activity, and repeat this until perfect value is created with no waste.

However, Lean IT is more than about just adopting standard, repeatable processes, it is also about embedding those processes into the culture and people of an organization. Like the roots of trees the culture is difficult to see and therefore difficult for competitors to copy, yet it provides the foundations of stability for future growth. The purpose of Lean IT is not only to provide operational effectiveness (OE), but also about using OE to create a strategy that provides a clear, sustainable, competitive advantage.

In short, the answer to what Google should do is: incorporate some key elements of Motorola’s value-add into Android itself, make use of Motorola’s set-top box relationships to pursue the carrier and operator channel for Google TV, resist the urge to make Motorola the channel for future Nexus devices, and allow Motorola to continue to differentiate without favoritism. All of that requires some nuanced decision making on behalf of Google, and none of it is straightforward. But Google is acquiring a valuable set of assets which could help significantly in several key strategic areas if it gets them right.

Continue to strip back UI customizations

Motorola has wisely avoided some of the heavy handed Android UI customizations some of its competitors invest so much in. Google should continue to strip these back, allowing Motorola to offer a purer Google experience (though it should stop short of making Motorola the default supplier of future Nexus devices). This should also shorten the sometimes comically long delay between the launch of a new version of Android and the arrival of the first devices based on it. As part of this strategy, the Motoblur brand should be retired, as it serves at present only to confuse users since it stopped being used to describe UI elements some time ago.

Roll Motorola’s innovations into Android

Motorola has driven significant innovation around Android both organically and through acquisitions, including its Smart Actions software, its 3LM acquisition, and its Webtop offering. Google should seek to roll some of these into Android itself, with 3LM’s enterprise support being the most obvious example. This is already used by a number of Android OEMs, but it would be far more effective as a standard set of Android features. However, Google must be careful not to strip Motorola of all its differentiators as an OEM.

Use Motorola’s Home business to drive Google TV forward

Motorola has not driven the sort of integration between home and mobile offerings competitors such as Apple, Samsung and Sony have, and as such has missed an opportunity. Google should seek to use Motorola’s significant assets in the video space to both make Google TV more compelling and to pursue a carrier channel for Google TV. It would do much better as part of a carrier set-top box than it ever will as a standalone offering. Google should also drive greater integration between Motorola’s home and mobile offerings, giving consumers reasons to buy Google and/or Motorola across these categories.

Use Motorola’s Zecter acquisition to drive personal cloud offerings

Motorola brings with it the assets of Zecter, a company it acquired in 2010, and which created products which allow users to access their content across multiple screens and platforms. So far, Motorola has taken only small steps to integrate this functionality in the form of MotoCast, but Zecter’s other offering, Zumo Drive, could form the basis of a much more powerful extended home, or “personal cloud” offering, with cloud-based storage an integral component. This could be integrated with core existing Google services as well as its rumored Google Drive product.

Allow Motorola to continue to differentiate itself without favoritism

Google must strike a careful balance between allowing Motorola to differentiate itself and avoiding favoritism. The biggest risk with the Motorola acquisition is that Google alienates its other OEM partners by offering Motorola too many advantages. It should continue to share the benefits of the Nexus program with other vendors, and should not offer Motorola privileged or early access to new flavors of Android. Google needs to find ways for Motorola to continue to set itself apart under its new ownership, and the focus should be on its hardware expertise and R&D activities.

Information security and the need to keep users safe are massive issues for all organizations; just ask the noisy neighbors next door to SDITS at InfoSec. This is why my SDITS presentation on April 24 will focus on the crucial role that service and help-desk facilities have to play in protecting an organization and its users. While leading organizations have admitted to serious data breaches, the new emphasis has to be on identifying at the earliest opportunity security problems and misuse.

The malware sector is shifting its weaponry’s focus from technology to people, and because of social networking, attackers have growing amounts of information about would-be business targets. My presentation will focus on the service desk, both as the first port of call when something looks wrong, and its importance as the source of information when help is required. There will be time for discussion about how the desk can also be used to control user access, and why its ticketing systems can provide a useful source of information for recording, reporting, and remediating security issues.

EMC, in partnership with Cisco and its own subsidiary VMware, already sells cloud-in-a-box devices called vBlocks. EMC’s new devices are branded as VSPEX. As well as being aimed further down-market, they are delivered in a very different way, and can include a wide range of different vendors’ products. VSPEX demonstrates the need to tailor the delivery model to suit the market, and to balance flexibility and openness with the repeatability and simplicity of ready-assembled clouds.

VSPEX does not threaten EMC and Cisco’s alliance

In 2009, EMC and Cisco launched the vBlock, a device that combines Cisco server and networking gear with EMC’s storage, and VMware’s virtualization and management software. This was one of the first true cloud-in-a-box devices. Because VSPEX includes a choice of non-Cisco components, it may appear to be an eventual replacement for the vBlock. However, the future of the vBlock was already assured.

Initially, vBlocks were relatively slow sellers, but sales picked up during 2011 after EMC and Cisco reworked their go-to-market approach. By January 2012, vBlock annualized or run-rate revenue had exceeded $800m, and EMC was publicly predicting that it would average 20% or more until 2016. Even though that revenue is split between EMC and Cisco, it is more than enough reason to continue the alliance.

VSPEX is designed exclusively for the channel

VSPEX is a program comprising a set of reference architectures, alongside an EMC interoperability and certification laboratory, and marketing support and training for distributors, resellers, and integrators. VSPEX sales will be made exclusively by channel partners, and all VSPEX devices will be assembled in the channel. To underline this point, the stage at the VSPEX launch event was lined with a row of VSPEX boxes, each carrying a very prominent logo of a distributor or integrator. Some channel players will also provide first-line support for VSPEX.

The channel-friendliness is very deliberate because to reach the mid-market, EMC needs the channel. Part of the company’s motivation for launching VSPEX was very likely to have been the success of its arch-rival NetApp’s FlexPod devices, which are also cloud building blocks based on reference architectures and assembled in the channel. EMC is currently pitching hard to win more channel business, and has declared 2012 as its “year of the channel”.

VSPEX is a change of direction toward flexibility and openness

Unlike vBlocks, VSPEX devices are not restricted to EMC, Cisco, and VMware components. Instead, the reference architectures also allow customers to specify HP, IBM, or Dell servers, Brocade networking gear, and Microsoft or Citrix virtualization software. The only area in which there is no choice of vendor is storage because all VSPEX devices will use EMC products.

This is not the only big difference to vBlocks, whose configurations are tightly defined with part numbers or SKUs. Basing VSPEX on reference architectures is the reverse of a decision that EMC and Cisco made with the vBlock, which also started life as a set of reference architectures. Late in 2010 the two companies switched to SKUs for vBlocks, and said they were doing so to meet customers’ demands for specific, repeatable configurations.

One advantage cited for SKUs at the time was that EMC and Cisco’s joint support staff would be able to exactly replicate customers’ set-ups in a support center in order to diagnose problems. EMC also said this was one of the major changes to its and Cisco’s strategy that would help propel sales. But in the mid-range market where VSPEX is aimed, customers and channel players need more flexibility in the choice of components. Smaller organizations are less able to train up for what may be unfamiliar hardware such as Cisco’s relatively new UCS server platform.

Using reference architectures also answers NetApp’s criticism that vBlocks were not as flexible as its FlexPods, which unlike the vBlock have always been based on reference architectures. However, by allowing cross-vendor components, with VSPEX EMC is going one step further than NetApp. FlexPod reference architectures are built using only Cisco and NetApp hardware, although they do allow a choice of VMware or Microsoft virtualization software.

Sony’s best opportunity to regain relevance is to focus on becoming the premier multi-screen vendor. Multi-screen integration is becoming a key component of connected digital consumer services and Sony is now one of the select set of companies that has the assets required to compete at this level. However, integration has never been a strength for Sony, so building a successful and compelling multi-screen experience is going to be a challenge for the company, especially as its competition lines up to do the same.

Sony’s assets are not as valuable as they seem

On paper, Sony is in an enviable position; it has arguably the widest range of connected consumer electronics devices, an established global brand, and an extensive range of content services. However, the reality of the situation is somewhat different. Both Sony and Sony Mobile are struggling and losing money. While part of this is down to internal organizational and operational issues, a large part of this is down to outward-facing products and brand perception. While Sony has a heritage as a consumer electronics powerhouse, its heyday is in the past and Sony is no longer the brand it used to be in the minds of consumers. At the same time, Sony Ericsson has struggled to establish itself in the smartphone market by not effectively differentiating itself and giving users a reason to purchase its devices over its competitors. It currently sits as a tier-two Android manufacturer behind the likes of Samsung and HTC.

Even its content services are not as strong an asset as they might appear. While Sony does own its own media content, it will be hard for the company to use this to add a competitive advantage to its devices beyond reducing its own costs. Relying on exclusive content as a differentiator, without also appreciating the need for multi-screen, integrated experiences presents a major risk in the extended home. Sony would be unable to offer its content on an exclusive basis to Sony devices without impacting its content business by dramatically limiting its market .However, pricing is still a useful tool and one which Sony is willing to use – for example, in bundling six months’ free access to its Music Unlimited service with the purchase of its Tablet P or Tablet S devices.

Multi-screen integration is Sony’s best opportunity

Despite these shortcomings, Sony is potentially in a strong position if is it able to leverage its wide base of assets and build an integrated multi-screen offering. With the acquisition of Sony Ericsson, Sony has finally become a multi-screen vendor. This could not come at a more critical time for Sony. With the explosion of connected devices and digital media services, being able to provide a compelling multi-screen experience will be a key differentiator in the consumer electronics world as consumers become more confident with and demanding of the services and experiences they expect.

To its credit, Sony has acknowledged this need to offer a strong multi-screen experience and is heading in the right direction with its vision of offering “connected entertainment experiences”. However, it is one thing to have a vision and quite another to execute on this. Sony’s desire to integrate both its business and products is nothing new; it has been talking about this for at least the last five years – and the fact that the company is still trying to achieve this aim goes to show that it has not excelled at the task. However, with Kazuo Hirai taking over as CEO and immediately bringing about changes to the structure of the company, this could mark a new period for the company and one in which it may finally deliver on the promise of integration.

Today, Lean is becoming a vogue term for how organizations can ensure that the operational aspects of other functions in business can be made more efficient, hence the term operational efficiency (OE), which is now more widely understood. However, making IT an operation Lean requires organizational change as well as a shift in thinking by the IT department. Critical to this is defining the role of IT in the enterprise, and getting business leaders and IT to agree on the key aspects of responsibility and accountability.

Segmenting responsibilities is key to understanding the Lean IT model

Much of the driving force behind the traditional IT approach has been based on management thinking over the past 10 years, which has been to focus on core competencies. One key element of this school of thinking is to ensure that the skills and culture of the enterprise represents its biggest asset. However, within this search for core competencies, some organizations have relinquished control of some of the most important aspect of managing technology. For example, the quality-management and process-control areas cross the different categories and classifications. However what constitutes core is less generically prescriptive and more organizational in nature.

Ovum’s model helps clarify these activities. The Ovum model operates on a three-tier structure, where activity is categorized as either strategic, change the organization (CTO), or run the organization (RTO). Unlike the traditional approach, the discrete activities are further segmented into application delivery and infrastructure capability. This two-dimensional approach demonstrates the way in which partitioning workload based purely on RTO or CTO fails to take account of inter-dependencies, and the way in which fine-level control can be exerted.

People, process, and purpose are the key attributes

The statement “people are our most valuable asset” is often used by business leaders to try to convey the critical part employees play in any company. However, when a CIO is talking about adopting Lean IT principles, for most employees this equates to fewer people, and creates concern and skepticism about “people are our most valuable asset” statements. Lean can equate to fewer staff, but it is not necessarily a given outcome. The purpose of Lean is to ensure that there is no waste, and that processes are as efficient as they can be.

The concept of a learning organization was introduced by Peter Senge in the 1990s, and can be simplified as moving away from where “management extract ideas from the heads of people at the top of the organization and place them into the hands of people at the bottom” toward an environment where every individual is developed with the purpose of superior economic performance for the enterprise.

While the theories and names of the techniques are many and varied, the essence is that employees need a common purpose (“shared vision” in Senge’s terminology) so that they can be aligned with one another and the company. For most organizations this is the vision statement, but many fail to garner support for these statements because they often appear isolated and unconnected.

Ovum believes that processes must have owners, and that these processes must link the employee to the shared vision. Lean IT provides these processes, which are clearly linked to economic performance and improved quality of service. The CEO must incorporate this “ground-up” approach in the generation of a shared vision. However, to become a Lean organization the culture needs to change from “learned” or “taught” knowledge to one where acceptance of more tacit or intuition-based knowledge is valued.

Business relationship managers are key to the delivery of Lean IT

The concept of a business relationship manager (BRM) is not new, but in most organizations the role has struggled to deliver the value it promised. Ovum believes much of this failure to deliver is due to the way in which the BRM role has been implemented. Most organizations appoint an adequately skilled individual to the position of BRM, but this is where they stop. In Ovum’s view, the BRM is the head of a virtual team working toward the same objective, albeit with different areas of responsibility.

The BRM team should separate its activities into two distinct areas: strategy and innovation (or new developments), which is the primary role of the BRM, and operational efficiency (OE), which is the role of those involved in operational support activities. Many BRM initiatives have failed to deliver real sustainable business value because their focus has been on the strategic, but the business also want to discuss the operational issues. The result is too much work for a single role.

The classic development/support argument demonstrates this position. If BRMs discuss new innovation and focus on new developments this could store up problems in the future. As new developments are transitioned to support most projects, this is a critical and dangerous phase, where success or perceived success is measured by how smoothly the new system was introduced. The BRM must act as the DevOps interface so operational and support issues are taken into account in the design and development phases of any project.

This may seem like a minor development for Facebook users who are already accustomed to sending private messages to their personal contacts, but it will have an impact on customer service. Consumers can share private information via messages, and ask personalized support questions through a tool with which they are already familiar. However, the development also represents a challenge for enterprises that must invest in staff and tools to manage their social communications.

Social customer service still has a long way to go

Social customer service is still in its infancy, and enterprises are considering how to manage support questions alongside marketing campaigns on Twitter and Facebook. In the context of customer care, enterprises that provide social media support today typically have small, specialized teams that are focused exclusively on social media. Customers are rapidly becoming familiar with using forums and communities, but relatively few use Twitter and Facebook for personalized support issues because they previously did not have the opportunity to do so. Twitter messages are limited to 140 characters, making it difficult to explain issues, while until the addition of messages on Facebook all queries had to be posted publicly on a page. Postings direct to a public Facebook page are useful for drawing attention to issues and crowdsourcing ideas, but not all information should be shared in a public forum. Ovum believes that Facebook messaging will help change customer service for organizations that have a large or growing Facebook presence because it allows them to communicate directly with customers on a more personal and private level.

Facebook messaging will be particularly suited to smartphone users

Messaging will benefit Facebook users; customers can ask enterprises questions directly, and will be able to include private account information that they were not able to share previously on public Facebook pages. They should not worry that enterprises will use the channel to send sales or spam messages because enterprises can only communicate with customers this way if a customer sends a message first. In addition, customers can send direct messages to a business whether or not they are a fan of that business’s page, opening up the service to all Facebook users. Facebook messaging will be particularly suited to smartphone users who have the Facebook application on their device, as they will not need to look up an email address or phone number to ask a question, and can quickly send questions while on the move.

Enterprises must evolve with Facebook

Enterprises with Facebook pages have the option to choose whether they want to enable messaging. Ovum believes that enterprises with a strong web presence should allow their customers to use messaging as a support option. However, they must make sure they are prepared to handle the additional traffic. They need trained agents and a system that will allow them to manage, record, and store Facebook messages alongside email, phone, and chat. Security may be an additional concern because customers will be more likely to share personal information in private messages. Financial institutions will need to work with Facebook and ensure they have an added layer of security if they want customers to be able to share account information.

As Facebook messages become more popular, enterprises need to look at customer behavior and determine which types of queries are best answered via Facebook and which should be routed to a phone call. As the number of channels for customers to communicate with them increases, enterprises need to simplify the interaction process, and use business rules to automate answers to common questions or to direct customers to forums. Facebook user profiles should be matched to CRM data where possible to help enterprises better understand their customers and ensure that agents have all the relevant information. Enterprises should monitor the success of Facebook as a support channel by looking at cost per interaction and resolution rates. Facebook messages, although similar, will not be a replacement for email, and not all customers will want to use them. Nevertheless, enterprises should ensure that their customers realize they are supporting the channel.

Vendors need to create consistent solutions for all channels

Traditional contact center routing, CRM, and workforce optimization vendors have been gradually adding social media capabilities to their platforms, but few vendors have built a comprehensive social media solution that encompasses the channel’s unique features. As a result, a new market of social media customer service players is emerging: specialist vendors such as Conversocial are providing simplified solutions to analyze, route, and manage Facebook and Twitter queries on the agent desktop. This approach works today, but if a significant number of customers begin using Facebook messaging for support, enterprises will need scalable solutions that are closely tied to their existing phone, email, communities, and web chat capabilities.

Vendors must ensure that enterprises can match customer records across different channels so that they can measure and improve first-contact resolution. Enterprises need an integrated channel solution with business rules to ensure customers receive rapid, relevant access to support, regardless of their channel preferences. The introduction of Facebook messages should be seen as an opportunity for vendors to work together and help enterprises develop their social support strategies.

Organizations are interested in end-to-end SaaS solutions

A shift to SaaS solutions is primarily driven by advantages such as reduction in upfront capex, easier software upgrades, faster deployment, and flexible pricing models. Likewise, organizations want integration between SaaS and on-premise legacy applications to be carried out simply and efficiently.

Integration is often messy and complex and beyond the core competencies of IT. In the case of small-and medium-sized enterprises (SMEs), the proposition of maintaining dedicated and skilled resources to support integration requirements is not attractive, and is at times beyond their IT budgets. Although integration outsourcing could be a suitable alternative, the costs associated with it are not always in line with what organizations are willing to invest. Given their past experiences, organizations are unsure if system integrators will be able to deliver the desired integration capabilities in a timely manner. Faced with these limitations, another option for organizations are specialized SaaS integration vendors who have dedicated offerings that enable the desired integration capabilities at a lower cost and with a shorter deployment time.

As part of their growth strategy, SaaS integration vendors have so far focused on increasing the range of integration scenarios they can support, with many of them offering integration products via the cloud. While this business model has achieved some initial success, its long-term prospects are still unclear. Recently, however, organizations have shown an increased preference for end-to-end SaaS solutions that can function in a plug-and-play mode. They are no longer interested in dealing with two different parties, one for a SaaS solution and another for the essential integration of disparate applications.

The benefits of packaged integration are hard to ignore

Integration is an alien business for SaaS vendors, and they are not interested in expanding their horizons beyond their core competencies. However, they just can’t ignore the fact that with the passage of time, awareness among SaaS users has grown and they are asking some tough questions, including whether it will integrate well with on-premise applications, whether the functionality can go beyond the walls of the organization, and what is the most economic way to integrate SaaS and on-premise applications. In the light of this, SaaS providers can no longer expect to grow without helping customers identify the most suitable option for SaaS integration.

In the case of specialized SaaS integration vendors, a stand-alone business model limits their reach to potential customers. For them, the only way to remain relevant in a fiercely competitive market is to extend the range of SaaS integration scenarios that are supported by their offerings, both in terms of platforms and deployment environments, but this alone cannot ensure sustained growth in the longer term. One can argue that SaaS integration vendors can safeguard their business interests by having a partner network that includes all the key SaaS providers in the business. However, these partnerships will deliver only limited benefits because customers will still be required to deal with two very different parties: the SaaS provider and its partner the integration vendor.

Packaged integration eliminates the limitations of a stand-alone business model and provides benefits that are far greater than those an extensive partner network can provide. Under this business model, SaaS providers and integration vendors work as close partners to package a complete end-to-end SaaS solution that is almost ready for deployment. This business model not only ensures sustained and profitable revenue streams for both partners, but also safeguards customer interests by ensuring that they are not charged for any standard upgrades. Given the synergy in go-to-market strategies, both parties can save a lot of time and money that they would have otherwise invested in reaching out to the same set of prospective customers. They can also leverage individual strengths to further improve their chances of gaining a greater market share.

From the perspective of the customer, packaged integration is ideal. Apart from simplifying the complexity of integration process, end-to-end SaaS solutions also offer benefits such as flexible pricing and easier upgrades. However, there is a down side to packaged integration: it increases the threat of vendor lock-in. Because of the greater dependence of the customer on the existing SaaS vendor, it is difficult to switch providers in the case of any service-related issues, and customers will have to take on additional expenditure for achieving integration between SaaS and other applications (on-premise or SaaS-based).

The BI market has been crying out for pricing transparency

When BI software first emerged as a software category it came at a premium. Vendors often got away with exorbitant price tags for client tools that were fat, complex, and usable by only a handful of specialist power users in the organization. Not disclosing the cost further worked to the advantage of vendors in terms of flexibility and sales negotiation. This benefited vendors in their efforts to squeeze money out of new or long-term accounts, but it did not help organizations that knew relatively little about buying or implementing BI and data warehousing software.

Because apple-to-apple price comparisons are hard to come by, Ovum estimates that over 50% of BI and data warehousing sales between 1995 and 2000 were either inflated or exaggerated according to needs. Customers did not know what and how much software they needed to solve their BI problems, and vendors did not make it easy for them to do so.

Broadened suites, complex packaging, and cryptic licensing schemes don’t help

The days of selling individual BI tools at a premium price are over thanks in part to the advent of web clients, cloud computing, and a certain degree of commoditization in the BI market following the entry of providers such as Microsoft. Yet today vendors including SAP, IBM, and Oracle still offer broad and functionally rich BI suites that cover a wide range of requirements. These suites consist of modules that are integrated at varying levels, but almost always packaged and sold as a suite. It is difficult to accurately price solutions like these because they are largely based on the features required and the modules selected.

The way in which BI tools are packaged also adds complexity. In spite of similar-sounding names, there are no standards when it comes to packaging specific BI functionality into an OLAP, reporting, or dashboard application or module. Moreover, more sophisticated or greater value-add functionality is often delivered as a paid-for add-on to the core BI modules.

Coming up with a definitive price list for an end-to-end BI suite becomes even more complex when support, maintenance, and other licensing considerations have to be factored in. Clear licensing, or lack of it, is a big issue. While many vendors follow tiered licensing structures based on, for example, role (developer, viewer) or number of users (named, server, enterprise), many variations still exist. For example, while most vendors offer separate server and named-user pricing for BI tools, some offer a combination of the two.

Support, training, and maintenance are also usually represented as separate costs that need to be factored in to the baseline price. Again there is considerable variation in how vendors approach this. Some vendors price support as a percentage of the list price, while others charge for support based on the net price.

The BI market is moving in the right direction when it comes to pricing

Because QlikTech’s business model and BI software is all about simplicity, the move to publish its full price list on its website should come as no surprise. It is not, however, the only vendor to do so. Microsoft and Oracle have published their list for several years, and newer entrants such as Tableau Software also do.

Both QlikTech and Tableau have experienced rapid growth over the past five years, and simple products coupled with simple pricing might have a lot to do with this. Other BI vendors, even those selling large integrated suites, should take heed. While it is too early to say whether moves to provide clearer glimpses into pricing policies will perpetuate a wider trend in the BI sector, it is badly needed, and more so as BI options open up for customers driven by disruptive technologies and models around cloud computing, open source, appliances, and in-memory processing.

Advice for BI customers: don’t forget the hidden costs

Any move to make pricing clearer for customers is to be applauded. QlikTech’s actions might well be considered a move of good faith, but what is not so clear is if the published price list is set in stone or merely a starting point for contractual negotiations. Until standard pricing becomes standard practice for BI and analytics software purchasing, Ovum believes there will be plenty of scope for deals to be struck.

Negotiating the “perfect” BI deal is not an exact science in spite of attempts to create a definitive pricing framework based on extrapolated and adjusted averages of deals for small, medium, and enterprise deployments. Irrespective of size, every BI project is unique and will have unique functional requirements that do not fit into a neatly banded price list. Pricing a BI solution therefore requires a more pragmatic approach and understanding of managing and manipulating the various processes and discussing price points at each of these steps. This includes the processes that lead up to a software purchase (BI strategy/roadmap formulation, requirements scoping, request for proposal, evaluation) and after (hardware/software installation and maintenance).

The goal should be to boil down BI requirements and needs into discernible features, functions, and architectures that can be accurately priced, and can, if necessary, be negotiated down. However, customers should also be aware of factoring in hidden costs around the actual software, such as the data-management (integration and quality) infrastructure, training, and change management. These costs can easily exceed those of the software several times over if not carefully thought out and managed.

Capex versus opex calculations will vary across the enterprise segment

Enterprises understand that shifting to a SaaS model will result in lower capex, saving on upfront licensing fees, and the costs associated with any related hardware purchases. The shift to a SaaS model will also preclude the need for enterprises to spend money on upgrades and the maintenance of applications/solutions they already use. From the perspective of balance sheets, enterprises will not be able to write off the depreciation associated with existing hardware. As part of their subscription to SaaS applications, enterprises will have to pay the monthly or term-wise subscription charges, which will increase their quarterly outlays. Last, but not least, the shift to a SaaS model does involve substitution costs because applications might require some add-on coding effort to become compatible with a cloud environment and/or for integration with other applications (cloud or non-cloud based). There are no clear-cut calculations that could help in determining the break-even point between capex and opex. The complexity of these calculations will vary across the enterprise segment and on a case-by-case basis.

Integration comes at a cost that many organizations are not prepared to pay

Enterprises want seamless integration between their SaaS and on-premise applications. They have similar expectations for B2B integration scenarios that involve multi-enterprise process automations. Although traditional integration approaches including SOA and custom-code development could fulfill these requirements, the expenditure and implementation times associated with these approaches are not always in line with the IT budgets and project plans of many organizations. While most SaaS applications are sold on the promise that their integration with on-premise and other SaaS applications will be an easy process, organizations often find that integration projects turn into complex and messy affairs.

Pre-integrated SaaS solutions do reduce the complexity of application integration to a certain extent, but they are by no means a silver bullet for all integration issues. Solutions such as these involve significant additional costs on top of the costs associated with the core SaaS functionality. More complex integration scenarios are beyond the capability of these solutions, and enterprises might have no other option than to look for other suitable alternatives. Whether the choice is one of a traditional integration approach or an integration outsourcing arrangement, enterprises must understand the overall impact of integration expenditure on their IT budgets.

While it is true that seamless integration is the key for realization of the true business value of SaaS-related investments, it is also true that seamless integration is often an expensive proposition that at times is difficult to achieve. Such scenarios are quite common in large enterprises that are undergoing rapid expansion driven by large-scale IT modernization initiatives. In these scenarios, organizations often focus on meeting discrete integration requirements by following different integration approaches, with the consequence that the overall integration expenditure increases significantly.

Integration should be considered upfront, not as an afterthought

One of the main reasons for time and cost overruns in SaaS implementations is the lack of an integration plan. More often than not, the IT function of the enterprise does not have a plan that covers the integration requirements and takes into account integration issues. Such an oversight often leads to disappointment and the subsequent belief that the shift to a SaaS model was not the correct decision. In order to avoid problems such as these, IT management should investigate and plan for integration requirements as well as formulate a strong business case for the funding of integration projects by aligning the potential outcomes to current and near-term business requirements. This will ensure that a suitable budget is allocated for integration, and that SaaS implementations are completed on time, and more importantly, deliver the desired end-to-end functionality.

VDSL2 vectoring still in infancy; progress in 2011 and more to come in 2012

Vectoring technology for VDSL2 lines took a step towards commercial reality in 2011. In September, Alcatel-Lucent, the leading VDSL2 vendor, announced the commercial availability of its equipment and named its first customer, Belgacom. By 4Q11, it shipped its vectored VDSL2 gear to Telekom Austria. Its closest competitors, ZTE and Huawei, announced prototypes and plans in 2010 and 2011, and other vendors such as Ericsson, ECI Telecom, Calix, Adtran, and Zhone will follow. Most likely there will be additional announcements of commercial launches and customers in 2012.

Demand for vectoring will influence growth of VDSL2 port shipments

AT&T and Deutsche Telekom are among the initial wave of large service providers that have upgraded their copper networks to FTTN+VDSL2 networks. Back in 2006, the objective was to support data rates of 24–50Mbps. But the combination of VDSL2 pair bonding and vectoring now brings the promise of supporting up to 100Mbps per subscriber downstream. Such a service would rival offerings from MSOs with DOCSIS 3.0 networks and FTTH players. Some will still deploy VDSL2 without vectoring. This will be especially true in countries where open access and unbundling requirements make vectoring an unattractive option: operators can reap the maximum benefits of vectoring by applying it across an entire cable binder – a difficult issue for incumbents who are required to share the binder with competitors. But for others, the promise of gains from vectoring will be an important driver in moving forward with FTTN or FTTCabinet deployments involving upgrades to VDSL2. We expect the strong growth in VDSL2 shipments in North America and Europe in 2011 to be more moderate going forward due to some large deployments ending recently. But the attractiveness of vectoring products could result in improved prospects for VDSL2. See our upcoming broadband access equipment forecast for details.

Reliable testing equipment will help to establish trust in VDSL2 vectoring

Long Island-headquartered Telebyte manufactures DSL test equipment – particularly the physical layer testing of DSL signaling devices such as DSL chipsets, modems, and DSLAMs. Its customers include both equipment vendors and carriers. Telebyte’s equipment plugs a gap in testing for this nascent technology. According to Telebyte, existing local loop simulators and noise generators are not suitable for testing vectoring. The VxT-48 xTalk Emulator is inserted between the DSLAM and the DSL modem and provides an automated platform with 48 independent loops and crosstalk simulation. A big advantage will be the ability to test independently across multiple vendors’ equipment. Currently, each VDSL2 vendor can claim x% of bandwidth gains across y% of vectored lines in a binder, but without independent test equipment there is no suitable way to compare apples to apples. Along with the commercial launch in 2011 of Assia’s DSL Expresse offerings – a VDSL network monitoring and troubleshooting system available to some extent even on mobile devices – the availability of Telebyte’s testing equipment suggests the VDSL2 vectoring ecosystem is beginning to emerge and mature.

FTTx equipment shipments continue in Japan but are not growing

FTTx household penetration in Japan exceeds 42%, equating to almost 22 million subscribers. FTTx equipment shipments – both OLT ports and subscriber-side ONUs/ONTs – continue apace but the volume is not growing year over year given the maturity of network deployments.

Bottom line: Japan’s FTTx networks are taken as status quo today. Japan’s FTTx equipment vendors must look to other markets to attain revenue growth.

FOE 2012 day two: The US cable market may be the growth engine

The major US cable operators are working with CableLabs for the development of DOCSIS provisioning of EPON (DPOE). DPOE maintains DOCSIS, the widely used cable service provisioning system, as cable operators begin to deploy FTTx networks. The initial focus of the US MSOs is on business services, which offer a higher revenue opportunity than residential services.

But the higher ARPU from businesses comes with a price – or several prices. First, businesses demand higher QoS (quality of service) and more stringent SLAs (service-level agreements) than residential subscribers. In addition, most business customers would prefer 10G symmetrical EPON versus 10G/1G or 1G/1G. While 10G symmetrical solutions may not be available today, the MSOs will be expected to provide seamless upgrades in the near future.

The Japanese vendors do have a chance in the US MSO market

The cable operators need vendors with expertise in three areas:

• EPON
• CMTS
• routing.

The leading CMTS vendors, Cisco and Arris, are not leading vendors of EPON solutions. The leading EPON vendors, such as Huawei, ZTE, Mitsubishi, and Sumitomo, are not well versed in CMTS. Basically, no vendor is a perfect fit.

In addition, the Japanese EPON FTTx vendors have the roadmap under control. They are quite far along with 10G/1G EPON solutions and will develop 10G symmetrical as components become available.

Partnerships are the answer

Partnerships between the leading CMTS vendors and the leading Japanese EPON vendors may provide the best chance for winning market share. If a Sumitomo or Mitsubishi were to combine forces with an Arris or Cisco, the result could fulfill the requirements of DPOE while providing confidence to the MSO industry that the solution would maintain their huge investments in DOCSIS.  

And let’s face it, a partnership between Huawei and Cisco is very unlikely. The Japanese are probably the only EPON vendors that could approach the CMTS vendors and be greeted with an open door. An open door does not guarantee a working partnership, but it is a positive first step.

SLAs should be used as more than a one-time document

Envisage a scenario where an SLA is agreed between the business and IT service managers, and the details of what is required in terms of service deliverables are then communicated to the service desk, operations, and other functions of IT. The documented SLA and included information are then stored away and are often not re-addressed unless a dispute arises and IT needs to prove what was initially agreed in terms of service warranty. This common scenario is very much a one-time activity, which is a pity because repeat value can be gained from SLAs.

Examples such as the one above can result in challenges, especially in terms of educating new staff about the SLAs already in place. For example, new employees on the service desk have many things to learn in their new role. It is not feasible for them to be briefed about every single SLA in place, and therefore their awareness of the businesses service expectations, and subsequently what may constitute a priority incident, largely comes from having to consult with colleagues. There are more efficient ways to make support teams aware of the incidents that may require greater attention. It is also valuable to consider the perspective of the consumer of a service and how it would be useful for them to know the level of service they can expect.

Increase the value provided by SLAs by making them more visible

The repeat value of an SLA can come from simply making it more accessible, if appropriate, to those that work within its agreed assurances. Increasing its visibility will help to better establish the service expectations of the customer, while also providing IT with the knowledge of the incidents received which may be of high priority without them having to take the time to consult with more experienced members of their team or department. Customers will also benefit from this increased visibility. After all, they agreed to the assurances contained, so it would be useful for them to have access to them. For example, an SLA could state that a response time lower than x for system y is not acceptable. A customer working with this system could therefore refer to this information when they notice a slowdown in system speed, and could then be confident that this is an issue that they need to raise with IT.

It is worth noting that many ITSM tools do have alerts that are triggered when an SLA is breached, but these triggers are reliant on specific data input that might not always be initially identified. An agent who has access to an SLA is able to refer to the information within it and better prioritize an incident, ensuring more efficient handling of that particular call. 

Social platforms help not only in increasing awareness of agreed service levels, but also ongoing monitoring

As social enterprise technologies such as Yammer and embedded functionality in ITSM tools continue to see greater enterprise adoption, they provide the capability to not only make SLAs more visible, but also provide a means to gain relevant and realtime feedback on them. This is certainly an evolution in the way that service-level agreements can be monitored. Through social platforms, service-level management can more closely monitor the opinion of customers relying on the associated services, giving them greater insight into whether an SLA may need a formal review. This instant method of monitoring can be very useful in increasing the value provided by IT to the business.

Attensity offers four social analytics applications to enterprises

Attensity told Ovum that it targets enterprises with large volumes of unstructured data, from internal sources and external sources such as social media commentary which the enterprise may not be aware of, to identify the complex problems which have a significant impact on the company. Attensity offers enterprises four social analytics applications to manage the unstructured data housed internally and flowing around, to, and from the company interacting, directly or indirectly, with customers engaged in commentary in social media communities. The four applications are the Attensity Pipeline, the Attensity Command Center, Attensity Analyze, and Attensity Respond:

• The Attensity Pipeline is a realtime annotated social media data feed from more than 75 million social media and online sources provided by Attensity which clients can augment with other unstructured data such as emails, surveys, and CRM notes. The Attensity Pipeline feeds the other three Attensity applications: the Attensity Command Center, Attensity Analyze, and Attensity Respond.
• The Attensity Command Center uses the Attensity Pipeline to display a portfolio of six dashboards monitoring in realtime selected business issues important to the client. The dashboards can visualize the unstructured data being monitored in a variety of forms from bar charts to word clouds to specific conversations to maps illustrating conversations by geographic location, and specific conversations or keywords. The Command Center feeds the two other Attensity applications – Attensity Analyze and Attensity Respond.
• Attensity Analyze enables enterprises to capture the detailed sentiment of their customers and prospects, perform root-cause analysis, and analyze trends. For example, an enterprise can track satisfaction or disappointment across brands and competitors and get to the root cause behind the sentiment.
• Attensity Respond enables enterprises to engage customers either directly or indirectly on any social network, to monitor conversations about brands, build brand engagement, identify opportunities to actively engage by delivering proactive services, or provide assistance to customers when requested.

Attensity is offering a property and casualty (P&C) insurance claims management solution

Ovum believes more technology vendors should target vertical industries as an integral part of their go-to-market strategy. Attensity obviously agrees and is currently targeting the telecommunications, wireless, hospitality, travel, retail banking, high-technology manufacturing, retail, and insurance industries. The last one is our focus here.

Attensity has decided to offer a tailored social analytics claims management solution to assist P&C insurers detect fraudulent claims, identify subrogation opportunities, and perform detailed claims analysis. The Attensity out-of-the-box P&C claims management solution includes insurance industry specific dashboards, reports which are based on Fortune 500 P&C insurance companies, categories and topics; continuously updated social media feeds; sentiment and root-cause analysis; and a point and click wizard for creating custom reports and dashboards. P&C insurers can create their own dashboards and reports as well. One part of the solution enables P&C insurers to fuse unstructured data from internal and external social media and other online sources, analyze the bundled data, and assign claims, when applicable, to the special investigative unit (SIU). Almost every P&C insurance company has an SIU which is charged with investigating and resolving fraudulent claims.

Insurers, whether P&C or life insurers, need to use social analytics

Social analytics is not just for P&C insurers. Insurers, whether P&C or life insurers, have been collecting, storing, and mostly ignoring the unstructured data created as a by-product of major business operational processes including, but not limited to, new customer acquisition, customer service, claim management, channel management, and product development processes. In reality, the unstructured data is not a by-product of any business process. It is a critically valuable asset which insurers must learn how to parse, analyze, and use to strengthen all of the business initiatives that keep the company operating and profitable. There is not an insurance business process which cannot be strengthened by the deployment of social analytics in the rapidly expanding digital media marketplace.

Social analytics minimizes the ignorance of insurers not knowing what they do not know

Attensity told Ovum that one of the questions it gets most often from insurance clients is to “tell us what we do not know.” Ovum believes the question is getting harder to answer because the answer, or at least some relevant insight into the answer, is hidden somewhere in the never-ending tsunami of unstructured data being generated in social media communities, the blogosphere, and other online sources. Social analytics firms, such as Attensity, which are not tethered to topics defined as keywords but instead as semantic-based topics, are in a stronger position to make the question “tell us what we do not know” easier to answer.

While much of the capital will be returned to CTI’s fellow shareholders, CTI’s share will be invested in local content production capabilities to underpin its bid for a free-to-air (FTA) TV license in Hong Kong. CTI is almost certain to gain the license.

While at first glance this may seem to be a telco 2.0 story about the separation of content and carriage, a closer look reveals that it isn’t. The fiber network and associated IPTV service and platforms will be sold as a going concern, and CTI is moving on to other challenges. Instead, this is a case of an investor successfully challenging incumbents in the Hong Kong broadband and IPTV markets, and then cashing in on that success at an opportune time.

A clean break, not a separation

There is no doubt that the push into content services has generated a kind of split personality within telcos. The management demands of operating a network and content business are very different, and the growth of OTT players also means that the competitive environment for these two businesses has changed. The emerging trend is towards separate management structures for different activities, which can lead to structural separation in the future.

However, the sale of HKBN is not an example of this scenario. The entire business has been sold as a going concern, and there will be no separation within the business. Instead, CTI is simply liquidating its investment in the profitable low-cost fiber network that it has created, which now reaches 2 million households and delivers some of the best-value broadband services in the world. It will use the cash raised from the sale to launch another high-risk venture. Having added a powerful competitor to Hong Kong’s fixed telecoms market, it now intends to replicate this success in the Hong Kong FTA broadcasting market.

One twist in the scenario is that CTI retains indefeasible rights of use (IRU) to the HKBN to deliver multi-channel, free-to-air TV. HKBN must also expand the fiber network as directed by CTI, with CTI providing the cash for expansion. This is to ensure that CTI can meet any universal service obligations attached to a FTA license.

CTI takes on a challenge

The FTA market in Hong Kong is dominated by TVB, which is currently the sole licensee. TVB has driven competitors out of the market in the past, meaning that launching a rival service will be a major challenge for CTI. The cash raised in the HKBN sale will be invested in a major content production facility in Hong Kong, which is expected to cost over $100m. This is necessary because local high-quality content is essential for success in the FTA market. CTI’s business plan includes three self-produced channels – an integrated Cantonese channel, an integrated English channel, and a round-the-clock news channel – and 27 other channels. The operational costs of production will be significant.

The challenge for CTI cannot be underestimated. Advertising is the only reliable revenue source for FTA TV, but the advertising revenue pool in Hong Kong is finite, and fragmentation and competition may depress the company’s overall revenues. The acquisition of exclusive content, which is crucial to a competitive FTA business, is also expensive. While CTI stood aside from exclusive content bidding wars for its IPTV service, it will be forced to bid for this content in the FTA market.

Opportunities for HKBN too

There are also opportunities for HKBN in the new relationship. If HKBN is CTI’s sole delivery channel, connection to CTI’s FTA channels will require HKBN to make a fiber connection, which presents a potential source of revenue. Under the IRU arrangements, HKBN will not be compensated for actual use of IRU capacity. If CTI can assemble an attractive FTA line-up, demand for HKBN’s broadband service may be boosted by customers consolidating on a single network, which will present HKBN with marketing opportunities. HKBN is unlikely to be too defensive of its IPTV service, which is relatively weak in comparison to the offers of its broadband competitors.

FOE 2012 day one: Business as usual

While FOE 2012 offers business as usual on the surface, with the usual flurry of product announcements, it also reflects market realities. Many of the Japanese optics component vendors are facing tough times. The domestic market is stagnant, sales have suffered from the impact of two 2011 natural disasters, and competition from Chinese vendors is increasing around the globe. One large Japanese component vendor simply stated that it no longer has lead times over its Chinese competitors – they are head-to-head in product announcements. Many Japanese vendors commented on the continued tough price competition from Chinese vendors.

Measuring the state of Japan’s OC business

One cannot gauge the state of the Japanese optical component industry based solely on attendance – the show floor is crowded.

One cannot gauge the state of the Japanese optical components industry based on spectacular booths or graphics – this event has never attracted the glitziness of a Las Vegas–based trade show.

One cannot gauge the state of the Japanese optical components industry based on the presence of Chinese vendors’ booths – many of them have been exhibiting at FOE for several years.

One cannot gauge the state of the Japanese optical industry based on the presence of US-based communications chip vendors – they have not been consistent exhibitors from one year to the next.

One has to look a bit deeper and gauge responses from a variety of participants, and the consensus is that the Japanese OC industry is “flat.” 

Acquisitions as one competitive strategy for the Japanese vendors

Mergers and acquisitions can help vendors broaden their product lines and develop vertical integration to improve gross margins in tough pricing environments. While acquisitions by Japanese communications companies of non-Japanese vendors are highly unusual, there were two such announcements within the last several weeks (please refer to Ovum’s opinion pieces on these two acquisitions):

• Fujikura announced an agreement to acquire US ROADM specialist Nistica
• Sumitomo Device Innovations (SEDU) revealed plans to acquire Emcore’s VCSEL (vertical cavity surface emitting laser) fab and VCSEL-based product lines.

Interestingly, these two acquisitions include technologies needed for next-generation opportunities.  Nistica’s wavelength-selective switch (WSS) technology provides Fujikura with a bona fide colorless, directionless, contentionless, and flexible grid solution. Similarly, the VSCELs acquired by SEDU enable development of 10, 40, and 100G connectivity for data center applications.  The market-leading vendors have these technologies, but they have been absent from the Japanese OC supplier toolbox.

Perhaps acquisitions will have an increasing role for some of Japan’s component vendors as they struggle to compete for revenue growth, product innovation, and gross margin.

Looking forward to day two

This analyst (and former exhibitor when FTTx was full steam ahead) is looking forward to day two. The rain has stopped and the sky is a brilliant morning blue.

Organizations are increasingly sponsoring healthcare “app challenges”

Recently, much attention has been directed toward the digitization of healthcare records. In order to advance this process and increase adoption among providers, the Centers for Medicare and Medicaid Services (CMS) have provided monetary incentives to those who adhere to “meaningful use” guidelines (a set of requirements on how EHRs should be used). This attention, coupled with the pervasiveness of mobile applications, has created much excitement around, and interest in, health IT, and has influenced government and non-profit organizations to create and sponsor healthcare “app challenges” (some of which are EHR-specific), such as those listed below.

• Healthy Apps Challenge. Sponsored by the US Surgeon General, this competition encourages application developers to build apps that help people to engage in healthier behaviors and ultimately live healthier lives.
• 100 Day Innovation Challenge. Organized by Health 2.0, Startup Health, and Blueprint Health, this competition encourages experienced stakeholders (dubbed “hosts”) to collaborate with less-established companies (known as “innovators”) to create new healthcare technology solutions.
• Investing in Innovations (i2) Initiative. Created by the ONC, this initiative includes a set of competitions, each with various goals. They include: “One in a Million Hearts,” which prompts participants to develop applications that target heart-related conditions; “popHealth Tool Development Challenge,” which encourages developers to create applications that operate on the open source popHealth platform (a software that enables quality metrics reporting and submission); and “Reporting Device Adverse Events,” which asks developers to create applications that enable the reporting of adverse events relating to the use of medical devices.

This is just a sample. Ovum expects that these types of health IT “app challenges” will be created on a continuous basis. Government organizations have lofty goals to improve quality and reduce costs, so by sponsoring them, they are effectively helping to drive the creation of technology-based solutions which address these goals. Ovum considers them to have great value, and believes that they will play an increasingly important role in advancing innovation in the field of health IT.

Developers have a lot to gain from these competitions

Ovum strongly recommends that developers, especially fledgling developers, take full advantage of these competitions. Developers must look at them as much more than just funding opportunities, as Ovum believes that participation can yield considerable long-terms benefits beyond monetary ones. Developers should first look to the organizations that are sponsoring them. These organizations are heavily involved in healthcare IT and understand its major challenges. What they have not fully figured out is how to best solve these problems. Developers should look at the competitions as a way to gather valuable knowledge about the healthcare industry from experts in the field. This would be particularly helpful for developers who are new to healthcare and have not previously created solutions for this industry. There will be multiple learning opportunities for participants, from conferences to demonstration days. Every available opportunity to learn should be seized, and the information gathered should be channeled into product improvement. Participation will likely provide the opportunity to interact with other health IT companies, organizations, and vendors. Developers should take advantage of interactions with all parties involved, including other developers – even competitors. Meaningful relationships, both formal (i.e. partnerships) and informal could result from such interactions. These relationships could be particularly valuable to developers in improving their overall products, expanding their market presence, and enhancing their success. Lastly, many competitions are heavily publicized through popular media outlets. Even developers who are not ultimately selected as finalists or winners might, at some point, be profiled. This could help tremendously to get their products’ names “out there,” possibly attracting additional investors and/or additional customers.

Sponsors should provide continuous support

Ovum believes that competitions designed to promote technological innovation in the healthcare space are valuable. However, we would suggest to all program sponsors that they create additional formalized processes other than just funding mechanisms. Programs that offer mentorship (providing guidance from well-established developers to fledgling companies) or foster and enhance vendor interaction will do a lot more to further accelerate the fulfillment of sponsors’ goals. Such programs should be continuous and extend beyond the competition window itself. The short-term benefits of participation will be impactful, and certainly ensure some level of success in creating innovative products. However, long-term structures will help to ensure greater and farther-reaching return.

The magnitude of the merger will bolster a fractured sector

With the NCO Group/APAC Customer Services merger, NCO estimates the revenue profile of the combined entity will stand at approximately $2bn. This figure is rare among CRM outsourcers, and at this level NCO/APAC will be in distinguished company, including Convergys and Teleperformance, in terms of vendors in this space that have been able to achieve revenues of this magnitude. NCO’s immediate goal should be to highlight to existing and prospective clients this market-leading position as a sign of stability through revenue strength that helps define the value the company gained through the merger with APAC.

Leveraging mindshare is key to success

It is clear that one immediate advantage the merged NCO/APAC entity can leverage is combined thought leadership in the outsourced contact center space. The combined entity has many executives coming at CRM outsourcing from different angles, with a wealth of market and industry experience. Ovum believes that by using this mindshare in addition to that of Ron Rittenmeyer, the CEO of Expert Global Solutions (the parent company of NCO and APAC) and formerly president and CEO of EDS, is an example of the leadership that the merged company can work with to gain market share to demonstrate industry innovation. This will be important for NCO if it wants to challenge established norms in contact center delivery and customer care. The company is well positioned to do so, considering the size of the firm. If the merged NCO/APAC leads, others including competitors will follow, and may not have a choice about it if they want to remain viable.

Horizontal, regional, and vertical sweet spots for the merged company

In order to minimize the number of third-party contracts that they need to manage, enterprises are looking to work with outsourcing vendors that have diverse capabilities and expertise across both horizontal and vertical functions. This places the newly expanded company in a strong position because the merger will expand its industry-specific capabilities to include a diverse set of verticals including healthcare, government, retail, and insurance. From a functional standpoint, the merged company can more aggressively press ahead with its plans to move into more non-account-receivable management initiatives (something it has been doing for some time) by leveraging APAC’s expertise in marketing and sales, and customer care. Finally, the new entity’s global footprint will provide more opportunities for enterprises seeking delivery diversification. Ovum believes that this merger will bring new strength to NCO that will lead other CRM outsourcers to rethink their strategic plans as well as their competitive positioning versus NCO.

Performance has improved but it is still patchy

Oracle’s fiscal 2012 third-quarter earnings announcement revenues (all figures on a GAAP basis) showed total revenues up 3% at $9.0bn. Within this figure, new software license revenues were up 7% at $2.4bn, while software license updates and product support revenues rose 8% to $4.1bn, and hardware systems product revenues fell 16% to $869m. Operating margin stood at 37%, while net income was up 18% at $2.5bn. GAAP earnings per share were $0.49, up 20% compared to the previous year.

The 7% growth in new software license sales is an improvement on the 2% growth experienced in the second quarter, which Oracle put down to a slower sales cycle. However, this is not yet back to the levels experienced during fiscal 2011 and into the first quarter 2012, and beneath the surface there is evidence of much variation. Within the headline license-growth figure, new database and middleware licenses were up 9%, while new applications licenses grew by only 3%. Total new license growth for fiscal 2011 in both database/middleware and in application categories was 23%, so there is further ground to make up.

Oracle has growth opportunities in its three core businesses

In the database arena, Oracle is facing a perceived new source of competition from SAP’s Hana in-memory technology. SAP, which until now has relied extensively on the Oracle Database products to underpin its applications, is becoming increasingly aggressive about the potential of Hana, not only to speed up analytic applications, but also to ultimately become the core database for SAP solutions. Ovum believes that this threat is not yet extant, particularly because the Oracle database is deeply entrenched within many enterprises, while Hana is unproven at this scale. Nonetheless, SAP’s database newcomer is a catalyst for a resurgence of its middleware strategy, and we believe that Oracle will have to keep an eye on its further progress while continuing to innovate with its own product.

From a middleware perspective, Oracle is now at the start of the new “12c” cycle of middleware releases, and information management, including business intelligence, analytics, content management, and collaboration, will be one of the most important areas for growth, as enterprise customers seek to gain greater insight and value from their information assets. Oracle has increased its investment in all of these areas, and spearheaded by Oracle Exalytics In-Memory Machine and Oracle Big Data Appliance, it will expect these to perform strongly.

On the applications side, Oracle has made two big bets that it will look to for the next wave of growth. From an organic perspective, Oracle Fusion Applications offer clients both a wholly modern range of enterprise software for new deployments, and a progressive path to add further value to their investments in the existing Oracle Applications Unlimited families. More than 100 modules are also now available for cloud-based SaaS deployment. However, new application license and update results over the last two quarters indicate that uptake of Oracle Fusion Applications is following Oracle’s stated strategy of a gradual rollout, rather than making an initial “big-bang” impact.

The other bet has been placed through the acquisitions of RightNow in the customer service management space (alongside earlier acquisitions of ATG, FatWire, Endeca, and Inquira), and the recent acquisition of Taleo for HCM. Both are native SaaS solutions, and both are potential catalysts for creating the type of collaborative, social-enabled, front-office platform that is seen as strategically important for customer-oriented businesses. This though, is a fierce battleground, and Oracle will have to work quickly and effectively to stand out in the market against both traditional incumbent and disruptive newcomers.

General-purpose hardware continues to struggle

In Oracle’s hardware business the story was more of the same, with a significant decrease of 14% in its general-purpose hardware business, but good growth and a strong pipeline for its engineered systems that combine hardware with software elements of Oracle Database and Oracle Fusion Middleware. Although Oracle doesn’t break out separately absolute figures for engineered systems, Oracle president Mark Hurd reported 139% growth in third-quarter revenues for this line of business. Since its acquisition of Sun, Oracle has maintained that selling commodity hardware is not part of its strategic vision, but it will not satisfy the markets until this part of the business becomes profitable (something that Oracle CEO Larry Ellison stated on the earnings call would happen in the 2013 financial year). We do not believe it is a major problem for Oracle, but it will continue to be a distraction, and the more emphasis that it can put on engineered systems the better.

The next two quarters will be important indicators for Oracle’s forward prospects. Ovum would expect significant progress on the customer service and customer experience platform, and we also wait to see how the company plans to deepen its vertical industry focus. It is also worth noting that some two-thirds of Oracle’s revenues come from product updates, maintenance, and services, so attention to integrating acquisitions, and new product innovation, must be balanced against continued strong execution of “business as usual”.

Early adopters of public cloud services are embracing practical security tradeoffs

Ovum has interviewed many executives in organizations that are early adopters of public cloud services. These interviews reveal that the public cloud is becoming a useful catalyst for accelerating the transition from desktop to webtop and mobile platforms. The popular notion among executives with no hands-on experience of public cloud services is that they are untrustworthy – not “enterprise grade” – and therefore to be avoided on information security and regulatory compliance grounds. Paradoxically, our research reveals that early adopters of public cloud services are finding that information security and compliance can be enhanced by the use of the cloud.

The reason is that funding and skills constraints, and the increasing complexity and sophistication of threats, mean that many organizations are struggling to adequately secure their desktops and their organizations’ perimeters. This is part of a general trend toward more porous organizational boundaries, which is accelerated by Internet connectedness, the increasing use of social networking and mobile devices, and the digital blurring of our work and personal lives. In theory, the desktop delivered a secure enterprise information environment, but in practice, the age of the network perimeter secured by physical devices is now over for most organizations – whether they like it or not.

The reality is that public cloud services are part of a broader trend toward browser-based web services and mobile apps; a move away from information being locked inside the enterprise network and toward the emergence of information ecosystems which transcend organizational and national boundaries.    

Public cloud services are a catalyst for better information management

Adopting a public cloud service for a mission-critical application or infrastructure service is nonetheless a radical externalization of ICT capabilities. Safety in the cloud, therefore, requires a total rethink of the factors that drive counterparty risks and information security. Contracts and SLAs remain key risk mitigation tools, but need to be extended with a data “pre-nuptial agreement” (where is our data and how do we get it back?), a tested “plan B” (what do we do if the cloud service evaporates?), and more rigorous treatment of information management processes and practices (what data ought we store in the cloud, how, and where?).  

Executives interviewed commented that working through these issues required some effort and “thinking outside of the box,” but was later regarded as a positive process, because it confronted both the real security failings of the desktop age and their organizations’ historically informal and ad-hoc approach to information categorization and management. The result was a more honest assessment of the adequacy of desktop security, and recognition of the need to treat information categorization and management more seriously. This led to an overall increase in the integrity of information security and in compliance with regulations relating to privacy and record keeping.

Public cloud services confront the false security of the desktop

Generally, there was recognition among executives that the move to using a public cloud service required a new approach to thinking about risks and security on a more granular basis – with a finer-grained understanding of transactions and data. Planning for the cloud confronts the false sense of security created by reliance on the integrity of the desktop standard operating environment and network perimeter.

Cloud platforms are one element of a bigger change in the way corporate information is created, processed, stored, and managed. Use of public cloud services is regarded by early adopters as a useful catalyst for accelerating the development of the practical information security skills needed both to manage IT in a post-desktop world and to prosper in the age of the webtop and mobile apps. Indeed, practical experience suggests that both information security and regulatory compliance can actually be enhanced by a move to enterprise-grade public cloud services.

We speculate that Fujikura sees this acquisition as a strategic investment to grow business through improved wavelength management offerings. We further believe the acquisition provides Nistica with the financial support needed to assure customers of its solvency, and it provides the foundation from which Nistica can continue product development to become a mainstream ROADM supplier.

Fujikura sees the future?

Fujikura is not a name associated with optical components or optical communications equipment and as such we struggle to understand what it gains by acquiring Nistica. Indeed, Fujikura is a strong optical communications infrastructure supplier, with estimated revenues of over $1bn for fiscal year 2011 (April 2011 through March 2012), but its 2011 optical component revenues are only $32m, coming mostly from dispersion compensators and optical transceivers and transponders.

Although the acquisition of Nistica does not provide a clear fit with its historic business, we speculate Fujikura sees the importance of wavelength management and has decided it wants to play a significant role in this market. As such, it must develop Nistica into a mainstream supplier. ROADMs and WSS technology have become synonymous with optical transport. The ROADM market is still in its infancy because the functional networking requirements are still evolving. Hence, there is opportunity for physical layer innovation that can upset the status quo and drive market growth. Furthermore, the evolution of bandwidth demand in telecom core, metro, and access networks and in enterprises will drive WDM and demand for wavelength management and therefore devices such as WSS-based ROADMs. Fujikura is nurturing its early investment and developing an opportunity to support wavelength management and grow its business.

Nistica enters mainstream, but still missing high port count

Nistica announced a 1×15 WSS in March, foreshadowing its move from niche to mainstream status. Nistica is the last start-up to enter the market with a WSS technology offering for ROADMs and grew its business with a unique product offering – the low-port-count (1xN, where N is less than or equal to 4) WSS. This is a niche but has the potential of being the high-volume part of the market, and our recently completed shipment survey shows it increased from 26% of the total WSSs shipped in 2010 to 33% shipped in 2011. But the 1×9 WSS continues to be the volume leader, accounting for over 50% of the market. Nistica’s March announcement was a declaration that it intended to compete here.

Furthermore, Nistica has technology that supports flexible grid, a requirement that recently moved from the nice-to-have category to the must-have. The combined 1×15 WSS with flexible grid positions Nistica to compete well. Being part of Fujikura provides the backing to assure customers of its longevity and furthermore provides support for Nistica to develop the next product.

Fierce competition to ensue; what’s Nistica’s next move?

A low-cost colorless, directionless, contentionless (CDC) ROADM is the target product for this market. But high development costs and the risk of a limited market have caused suppliers to take a step-wise approach. (See Karen Liu’s December 2011 report Once-Elusive ROADM Now in Sight for how these are used to support the CDC function.) Two important piece-parts have been developed: the high-port-count WSSs (1xN, where N is larger than or equal to 20) and the multicast switch.

All the major suppliers are developing products for this battleground. They are all supplying the 1×9 WSS, are developing the flexible grid, and are working on the high-port-count WSS.

Nistica enters this market from a low port count. It must focus on delivering a low-cost solution that supports CDC. The high-port-count WSS may not necessarily be what they need, but Nistica must focus on the target product for this market.

Maintaining growth will be the top priority for regional wholesalers

The Balkans wholesale market is maturing in line with retail markets in the region. However, growth is uneven, which is reflected in the performance of some players. While providers such as Telekom Austria and OTE Globe had to make considerable efforts to achieve revenue growth in 2011, others, such as Turkcell Superonline, reported revenue growth rates of up to 37%. As the executives of companies operating in the slower growing markets reminded the audience, the differing economic conditions in these markets played a significant role. However, beyond the economic variations, it is clear that the less mature routes and markets of the Caspian and Eurasian region offer considerable growth opportunities for players. In the more mature regions of the Balkans, revenue growth is slowing to a trickle as almost all volume growth is lost due to price erosion.

We repeatedly heard that 30–40% price reductions at contract renewal are very common in the region. In addition, the price differential between regional (e.g.Frankfurtto the Balkans) and mature (e.g. London to Frankfurt) routes is narrowing, which is mostly due to price declines in the Balkans bringing regional bandwidth pricing closer to mature market levels. While many regional players still benefit from the lower costs of employing local staff, the relentless price pressure continues to affect margins. As a result, many of the discussions at the conference were underpinned by the pressure to deliver revenue growth (or at least prevent revenue decline) and improve profit margins.

A mix of promising growth initiatives, but no silver bullet

Is there a way out of this commodity trap for providers, where price is the overwhelming criteria in choosing a supplier? It was encouraging to see that there were no shortage of ideas and initiatives, both in terms of service innovation and improving existing processes and operations. A number of wholesalers have taken steps to expand their hosted services portfolio and play a greater role in the growth of content services. There was also a lot of interest in the opportunity around content delivery networks (CDNs). While we agree with the conclusion that building CDNs will typically only be of interest to the largest players, we did note the strong interest from many smaller players in partnering with CDN providers to improve the efficiency of their IP backbones in carrying video traffic.

The rapid growth of video services led to a discussion around the opportunity presented by differentiated quality of service (QoS) offerings to extract additional value from content providers that require better QoS than the “best effort” on which most traffic is currently handled. There is a perceived unfairness among telcos that many of them have to battle with razor thin margins while some content players get a “free ride” and reap far greater profits. However, with the existence of a considerable amount of spare transit capacity and the willingness of many wholesalers to undercut each other for bandwidth business, it is not clear how the industry can break away from the current models and convince content providers to pay more for a better service.

Rebalancing business models and the industry value chain

The whole notion of differentiated QoS will no doubt spark a new wave of discussions around the broader principles of net neutrality. We agree with the views of some participants at the event that many telcos have done a poor job of framing the issue in the best light for stakeholders, including regulators. Telcos must make it clear that differentiated QoS will lead to a better QoS than current “best effort” offerings, and must reassure regulators and OTT players that they will not discriminate against traffic of offer a worse QoS to certain parties. Winning this debate and launching successful service innovations will be critical for wholesale and retail telcos to return to strong top-line growth and margins.

AccuRev Kando helps enterprises manage Git environments

AccuRev Kando is an interface for Git which ties together the operational effectiveness of the distributed tool with the centralized control of AccuRev SCM. In most enterprises that use Git internally, there is a designated Git master repository for pushing and pulling changes. This repository is updated frequently and serves as the front-end to the incumbent centralized software configuration management system (if there is one). The Git repositories are internally hosted, and collaboration among developers is peer-to-peer through their local repositories. However, this peer-to-peer collaboration is hard to manage from an enterprise standpoint unless the organization has implemented processes for managing the flow of code, audit tracking, and access controls to ensure that the entire code base is not visible to every developer in the organization. Implementation of such controls would require custom scripting, as each step of the workflow would have to be enforced from the outside and it would be specific to the organization’s requirements. It is also essential to have developers’ buy-in to the implemented process.

AccuRev Kando is specifically designed to help organizations manage their Git environments better. Kando works in the master repository setup, something which most organizations using Git already follow. Kando maps development branches in the designated master Git repository to streams in AccuRev SCM. This is a bidirectional integration; changes made to the Kando repository are reflected in AccuRev, and changes made to streams in AccuRev SCM are propagated to Git branches that are mapped using Kando.

For developers on Git, the integration is native, in the sense that they needn’t be proficient with AccuRev SCM to be productive with Kando. Other enterprise-friendly features available in Kando include dependency analysis, audit trails, and compliance support for Sarbanes-Oxley, user- and group-level access control, authentication through Microsoft Active Directory and LDAP, and integrated defect/issue tracking.

Operational aspects of AccuRev Kando

Kando creates a native Git repository and uses it to integrate with other Git repositories on one hand and with AccuRev SCM server on the other. Administrators and development team leaders can use the Kando repository directly or clone it to their local machine and use their local repository as the bridge between Git and Kando. Kando supports multiple mappings, so several branches in the master Git repository can be mapped to streams in AccuRev SCM. Significantly, Kando does not enforce AccuRev workflow on developers using Git; developers needn’t be in an AccuRev workspace to work with Kando as it handles the integration with AccuRev in the background. Similarly, any tools that developers use as part of their Git workflow can still be used with Kando.

Enterprises will benefit from established SCM best practices

With AccuRev Kando, enterprises can benefit from SCM best practices offered as customizable workflows through AccuRev SCM. Enterprise adoption of DVCS is at a low maturity level and organizations are still in the process of discovering best practices for DVCS usage. Moreover, these systems are often used in conjunction with an incumbent centralized SCM system. Organizations have had to develop custom scripts for managing Git workflow and integrate it with their main SCM system. AccuRev Kando handles this job well, out-of-the-box. In Ovum’s view, Kando will enable AccuRev clients to manage their Git usage better, as well as facilitate DVCS adoption in organizations that are yet to come to terms with the new technology.

We credit Cambridge, a PON CPE (customer premises equipment) vendor, with spurring the movement towards BoBs (BOSAs on board) for GPON CPE terminals, such as ONTs and ONUs. BoB CPEs are gaining market share with availability from Chinese and Taiwanese CPE vendors. Some CPE vendors are building BOSAs internally; others are turning to the traditional optical transceiver vendors for supply.

The PON optical transceiver manufacturers are not standing still. Several, such as Superxon, have begun shipments of 10G EPON transceivers and are seeking cost reductions in this currently low-volume market. Others are exploring expansion into the CPE market in an effort to increase revenues.

GPON BoB approach may bypass many optical transceiver vendors

The use of BoBs for GPON CPE terminals is gaining strength. While it is difficult to know the market share for BoB-based CPEs versus optical transceiver-based CPEs, we estimate that BoBs represented close to 10% of GPON CPEs shipped in 2011 and will account for 30–50% of the market in 2012. The CPE vendors have successfully calibrated and tested BoB-based CPEs faster than we estimated. For some CPE vendors, the production yields are high enough to take advantage of the cost savings from using the BoB approach versus the use of optical transceivers.

The resulting impact on the optical transceiver vendors may appear minor since they can supply BOSAs instead of optical transceiver modules. But the resulting impact is significant since BOSAs are cheaper than modules, thereby lowering top-line revenues.

More significantly, the movement to BoBs required CPE vendors to learn more about PON optics. Several PON CPE vendors are buying lasers directly from PON laser manufacturers and have begun in-house assembly of BOSAs. In other words, BoB CPE vendors could eventually bypass optical transceiver vendors completely.

But optical transceiver vendors are not rolling over and dying

The optical transceiver vendors may be taking a hit on the top line as BoB-based CPE terminals gain market share, but they have their own game plans. As the CPE vendors look down the ecosystem at the optical transceiver vendors, several optical transceiver vendors are looking upstream at the CPE market. The production of the CPE commands a larger price than just the optics module, and use of internally built modules would eliminate margin stacking.

Not all optical transceiver modules are going this path. Superxon stated that it has no intention of competing with its customers. Superxon’s strategy is focused on optics technology. For example, Superxon claims to have been the first to introduce an RSSI EPON OLT transceiver that met China Telecom’s standard, that its 10G EPON transceivers have been qualified by all major EPON equipment vendors, and that it has been granted 26 patents since its founding in late 2007.

While we expect most optical transceiver vendors to stay focused on optics, we expect a few to have their own CPE terminals available by year-end.

Blurring boundaries, complex relationships

At one time it was easy to neatly classify a PON vendor. Today, some optical transceiver vendors have begun to manufacture ONUs/ONTs and have moved up the food chain to the CPE level. At the same time, some CPE vendors are assembling the BOSAs themselves. They are moving down the ecosystem. At a minimum, both sets of players gain from the elimination of margin stacking.

But the boundaries are not set in stone. Some CPE designs are complex, too complex for optical transceiver vendors moving up the ecosystem. These designs will be handled by CPE vendors. And in complex low-volume designs, CPE vendors will stick with externally supplied optical transceivers. The efforts required for BoB-based design, calibration, and testing would not pay off.

For the time being, both optical transceiver vendors and CPE vendors will continue to exist. Some will expand into each other’s territory, seeking the opportunity for larger revenues and improved margins. Some will stay focused on core competencies, seeking revenue growth and margins based on competitive advantage.

The supply of Big Data analytics skills is expected to lag behind demand

The era of Big Data, fueled by web logs, sensor systems, social media, and transaction data, is upon us, bringing with it an unprecedented opportunity to transform business. The technology is in place thanks to the convergence of scale-out storage and sophisticated analytics. As organizations attempt to harness the huge volumes of data they collect, it is becoming clear that there is a shortage of skills to make Big Data work for business, with Deloitte estimating a shortage of nearly 180,000 skilled Big Data professionals in the US over the next five years.

Analytics skills in particular have always come at a premium, which perhaps explains the recent push to deployment models that shield business users from the complexities of BI development. Research from McKinsey & Co suggests that US organizations are facing a shortage of 200,000 IT staffers with deep analytics skills. The natural intersection of Big Data and analytics will make the prerequisite skills gap even wider.

This shortage of skills, coupled with a slow change of attitude away from traditional relational-based analysis methods, needs to be addressed if organizations are to grasp the full benefits of Big Data.

Get ready for the decade of the data scientist, but at a healthy premium

Skills around installing, managing, provisioning, and scaling out Hadoop clusters are of course important. Relating specifically to managing, securing, and optimizing large, scaled-out clusters and storage infrastructures, these are skills that typically decide whether Hadoop is located in the cloud or on-premise, which vendor and Hadoop distribution is used, and the size of the cluster. Hadoop engineering skills are responsible for creating and building the distributed MapReduce data processing algorithms used.

These essential data plumbing skills are important for data input and management, but they only address a part of the Big Data puzzle. Analytics skills are also needed to uncover business insights in the data that drive better decision-making. These skills are most in demand, and the hardest to find. They relate to the “science” of Big Data, using statistical and mathematical techniques to interrogate data and turn it into positive business outcomes. This requires a unique blend of technical, analytic, and business skills to align structured and unstructured data to the business.

Job descriptions for data scientists are starting to gel. While statistical and mathematical skills form a core part, creative thinking about how Big Data can improve aspects of the business, such as new operating policies or customer engagement models, is equally important for success. Data scientists should have an aptitude not only for hard programming skills in SAS, SPSS, and R, but also for understanding how to display or visualize information in a business context. Data science is therefore a business practice, rather than a defined set of statistical or technology competencies.

These skills will not come cheap. Ovum expects data scientists to command skyscraper salaries in the same way that SAP ABAP programmers did in the late 1990s. However, as tooling and vertical industry or process-specific solutions emerge, this will take some of the edge off soaring demand.

It is still unclear whether Big Data will create new jobs or necessitate retraining

The skills requirements for Big Data follow a familiar script: a need for IT professionals proficient in technology platforms, infrastructure, and data management, along with analytics and business process/vertical domain expertise. While a lack of Big Data skills might be imminent, what is less clear is whether it will create brand new jobs or will force organizations to retrain existing IT staff.

Hadoop is threatening to become the new data warehouse for many organizations, with many of the basic data management tasks around Hadoop similar to those required for traditional relational database and data warehouse environments. DBAs charged with administering Oracle, IBM, or Teradata warehouses might now have to redefine their roles, loosen their outlook on traditional data modeling, and refresh their skills to administer Hadoop clusters, and in many cases to integrate Hadoop environments with existing relational database technologies.

Experienced Java or C++ programmers could also find greater opportunities to extend their skills (and salaries) with MapReduce. BI analysts tackling Big Data are likely to gravitate toward scripting languages such as Python, Perl, BASH, and AWK that are emerging as the staple tools of choice for data scientists.

Big Data will also attract a wave of demand for analytics skills around predictive modeling, data mining, natural-language processing, content analysis, social network analysis, and sentiment analysis. This is already leading to productized Big Data offerings such as R for advanced predictive and statistical analysis.

For now, service providers are plugging the skills gap. Indications are that revenue generated from consulting and systems integrators organizing formal Big Data practices focused on Hadoop will initially be much greater than that generated from NoSQL and Hadoop products hitting the market. Vendors are starting to redress the skills imbalance through training, tooling, solutions, and services, with IBM, Cloudera, Hortonworks, and MapR all providing training courses in Hadoop.

Analyzing Big Data is an emerging opportunity in data science, and the race is on. Organizations that want to be at the front of the pack will need to equip themselves with the right mix of technical and business skills and competencies required to harness its potential benefits. This will be the biggest challenge to Big Data adoption in the next couple years.

Helps ES turn Eucalyptus users into ES customers

The announcement is timely, and comes one month after the release of the first-high availability (HA)-enabled version of Eucalyptus. It is important in that it will help ES turn Eucalyptus users into paying customers, and proof-of-concept (PoC) projects into production projects. In 2011 ES reported that in 2010 more than 25,000 Eucalyptus clouds had been created, including in at least 21 of the Fortune 100 companies. However, Eucalyptus is mostly used for PoC projects and ES has had difficulties turning open-source edition users into paying customers. The announcement could help ES on both fronts. However, AWS will not help ES to sell Eucalyptus. It will only provide API guidance and support.

Solidifies the AWS cloud federation

There is debate surrounding whether AWS APIs are likely to or should become de facto IaaS standards. This has already happened to some extent because of AWS’s head-start, size, and influence on the market. However, the public cloud space is still immature, so it will take some time for standards to emerge. In the meantime, cloud federations are emerging based on similar technologies and/or APIs such as VMware and Microsoft technologies-based cloud federations. From this point of view, ES is the link between AWS and the thousands of enterprises that use Eucalyptus for their private clouds. The announcement solidifies the role of the already-delivered ES-AWS integration in delivering a federation of private, hybrid, and public AWS API-based clouds.

Helps ES expand Eucalyptus footprint

AWS’s support will enable ES to more aggressively expand the number of AWS services that Eucalyptus supports and therefore expand the number of applications that can be moved between Eucalyptus and AWS clouds. Eucalyptus currently supports AWS’s Elastic Compute Cloud (EC2), Simple Storage Service (S3), Elastic Block Storage (EBS), and Identity and Access Management (IAM). AWS help will also ensure that Eucalyptus expansion remains compatible with the ecosystem of third-party tools that support AWS services, tools that make moving workloads between the two clouds easier.

Part of AWS’s expanding support for enterprise needs

Most commentators see the announcement as AWS’s answer to the growing market interest in the OpenStack open-source IaaS platform. OpenStack may have played a part in it, but it still has everything to prove, and should it eventually prove successful there is nothing to stop AWS and ES from using its technology. The announcement is mostly the logical result of AWS’s increasing support for enterprise needs. Despite its vocal advocacy of the notion of the public cloud, in the past two years AWS has launched a variety of services that help enterprises create hybrid clouds such as the Amazon Virtual Private Cloud (VPC) service, the IAM service, and more recently, a storage gateway service. While the announcement expands AWS’s support for hybrid clouds from virtual to actual private clouds, AWS remains very much focused on public clouds. It is unlikely to acquire ES anytime soon.

Should not limit ES to AWS APIs

The design of Eucalyptus makes it relatively easy for ES to add support for third-party APIs, which ES currently does on a custom-project basis. Via a 2011 partnership with Red Hat, ES is also committed to supporting the Apache Deltacloud API that abstracts private IaaS platform for public cloud APIs. Either directly or via DeltaCloud, Ovum would like to see Eucalyptus support OpenStack APIs sooner rather than later.

Too little too late from a AWS API reuse point of view

AWS has one of the largest, if not the largest, solution provider ecosystem, so clearly it is doing what it takes to attract partners. However, Ovum believes that it needs to do more to clarify the legality of the use of its API, something that many vendors and enterprises would like AWS to do and that it should have done a long time ago. While the announcement is a step forward, it does not quite live up to the challenges of the likes of VMware and its vCloud API because VMware made the legality of its vCloud API reuse clear from the start.

Develop several versions of one application

With the steady growth of mobile devices in the enterprise market, and “anytime, anywhere” becoming one of the most sought-after features in a BI solution, vendors understand that it is imperative to offer a solution that is available on a range of different devices. Nevertheless, the ability to offer this type of product comes at a price in terms of both money and time. If vendors want to develop a mobile solution that runs on several platforms such as Android, BlackBerry, iOS, and Windows, they need to do so for each one individually. In addition to the time and talent it takes to develop several versions of one application, it is also a very inflexible model when an update has to be made to the core application because the change has to be made for every platform that needs to be supported. Until recently there was no one technology that could offer the same type of rich interface that could be provided by a native application, but with HTML5 this might change.

HTML5 allows for the reuse of code

HTML5 is not a newly conceptualized standard, and has been under development since 2004. What makes this standard, which is governed by the Worldwide Web Consortium (W3C), so special is its ability to render and run stand-alone Rich Internet Applications (RIAs), something its predecessors were not able to do without third-party tools and plugins such as Adobe Flash or Microsoft Silverlight. The benefit is a runtime that can encompass most features needed by today’s enterprise mobile applications.

Vendors have three options for developing mobile BI applications:

• A fully native development model where everything is written specifically for each platform.
• A full web development model where everything is written with HTML5, CSS3, and JavaScript.
• A hybrid development model that creates core code with HTML5 and adds native functionality through mobile frameworks such as PhoneGap or Appcelerator.

The benefit of the hybrid approach is that vendors can cut out a lot of the redundancy of writing new code for every platform they want to deploy to. Instead, the core is written with HTML5, and it can be reused for each platform. Developers can therefore avoid DRY (don’t repeat yourself), which is a big no-go area in application development.

Larger players including Adobe, Apple, Google, IBM, Microsoft, and SAP have endorsed the standard. BI market companies such as JackBe, JasperSoft, and QlikTech already offer mobile BI solutions written with HTML5, and the mega-vendors have made moves in the same direction. For example, IBM recently acquired mobile development platform Worklight, which supports HTML5 development, and SAP’s Sybase arm is working on mobile front-end products with a hybrid HTML5 and native code solution.

Vendors should keep in mind that HTML5 is still an evolving standard

Even though HTML5 might be the next big thing in mobile application development, Ovum cautions that it is still an evolving standard. There is still a lot of development and testing that needs to be done, and the W3C is not expected to approve it as a standard until 2014. In addition, HTML5 does not run as deep as native applications. This is especially relevant when it comes to security features, offline storage, and access to certain device features such as 3D rendering, gyroscope, and light sensors. At the moment, the workaround for developers who need to utilize these features is to create hybrid applications with mobile frameworks.

Overall, Ovum believes that vendors that have not already started thinking about developing mobile solutions with HTML5 need to do so urgently so they do not get left behind. Today’s mobile market offers a wide selection of screen sizes, platforms, amounts of memory, and storage, and the number of features offered is increasing by the minute. This means there is a lot of HTML5 behavior on a mobile device that needs to be explored before an application will act coherently throughout. This can only be achieved through extensive testing. However, this will be time well invested because in the end it will lead to a development model that has core HTML5 code that can be reused for several platforms, leading to less time and cost-consuming product development than that offered by the native application model used by most vendors today.

IBM’s trusted status among agencies is the first factor contributing to the adoption of collaboration solutions…

It’s “go” time for agency CIOs as they struggle to meet the federal CIO’s “Cloud First” mandate. Of those departments already on the hunt for collaboration solutions, many will choose IBM’s standardized SmartCloud Social Collaboration for Government solution over other vendors’ offerings, because IBM’s solutions are seen as safe bets and the vendor has a long and proven track record in government. A purchaser is less likely to get into trouble by going with this option than by taking a risk on a newer entrant in the government market, and this “sticking with a trusted vendor” mentality, for better or worse, will continue for some time.

…but the customized-for-government, holistic vision is what will really create differentiation

Despite the tendency toward sticking with a larger vendor, incentives are slowly changing in the executive branch to allow for greater play in the procurement process by small and medium-sized enterprises and niche firms. Chatter, Jive, Socialtext, and others will therefore find themselves in a position to compete in the space. As more agencies adopt Salesforce.com CRM, Chatter could be a particularly strong choice. Nonetheless, in Ovum’s opinion, IBM will stay ahead of these vendors in the social collaboration market, not because it has better individual tools, but because its overall package carefully addresses the gamut of agency needs and offers more flexible delivery options.

Focusing on the package rather than throwing a multitude of bells and whistles at buyers is a better long-term strategy

Delivery of the solution can be via IBM’s own FISMA-compliant private community cloud or via outside contractors’ clouds, on-site or off-premise. The solution can integrate with the vast majority of an enterprise’s current ecosystem, including Microsoft SharePoint. It also puts mobility at the center of the user experience, a key necessity in social collaboration tools that will sit at the center of the “bring your own device” trend. IBM Docs, an upcoming web-based collaborative editing environment challenging Microsoft 365 and Google Apps, will become part of the package. An interesting feature of IBM Docs is the ability to set different security levels in different parts of the document during collaboration, which will be particularly useful for agencies that employ staff with different security clearances. Finally, overlaying all of these elements is IBM Connections, which provides a powerful level of realtime social analytics. IBM Connections is instrumented to allow an agency to monitor employee sentiment and dig deep into interactions using analytics tools such as IBM Cognos Consumer Insight. This facilitates what should be a prized outcome in government: changing the culture for the better.

The next step is helping agencies stimulate internal uptake of social collaboration tools

Helping agencies to get employees, leaders, and other stakeholders to make social collaboration tools a significant part of their working lives is key to sustaining the product. Firms that present unique and effective services here will be able to differentiate themselves from other vendors. Larger organizations such as IBM are particularly able to do this, as they have existing business consulting groups and more manpower to devote attention to agencies post-sale. In the US federal government, increasing numbers of baby boomers are retiring, replaced by younger employees who have grown up with social media and networks. Older staff make up a large percentage of the overall workforce, however, and are often more hesitant to embrace social collaboration tools. Therefore, a variety of strategies is necessary. These include ensuring executives use the tools often, making sure administrative assistants see their value, and finding a “community manager” that can champion their use and serve as a troubleshooter. Another strategy is to incorporate so-called “gamification” techniques, creating fun incentives which encourage people to devote time toward learning the ropes on social platforms and be rewarded for their engagement. Third parties can currently build on the IBM platform to “gamify” it: Bunchball offers an integrated product with IBM Connections that does this. In the future, IBM should think about incorporating such techniques themselves into the design of the software.

Welcoming the acquisitions

Both Moodlerooms and NetSpot will continue to operate independently to support their respective client bases, Moodlerooms’ being primarily in North America and Netspot’s being primarily in Australia and the Asia-Pacific region. At the same time, they will be a part of the Blackboard Education Open Source Services Group, which will work to develop open source learning technologies globally. Having the financial backing of the largest provider of platforms and services in the education space, Moodlerooms and NetSpot will be able to work more determinedly in contributing to open source solutions. In return, Blackboard benefits from the acquisitions in being able to extend the series of commitments to openness that it has already made. It is clear that Blackboard is “thinking big” and its long-term goal is to offer a mix of commercial and open source online learning solutions to meet the diverse needs of the market. Not only is Blackboard responding to the growing popularity of open source, but it is also positioning itself for a future beyond LMS.

Change of ownership and open educational resources

Since Blackboard was acquired by Providence Equity Partners – which means it is no longer publicly traded – it has been freed from a considerable regulatory and compliance burden as well as a laser focus on quarter earnings and, as a result, has greater freedom to focus on developing and delivering world-class solutions and services over a longer period. If these positive effects of change of ownership are taken into consideration, Blackboard’s change in strategy does not seem as surprising as it initially did. In addition, Blackboard recently started supporting the publishing, sharing, and consumption of open educational resources (OER) across its platforms. By opting for full freedom, it has paved the way for faculty and students to be able to share and transform educational material without having to ask permission first, which will undoubtedly accelerate the widespread adoption of more substantive online learning pedagogy. Ovum reiterates that Blackboard’s announcements are not as shocking as they initially seemed, considering that giving back to the education community in more pervasive ways has long been part of its strategy.   

The future is bright, the future is online learning

Institutions should not feel anxious about Blackboard’s announcements, or about changes in higher education generally. Instead, Ovum recommends institutions recognize the advantages and welcome them with open arms. The core of Blackboard’s business is LMS and, although it has faced criticism in the past, the company has worked hard to leverage its LMS market position. What is of greater significance is that Blackboard has become a diversified educational solutions provider and, rather than consolidating all of its clients into Blackboard Learn, it is providing products and solutions that are almost LMS-agnostic. Ovum believes this is an exciting time, not only for Blackboard clients, but for everyone in the education space, as the company is looking to become a platform provider for online learning. Online learning is growing at an accelerated pace, and if Blackboard creates an open platform to support it, the entire online learning ecosystem, including current LMS vendors and other providers of collaboration tools and educational content, will certainly benefit. This is because vendors will be able to differentiate themselves and plug themselves into the platform. Put simply, the greater the enthusiasm for Blackboard’s announcements, the brighter the future of online learning will look.

The origins of the issue can be traced to at least three sources. The first is the exasperation of both government and the wider public at what seems to be the huge sums of public money spent with a finite number of IT suppliers that always seem to want more without delivering much in return. The second is a suspicion that outside the usual suspects there are smaller companies that can do the job required for less. The third is there is an influential lobbying group promoting SME engagement. We should also add a fourth reason: it suits the government to be seen as a champion of the small outsider and the berater of big business on behalf of the citizenry. The UK incumbent coalition is not the party of big business in spite of the last budget and is nothing if not a vote winner.

Therefore, the first question is whether the usual suspects deserve their reputation of being a rapacious and incompetent cartel or “oligopoly” in government speak. The second question is whether there really is a wealth of SMEs that can deliver fit-for-purpose, enterprise-level public sector IT. Lastly, should the SME lobby be as influential as it appears to be, is what they are pushing good for growth and the economy in general or only good for headlines? 

Procurement procedures preclude all but a few

The large systems integrators are feeling a sense of being wronged in this debate. They defend themselves stoically at parliamentary inquests but are enraged in private. They know that they cannot fully implicate their clients and the procurement process as a root cause of many of the failures in government IT as it will be the same people they will be pitching to in the future. Therefore, part of the unwritten agreement is that they, the “oligopoly”, will take it on the chin when a major IT project fails. That does not mean that there have not been failures on the big company side – usually caused by an overestimation of their ability to deliver, compounded by an underestimation of complexity, cost, and time to deliver. It would be instructive to see how many public sector contracts, particularly in local government, were renegotiated within a year due to “low balling” a bid or overestimating savings. However, the main reason for the “oligopoly” is that the procurement procedures of the public sector are now so onerous as to preclude all but a small gene pool of large companies.

Blanket SME belief systems need to be questioned

That SMEs are good and a vibrant SME market necessary for the economic wellbeing of a country has become something of a belief system. Like all belief systems it deserves to be questioned.  There is very little evidence that SMEs per se are good. Equally there is even less evidence that a preponderance of SMEs indicates economic health. An interesting article in The Economist titled ‘Small is not Beautiful’ highlights that SME is the dominant company structure in less than successful Southern European countries such as Italy, Greece, and Portugal. Conversely, there is evidence that SMEs in niche areas such as high-end engineering can drive successful economies. In Germany, for example, SMEs make up 90% of the economy employing 70% of the workforce and are 95% family-owned. Each economy needs to work out an SME strategy that matches the national strategy and highlights what part of their SME community needs intervention to grow, rather than blanket proposals and questionable percentages.

Develop a plan matched to the economy

The Forum of Private Business, Federation for Small Business, Business Link, Better Payment Practice Campaign, SME Innovation Alliance et al are all groups championing the SME cause in the UK and they have mirror organisations all over Europe. In the US, President Obama engaged a cross-departmental taskforce to develop ideas to improve the involvement of small and medium-sized businesses. This is part of the US 25-point implementation plan to be implemented in 2012 to reduce barriers to entry for small innovative tech companies. Suffice to say, there is lot of lobbying going on and it is having results. All companies start as micro businesses. Some go on to become SMEs and fewer become large companies employing many people. Ovum believes that there needs to be a greater emphasis on a development plan for growing companies that matches the economy of a country, rather than the creation of a quota for an acronym.

Ovum’s revenue and capex forecast is on track

Ovum’s December 2011 forecast of service provider (SP) revenues and capex called for global revenues of $1.96 trillion and capex of $314bn in 2011. Actual results for 2011 were 2–3% below expectations, well within our forecast range. 4Q11 was plagued with severe worries about debt in Europe that caused some large carriers – in multiple regions, not just Europe – to slow 4Q11 capex spending. Weaker economic growth also hit revenues, mobile slightly more than fixed. We expected fixed to account for 40% of revenues; it actually hit 41% of the total due to stronger-than-expected fixed broadband revenue growth.

Looking ahead, some macroeconomic challenges have eased in 2012, such as US unemployment and Greece’s debt crisis. Equity markets are picking up – the NASDAQ index for instance has risen nearly 20% since January 1, hitting a five-year high. These and other signs of a slowly improving economy are consistent with assumptions in our 2011 forecast. Further improvement should help meet our 2012 revenue and capex growth targets of 3% and 6%, respectively, although plenty of downside risk remains.

By region, the only sizable 2011 surprise came in Middle East & Africa, where actual revenues and capex were 10% and 7% lower than expected. This region continued to suffer from political volatility at year-end, which affected some carriers’ expansion plans. Note that Chinese vendors are disproportionately strong in MEA, so the capex weakness there affects them more than some rivals. Fortunately for them, China ended 2011 strong with $45.4bn in capex, in line with the $45.7bn we anticipated. North America, meanwhile, posted revenues a comforting 2% above forecast, but weak 4Q spending by Verizon and Sprint limited 2011 capex to 4% below forecast.

Global capital intensity met our expectation of 16.0% in 2011, up from 15.6% in 2010

Often ratios are more useful to review than absolute dollar figures. One key ratio is capital intensity (capex divided by revenues). Actual capital intensity was 16.0% in 2011, in line with our forecast.

As expected, the data show lots of variation in capital intensity at the regional level. Emerging-market carriers continue to build networks ahead of the revenue curve. BRIC overall had a capital intensity of 22.2% in 2011, driven by China’s high of 26.1%. India faced an investment drought for the second straight year in 2011, as it remains plagued by canceled licenses, political scandals, and ongoing regulatory uncertainty. Its capital intensity was 18.3% in 2010 and just a bit higher (19.3%) in 2011. Brazil, also part of BRIC, has averaged a capital intensity of just 14.6% for 2008–11, one of many reasons we are bullish on near-term capex prospects there. Russia’s capital intensity was 21.5% in 2011, flat with 2010. Russia’s prospects are also good near term, as we expect roughly $75bn in total capex over the 2012–17 period. Russian carriers are also investing internationally in both Europe and Asia, so their spending is significant beyond their borders.

At the other extreme from the relatively free-spending BRIC countries is the Europe ex-Russia segment. Capital intensity increased there in 2011, but to just 13.4%; the previous three years were all below 13%. Macroeconomic issues remain the key investment constraint in Europe. Some European operators, though, for example Telefonica and Vodafone, do spend capex much more aggressively in their out-of-region operations. Telefonica Latin America, for instance, had a capital intensity of 18% in 2011, far higher than the 11% ratio of Telefonica’s European operations for the year.

Globally, a capital intensity metric below 16% is more sustainable. We forecast capital intensity to edge towards 15% over the next five years.

Capex is not the only thing to watch

Service providers are also trying to control operational expenses (opex), not just capex. SPs have increased their outsourcing rates of operational functions over the past few years, leading savvy vendors to develop more mature professional services offerings to take advantage of this new opportunity. This is now a huge market: vendors’ revenues from ICT services provided to SPs reached $70bn in 2011 (see ICT Services Market Share: 4Q11, March 2012). Ovum is considering how best to serve our customers through an increase in our opex coverage and we welcome client feedback.

Capgemini is targeting the utilities market with its SES platform

Capgemini is one of only a handful of suppliers to have established a global presence in the smart grid market. It claims to help its utility clients serve over 43 million customers across North America, Europe, and Asia-Pacific, and has deployed nearly 17 million smart meters in Europe and North America. Based on this experience, Capgemini has developed its SES platform. The platform started life as an automated meter management technology that Capgemini acquired from Nordic smart metering firm Skvader Systems. It now includes a lot more functionality that incorporates the three primary areas of Capgemini’s smart energy strategy: smart metering, smart grid, and smart home. At its heart, the SES platform is an on-demand, pay-per-use platform that helps utilities plan, deploy, and operate large-scale smart metering deployments.

Capgemini’s Asia-Pacific strategy has a strong focus on India

The Asia-Pacific region is critical to Capgemini’s growth. The company has taken several steps to strengthen its position in the Asia-Pacific utilities market. For instance, in November 2011 it opened a Smart Energy Centre of Excellence (COE) in Australia; in June 2011 it acquired Beijing-based Praxis Technology to build its position in the Chinese utility market; and in September 2010 it made India its research and delivery hub for smart energy solutions and services.

Capgemini has four COEs in Asia-Pacific, three of which in India. Its efforts to target the Indian utility sector have intensified in recent times, culminating in its plans to continue to make substantial investments in smart energy solutions in India. Capgemini is targeting a number of opportunities in India: eight smart grid pilot projects; automatic meter reading (AMR) projects for utilities; enterprise resource planning (ERP) implementation projects for Independent Power Producers (IPPs); and business intelligence for IPPs and distributors with its utility template.

With nearly 27,000 employees in India and extensive global experience, Capgemini is in a good position to tap into the opportunities in Indian utility market.

Capgemini tailored its SES platform for Indian utilities

Capgemini is leveraging its experience in Europe and North America to target the Indian utility sector. The Indian government’s plan to invest nearly INR5bn in eight smart grid pilot projects has made the Indian smart grid market very attractive to Capgemini and its competitors. 

The main challenges that Capgemini faces in the Indian market are the existence of different non-compliant meters, difficulty in forming standards, and difficulty in getting data from network vendors. To address these challenges, Capgemini is providing an interface to upload the data to SAP, and it has also tailored its SES platform for the regulatory and business requirements of the Indian market. Competitors Tata Consultancy Services (TCS), Wipro, and Accenture all have a very strong presence in the Indian utility market; these initiatives will help Capgemini make a substantial mark in this competitive environment.

We have noted significant improvement in both the maturity of its enterprise proposition and the number of deals it has agreed with customers. However, its enterprise portfolio still has certain gaps that must be addressed if it is to match the offerings of the tier-1 global service providers.

Cable infrastructure as the entry point

Tata Communications has a clear global expansion strategy. It identifies underserved markets with significant long-term potential growth, and makes a sequence of investments. These generally start with the company landing a cable network; it subsequently builds a broader infrastructure and services portfolio that grows from the core, and then moves on to advanced services such as telepresence and cloud computing.

The company’s recently announced Eurasia (TGN-EA) and TGN-Gulf cables increase its ability to handle traffic across regions, especially into and out of Asia. Most importantly, they enable it to establish a strong footprint in the Middle East, which it can use to build relationships with retail service providers and expand its service capability in those places.

The new cables will certainly help the company to better serve its MNC customers in the Middle East and Asia, and will allow it to grow with emerging market-headquartered MNCs as they go global. Currently 100 of the Fortune 500 are from emerging markets, which has risen from 20 in 1995, and this trend is set to continue. The cables will also provide an important differentiator for some verticals: the financial markets in particular will benefit from the very low latency delivered on this shorter route between Asia and Europe.

An evolving enterprise portfolio

At its 2012 analyst summit, Tata Communications presented a significant evolution of its services portfolio for enterprises, especially around its cloud computing, business video, and IP network services. These include a unique proposition of Ethernet services based on provider backbone bridging (PBB) technology. PBB claims to address some of the problems related to the scalability and management of media access control (MAC) addresses, and might offer an interesting approach to customers developing private cloud services or cloud providers looking for international connectivity.

Tata Communications wants to be recognized as a global service provider for enterprises. Its base of global enterprise customers has grown significantly, and 45% of its enterprise revenues now come from Forbes 2000 companies. It has also secured some large MNC deals, although these are mostly under non-disclosure agreements.

Even with its recent progress, Tata Communications remains no more than a challenger in this area. Its enterprise services portfolio has noticeable gaps when compared to the tier-1 global telcos competing for MNCs’ business. The company’s unified communications strategy focuses on business video, and despite its leading position in telepresence its offering around IP telephony is limited. Furthermore, unlike other players, it has limited capability and ambition in professional services and business consulting.

Mobility is another missing area. Using the relationships with national mobile service providers it has established through its wholesale business, Tata Communications could create an interesting managed mobility proposition for MNC customers. One way to do this would be by redesigning some of the commercial models with these service providers in order to offer contract management solutions.

The response of the operator community has been mixed. Some see it as a further erosion of revenue, whereas others, particularly smaller operators, see it as an opportunity. Given the political attractiveness and success of the intervention so far it was unlikely the EC would risk leaving future prices, particularly for data, to the market. The success of the structural solution will ultimately depend on getting the regulated wholesale pricing right, making it easy for customers to understand and cheap for operators to implement.

A success story for voice but not for data prompted the extension of the regulation

On June 31, 2012 the maverick regulation first introduced in 2007 by the then-EC Commissioner Viviane Reding to tackle the high cost of using mobile phones abroad is officially due to expire. During its lifespan the cost of making and receiving a voice call when in the EU has fallen dramatically, even as hoards of holidaymakers and enterprise users have adopted smartphones and other data-hungry devices. Keen to continue to ensure a legacy for herself, Reding pushed for an extension to the original rules. This saw prices fall even further as a wholesale price cap on data was introduced and measures to prevent “bill shock” put in place. Despite these efforts, the cost of using mobile phones abroad remains prohibitively expensive for most; it is well above what consumers are used to paying at home, particularly for data.

In July 2011 Reding’s successor Neelie Kroes – another hard hitter – proposed to not only extend the use of price caps to include data at the retail level, but to fundamentally tackle the root of the problem: essentially a lack of competition. Following a year of political negotiations, it now seems that an agreement has been reached on what that might mean for travelers in Europe this summer.  

A commitment to extend and lower the previously proposed price caps before their expiry in 2017

Until the structural solution has shown that it can push down prices, the EU’s roaming rules will progressively lower current retail price caps on voice and SMS services, and introduce a new retail price cap for mobile data services. These caps will operate as a safeguard until June 30, 2017.      From July 1, 2012, consumers will pay no more than 29 cents per minute to make a call, 8 cents per minute to receive a call, 9 cents to send a text message, and 70 cents per MB of data (charged per KB used). These regulated price caps will progressively go down so that by July 1, 2014 roaming consumers will be paying no more than 19 cents per minute to make a call, 5 cents per minute to receive a call, 6 cents to send a text message, and 20 cents per MB of data.

The price levels are based on what the EC has seen available in the market, and are more ambitious than the initial set of proposals from a year ago, when the extension to the regulation was first proposed. However, price caps are generally an ineffective means to regulate. The evidence so far suggests that operators have gravitated towards the price caps, but have not offered prices below them, thus rendering them blunt regulatory instruments. With this in mind, the EC has rightly acknowledged that the only long-term solution to the lack of competition is structural, which should result in prices below the caps.

A structural solution deals with the underlying problem, but is not without challenges

The deal that is now on the table attempts to structurally address the underlying problem, which is essentially a lack of competition. Customers are currently reliant on how well their host operator has negotiated with its partners in other countries. The agreement reached by the EU is for two structural initiatives. From July 1, 2012, MVNOs and resellers that do not have their own networks will gain the right to access other operators’ networks at regulated wholesale prices in order to provide national and roaming services to their customers. Then, from July 2014, mobile operators in visited countries will have the possibility to directly offer data roaming services on their own networks. This will allow customers to separate roaming services from their contract, and will give them the option to either pre-select a cheaper roaming contract or to do so on the spot.

In both cases the EC is hoping to see the emergence of pan-European roaming operators competing on price. While the rules require approval from the European Council and Parliament, they are unlikely to face any significant hurdles. The cost of using mobile phones abroad is an issue that is very close to the key decision makers, and reducing that cost is a politically attractive initiative to get behind. Operators have tried and failed to legally challenge the current regulation; it is not yet clear whether they will try again.

There are many reasons why this is likely to be an unstoppable trend. The key driver is the fact that the enterprise customer is now much more tech savvy than they were ten or even five years ago. In those days the apocryphal tale was that some companies would not turn up at a meeting unless they were assured that there was a purchase order on the table.

We are also beginning to see a regime change at the CIO level and a greater understanding of the business use of technology across the enterprise. Many of the most influential CIOs in public sector, now in their early 50s, have grown up with companies such as Microsoft, Oracle, and SAP – and the enterprise license model. As they begin to retire, we have a new cadre of CIOs emerging who are not wedded to the enterprise license model and are coming into their roles just as cloud, consumerization, and ubiquitous connectivity are riding a “coach and horses” through the IT industry. Their vendor choice now includes massive new entrants such as Apple, Google, Amazon Web Services, Salesforce, VMWare, and a myriad of smaller vendors. Equally, they are coming into their roles as the world economy is going through the floor; they have to operate in an environment where spending is not so much constrained as asphyxiated.

The final nail in the coffin is that government and the public have run out of patience with large, botched IT projects and are more interested in an approach that offers economies of scope as opposed to often-unrealized economies of scale.

Many examples of “good enough” already exist

“Good enough” is not about dumbing down solutions or finding the lowest common denominator but finding a solution to a public sector challenge that is fit for purpose, scalable to enterprise level, secure (enough), and cost effective. There are many enterprises using smaller companies with innovative products and we would point to Ovum’s On the Radar commentary on companies such as Beezy, Be Informed, IEG4, Screampoint, and Jadu. The often-quoted example of a “good enough” solution is the almost wholesale adoption of Google Maps as a citizen-facing geographical information system (GIS) in government. In the very recent past many enterprises spent large sums of money on either developing an in-house solution or purchasing proprietary GIS software but Google Maps has proven good enough for all but specialist needs.

Cloud is driving the change

There were many who felt that cloud was overhyped because they saw it as a binary argument and quite rightly suggested that not everything should, or would, be cloud-based. The real disrupting influence of cloud is the affinity of the technology to the ability to facilitate pay-per-use models of delivery. If you combine that with SME adoption of cloud as a SaaS delivery platform you can see how it supports the trend of “good enough” and pay per use.

New entrants will cause market disruption

There are new entrants to the public sector market, and many are pure-play cloud operations. Apple, AWS, Google, Salesforce, and VMWare are all targeting the rich seam of government contracts and benefit from having little or no public sector IT baggage through failure. They suit the environment of “good enough” because they see themselves as commodity IT. In Google and AWS’s case there would seem to be a clear strategy of not developing public sector specific value propositions but to offer the same “good enough” commodity service they offer to all their clients – based on unit pricing and being fit for purpose. Many politicians like the associated “cool” of working with these companies and they are beginning to pick off enterprise-scale contracts rather than the small-scale engagements usually associated with them.

SIs need to review their partner ecosystem

This trend towards “good enough” has ramifications not only for software companies but across the vendor community. Most of the major SIs are used to trying to read the runes of public procurement policy and adapt their consortia to match it. They have made great strides in recent years to engage with SMEs partly through enlightened self interest to capture the best and most competitive IP and partly through a three line whip from government.  When dealing with a major procurement, SIs spend a lot of time trying to work out who and what is in, and who and what is out, in terms of their clients’ thinking. If they believe that they need to change the emphasis of their technology pitch away from the usual suspects we can foresee an interesting reforming of alliances. Equally, some of the major software operations which have relied on a partner channel will have to adapt their products and develop direct selling operations.

Major data centers with onsite renewable generation

Although Skanska’s business footprint is mostly in real estate and infrastructure development, and also includes significant revenues from power generation, it has offered data center design and construction services for more than a decade.

Skanska is exploring how it can combine its data center and power utility construction and design experience to develop data centers with onsite renewable energy production. Onsite generation is producing and using electricity at the data center site, rather than sourcing or transmitting it through the broader electricity grid.

Currently, Skanska is evaluating several onsite renewable energy generation projects in theUS. The company is not yet releasing customer names or specifics of the data center sites, but says that if they move ahead, it expects them to be operational in 2013. Among these projects, two renewable energy types are being explored: solar and geothermal. A solar-powered facility would only be partially powered by solar (perhaps a few megawatts of solar for what would likely be a 25 MW facility). The other facilities would use geothermal power as their primary onsite energy source (with additional back-up power of types not yet determined). All three sites will be multi-tenant, infrastructure-as-a-service (IaaS) cloud data centers.

Onsite renewable power is a cost-effective, stable alternative to the grid

Skanska is investigating other renewable energy sources such as wind, biomass, and hydroelectric for onsite generation for other customers, including telecommunications, financial services, and other cloud service providers. It cites capital investment as the largest barrier to onsite renewable generation, though such projects are also hindered by the time and cost required to gain regulatory approval. These hurdles are in addition to the typically significant procurement costs of building the new data center itself. Skanska draws on its experience in the energy sector and navigates regulatory hurdles for its customers, in a bid to remove that barrier.

Skanska describes customer interest in onsite generation as significant, driven in theUSby an inherently unstable electricity grid. In addition to a desire to be independent of the grid (and be able to interact with the grid in a smart way, such as reselling onsite generated electricity back to grid utilities), customers also want to stabilize their energy costs for the future. The global market for conventional electricity is highly volatile, and some forms of renewable energy are viewed as more cost-stable alternatives. The cost of electricity to power data centers is becoming increasingly important because power is a growing operational cost. Currently, the cost of infrastructure and energy is three times the cost of servers, and is increasing over time. This is because server costs are falling while both energy consumption and energy costs are rising. Energy costs are likely to reach four to five times the cost of servers in the next few years. In the US, the average price escalation of grid-produced electricity has been 5.8% per year during the past 10 years.

Power and cooling are part of the TCO-reduction proposition

Skanska claims that it can reduce data centers’ total cost of ownership for some of its clients by as much as 40%, sometimes more by combining onsite renewable power generation and its patented cooling system.

Skanska guarantees that all of the data centers it designs and builds (with or without onsite generation) will consume 75% less water than data centers with standard direct air exchange or water-chilled systems. Skanska also has a patented cooling system that can operate without any water at all. This cooling system enables it to guarantee a PUE (power usage effectiveness) of 1.18 or lower, including all mechanical and electrical losses, for its data centers. Of course, generating renewable power onsite will reduce a data center’s carbon footprint. As these projects come to fruition, Skanska will be in a position to also offer extremely low CUE (carbon usage effectiveness).

As a “fast follower”, SAS tends to let its competitors prove the market and spend big marketing dollars, then swoops in with a focus on solving the hardest problems clients face. The company is able to do this by drawing on a substantial trove of technology tools and consulting expertise targeted towards improving predictive, organizational, and decision-making capacity. As governments struggle to manage the complexity generated by torrents of incoming data, SAS’s moves to hit all aspects of agency decision-making processes are bearing fruit.    

Robust growth in the Americas indicates maturing data environments

Given the importance of renewals to SAS revenues, the “first year fee” (FYF) metric is an especially important way for it to measure growth. In 2011 its FYF growth in the Americas was 27.9% in federal government and 28.7% in state and local government, an impressive that feat points to both increasing demand in the market and strong positioning. Not surprisingly, its fraud framework is the most popular solution across the public sector vertical; analytics and monitoring solutions that cut down internal and external fraud provide clear return on investment and are therefore easier expenditures for agencies to justify.

General analytics tools for central government and criminal justice and public safety platforms for state and local government were the next most popular. The strong demand from countries such as Brazil and Mexico shows that data environments are maturing in these countries, with more public sector entities aware of the actionable insights their data holds. In 2012 there will be greater competition for SAS in the emerging markets of the Americas, but is a major opportunity. The company’s continuing investment in domain expertise, which is intended to present truly verticalized solutions in the government arena, will be especially important in determining how much of its potential it will achieve.

Strategically leveraged partnerships maintain competitive advantage

The government technology market is filled with friction and overlapping relationships. Vendors do not always play well together, but those that can realize when it is in their interests to partner with competitors have much to gain. SAS has been particularly successful here, targeting the right partnerships: those that provide the most value to clients and set up the firm for future work using similar delivery mechanisms.

In 2011, SAS’s partnerships brought in 34% of FYF, with 40% of partner-driven revenue coming from initiatives with IBM, Teradata, EMC/Greenplum, Accenture, and HP. Most impressively, SAS’s average deal size was 50% larger when a partner was involved. Partnerships are particularly important in government, especially if they inspire an agency towards greater levels of trust in the relationship and its deliverables. SAS’s large investment in R&D strengthens its position as an in-demand partner.

Making powerful analytics approachable is the key

SAS has long been known for its powerful statistical and risk analysis tools. At a time when data-driven decisions are becoming the norm, and the ability to make such decisions is a prerequisite to career progress for government staffers, it pays to make complicated processes user-friendly. In short, the goal should be to give all government employees who work with data the ability to be “data nerds”.

SAS’s new “high-performance” analytics are all about speed, and aim to decrease by an order of magnitude the time it takes to run an algorithm or computation. This capability brings to life a particularly compelling new visual analytics platform, which lets the user discover, visualize, and manipulate data rapidly, and includes drillable maps with overlaid data. This will be an excellent upsell opportunity for SAS in the government vertical, but without further differentiation it may run into bumps when attempting to woo those public sector entities that are not current customers.

The main point is that it does not take an expert to use SAS’s product, which goes some way towards making its analytics more approachable. SAS can further extend the idea of approachable analytics to the cloud, where it already has 250 customers. A marketplace in the making of analytics apps would be of significant interest to government agencies that want quick set-up and pay-as-you-go pricing but are not willing to sacrifice product quality or security.

OnX, which is headquartered in Toronto, specializes in the design and delivery of data center services. The background to its report is its acquisition, in mid-2011, of the Technology Solutions Group of the US concern Agilysys. OnX clearly wants to establish its name and credentials in the capital markets segment of the IT services market.

OnX wants to sell consultancy, not testing services or test reports

OnX formed a loose consortium of tech companies that provide hardware, software, and facilities for the test rig. They include Dell (for servers and server enclosures), Arista (for switches), Solarflare (for 10GbE network interface cards), Edge Technology Group (for IT and facilities engineering), Equinix (for data center operations) and Intel, whose Fasterlab facility in the UK hosted the test.

The first result of their collaboration is the report High Performance Trading – FIX Messaging Testing for Low Latency, which is available free from consortium members. It compares the performance of two commercial FIX engines, one from B2Bits EPAM and the other from Rapid Addition, with QuickFIX, an open source FIX engine. The B2Bits engine was written in C++, while Rapid Addition’s was in Java. Both were compared with the appropriate implementations of QuickFIX, since the latter is available in both languages.

Some of the test results are perhaps not that surprising, such as the fact that, while open source falls into the “good enough” category for most requirements, the most demanding performance requirements can only be met with a commercial product. More interesting is the evidence that Java, even though it wasn’t originally designed for low-latency applications, can be made to serve that purpose, basically by having its garbage collector turned off. In this state, it performs just as well as an unmanaged language, like C++.

OnX has some major names associated with the initiative: Arista is a favourite for top-of-rack switching in capital markets data centers; Solarflare is similarly widely used; and Fasterlab is where Intel developed Everest, the overclocked chip that is marketed exclusively to the speed freaks in the capital markets sector on account of its perfomance. Judging by the number and quality of the attendees at the report’s launch in London, there is clearly an appetite for latency and jitter test results, and the fact that this test compared different vendors’ products and an open source one, whereas STAC’s always provide benchmarks of a single vendor’s product, is of interest.

The consortium has already unveiled plans for its next report, this time on different vendors’ implementations of Precision Time Protocol (PTP), the technology used to synchronize clocks across a network. This is of vital importance for a variety of reasons in capital markets, whether for performance monitoring, compliance, or other purposes.

This raises another question, however: how will the OnX-led consortium fare against infrastructure stack testing and benchmarks published by STAC? Ovum believes there is, in fact, enough room for both, not least because the business models behind them are quite different.

OnX’s tests provide application benchmarks and should be useful to end users

The fundamental difference is that STAC’s tests provide synthetic benchmarks, as code is created specifically to emulate the conditions a product would face in the real world, while the OnX consortium’s tests provide application benchmarks, as a real-world program is run to test a stack. The former is of use in highlighting the performance of an individual component, while the latter is more valuable in ascertaining how well an entire stack functions.

As a result, anyone wanting to could go out and buy the stack used in the test rig, since all the component parts are commercially available rather than custom built for the purpose of the tests. STAC’s test results, which are paid for by the companies submitting kit for testing, are of value as marketing tools for the individual components, whereas OnX’s results, which do not involve any money changing hands, should prove useful to end users, who are precisely the target audience to which OnX wants to promote its services.

In essence, STAC’s benchmarks are marketing tools for the hardware companies that want to sell their kit to capital markets firms; OnX’s benchmarks are marketing tools for its services and integration skills, but as such will prove useful as standalone comparisons of different vendors’ offerings, regardless of whether or not you are taking OnX’s services.

Orange has formalized what most telcos are expected to do anyway

In articulating and itemizing its commitment to Europe’s Digital Agenda,Orangehas taken a bold step that commits it to specific goals. However, these goals are not new or transformational. Instead, they represent the services that telcos are expected to deliver. For example, the commitments to provide fast communication services through fiber or LTE are services that most telcos are already committed to rolling out.

The other two broad categories – providing rich services and behaving responsibly – are also goals that telcos have already been pursuing. Rich services such as cloud computing, mobile payments, e-health, and enriched personal communications are telcos’ future growth markets, presenting them with an opportunity to earn new revenues beyond their traditional voice, data, and access services. The majority of the commitments that come under responsible behavior are activities that most telcos perform under their corporate social responsibility agendas. Telcos already strive to protect their customers’ privacy, ensure gender equality, conserve energy, and support noble causes around the world.

Telcos role in society goes beyond social responsibility

While Orange’s “10 commitments” do not bring anything new to the table, they are a powerful reminder to policymakers that the telecoms industry involves much more than simply providing voice and data access. As a central figure in the digital society, the telecoms industry is the most important enabler for a connected world. Whether it is to provide Internet connectivity for consumers, extend connectivity to rural areas, empower businesses with operational tools, or even add directly to GDP growth, the role of the telecoms industry in society is clear.

Even when the industry is only acting as a facilitator, it is still capable of bringing enormous benefits to society. For example, in the UK, Vodafone’s JustTextGiving service enables people to make donations to charities via SMS. In Afghanistan, Roshan is using a variant of the M-Pesa mobile money service to pay the salaries of Afghan police. In Ghana, telcos have helped develop the mPedigree service, which uses SMS to ensure the distribution of authentic pharmaceuticals. And in the US, Sprint’s Drive First service is designed to stop drivers from using their phones while driving.

A formalized telco commitment requires a mutually beneficial deal

While Orange’s approach may seem conciliatory, it is actually designed to highlight the important position that the telecoms industry occupies in society and remind policymakers that the industry deserves recognition. This charm offensive is important as telcos’ revenue growth slows or goes into decline due to the threat from over-the-top players, the mounting burden of additional capital requirements, the looming possibility of expensive spectrum acquisitions, and the threat of regulator-mandated price declines.

It is unlikely that Orange’s public pledge or the more combative approaches taken by other CEOs will lead to any direct changes in policy. However, it may help in softening the attitude towards telcos by presenting them as an indispensible component of the future connected world that needs to be acknowledged.

China Mobile reports steady growth in mobile services but is being challenged by its rivals

China Mobile is still the largest mobile operator in China, but its revenue and subscriber growth rates have begun to slow due to increasing saturation in the 2G market and competitive pressures in the 3G market.

China Mobile’s revenues were CNY528bn in 2011, which was a year-on-year increase of 8.8%. Over the same period, the operator’s net profit increased by 5.2% to CNY125.9bn. China Mobile’s total subscriber market share declined by 3.0% to 66.5% in 2011, while its share of new mobile subscribers was 49%, the first time that it has fallen below 50%. China Mobile’s ARPU continued to decline, falling to CNY71.

3G continues to be a small business for China Mobile in comparison to its rivals. Although the operator’s 3G subscriber market share was 40.0% in 2011, 3G subscribers only accounted for 7.0% of its total subscriber base. In comparison, 3G subscribers accounted for over 20% of the other two operators’ customer bases. China Mobile’s SCDMA 3G technology, which was adopted under policy pressure, has weakened the operator’s ability to develop the 3G market. As a result, we believe that China Mobile will push for the rapid licensing of TD-LTE in China.

In 2011, mobile data revenues accounted for 26.4% of China Mobile’s total revenues. Wireless LAN (WLAN) played an important role in the growth of these revenues, with China Mobile’s WLAN data traffic growing by 397.9% in 2011. With China Mobile hampered by its inferior 3G network and not having a fixed broadband license, the operator is using WLAN to offload an increasing amount of mobile data traffic to enhance mobile Internet experience.

In 2012, China Mobile’s capex is expected to increase to CNY131.9bn. However, it plans to shift investment away from the mobile network towards the transmission network and WLAN construction. This will help China Mobile to offload mobile network traffic and enable it to prepare to support integrated services once its fixed broadband application has been approved.

Although China Mobile claimed that it will expand its TD-LTE deployment from six to nine cities in 2012, the timetable for its commercial launch is still pending.

China Telecom’s mobile operation became its main business

In 2011, China Telecom’s revenues grew by 11.7% to CNY244.9bn, and its net profit increased by 10.5% year-on-year to CNY16.7bn. Ominously for China Mobile, China Telecom’s improved performance was mainly due to growth in its mobile segment. China Telecom’s mobile revenues of CNY82.7bn exceeded its fixed broadband revenues, becoming its largest source of revenue for the first time. China Telecom stated that its CDMA and 3G services became profitable in mid-2011. However, the revenue contribution of China Telecom’s fixed voice business declined to 20.4% of total revenues in 2011.

Fixed broadband remained a stable source of revenue growth for China Telecom in 2011, with its fixed broadband subscriber base increasing by 21% to 76.8 million. The operator invested heavily in its FTTx network in 2011, and it expects to grow its fixed broadband subscriber base to 100 million in 2012.

To maintain its fixed strength and prepare itself to offer integrated fixed and mobile services, China Telecom will continue to focus its investment on fixed broadband. In 2012, China Telecom’s capex is expected to be 8% higher than in 2011, with more than 50% of this used for FTTx infrastructure.

Since March 9, 2012, China Telecom has been selling the iPhone, making it the second Chinese operator to do so. The iPhone is expected to boost China Telecom’s brand among high-income users, which will help to increase revenue growth and ARPU. However, iPhone subsidies may increase the company’s cost of sales.

China Unicom’s 3G business finally contributing to growth

China Unicom’s 3G business has become its most significant driver of revenue growth, helping the operator to reverse the profit decline it experienced in 2010. China Unicom’s revenues increased by 22.2% to CNY209.2bn in 2011, while its net profit increased by 20.0% to CNY4.2bn. In 2011, China Unicom’s 3G revenues were CNY32.7bn, which was a year-on-year increase of 182.3%. 3G revenues accounted for 31.7% of China Unicom’s total mobile revenues in 2011, and the operator had a 3G market share of 31%. China Unicom has attracted more high-income users by offering premium smartphones such as the iPhone. Its 3G ARPU reached CNY117 in 2011, which is significantly higher than its total mobile ARPU of CNY47. This demonstrates the success of China Unicom’s strategy.

While China Unicom’s primary focus in 2011 was on its mobile business, the operator didn’t neglect its fixed services, with fixed broadband revenues increasing by 18.1%. China Unicom’s capex is expected to increase to CNY100bn in 2012, with the operator investing in expanding its 3G and fixed broadband networks.

Ellucian – would a rose by any other name smell as sweet?

After much industry speculation and anticipation, the newly merged Datatel+SGHE organization announced at its annual end-user conference that its new name is Ellucian. The concept behind the name is the “clarity and light that learning brings to life” and the new organization’s commitment to enabling its institutional clients to thrive in an increasingly turbulent industry. It is evident that considerable thought went into the construction of the new name, and it is a natural progression for the SGHE side of the organization, whose tagline has evolved in recent years from “unified digital campus” to “open digital campus.” Datatel has a long history of advancing analytics in the industry, which gives credibility to Ellucian’s promise to deliver on its new vision.

While a brouhaha has erupted in the blogosphere in recent weeks about this new organization’s stability and long-term client commitment, it is important to remember the long and venerable history in higher education that each part of this organization has. Of course, Datatel and SGHE have stumbled on occasion – what technology vendor hasn’t? – and Ellucian will likely make its fair share of mistakes in the future, as it figures out how to be a single organization. Yet what distinguishes these vendors, and makes Ovum believe that the new Ellucian organization will be a strong one, is the considerable client commitment these firms have already demonstrated in their willingness to recognize mis-steps and execute plans to rectify them. Whatever the name, Ellucian is certain to be a valuable vendor partner in the higher education industry.

When it comes to Blackboard, the industry can’t see the forest for the trees

Blackboard’s announcements, that it has acquired open-source LMS service providers Moodlerooms and NetSpot, hired Charles Severance to lead its Sakai initiative, launched the Blackboard Education Open Source Services group, and extended support for Angel indefinitely, tipped the industry on its ear this week. While the announcements were unexpected, the immediate and highly vocal rants in traditional and social media were not. Sadly, this automatic furor seems to be keeping the industry from recognizing these moves as the beginning of a potentially important new chapter in the history of online learning and as signalling a fundamental shift in Blackboard’s position in the competitive landscape. This is the danger of the anxiety generated by focusing too closely on the natural cycles of mergers and acquisitions among technology vendors and subsequently failing to see the long-term benefits of the larger strategic vision. As mentioned already, vendors make mistakes, and Blackboard has probably made a few more than its fair share, but Ovum anticipates that these recent developments will not prove to be among them. Given the significant change facing higher education and the need for bold innovation, stakeholders in the industry would benefit from considering market developments in a more steady and thoughtful way, or they will be unable to see the forest for the trees when it comes to online learning.

Turbulent times demand relationships with trusted vendor partners

These are difficult and turbulent times for the higher education industry and, for many, the recent mergers and acquisitions are proving only to exacerbate existing anxiety and unease. Yet Ovum believes that the developments announced by Ellucian and Blackboard offer institutions and the wider industry a unique opportunity to cultivate more substantive and fruitful vendor partner relationships. Each of these vendors lives and dies by growing its client base, which is impossible to do without maintaining existing customers. Immediately assuming that forced migrations and reduced service levels are foregone conclusions and, as a result, taking a defensive position toward vendors, is wrong-headed. In turbulent times such as these, vendors will be especially receptive to institutions willing to extend a hand in partnership to figure out the best path forward.

This must come as a significant disappointment for Huawei as it had bid for earlier NBN tenders at considerable expense, imposing price discipline on its competitors. However, it has now emerged that they were never genuine contenders.

Huawei have invested in the Australian market, setting up a local board chaired by a retired rear admiral of the Australian Navy. The board also includes an ex-Foreign Minister and an ex-State Premier from opposite sides of the political spectrum. Australia is the first market in which Huawei has adopted this structure, and demonstrates the vendor’s desire to integrate itself into the local industry.

However, the problem of “national security” won’t go away. While it is impossible for outsiders such as Ovum to assess the merits of national security issues because there is too much we don’t know, it is clear that there has been a lack of consistency and transparency in the way that Huawei has been treated.

Decision lacks consistency and transparency

Huawei has had some important successes in Australia. It is building a new mobile network for Australia’s third-largest mobile operator, Vodafone Hutchison Australia, and has emerged as a major supplier to Optus. It is unclear why Huawei’s involvement in the government-owned NBN raises concerns when its involvement in Australia’s privately-owned mobile networks does not.

This inconsistency also has an international dimension. The intelligence establishments of theUS, theUK, andAustraliaare closely linked. Yet while Huawei seems unwelcome in the US and Australia, it is welcome in the UK. Although not a member of this close-knit intelligence alliance, New Zealand is another English-speaking democracy that seemingly has no problems with Huawei’s involvement in its Ultra-Fast Broadband project. Huawei has also been used in many other FTTx projects around the world.

Another issue is the lack of transparency. While it is unrealistic to expect security agencies to provide all the details of their decision-making processes to the public, the lack of transparency prevents Huawei from responding to or addressing the government’s concerns.

Where to from here?

For the NBN Co, the omission of Huawei from the tender process can only mean that the cost of the network will be higher than it otherwise would have. This is because future tenders will proceed without the benefit of Huawei’s technology or price discipline. However, earlier tenders that have involved Huawei have established a benchmark that will help NBN Co in future tender negotiations.

For Huawei, the problem is not unprecedented. It faced similar issues in India in 2009, but was able to recover its position through a combination of increased disclosure and effective lobbying. In that case, the problems centered on a government-owned operator, BSNL, which is similar to the current situation in Australia.

However, that issue took over a year to resolve. Huawei’s response to the Australian government so far has been firm but polite. It has not attacked the government, instead presenting its record in other markets and asking why Australia should be any different.

As it proceeds, Huawei must seek clarity from the Australian government about its concerns. It should ask what the government would consider to be satisfactory performance from a security perspective.

It is also important for Huawei to make clear what is at stake. Global trade has dramatically cut the cost of telecommunications equipment. Increasingly, devices and equipment of all kinds will be Internet-enabled, and Chinese equipment will be no exception. If the presence of this equipment across a range of strategic industries becomes problematic, then it is not difficult to foresee significant trade problems arising. A multi-polar world fragmented in this manner would be a poorer world. This is why consistency and transparency are so important when it comes to these issues.

So much to gain

Higher education is on the verge of significant change, and online learning will undoubtedly play an important role in this change. Ovum believes institutions have much to gain by locking into LMSs, or any enterprise-level system, for that matter, because they will do an excellent job of delivering courses. Institutions will need to radically re-think their approach to LMS implementation and usage. Those that are already heading down this path and driving their LMS to be more innovative – particularly with regard to adopting cutting-edge technologies – will be better positioned. With new LMS features and tools being added to address both student and faculty needs, Ovum stresses that institutions should be proactive in searching for a LMS that closely aligns with their pedagogical goals and overall strategy, as they stand to benefit greatly. The time to do this is now, and institutions that are not thinking about changing their approach face an uncertain future.

An expanding competitive landscape delivers value to institutions

The LMS market is crowded, but Ovum believes institutions should take advantage of the myriad of options available. Whether they consider a commercial LMS, such as Blackboard or Desire2Learn, an open source LMS, such as Moodle or Sakai, or even a service provider, such as Moodlerooms, institutions will be able to find a flexible and scalable solution. Furthermore, new entrants in the LMS space such as Instructure, iVersity, and Coursekit will drive competition, resulting in better products and services at lower prices. Coursekit has emphasized making learning “social,” while iVersity describes itself as a “collaboration network for academia,” but Instructure’s Canvas LMS appears to be creating the biggest stir in the market. The commercial open source platform is not only easy to use, but also has sufficient tools and features to be evaluated against dominant players in the market. Blackboard unveiled a new user interface last month, perhaps in response to the flood of new competitors in the space, but more likely in response to customer feedback. Jenzabar, the only enterprise resource planning (ERP) provider to offer its own LMS, eRacer, could also be considered by institutions looking to cut costs. With so much to consider, Ovum reiterates the need for institutions to choose the LMS that best aligns with their strategy, before looking at any other factors.

LMS can fulfill student expectations and make student and faculty life easier

It is no secret that today’s students are using more technology than ever, which means that as they enter higher education, they bring with them a set of expectations. LMS implementations in higher education have the potential to empower the imaginations of students. However, Ovum believes that, in a number of cases, faculty behavior patterns must change in order for this to be possible. If an institution has paid licensing fees or implementation and upkeep costs for a LMS, it is for the benefit of both students and faculty. With rapid changes in the technology market, particularly in social networking, digital content, and analytics, LMSs are clearly not what they used to be. Ovum recommends that faculties take advantage of LMSs and vendor support to make the teaching and learning environment a more exciting one. After all, it is a symbol of the higher education status quo and, maybe now, it will finally deliver on its promise.

Challenge: keeping up with Moore’s Law without the help of Moore’s Law

The speed of optical links keeps rising as the traffic sources are sped up and proliferated through the magic of Moore’s Law. Unfortunately, the optics themselves do not get to ride the Law’s coattails. Without a separated process and tool development industry like complementary metal-oxide semiconducting (CMOS) has, optics companies have found they need to own the device fabs themselves to be able to control the roadmap.   

Oclaro’s CEO mentioned this challenge in justifying Oclaro’s plan to acquire Opnext, announced Monday. Oclaro’s proposition to keep up with traffic includes DWDM link design with amplifiers and other transport components. While SEDU does not get this transport capability with Emcore’s VCSEL assets, it does get parallel interconnect products that address non-network needs caused more directly by Moore’s Law. As electronics and optics both move to 28Gbps per lane, optical interconnect is expected to take a larger share of  backplane and chip-to-chip links. Sumitomo will now also be able to compete across the full range of 40G/100G Ethernet, including short-reach (multi-mode) optics used to connect switches within a datacenter.

Positioning for 40GbE and 100GbE transceivers and interconnect

Together, the Oclaro and SEDU deals put them in position alongside Finisar to take on the multi-mode vendor community. At 40GbE/100GbE, single-mode products have been introduced by SEDU and Opnext while Avago, TE Connectivity, and Emcore are known for the parallel multi-mode optics used in parallel interconnect as well as 40GbE SR4 and 100GbE SR10. Only Finisar has announced both multi-mode and single-mode high-speed products.

10GbE dominates the current market. Many vendors including SEDU offer both multi-mode and single-mode for 10Gbps and lower speeds. While moving to in-house VCSEL could give SEDU a cost savings, the result is only parity with leading competitors Finisar and Avago at best. Hence the more interesting implication is on SEDU’s longer-term chances for success with next-generation 40GbE/100GbE and interconnect.

VCSELs, especially parallel VCSELs, are still a critical resource

Although multi-mode transceivers are easily an order of magnitude cheaper than edge-emitters, the barrier to entry for VCSELs has been higher than for edge-emitter lasers. With time the barrier has come down a bit, but only a handful of manufacturers have volume history. All the serious datacom transceiver competitors have in-house VCSELs, though it is not clear that vertical integration makes sense for the consumer and industrial markets.

Arrays for parallel interconnect require a higher level of process maturity than single VCSELs. Emcore was one of the original VCSEL manufacturers in the 1990s. Finisar got its fab from the leader of the original pack, Honeywell, in 2004 for $75m, back when there were only a few to choose from. SEDU’s purchase is a comparative bargain at $17m as Emcore seeks to raise cash, though not as thrifty as Oclaro’s (then Bookham) 2006 acquisition of start-up Avalon for $5.5m in stock.

Emcore tunable lasers and CATV products dominate their niches

Emcore states that it will use the cash to keep its other product lines going. These include tunable lasers, which have found excellent traction in the nascent coherent 40G and 100G DWDM market. Emcore also holds a unique position in the CATV optics value chain. It makes a variety of lasers but also adds differentiating signal conditioning electronics to make white-label transmitters. But these are isolated bright spots, exactly the opposite of the “one-stop shop” direction that Oclaro and SEDU are taking.

SEDU is a major player

As of the end of 2011, SEDU’s optical component revenues were $591m for the year, giving it 10% market share and #3 rank. Its strongest share position is in transmission discretes (lasers, receivers, etc.), segments where it holds 16% share and top ranking. (Note that Ovum’s market share ranking will be revised next quarter to include CyOptics, which sells exclusively in the discretes segment.) SEDU also has 16% share in medium-reach (1–40km single-mode) transceivers, which gives it a #2 rank in that segment.

This is a high-stakes gamble for Cisco, and a fresh set of email evidence has just been published by the Australian Financial Review tying NDS to the hacking of the conditional access systems of News Corp’s pay-TV rivals. These allegations are not new, and NDS has been exonerated before. However, the reputational fallout from the scrutiny of News Corp has already killed one large deal, the consolidation of ownership of BSkyB. This poses a challenge for Cisco. The textbook response would be to suck NDS into the Cisco organization and bury the brand. However, as we explain below, this is exactly what Cisco must not do, if it is to avoid destroying shareholder value with this deal.

Cisco seeks a stronger position in the video market

Cisco does not have a glorious history in the pay-TV market. The Scientific Atlanta set-top box business, acquired for $6.9bn in 2006, has underperformed. Its Videoscape unit, created from the acquisitions of ExtendMedia, Inlet Technologies, and BNI Video, has also found it challenging to win against specialist players such as thePlatform and Kit Digital. The NDS acquisition brings the leading pay-TV middleware and conditional access business into the Cisco fold and brings scale to the Videoscape unit. It will hence accelerate the move out of the troubled Scientific Atlanta hardware business into, theoretically, a higher-margin video platform software and managed services business. But it comes with a big serving of execution risk, even before the ongoing hacking allegations are considered.

Cisco’s underlying thesis for the market is of course correct, and is in-line with the consensus view. Entertainment video is going to play a massive role in the capacity models of coming FTTx deployments, and this is going to force converging telecoms, satellite, and cable providers to carefully structure both their own pay-TV and wholesale capacity strategies accordingly. A stronger position in the video market will enable Cisco to sell more infrastructure, software, and services through the service provider sales channel. Whether the telecommunications industry likes it or not, its investment in FTTx and LTE are investments in the broadcast video networks of the future.

Cisco faces execution and strategy risk

However, where the issues lay for Cisco is in its execution and strategy. It is making little effort to de-risk its M&A activity. Its peer Alcatel-Lucent, by contrast, is opting for a partnership strategy with category killers in emerging video technology markets, one example being the partnership between its Velocix CDN business and thePlatform. Likewise, Ericsson has spent over two years courting Technicolor’s Broadcast Services business, only now buying it for €19m plus a €9 million performance bonus. Technicolor’s specialized media asset management systems integration capability is a scarce commodity.

At 5× multiple on 2011 revenues and a $1.3bn premium over the price paid by News Corp and Permira to take NDS private in 2009, Cisco is not just buying a strategic technology asset. It is also buying cash flows, which means that Cisco must keep and grow the existing NDS customer base.

To understand the challenge this poses for Cisco, it is necessary to understand the role of NDS in the fabric of the global pay-TV industry. NDS has been the in-house technology shop for News Corp for over 20 years. Peled and Murdoch are close, and News Corp pay-TV businesses worldwide are NDS’s biggest customers. Over time, NDS has grown and diversified its customer base, pushing itself outside the News Corp stable into other satellite pay-TV operators, such as Astro, America Movil’s Claro, and DirecTV, as well as a handful of cable operators, such as Cablevision, and IPTV players, such as Telecom Italia.

However, as the pay-TV industry changes and NDS clients such as BSkyB and Astro have to ready themselves for a new fight with over-the-top video providers, senior pay-TV technology managers with whom Ovum has spoken are finding the embedded nature of NDS in their organizations restrictive. The message Ovum is hearing is that many key pay-TV technology decision-makers would like to be able to look at alternative suppliers.

Herein lies the dual risk for Cisco. Firstly, the transaction will open a door for rivals to look to displace NDS with alternatives such as Irdeto, Huawei, and Ericsson. Secondly, will NDS’s client base, and specifically News Corp, invite Cisco to have the same level of strategic technology partnership that NDS has enjoyed? Abe Peled is secured to Cisco for three years. But has John Chambers locked in News Corp COO Chase Carey too?

Ovum has had the opportunity to quiz Cisco on the transaction, and it is apparent that the Videoscape team is aware of the execution risk. It has been signaled that NDS will be operated as a ring-fenced business, albeit within the Video Technology group; hence, Cisco cannot just bury the NDS organization in its own organizational structure.

Ovum will be looking to measure the execution of this acquisition against the rate of churn of the current NDS client base, the speed with which we see new supplier logos in businesses such as Astro and the key News Corp pay-TV businesses, and whether there is new business dividend in the near term for Videoscape. Certainly, in the longer term, there are synergy opportunities in other areas of the Cisco business such as its CDN, home gateway, and video collaboration product lines, but these near-term factors will signal whether Cisco ever gets to exploit the strategic value of NDS.

Silver Spring has moved one step ahead in its smart grid strategy

Founded in 2002, Silver Spring Networks is headquartered in Redwood City, California and provides smart grid networking technology. Its Smart Energy Platform includes standards-based network infrastructure, software, and services, and helps utilities to connect all devices on the smart grid.

Silver Spring has achieved significant growth in a short period; its revenue surged from $70.2m in FY2010 to $237.1m in FY2011. Forging business relationships is one of the company’s strategies to compete in the highly challenging smart grid market, and its partnership with Hitachi is one of a number that serve to expand and strengthen its product portfolio. In December 2011 Silver Spring signed a $24m investment and partnership deal with EMC to provide a smart grid analytics solution for the utilities sector, while in August 2011 it partnered with Cable&Wireless Worldwide to provide an end-to-end smart grid networking solution for the British market.

The partnership will strengthen and expand an existing relationship

In February 2012 Silver Spring formed a strategic alliance with Hitachi to provide integrated smart grid solutions to power utilities and users worldwide. The companies plan to undertake joint research and development for new products and solutions for the smart grid.

The companies have been working together since the spring of 2011 on the Japan–US collaborative smart grid demonstration project on the Hawaiian island of Maui. The new partnership expands and strengthens this relationship, and will support both companies’ expansion strategies, benefiting their customers by providing them with integrated smart grid solutions. 

Silver Spring has successfully established a strong brand and presence in the US, and is one of the market leaders for radio-based smart metering communications. Despite its high visibility and fast growth, Silver Spring is still a relatively small company that lacks the scale to rapidly expand its market reach. Hitachi’s global presence should therefore help it grow its smart grid footprint.

Conversely, Hitachi lacks a strong brand in the smart grid sector. The partnership will enable Hitachi to leverage Silver Spring’s brand and product portfolio to expand its smart grid business and develop new solutions for utilities worldwide. Hitachi’s partnership with Silver Spring is part of its wider Social Innovation Business initiative, which covers IT, railways, smart grids, and other aspects of green technology. It plans to invest approximately JPY1.7tn in this business over a three-year period (FY2010 to FY2012), including JPY670bn on R&D.

The alliance could lead to the integration of the two businesses

As part of the deal, Hitachi will acquire convertible notes to be issued by Silver Spring, and according to an SEC filing the latter company will raise approximately $30m from the deal. One question that remains unanswered is whether the partnership will end here, or will Hitachi follow the example of its competitors Toshiba and Siemens and acquire a smart grid specialist?

Incremental change is no longer an option for higher education

In an environment in which the likelihood of new money coming in is low and the current financial model is coming apart at the seams, many colleges and universities are grappling with a very uncertain future. At this year’s HEUG Executive Forum, IT decision makers spoke candidly about the need to prepare for a very different industry in the future, one in which organizational structures and processes would change in new and unpredictable ways, and in which the delivery of educational services would more likely be online than in “bricks and mortar” classrooms. Small, incremental change unfolding over several years would be replaced by large, transformative change pushed through in weeks and months. Conference participants agreed that the ability to innovate and adopt more agile business practices would be crucial to navigate this new landscape successfully. Yet layers of customizations to the institutional IT landscape have severely undermined innovation and agility in higher education.

More standard deployments are the way forward

Recognizing the need to throw off the institutional and industry-wide addiction to customizing enterprise applications, conference attendees voiced a new receptivity and commitment to more standard deployments. While seemingly counter-intuitive, Ovum asserts that this kind of “vanilla” approach to implementing solutions such as the student information system (SIS) or learning management system (LMS) offers institutions the flexibility and cost savings required in the higher education landscape of the future. Reducing the number of modifications, or “mods,” to the SIS, for example, enables change to occur more easily at a lower cost as deployment is faster, requiring few professional services, and upgrades are easier, demanding less testing. New and better functionality is available faster and at a lower overall cost.

While some continue to argue that most enterprise applications do not provide adequate functionality “out of the box,” one forum attendee remarked that the current version of Campus Solutions no longer requires the degree of customization it once did, and perhaps end users needed to be educated on this fact. Ovum believes that the gaps between current institutional practice and solution functionality are sufficiently small that in nearly all cases it would be difficult to present a compelling business case for how customization would deliver a large enough ROI to justify its development and ongoing maintenance costs. Given the current budget climate in higher education, the days of rubber-stamped approval for solution customizations are over.

The field commanders are ready, but the troops and generals need support

While the drumbeat among forum attendees was decidedly strong for vanilla deployments, many were concerned about the difficulty of garnering support from senior leadership and rallying end users around the cause. The challenge with senior leadership is a perennial one related to communicating the value of IT in a language that is readily understood and compelling to non-IT executives; it is not surprising that the strategy of IT standardization also faces this same challenge. Unfortunately, it is a “chicken and egg” dilemma as, without executive understanding, it is difficult to strictly enforce a consistent approach to evaluating the business value of proposed modifications and, without line-of-business buy-in, many executives will struggle with a rising tide of dissent. Ovum recommends that institutions develop policies that use simple, understandable business terms and broadly communicate expected outcomes. Any proposal must answer the following questions: how much does the customization cost, in terms of both development and ongoing maintenance, and how does it weigh against the anticipated increase in efficiency or effectiveness? Given the maturity and flexibility of most modern enterprise solutions, it is likely that, except in unique situations, most customizations will fail to demonstrate sufficient value. Undoubtedly, there will be battles, as stakeholders chafe at changing long-standing business processes in order to avoid solution customizations. However, if IT decision-makers hold steady and communicate a consistent ROI message to executives, their patience will pay off, as improved agility and the ability to innovate win over end users.

Retrofitting buildings is a prime opportunity to cut costs; owners and managers should consider software that simplifies the challenge

Buildings consume more energy than any other class of assets because of their sheer numbers and because most are still highly inefficient. Accordingly, retrofitting buildings with newer materials, more efficient heating, lighting, and air conditioning, and other energy-efficiency techniques is a prime opportunity to cut energy costs. Such measures can quickly pay for themselves, yet deliver cost savings indefinitely. But identifying which steps to take has typically been a complex, time-consuming process.

At the conference, Autodesk demonstrated a new version of its Green Building Studio product, which contains new cloud features to make retrofit planning faster, easier, and more effective. One of these features lets owners and managers upload a building’s historical utility data and compare it with an analysis performed by Green Building Studio to understand energy performance both before and after the project.

Another new cloud feature gives owners and managers access to 10 years’ worth of hourly weather data from around the globe. When they upload the utility billing history, it automatically syncs with the weather data to provide additional insight into consumption patterns. A third new feature lets users quickly chart monthly and annual energy data against simulated data to spot anomalies that need attention.

This article isn’t intended to endorse the Autodesk product or to suggest that Autodesk is the only vendor pursuing building energy management. Indeed, the US Department of Energy maintains a directory that lists nearly 400 vendors of building energy software tools. But the directory’s size only supports Autodesk’s view that there is a substantial market opportunity in enabling retrofits that can put cash back in owners’ pockets.

Sustainable product design is another field begging for software that speeds and simplifies the process

For a variety of reasons – regulation, consumer preferences, new health research, and more – companies in nearly every industry face increasing pressure to offer products that are environmentally friendlier in their sourcing, manufacture, use, and disposal. Accordingly, product designers face complex decisions about the environmental and performance tradeoffs between the materials they use and their finished products. Collecting all the relevant information is a huge task by itself; preparing multiple iterations of a product using different materials and assumptions is also complicated and time-consuming.

Computer-aided design (which Autodesk pioneered) greatly speeds the iteration process, but by itself does nothing to simplify the environmental calculations. Autodesk recently moved to address this by partnering with UK-based Granta Design to create Eco Materials Adviser for Autodesk Inventor design software. Eco Materials Adviser includes a database of information on around 3,000 materials; designers can incorporate this data into their model to quickly analyze environmental considerations including carbon footprint, energy and water usage, materials cost, and hazardous substances regulations, as they work through multiple iterations.

Such capabilities add business value by reducing design time and ensuring that the final product will not only perform as intended, but will be more attractive to customers and avoid the penalties and market access issues that can come with increased hazardous substances regulation.

Autodesk both exemplifies and takes advantage of the linkage between sustainability and business performance

Again, Autodesk is not alone in pursuing this opportunity. Vendors such as SolidWorks, PE International, Sustainable Minds, and Trayak also offer products that help designers analyze environment/performance tradeoffs. But Autodesk has done a better job than most at addressing sustainability in both its products and its internal performance (for example, by significantly reducing its corporate greenhouse gas footprint).

In addition, Autodesk has been more effective than most at communicating a crucial point that many organizations still do not get: whatever their stance on environmental issues, businesses should adopt sustainable design software to make products safer, boost efficiency, reduce risks, and increase profits. Organizations that fail to utilize such tools are missing an opportunity and may be putting themselves at a competitive disadvantage.

Recent announcements from EMC Greenplum about expanding the availability of its Chorus collaborative environment for developing Big Data analytics and its acquisition of Pivotal Labs, an agile development consulting firm, are both aimed at developing analytics and applications that help organizations consume Big Data.

The data is there; now figure out what to do with it

Listen to any Big Data discussion and, chances are, the topic of conversation will revolve around how to manage, explore, and understand the data. Not surprisingly, most early Big Data projects have been conducted as isolated exercises using one-off analytics programs. Such strategies won’t make sense in the long run; to derive maximum value from Big Data, the analytics must be baked into an organization’s core business processes and mapped directly to benefits afforded to optimizing operations and strategic decisions.

Application development and data management have traditionally been seen as yin and yang. Developing applications helps enterprise operationalize their data. SQL emerged as the core enterprise data platform once packaged applications and software development tools materialized to help enterprises not simply run transactions, but automate data-driven business processes. Not surprisingly, application development frameworks were core to Oracle’s and Microsoft’s database successes. Ovum expects history to repeat itself with Big Data. The next logical step beyond managing and integrating data will be developing analytic and operational applications that consume it.

EMC extends Chorus collaborative development capabilities

Prior to its acquisition by EMC, Greenplum developed Chorus to provide a way for data teams to iteratively develop analytic routines. Chorus allows teams to work in unison on Big Data by offering multiple, coordinated development “sandboxes” or test beds where separate teams can try out new ideas without impacting the production database. For instance, one team might work on analytics that are product-specific while another may focus on customer insight. Chorus enables data scientists, business analysts, or applications developers to provision virtual instances of Greenplum as sandboxes via self-service, using capabilities OEM’ed from VMware. Using Chorus’s graphical environment, they can retrieve subsets of data or federate access to other enterprise databases; define extract and analytic routines; and use lightweight visualization tools to present rough results. Additionally, social networking-like features enable team members to annotate, comment, or discuss specific programs.

Last week’s announcement focused on building an ecosystem around Chorus: EMC announced a couple of partners to kick off the program. To attract partners, EMC has announced tentative plans to eventually open-source Chorus. For now, these are just plans as EMC has not worked out its open source licensing strategy. (Ovum believes that the Apache license, which encourages partners to develop proprietary extensions, would be the logical choice.) Ovum expects EMC to clarify licensing issues by 3Q12.

Greenplum acquires Pivotal Labs

The second announcement of the week, EMC Greenplum acquiring Pivotal Labs, won’t draw as much attention, but is more significant as it breaks new ground in extending EMC’s Big Data agenda to include agile application development.

At first glance, this looks like an unlikely move for EMC, as Pivotal is clearly an application development firm (a new market for EMC). Specifically, Pivotal Labs is primarily a consulting firm specializing in agile software development methodologies, and secondarily, a tools firm that offers an agile project-planning product.

Yet, data platforms and application development are closely wedded: databases became more powerful and useful as they morphed from rudimentary transaction systems to platforms having data-driven business applications running against them. Historically, the most successful database players (Microsoft, Oracle) have created application development platforms to further entrench themselves in the enterprise. The rise of the packaged applications business in turn leveraged the SQL relational databases that became the enterprise standard. It makes sense for EMC to build more onramps for software developers who can develop solutions that evolve the use of Big Data platforms; instead of one-off analytics, they become platforms where analytic applications that use, reuse, and modify analytics are developed. Ultimately, it would make the EMC Greenplum analytics platform more “sticky” to the core of the business, rather than just the domain of elite data scientists (e.g. an online retailer dynamically targeting promotions based on shifts in consumer sentiment as traced on social networks or proximity based on mobile device location data). Agile development practices could help the retailer constantly iterate the business logic or rules to automate its response cycles.

EMC Greenplum is clearly acquiring Pivotal Labs for its expertise and its agile planning tools, and will keep the firm an autonomous business unit. Initially, Pivotal’s role will be to help Greenplum accelerate product development. But the end goal is helping Big Data customers become more agile in developing new applications to go with their new data; Pivotal Labs’ planning tools will make a logical adjunct to the Chorus collaborative development environment. Ideally, analytics that are iteratively developed in Chorus could become the crux of applications that are iteratively developed (and managed by Pivotal Labs’ planning tool).

Clearly, EMC Greenplum is new to the application development business. We don’t expect that Pivotal Labs’ agile planning tools will become a major competitor to incumbents in the space such as Rally, CollabNet, ThoughtWorks, or VersionOne. We believe that EMC has the right idea in embracing the application development side of Big Data, but as a newcomer will be challenged to learn that side of the software business.

We previously speculated that Opnext’s Japanese ties might hinder mergers. Now we wonder if there may be more deals in the offing, particularly involving Japanese companies, many of which have valuable chip assets.

Component vendors hit heartbreak hill, but the marathon continues

The executives cited OEM investment into differentiating component technology as an additional trigger for the deal. Component and module companies face a new challenge to prove their value to customers as more than low-cost commodity suppliers. This gives us all the more reason to prefer restructuring to support new product growth over capacity reduction. 

The key challenge for this industry is to sustain continued 15% price declines while eking out enough margin to invest in ever-more-expensive future generations of technology. The announced merger takes advantage of both margin remedies available: consolidation and vertical integration. Vertical integration promises bill-of-materials cost improvement. Consolidation is less simple: prior deals have rearranged but not removed total industry capacity. This deal similarly is attractive to the participants precisely because of low overlap in products and customers.

This merger of complementary companies does not immediately consolidate supply of existing products, but it does prune the future supply for 100G/400G modules. The burden of investing in 40G/100G and soon 400G is increasingly recognized by investors and industry participants alike as a challenge. Both companies have already invested heavily in this area, including Opnext’s acquisition of Stratalight in 2009 and Oclaro’s purchase of Mintera in 2010. Opnext had even launched 100G chip development, though both companies now use NEL DSP chips in their recently announced 100G coherent modules.

Triathlon analogy more apt: telecom, datacom, and industrial optics

The proposed entity will join JDSU and Finisar in having both multimode and single-mode transceivers as well as transport components, notably ROADMs. We recall that Finisar evolved from being a datacom transceiver company to a supplier of the full range of transceivers across what were previously separate telecom and datacom markets. Telecom has moved to using Ethernet while mega-datacenters and the private WAN links that connect them use single-mode and DWDM. Without this deal, neither Oclaro nor Opnext could be competitive in VCSEL transceivers.

In transport, Finisar and the new Oclaro are coming from opposite positions. Oclaro and JDSU constitute the EDFA and pump laser duopoly; Oclaro could stand to strengthen its ROADM position. Finisar and JDSU are ROADM leaders: Finisar recently showed its first amplifier at OFC/NFOEC.

Oclaro CEO Alain Couder said the combined company’s five fabs are key assets as the industry seeks to keep up withMoore’s Law through chip innovation. The merger purports to expand the addressable industrial markets. Filling these fabs with additional products has proven to be a better model than removing capacity by consolidation. Major optoelectronic vendors such as Mitsubishi, OKI, Avago, and JDSU as well as Oclaro and Opnext have already taken this direction.

Deal positions company for growth: now to execute

The proposed entity comes in behind Finisar and ahead of JDSU for the overall optical component market as tracked by Ovum. Opnext was hit hard by both the Japanese earthquake and tsunami and Thai flooding of last year, so current numbers do not give the full story. Based on 2011 revenues, the revenue, market share, and position by segment of the new Oclaro would be:

• Total optical components: $690m, 11%, #2
• Long-reach transceivers/transponders (>40km): $211m, 20%, #2
• Medium-reach transceivers (1–40km): $147m, 10%, #4
• Short-reach transceivers (<1km): $40m, 4%, #5
• All transceivers/transponders: $398m, 12%, #3
• Transmission discretes (lasers, modulators, etc.): $107m, 9%,  #2
• Amplifiers: $157m, 21%, #1
• ROADMs/filters: $28m, 3%,  #9

For long-term share gain, the company needs to not only achieve the cost savings it projects but also sustain new product development with improved operating margins.

Begin by categorizing incidents and service requests at a high level

High-level categorization can be especially important if a self-service web portal is available for customers to log their own incidents. If category-type-items (CTIs) are overly detailed and unfamiliar, it is likely that customers may not be aware of how to correctly categorize incidents and service requests. This will result in service desk analysts having to audit a large percentage of web support calls that may be received. This manual management results in the time taken to resolve a call being extended. Effective categorization is also important when service desk analysts are logging the call. If the initial categorization inputted by them is incorrect, subsequent escalation of the case in question may also be inaccurate. The case is then likely to be passed back to the service desk for correct escalation, further delaying the time to resolution.

When defining CTIs it is recommended that all of the service desk function are involved in the process, including service desk analysts and users. Analysts may have developed a pattern that they work with in categorizing incidents. Shifting them away from this process could prove problematic, time-consuming, and could result in service degradation, even if only temporary. Work with them, review incidents and requests received, and understand their logic of categorization. This same approach should be undertaken with other functions of IT to ensure consistency, and it should then be implemented into the ITSM solution used.

Ensure that the system allows categorization to be revised post-escalation

If required, it is important to ensure that incident or request CTI’s can be modified further down the escalation chain. For example, further investigations into an initially categorized network issue could actually lead to it being identified as a problem with the VPN client. In such an instance, is it important that the team revising the categorization highlight that it was initially categorized incorrectly and justify the change made in the incident work log. This can then be accurately reported on, and user training or adjustments to set CTIs can be made.

Look to introduce new CTIs to make reporting more accurate

Encouragement should be provided to second and third-line teams to adopt an audit approach aimed at improving categorization by the creation of new CTIs. For example, a service desk may begin to see a trend of calls for connectivity issues with USB dongles. The categorization structure in place might have no reference to dongles, and as a result, these calls are being logged as a network issue. In reaction to this trend, a new CTI could then be created relating specifically to issues with dongles, giving better visibility and awareness when reported on. While this would ideally be a proactive process that is done whenever new technologies are introduced to the business, this is not always practical, and can often be low on the priority list of initiating such a change.

There should be control over who has authorization to initiate changes, with the responsibility ideally being that of the service desk manager. In the event of any new CTIs being introduced, the changes should be effectively communicated to all the people and teams that will benefit from its introduction.

However, the situation is more difficult in Europe, where ACS has only a limited footprint and low profile among enterprise clients. The challenge will be to grow its newer, domain-focused and ACS-delivered service revenues ahead of its clients’ desire to reduce the volume of paper-based MPS.

Xerox is likely to continue its strategy, begun in 2011, of acquiring European “tuck-in” acquisitions to build local capabilities and accelerate revenue growth, particularly in the financial services sectors. Key areas for acquisition are social media, mobile, and content management capabilities.

Dropping the ACS brand will have a limited effect in Europe

With the announcement in February 2012 that it will be “retiring” the ACS brand as part of the One Xerox strategy, Xerox has accelerated the task of integrating the key asset it acquired nearly three years ago. Although widely criticized for not beginning the process sooner, Xerox was right to be wary of losing ACS’s service-focused, deal-making culture to its own, more bureaucratic, centralized style.

The move will simplify the perception of Xerox among key clients in core North American markets. However, its benefits will be less apparent in Europe, where ACS has relatively limited brand recognition – ACS only generated around 10% of its revenues from outside of the US. The issue for Xerox in Europe is not of brand confusion, but rather lack of awareness of the wider service offering that ACS can bring.

Europe was Xerox’s weakest region in 4Q 2011

The economic environment in Europe in the last quarter of 2011 had a significant negative impact on Xerox’s overall results. In 4Q, technology revenues (Xerox’s printer business) were down 5% overall, with US and emerging market growth more than offset by a 15% decline in Europe. Guidance for 2012 is for 2% revenue growth, with the weakness in the European technology unit expected to continue.

The service business in Europe is a smaller component of Xerox’s service mix than in the US, and while the document outsourcing (DO) and business process outsourcing (BPO) lines grew in 4Q, IT outsourcing (ITO) declined. A significant expansion, with more than 10% growth in the service business, is a key prerequisite if Xerox is to achieve its even relatively modest European ambitions. The importance of its service business expansion in Europe is underlined by the permanent transfer of Tom Blodgett, former COO of ACS, to the UK in 4Q to personally drive the strategy.

Services growth within the European financial services sector is a priority for 2012-13

A significant portion of Xerox’s European services growth will come from the financial services sector. Xerox has a solid foundation in this sector, with service revenues in Europe exceeding that of the core US market, and some strong client relationships, for example with Co-op Financial Services, Guardian Life, Santander, and UBS.

Most of Xerox’s targeted growth will come from the expansion of its existing European financial services client base. Its most significant client in this sector is Lloyds Banking Group (LBG), which generates annual revenues of approximately $75m for Xerox and provides a good template of its strategy; LBG has been a client for over a decade, during which Xerox has migrated from supporting printing devices within the Scottish Widows unit to managing the production and distribution of printed material across most of the group, amounting to 110m documents per year.

Xerox’s position as an integral element of LBG’s communication with its customers places it in a strong position to take advantage of its services capabilities, such as multi-channel customer services and social media, as the client looks to reduce its reliance on paper-based direct marketing in favor of newer media. As LBG continues to integrate the HBOS unit, Xerox will also look to widen its presence and expand in other service areas, such as inventory and asset management.

While marquee clients such as LBG offer strong growth opportunities, Xerox’s biggest challenge will be to shift the perception among many European financial services institutions that it remains a document management company, particularly as most European executives are unfamiliar with the service capabilities of ACS. As most financial service companies try to significantly reduce the amount of paper they use, both within their organizations and in their communications with customers, the urgency with which Xerox must bring about this shift is increased.

Small-scale acquisitions will play a part in European expansion

Xerox is likely to continue its strategy of relatively small-scale acquisitions to add local capacity and niche capabilities in Europe. Examples include its acquisition of the call center and business services unit of Innova Consulting in August 2011, and its acquisition of customer care specialist XL World in September 2011. Innova supports Zurich Connect, the direct-to-consumer and online insurance brand of Zurich, as part of a five-year, $32m outsourcing contract serving the Italian market. XL World has strong social media analytics capabilities, which Xerox is beginning to use with its financial services clients.

Here’s looking at you, kid

Aurasma was created using technology that is capable of recognizing images, symbols, and objects in the real world and making them more understandable. Using the camera viewer on an Apple or Android device, Aurasma combines image recognition and a conceptual understanding of the 3D world to recognize objects and images and seamlessly merge augmented reality actions with them to make them interactive. Ovum sees this as the concept of “presence” on steroids.

Peeking behind the curtain

The Wizard of Oz tried to persuade Dorothy and her friends not to pay any attention to the man behind the curtain, but enterprises wanting to use Aurasma for commercial purposes must pull the curtain aside. Aurasma seems like magic – it certainly did to us when we downloaded the Aurasma Lite app from the App Store on an iPhone 4S, pointed it at the flag on the back of a $20 bill, and experienced the seemingly out-of-nowhere sound and animation. However, there must be a person behind the curtain making the magic happen. The layers of rich media content that spontaneously erupt around, beside, and on the object being viewed do not come out of thin air.

Autonomy told Ovum that Aurasma is a platform that allows clients to create their own augmented reality experiences within the app. However, for more professional uses, it also has its own back-end content management system (CMS), which makes it easy for clients to create “Auras” – augmented reality actions – and build a variety of actions such as sound, video, animation, and web links that will be associated with a tangible asset such as a building, or an intangible asset such as a picture of a thing or a person. Enterprises using Aurasma can also refresh any or all of the layers of content so that a user (whether a customer or an employee) viewing an asset can see up-to-date information, such as a breaking news story layered on what seems like the same static newspaper article viewed several times during the day. Moreover, Aurasma told Ovum that there are “Super Auras,” Auras that are viewable by any user who downloads Aurasma Lite.

Aurasma can benefit insurance marketing, claims, and underwriting

All insurers, regardless of their line of business, could use Aurasma for marketing. An insurance company can create a set of content layers that, when fused together, provide agents or brokers with video and sound from the chief marketing or sales officer explaining a marketing campaign, its objectives, its start and end dates, the products involved, and the customers being targeted. Property and casualty (P&C) insurers could use Aurasma for managing claims, specifically automobile claims, by viewing a damaged vehicle and immediately “seeing” what the vehicle looked like before the accident. If there is an automobile accident and there are cameras which captured the scene before and during the accident, a claim adjustor could have a better sense of which driver was at fault. An insurance underwriter could view an underwriting procedural document and hear the head underwriter discuss changes to various acceptance criteria concerning one or more insurance products.

Potential future moves of the Aurasma visual browser

In the future, Aurasma might be available as an app embedded in a user’s glasses or contact lenses. However, before Auras move into eyewear, a user can double-tap on their device screen while an Aura is playing to move it to full-screen and continue the rich media experience without needing to hold the device up to the object. Regardless of where or how it occurs, each Aurasma “Aura” created by an insurer needs to be brief while simultaneously exposing pertinent information, if insurance home office operational, marketing, and sales staff are to be expected to use the app.

The guidelines cover many themes including patient access to data

Roughly a month ago, CMS and ONC officially released an updated set of proposed Stage 2 meaningful-use guidelines, which are aimed to take effect in 2014. The centers publicly posted a highly detailed 455-page document describing the second iteration of the requirements healthcare providers will have to follow if they expect to benefit from federally disbursed incentives. Overarching themes include:

• Demonstrated effort to actually channel data through health information exchanges (HIEs), as opposed to just setting up HIEs.
• A move to digitize the majority of physician treatment orders through computerized physician order entry (CPOE).
• More intense focus on clinical quality measures and a push to align measures with National Committee for Quality Assurance (NCQA) programs and guidelines.
• Greater patient access to medical records.

Ovum finds the patient-access guidelines, which require providers to give patients access to healthcare records, to be of particular interest. The data contained in these records must be updated within four days after they have been made available to the physician. Certain providers would be required to offer health record access to at least 80% of patients within 36 hours of discharge. In addition, at least 10% of patients must view, download, and/or transmit their healthcare data.

Promoting patient access to healthcare data won’t be easy

The benefits of patient use of healthcare technologies are well-known and widely discussed. Patients are a core stakeholder in any healthcare system, and technologies are often viewed as a viable medium for enabling patients to not only improve personal healthcare with, for example, better management of diseases, but also to enhance healthcare systems with lower costs and quality-of-care improvements. By requiring providers to make data readily available to patients and to take steps to encourage patients to actually access this data, ONC and CMS are helping to expand the impact and roles of both patients and providers. If technology is to reach its full potential in healthcare, not only must patients and providers actively use technology, but also they must feel invested in it. The ONC’s core rules around patient access help to accomplish this.

While Ovum believes the data-access guidelines are praiseworthy, we must caution that there will be significant hurdles and challenges for both patients and providers. Patients have always been slow adopters of healthcare-related information technologies. The reality is that many people are wary of personal health information being digitized and transferred through electronic mediums. Consumers can be distrusting of health records vendors, and have concerns about privacy and security, including the possibility that sensitive information could be shared with third-party companies and/or with employers. In addition, many patients see no benefit to accessing healthcare data, especially when they have minimal and inconsistent contact with the healthcare system.

These cultural inclinations are deeply entrenched. They often heavily influence patients’ decisions, and could make it difficult for providers to accomplish one requirement in particular: that at least 10% of the patient population actually accesses the digitized health records in some way. While this number might appear feasible on the surface, it could prove unattainable for a significant number of providers. Ovum believes that placing such a burden on providers would be excessive. Providers already have to contend with the long list of other meaningful-use guidelines, and requiring them to reach the 10% target would be counterproductive in that it would impede progress on other important measures. Ovum suggests that instead of making the target a requirement, the meaningful-use issuers should initially consider it a goal. This way, providers are aware of its existence and can begin to move toward the goal at a pace that best suits them. Over time, as patient cultural resistance to digitized medical records wanes, more aggressive measures can be taken.

New guidelines will create new opportunities for EHR vendors

Recent years have brought an expansion of core EHR product and service offerings. Patient portals have been a principal part of this expansion, with several prominent EHR vendors now offering direct patient access to digitized records. The new proposed meaningful-use guidelines around patient access to data will necessarily lead to more business and ultimately more revenue for a select group of EHR vendors. Moving forward, more providers will be prioritizing patient access and will be looking for vendors with solutions to help facilitate this process. EHR vendors that offer patient portals that allow access to medical data will be in a good position to take advantage of this prioritization.

Enterprise and public sector IT executives can use these insights for rethinking SFDC’s relevance to their organization’s IT strategy, IT infrastructure, and IT procurement tactics.

Fine-tuning the relationship with legacy back-office vendors

One widely noted change at Cloudforce was the toning down of CEO Marc Benioff’s sarcastic rhetoric toward major competitors including SAP and Oracle. Several of the customers that were part of the keynote explicitly talked about integrating SFDC with their SAP installed base. While entertaining for the audience and the press, the ridicule toward competitors had previously sent the wrong message from a vendor looking to expand its presence in large enterprises that have billions invested in SAP and Oracle. In addition to the toned-down rhetoric, integration with the back office was further emphasized through its inclusion on the new “marketecture” diagram used at Cloudforce. By fine-tuning its attitude toward integration with back-office legacy vendors, SFDC makes itself a more serious partner for large enterprise IT.

Fine-tuning the market positioning away from pure CRM

As Ovum pointed out after Dreamforce 2011 in its StraightTalk comment “Saleforce.com seizes leadership of IT via pervasive presence and platforms”, SFDC has been moving away from its original pure-play CRM positioning (note its stock market symbol CRM). At Cloudforce 2012 this move continued with the emphasis on the social enterprise and platforms. Benioff rarely if ever mentioned Sales Cloud, Service Cloud, or CRM in the nearly two-hour keynote. Another proof point is the new Social Enterprise Architecture marketecture. Sales Cloud and Service Cloud, while not quite the center of the previous iteration of the marketecture, were still distinctly featured. With the “Social Enterprise Architecture”, Sales Cloud and Service Cloud have shrunk even farther to become just simple boxes labeled Sales and Service with no prominent positioning versus other SFDC offerings. This clearly sends a message that SFDC is pushing the platform message.

Until Salesforce.com puts the marketecture diagram on its website, Ovum IT clients can request a copy from Ovum.

Fine-tuning toward a new style enterprise IT stack

One of the trends that Ovum is following is the re-emergence of vendors that can offer a one-stop shop for IT organizations. Mega-vendors are recreating the vertically integrated traditional hardware and software stack like Oracle with its “red stack” and IBM’s “blue stack”. It is Ovum’s analysis that through organic development and acquisitions SFDC is fine-tuning its offering to become a new-style enterprise IT stack. While not yet ready to take on mega-vendors like IBM or Oracle, as SFDC continues to systematically fill out its platform (Database.com, Force.com, Site.com, Heroku, Chatter, and APIs) it will soon be able to make a more complete pitch to IT managers. Ovum believes that SFDC’s acquisition strategy has many motivations, not least of which is grabbing technology and talent that can enhance the platform. For example, Rypple and Assistly (now Desk.com) became the basis for discrete products to sell, but they are also sources of gamification functionality that can enhance the SFDC platform to be leveraged by all SFDC applications, enterprise developers, and ISV partners.

Recommendations for IT executives and IT managers

Too many IT managers still think of SFDC as a SaaS-based sales-force automation or cloud-based CRM vendor.  When doing long-range strategic planning, IT executives should use SFDC’s evolution toward a full platform as an opportunity to throw it into the mix of potential strategic IT suppliers. If nothing else, SFDC can be used to stimulate “outside-of-the-box” thinking.

The media have reported the stalling of two smart meter trials in Britain

Recent press coverage of the British smart meter rollout has not been positive. First up was British Gas, which has led the early deployment of smart metering in Britain. An article on metering.com referred to the operating review by British Gas’s parent company Centrica. The article was not entirely clear about what is happening with the rollout as it was largely based on what was not said in the review, rather than what was said.

In 2011, Centrica was positive about its early smart meter rollout. It had installed over 250,000 smart meters for homes and businesses by the end of 2010, and had a target of 2 million smart meters by the end of 2012. However, in 2012, the company stated that it has only installed 400,000 smart meters, and that: “we await confirmation from government of the smart meter national implementation programme and from the regulator regarding its plans for retail market reform before we proceed to full scale rollout.”

There was no indication on whether British Gas would still hit its target of 2 million smart meters deployed by the end of 2012. The company’s reference to the regulator could well start alarm bells ringing with its major partners.

The British Gas announcement was followed by an article in The Times that reported that RWE npower was halting its smart meter trial in protest of the delays in publishing a common operating standard for smart meters, which will be made available in 2014.

The announcements provide ammunition for those calling for the deployment to be better managed

The Times quoted Jenny Driscoll from Which?, who stated: “RWE npower scrapping its trial is a sign of how badly the rollout is being managed. A lot of companies have been crying out for a managed rollout. What the industry needs is clear leadership. There is frustration among some suppliers who are running trials because they are not getting a message back from the government saying how the process is going to work.”

The retail-led deployment, deep mistrust of suppliers among consumers, and high levels of customer churn create a unique set of issues for the smart meter deployment. The likelihood of customer backlash against smart meters is high, and installations will have to be done customer-to-customer rather than house-to-house as every street in Britain will be supplied by a number of different retailers. By publishing the common operating standard in 2014, suppliers will only have five years to deploy over 50 million meters by the government’s deadline of 2019. It is not unreasonable to expect the DECC to provide suppliers with standards sooner.

Any retrenchment from early smart meter trials creates further risks for network operators

In the DECC’s latest published smart metering impact assessment, network operators reported the smallest net benefits of any major stakeholder group. This is not the case anywhere else in the world. It seems that in Britain, network operators are unwilling to publicly discuss how today’s smart meter deployments can aid in the future management of low-voltage distribution networks – for instance by actively managing demand from electric vehicle recharging, the use of heat pumps, or the dispatch of microgenerated electricity.

The supplier-led trials have focused so far on collecting consumption data for billing purposes and have not been carried out in conjunction with network operators to trial smart grid functionality. Now it seems that the retailers are pulling back from any early stage trials, creating a risk that the retailers and grid operators will be separated even further.

The DECC must bring all parties together and create a policy framework that delivers benefits to retailers, distribution companies, and, ultimately, consumers.

While there wasn’t a single “silver bullet” strategy, we believe that the industry has approached the challenge with the right mix of pragmatism and innovation. This was evidenced by the insightful debates on international expansion, broadband, mobile content, mobile banking, and mobile advertising. However, it remains to be seen whether the industry can back up its talk with viable strategies.

Maintaining growth in the face of market maturity

The themes that underpinned many of the discussions at the event were the search for a “killer” strategy in response to market maturity, and the evolution of the voice market from being telco-controlled to being based on data connectivity and IP services. The net impact of these forces is that customer and revenue growth is slowing across Turkey, the CIS, and the Balkans, which is putting margins under pressure. It is clear that single digit revenue growth is not good enough for telco investors that are used to 20–30% growth rates. This is putting pressure on telco senior executives to develop a strategy that reignites growth.

At the event, Turkcell and Turk Telecom highlighted their international expansion efforts as a strategy to drive growth. They talked enthusiastically about their expansion into regional markets, and their efforts to capitalize on opportunities in mature European markets. According to Turkcell, the current economic downturn and debt crisis is a once-in-a-lifetime opportunity to acquire international assets at reasonable prices. This view has many parallels with what we have heard and observed from Chinese telcos, which is not surprising given that Turkey is not far behind China in terms of economic dynamism and growth rates, even though it is smaller in size.

There is a lot effort being put into developing value-added services (VASs) to bolster declining ARPU. Turkcell has made a good start with its mobile TV offering, adding 100,000 subscribers that each watches the service for an average of four hours per month. Turkcell is also a leading mobile payment player in the region, with several hundred-thousand near-field communications subscribers. Turkcell’s growing VASs portfolio is putting a lot of pressure on competitors such as Vodafone Turkey and Avea, which have yet to gain significant traction in either of these markets.

A number of Eurasian operators have also put considerable effort into their social networking and mobile advertising strategies. However, many of them have little to show for their efforts in these areas so far.

Combating the threat from over-the-top players

The threat from Apple, Google, Facebook, Microsoft, and other over-the-top (OTT) players was another key theme of this year’s EurasiaCom event. With smartphone and Internet penetration still relatively low in many countries in the region, many operators argued that they can avoid the predicament of their mature market peers, which are suffering at the hands of OTT players. Operators such as Kyivstar and MTS argued that they are better positioned than mature market players as a result of their local insights and partnerships with local content developers.

However, we did not get a convincing response to our questions on whether operators consider that their current revenue sharing agreements, where telcos keep 50–70% of content revenues, will be able to compete with the OTT players’ app-store strategies that allow content providers to keep 70% of revenues. As we argued in our report Monetizing Mobile Content in Emerging Markets, emerging market telcos have a narrow window of opportunity to make sure they get their content strategies right.

The battle for the “right” broadband mix

The event also highlighted the significant fixed broadband opportunities in the region, which are far greater than those in other regions such as Africa and Asia. For example, Macedonian operator Makedonski Telecom has had to respond to the threat from local cable operators’ offerings with a package of FTTH and HDTV services. We also found it insightful to hear the WiMAX strategies of players such as Azqtel and Neotel from Azerbaijan and Macedonia, both of which have found small but profitable niches serving SMEs and high-income consumers.

On the whole, the senior executives at the EurasiaCom event demonstrated a healthy mix of confidence, innovation, and flexibility that should put their operations in a good position to respond to the changing market. However, it remains to be seen whether they can execute on these strategies to continue driving growth across their operations.

Revenues by segment give an insight into the reasons for the sell-off

If anyone questions why Convergys decided to sell off its information-management division to NEC (to be ratified at the end of Q2, based on guidance provided in a Convergys press release), one needs only to examine Convergys’ revenues by segment. Such an analysis shows a relatively unhealthy performance of the information-management division for some time. Specifically, through 2010 and 2011, this section posted falling revenue (down 22% in 2010 and down 3% in 2011). When breaking out information management, there were some whopping declines in sub-functions, with a 26% decline in its data processing business alone during the past 12 months. This contrasted sharply with its customer-management business, which over the same period performed more solidly (a less disappointing decline of 7% in 2010 and an increase of 4% in 2011), which appears to be where the company appears to be hedging its bets going forward. From an overall financial perspective, jettisoning the information-management business and focusing on its core business appears to be a wise move, considering that customer management is the segment in which the company has the most experience and has performed best of late.

Convergys needs to focus on its core competencies

Focusing on the customer-management market may defy the idea that CRM outsourcers need to expand their functions into back-office BPO or IT services in order to diversify their revenue streams, but in the case of Convergys there has been ample confusion in recent years about what type of an outsourcer it actually is, and more importantly, what type of outsourcer it wants to be.

In Ovum’s view, its management has made some good decisions in streamlining its functional footprint by divesting its human resources outsourcing division to NorthgateArinso in 2010, and it remains a strong player in the provision of home-based agents as well as CRM technology. However, going forward it will be imperative for Convergys to highlight to the enterprise community and outsourcing thought leaders that it remains on a steady path and can innovate in its core areas of customer-management expertise. Once this has been accomplished, forays into other areas of third-party services can be considered.

A number of African governments have sought to privatize their state-owned telecoms operators in an effort to inject capital and expertise into the often aging infrastructure and businesses. In some instances, such as Vodafone’s acquisition of Ghana Telecom and Orange’s acquisition of Telkom Kenya, the governments have managed to achieve their objective and private investors have created sustainable businesses. However, the Nigerian government appears to have left its privatization efforts too late, with Nitel’s operations in such a poor shape that it failed to attract a buyer.

The complex privatization path

Privatization of state assets tends to be an extremely complex matter. Governments often want to retain a degree of control over the entities so that they can continue using them for national security purposes and to add to state budgets through revenues and taxes.

However, the privatization of a state-owned telecoms asset must also hold some attraction for potential investors. The Nitel privatization first began started in 2001, when a strategic equity stake was sold to the International Investors London (IIL) consortium for $1.3bn. However, the bid was cancelled after IIL failed to pay the balance of the fee, with the consortium forfeiting its $131m deposit. In 2003, the Nigerian government appointed Pentascope, the telecoms consulting arm of Netherlands-based operator KPN, as part of a management contract with a view of eventually selling Nitel to KPN. However, this effort also failed, with the contract terminated within a year amid allegations from Pentascope of mismanagement and incompetence, while the government cited a failure to meet performance and rollout targets.

The privatization of Nitel went through a number of additional bidding processes in 2007 and 2009, with bids ranging from $750,000 to $2.5bn, and players such as China Unicom reportedly assessing the possibility of purchasing the operator.

Alternative route

The liquidation of state assets such as Nitel could present governments with an alternative to the complex path of privatization and provide a way for them to reduce further cash outlays to cover the funding of loss-making operators. Currently, there are a number of loss-making fixed-line incumbents in markets such as India and Zimbabwe that are unlikely to attract a satisfactory level of attention from strategic investors. Many of these players have poor brands and weak operations, and they have struggled to compete effectively in the highly competitive mobile markets. Liquidation may turn out to be the only viable option for these operators as it would provide a cash injection to governments and would enable them to avoid the issue of wasting resources on managing network operations.

Liquidation of assets may present an opportunity to other operators

Despite making limited investments in its infrastructure in the past, Nitel does possess some key assets that will be attractive to those seeking to enter the Nigerian market. Chief among these is its mobile network subsidiary, Mtel, which currently has 250,000 subscribers. While Mtel’s market share is less than 1%, it would provide an investor with a license and the infrastructure necessary to operate in the Nigerian mobile market. Mtel has rolled out a GPRS network, but due to cash constraints it has not managed to deploy a 3G network.

The acquisition of these assets will provide a new entrant with the opportunity to rebrand the Mtel entity and launch competitive and cost-effective services to take advantage of the significant opportunities still on offer in the Nigerian mobile market. These opportunities are demonstrated by Etisalat, which has managed to acquire 7.8 million subscribers in three years of operation.

Exclusive access to the SAT3/SAFE submarine cable will also be an attractive proposition for potential investors. While there are other cables, such as WACS and Glo, serving Nigeria, access to the SAT3/SAFE cable will be an important element for current operators in the market or those seeking to enter it with a mobile broadband strategy.

Another option for the Nigerian government is to create a wholesale vehicle that would be responsible for creating the ICT infrastructure necessary to support the overall objectives of the draft ICT policy that is currently under review. The new entity would be similar to the national backbone and infrastructure projects in Ghana and Botswana.

The acquisitions are symptomatic of the competitive threat posed to the specialist vendors by the arrival of the larger names into the market. Ovum’s recent Solutions Guide: Enterprise Mobile Device Management Vendors demonstrated that Symantec Mobile Management (SMM) is unable to match specialists such as AirWatch, BoxTone, Fiberlink, MobileIron, and SOTI for depth of technical MDM capabilities. However, what it can do is use its brand and existing customer base to good effect, and also go to the war-chest to buy its way further into the market. Acquiring smaller, specialist vendors such as Odyssey and Nukona will give Symantec improved enterprise mobility capabilities and improve its overall value proposition.

We expect to see further consolidation of the enterprise mobility market along these lines, as the likes of McAfee, IBM, and Dell extend into it. The competitive landscape will shift over the next 24 months, and at the end of that period a much smaller number of dominant players will remain. These will include some of the biggest and strongest enterprise mobility specialists, as well as some of the bigger names with a background in security, IT service management, and enterprise application development.

The mobile device management market is growing fast, but is overcrowded

Mobile consumerization, whether in the form of BYOD or the centralized provision of consumer-focused devices, is creating a multi-platform mobile environment that poses security risks and challenges for the IT departments of organizations across every vertical. MDM vendors are stepping in to meet these challenges, and are witnessing huge demand and growth. Over the last 24 months, most of the vendors that we have spoken to have reported upwards of 100% client and revenue growth in MDM operations. This applies whether the vendors are recent startups or have been operating for a much longer period: all are experiencing similar levels of growth.

The opportunity provided by consumerization has attracted vendors with a variety of backgrounds into the enterprise mobility space, including some of the bigger name security, ITSM, and enterprise application vendors. However, it is an immature market, and even given such strong growth it will not be able to sustain so many different vendors. We expect to see consolidation, and the acquisition of relatively small enterprise mobility specialists by big-name newcomers is likely to become a regular occurrence.

Buying into expertise makes sense for new names looking to make an impact

The current leaders in the enterprise mobility market are mainly specialist vendors such as AirWatch, BoxTone, Fiberlink, MobileIron, SOTI, and Zenprise. Sybase, an SAP company, also has a very strong presence through its Afaria product. With enterprise mobility as their only focus, these vendors support a wide range of mobile OSs. They have a deep set of core MDM capabilities such as device recognition and enrolment, remote lock and wipe, encryption, activity tracking and logging, and realtime reporting and alerts.

As the Ovum solutions guide shows, the larger vendors with a much wider IT focus that have recently entered the market are mostly unable to match the specialists for core technical capabilities. However, the likes of IBM, McAfee, Symantec, and Dell are using their existing customer bases and strong brand reputation to drive their MDM solutions. They also have greater financial resources to call upon, and as Symantec is demonstrating, buying specialist vendors is a quick way to improve their technical product offering.

The first commercial version of Symantec’s enterprise mobility solution, SMM 7.0, was launched at the end of 2010, and the security vendor has since been aiming to quickly catch up to the competition. Acquiring Odyssey Software has allowed it to immediately improve its support for Android smartphones, as well as to extend its support to Windows Phone 7 devices, to which it had not previously catered. The acquisition also provides Symantec with code and expertise that will speed up future development and releases. Nukona’s technology will enable the vendor to secure mobile applications without needing to have control over the whole device, as it adds a layer of management to the native and web-based apps that organizations want to secure. Symantec’s Secure App Center, based on Nukona’s app “wrapping” technology, is scheduled for launch in April 2012.

Expect to see further consolidation in the MDM space

Symantec’s acquisitions demonstrate the main competitive threat that now faces specialist enterprise mobility vendors: big name vendors entering the space, making acquisitions, and attracting all the customers. SAP already has a sizeable chunk of the market through the success of Sybase Afaria, and with the likes of Symantec, McAfee, IBM, Dell, and RIM all moving in, it is highly unlikely that many of the smaller players will survive in the long term. Ovum expects to see heavy consolidation in the MDM market along these lines, with similar acquisitions and other vendors simply going out of business or exiting the space.

As mobile consumerization takes a stronger hold, and as the enterprise mobility market matures, the competitive landscape will change. We expect to see a few truly dominant vendors emerge over the next 24 months. These will be a mix of the strongest enterprise mobility specialists that manage to carve a sustainable niche for themselves, and the “usual suspect” large security and ITSM vendors that have the reputation and resources to buy their way in.

Green contact center delivery is a laudable and achievable goal

Cloud computing and virtualization have been the areas most associated with green outsourcing, and following the recent visit to the Connecta contact center, which is among the most environmentally progressive in the world, Ovum’s view is that there is room for environmental growth across all BPO and IT services. The aim is to reduce as much CO2 emission as possible, by way of applying Leadership in Energy and Environmental Design (LEED) principles in the construction and operations of the building. By implementing these principles, Teleperformance estimates that it has made significant reductions in water waste, energy consumption, and carbon emissions, all of which will not only benefit the environment, but will also decrease the overhead costs of running the facility. And, while it is clear that very few contact centers of this nature are in operation, by deploying heightened green standards in the construction and daily running of a contact center, significant environmental and commercial benefits can be recouped.

Environmental considerations are gaining prominence among clients

One of the immediate impacts of green contact centers relates to a growing trend in services procurement among prospective clients. Specifically, anecdotal evidence suggests that increasing numbers of outsourced contact center deals are including provisions from enterprises regarding heightened, environmentally sound service delivery. And while price and service quality remain the principle considerations for the vast number of CRM outsourcing deals, the ability of an individual vendor to incorporate green delivery into an overall package would give the outsourcer added leverage and differentiation to win a competitive deal when compared to another vendor that may not have the same environmental credentials.

Are widespread green outsourced contact centers feasible in near term?

A nagging question surrounds whether or not it is feasible for CRM outsourcers to effectively transform existing operations and construct new ones to high environmental standards, LEED or otherwise. It is acknowledged that the cost outlay for retrofit activities such as these is heavy, both in terms of expertise and materials. This could prove too much for some outsourcers, especially those with very tight margins. However, Ovum notes that the return on investment for environmental changes such as these is relatively rapid (in some instances within two years, according to Teleperformance sources), positively impacting profitability sooner rather than later. While the prospect of making wide-scale changes within a short time period is unlikely, Ovum believes that from both a commercial and a green perspective CRM outsourcers should aim to follow the lead of Teleperformance’s Connecta initiative.

Telcos are aggressively pushing smart homes

In yet another example of Metcalfe’s Law, which posits that a network’s value is proportional to the square of the number of its users, the explosion of smart, connected devices and applications brings with it an exponential increase in the value of broadband infrastructure. In the past, telco connections represented people, but today’s broadband networks also connect people to machines and machines to machines, creating billions of potential nodes on an increasingly intelligent grid. Connected homes and the devices within them will form a sophisticated ecosystem that will be central to daily life.

Smart homes will enable consumers to access and control doors, thermostats, security systems, and appliances, and monitor home energy use. Ultimately, customers will be able to control these devices using smartphones, PCs, TVs, and tablets. For telcos, smart homes represent significant new revenue streams and a way to further ingrain the value of their networks in customers’ minds. For example, a digital home could include applications for remote medical monitoring, security cameras, smart meters, appliance sensors, and remote monitoring that enables users to maximize energy efficiency.

Customer experience management is a top priority for telcos as they target connected citizens

Until now, M2M deployments have been concentrated in developed markets such as automotive and transport. They are now shifting from developed to emerging markets; from commercial to consumer applications; and from focusing on specific sectors to addressing a much broader array of applications and use cases. Consumer demand for realtime access to information will foster the development of new services including home security, health management, vehicle monitoring, and connected engine diagnostics.

In this changing scenario, telcos must look at the whole picture and take a holistic approach which supports all of these connected devices, in order to optimize the customer experience. To do this, telcos require platforms that can interact and respond in realtime to subscribers’ needs, regardless of service or technology.

Above all, whatever business models, technologies, and standards are involved, telcos must put the end user first. The tipping point in the smart homes market will come when telcos’ management of connected devices is driven not by the devices themselves, but by the customer experience.  

IT vendors must carefully evaluate their investment priorities for telecoms

Leading IT vendors such as Wipro Technologies, HP, and Amdocs have made M2M solutions a key investment area. At Mobile World Congress this year, Amdocs announced the launch of two solutions, M2M and cloud-based Connected Home, with which it aims to speed telcos’ entry into the market. To expedite M2M solution adoption, vendors must establish a clear definition of M2M, develop partnerships to support “one-stop shopping,” and define the value proposition and ROI benefits of their M2M solutions. Intelligent mobile networking solutions will help telcos maximize the potential of the exploding market for M2M and connected homes services. IT vendors must focus on the North American, European, and Asian markets, which are leading the way as adoption of these services gathers speed.

Hybrid frameworks are in the majority

The study found that 66% of organizations had developed a customized framework, with one-third of respondents making use of two or more frameworks. There are a number of different approaches to enterprise architecture, and several frameworks have been developed to guide the process. Unlike some methodologies, there has been little in the way of “natural selection” that has seen one or two clear leaders emerging, and organizations are often unsure about where to look for guidance. The reality is that many of the frameworks have been developed with particular audiences in mind, whether industry sector-specific, role-specific, or even region-specific. In many instances organizations have developed their own framework by merging existing frameworks.

Architecture frameworks offer a blueprint for the definition and documentation of enterprise architecture, enabling collaboration between disparate individuals and groups within an organization. Frameworks need not provide a complete view of a business, and this may be the case where a quick-win approach has been adopted. A framework can provide a common starting point and structure that everybody understands. It must be usable by all the organization’s stakeholders, and be pertinent to the relevant industry or public-sector domain. Every organization is different. It is important to be flexible, adding to or changing the framework to meet the particular circumstances as the enterprise architecture process evolves. It is also increasingly important to adapt the organization’s own framework to reflect the transformation to a more services-centric approach.

No one framework dominates the enterprise architecture ecosystem

According to the study, three enterprise architecture frameworks have gained a reasonable degree of traction in this field, but it should be noted that none can yet be considered to have broad adoption within the overall population, and to provide a complete answer to all requirements. TOGAF, Pragmatic EA Framework, and Essential Project are the most frequently mentioned frameworks by respondents. Other frameworks adopted by organizations include DoDAF and theUKequivalent MoDAF, as well as Zachman and FEAF.

The key message for those embarking on the use of an architectural approach is that while a specific, generic architectural framework can provide guidance on both structure and process, it might not deliver a ready-to-use all-encompassing solution. This is something that is unique to every organization, and will be formed from a combination of frameworks, industry models, and methodologies. It is not necessary to be bound by a single vanilla framework, and we believe it is positively healthy to be informed by the best aspects of several approaches. Our experience is that the most common initial requirement is for guidance on process, and here TOGAF is recommended as an effective starting point.

Cloud computing creates the “change twilight zone”

The ITIL change and configuration management processes
define the steps needed to ensure a consistent approach to the delivery of IT
as a service. However, while these processes have made IT more reliable and
efficient, they have not done much to help the customers of IT exploit new
disruptive technologies. In a cloud computing environment these ITIL processes,
along with incident management and continual service improvement, appear to
leave open-ended loops that require manual intervention to close. As the
systems become more complex, the processes become more bureaucratic, and hence
slower. The net result is that in a more dynamic environment the efficiency of
these processes is diminished and downtime and the mean time to repair (MTTR)
increases, which results in customers receiving a poorer service for longer
than is considered acceptable.

Consider how in the early days of the Internet, search
engines were simply providing a directory service that was updated off-line at
regular intervals. Compare that to the services these search engines perform
today: effectively returning dynamic results with actionable information.
Applying these principles to the change and configuration management space, it
is possible to see how the current ITIL processes will not translate very well
to the dynamic cloud environment. Therefore, Ovum believes that change and configuration
management in the cloud will see a similar transition where processes will need
to operate at machine speed, and be fully closed-loop systems.

The “change twilight zone” is defined as the
intersection of key processes where critical questions remain unanswered. For
example, if an incident is reported and a retrospective software bug fix is needed
to solve the problem, the key question of what exactly happened to cause the
incident remains unanswered. Getting an answer to this question requires
analysis of the continual service improvement and change process to identify
who did what, and did it solve the problem. These may still not completely
identify the reason, which could have to do with configuration drift that made
the application behave differently to that observed during testing.

This twilight zone in the current non-cloud era is managed
by people communicating with each other, typically at a regular service support
meeting. However, in a more dynamic environment this people-centric approach
will lead to increased downtime risk and higher MTTR, which in turn will lead
to increased inefficiency of the IT department.

Evolven applies analytics to transform change and configuration management

The Evolven approach is to collect low-level
granular data and apply analytics to it. By using analytics tools, such as statistical
algorithms, comparison engine, and configuration impact knowledge bases, this
data is turned into actionable information. This analytical approach reduces
the noise by identifying the important elements and reporting these, not all of
the information captured. Effectively, Evolven automates the steps that fall
into the twilight zone, across the entire environment from the hardware layer
up to the application layer. This approach not only resonates
with the original business service management (BSM) thinking of ten years ago,
but combines a new, more dynamic approach to controlling complexity of
configurations in a highly virtualized environment, effectively making it BSM
for the cloud.

We expected 4Q might be weak, and results confirm this

The fourth quarter is sometimes a period of budget flushes for service providers. Fourth-quarter capex averaged 31% of the full-year global total in 2009 and 2010, for instance. But 2011 was different: Preliminary data suggests 4Q11 telco capex was weaker, though, at roughly 28% of 2011′s total. That’s similar to the 27% actual figure for the same carriers in 4Q08. Vendors’ services revenues, which track opex more than capex, also were hit in 4Q11. Services revenue growth moderated for infra vendors to 3% YoY, down from 17% the previous quarter. Carriers are still outsourcing, and vendors are still optimistic about professional services, but 4Q11′s caution hit all budget holders.

Telecom infra vendors’ revenues were $42.2bn in 4Q11, down 5% YoY

Ovum publishes a quarterly report on telecom vendors’ financial results, the most recent of which is Telecom Vendors’ Earnings and Strategy – 3Q11 (January 2012). Our 4Q11 update will follow publication of annual results from Huawei and ZTE, likely to come in late March or early April. The figures in this Opinion include estimates for Huawei and ZTE and actual reported figures for 27 additional vendors. 

In 4Q11, telecom infrastructure vendor revenues (including services, excluding devices) amounted to $42.2bn, down 5% from 4Q10. For full-year 2011, vendor revenues were $163.5bn, up 8% from 2010. Service provider capex for 2011, based on preliminary results, also grew at an 8% annual rate. Ovum’s published prediction for SP capex growth in 2011 is higher, up 12% (see Service Provider Revenues and Capex Forecast Spreadsheet: 2011–17, December 2011), so it’s possible the weak 4Q caused 2011 to underperform. We’ll know when final capex figures are available in two to three weeks.

We divide vendors’ telecom infrastructure revenues into several segments. –For all vendors, including our estimates for Huawei and ZTE, preliminary results for the largest three segments are as follows: 

• Wireline equipment: 4Q11 revenues of $10.1bn, down 3% YoY (2011 total of $39.8bn, up 9% from 2010)
• Mobile infrastructure: 4Q11 revenues of $14.3bn, down 9% YoY (2011 total of $54.4bn, up 8% from 2010)
• Telco infrastructure services for SPs: 4Q11 revenues of $11.3bn, up 3% YoY (2011 total of $42.2bn, up 12% from 2010).

(Note that these three categories include about 85% of the total vendor revenues cited in the prior paragraph; the remaining 15% comprises microwave and miscellaneous enterprise and other categories.) As we discuss in our quarterly report, the services segment was first to recover after the recession. It remains resilient given its alignment with service providers’ cost-reduction desires.

Outlook remains mixed

The IMF’s Managing Director, Christine Lagarde, spoke last week of signs that the “dark clouds over the world economy…may be beginning to disperse.” This month The Economist magazine’s cover story was titled “Can it be…the recovery?” There are many short-term signs of improvement, from debt deals to unemployment releases.

But in telecom, vendors in general remain cautious. Those that have recently issued negative guidance include Broadcom, Juniper, Tellabs, and NSN. Positive guidance has come from Alcatel-Lucent, NEC, and Qualcomm. Mixed outlooks have emerged from Amdocs, Ceragon, Cisco, JSDU, and others.

Even with market recovery, service providers are dealing with a slower revenue growth outlook; capex is following that curve, as will vendors’ non-service revenue prospects (see Prepare for Slower-growing Telecom Revenues and Capex, January 2012). Professional services are becoming more important for top-line growth. Chinese vendors are getting no less aggressive. Device, application, and content spending growth now routinely puts infrastructure spending to shame. In this climate, we expect lots more M&A in the infrastructure space, even as the challenge of actually integrating acquired companies remains steep. M&A bankers, start chasing those fees.

It’s time to rethink some long-held beliefs

The winds of change are blowing again for today’s IT leaders. Tech-savvy staff and external customers are creating new opportunities for IT, but there is a growing realization that IT needs to look beyond its role as an administrative support function. Many CIOs are now members of senior executive teams, and CEOs are looking to them to play their part in driving innovation and corporate productivity.

For many organizations, this is a hard mould to break. Some CIOs have invested a number of years in defending a technical remit built around equipment, configurations, and coding standards. Next year will mark the 10th anniversary of a milestone article in Harvard Business Review written by its then editor-at-large, Nicolas Carr. Declaring “IT doesn’t matter,” Carr shone a bright light on prevailing management sentiment. Carr has since written many books, but his original article impacted IT discussion in such a fundamental way that even today it is still being hotly debated. Now, as we move through the second decade of the 21st century, it is time to ask again whether these views are relevant to enterprises.

In 2003, Carr’s article reflected a view that IT’s transformative ability had run its course. IT, he argued, had become a commodity infrastructure similar to utilities such as electricity, railways, roads, and water. IT therefore needed to be managed as a commodity service, rather than as a source of innovation and change.

“When a resource becomes essential for competition but inconsequential for strategy” he said, “the risks it creates become more important than the advantages it provides… With opportunities for gaining a strategic advantage from Information Technology rapidly disappearing, many companies will want to take a hard look at how they invest in IT and manage their systems.”

Carr’s 2003 article made three recommendations about future IT strategy:

• spend less on IT
• follow, don’t lead
• focus on vulnerabilities, not opportunities.

Budget pressures have reinforced savings-based IT strategies

Over the past ten years, changes in the wider world economy have put IT budgets under significant pressure. This has driven an even stronger focus on cutting IT costs through commodity panel contracts, outsourcing, and standardized commodity purchases. In many of these contracts, price has been a big differentiator in assessing value for money, particularly in areas of common IT infrastructure such as PCs, printers, and storage.

Many CIOs may have found comfort in the “follow, don’t lead” principle by pointing to business managers when it comes to accountability for driving innovation, change, and thought leadership. However, IT can no longer get off so lightly.

Generational change is creating new alliances

Generational change is bringing new attitudes to technology. In the past, CEOs may have dismissed technology, remarking, “I am not an IT person” or “I can’t even figure out my phone these days.” Today, many CEOs and senior executives are leading the charge. They’re looking for iPad connectivity and demanding improved mobile access. Empowered staff are already armed with an array of leading-edge personal technology and are looking for ways to make use of these tools in the workplace. Staff are turning to internal social networks to solve technology problems rather than waiting for helpdesks to assist them. External social networks are opening up new ways to engage with customers. Some companies see social networking as separate from IT, and are pushing leadership responsibility to sales and marketing managers. Others are already integrating social networking into their customer relationship management plans and thinking about new opportunities for social networking as a service delivery channel.

Traditional ideas about IT service management are going to face some disruptive change. Community attitudes are changing fast, particularly in areas such as mobile computing and social networking. This creates new opportunities for IT to deliver innovative solutions to willing users.

In response to changing market forces, the IT function needs to find ways to be more responsive and flexible in delivering technical solutions. An excessive focus on commodity cost containment will only create an internally directed race to the bottom. Traditional methods of bespoke system development tend to force CIOs to wait for specifications and then embark on long, costly, and risky programs of system development. Meanwhile, cloud services and packaged solutions are able to offer viable alternatives based on proven solutions that can be deployed quickly. However, these can be a hard sell to business managers whose service expectations are built upon unique solutions and non-negotiable business requirements.

Tomorrow’s CIO role is promising to be less restrictive and less internally focused, but it will be no less complex. We live in interesting times!

DevOps exposes the failure of linear processes in IT operations

IBM has advocated DevOps since the movement began in 2009, but has only recently provided the ability for both teams (development and operations) to use the same tools they currently use, yet have visibility into shared intelligence.

The announcement of its forthcoming IBM SmartCloud Continuous Delivery beta, which links IBM’s flagship Jazz-based application lifecycle management (ALM) solutions with its SmartCloud Provisioning, shows IBM’s commitment to combine its strong IT and development governance technologies to ensure that the business benefits of DevOps are realized. Enabling collaboration between development teams and operations teams on the standard topologies and patterns on which applications will be built and deployed is a critical piece of making DevOps a reality.

DevOps is a broad topic so it is not surprising that every aspect was not covered in every session. However, Ovum would have liked to have seen more discussion about governance in the DevOps sessions. IBM has strong governance capabilities to mandate the adoption of Agile processes for business benefit to ensure that best practices are followed across the development lifecycle. With the adoption of IT-defined system patterns early in the development cycle, the lines begin to blur across these typically diverged processes. IBM also has a vision for an extensible and standards-based integration architecture that will allow customers to integrate with their existing capabilities and govern changes across the development and operations lifecycle. Having consistent change management is an important aspect of managing change.

One of the key differentiating capabilities that IBM has implemented is the need for open standards so that workload-aware technologies can be used to deliver maximum agility to organizations. IBM announced the linked data approach to delivering a more flexible approach to integrating processes and applications. This concept would enable service providers, for example, to combine different solutions and target them at specific markets, such as those found in the SMB sector.

The issue is the relationship between the agile business demand and the linear IT (primarily ITIL-based waterfall processes) operational processes. The hard truth is that many IT operational processes are incompatible with Agile or cloud principles and were designed to meet the targets they had been given, maximize uptime, and minimize down time. Meanwhile, developers are focused on providing increased business capability and features, but they do not typically receive any reliability targets. These two measures are introverted (focused on IT issues and concerns) as well as being in direct conflict. The solution is to provide both teams with a shared objective that is described in business outcomes. This comes from a governance layer that must mandate the behaviors. The roadmaps and demos shown at Pulse indicate that IBM clearly “gets” this and is working to bridge the gap between development and operations at all levels.

The costs associated with IT can be categorized into three main areas: energy (an increasing cost), infrastructure hardware (a decreasing cost), and management (the biggest single cost and fastest increasing cost that increases with frequent changes). The shift to a cloud-enabled model is exposing these differences in the costs associated with running IT and is driving the need for development and operations to collaborate. Ultimately, the driver is to reduce the costs of managing these services by reducing headcount, and using streamlined process flows associated with the lifecycle approach to development and support of business services.

SmartCloud Control Desk moves service management into the cloud

IBM announced that it has developed new solutions that will allow it to expand its cloud solutions, particularly the SmartCloud Control Desk that recognizes the shift to cloud and mobility being seen as converged technologies that have a symbiotic relationship. The cloud control desk is effectively moving the IT operational process control capability from a set of integrated but separate solutions, such as change management and service desk, to a single solution designed to support dynamic environments such as cloud.

Increased mobility is forcing endpoint management to be a key capability

IBM’s Big Fix acquisition has enabled it to develop a comprehensive endpoint management solution. This is driven by the growth of mobile. Currently 5 billion mobile devices are in use globally, and this is expected to grow to more than 15 billion by 2015 with 40% of business applications being accessed from a mobile device. Tivoli Endpoint Manager built on BigFix technology combines endpoint and security management into a single solution that gives organizations visibility and enables them to manage physical and virtual endpoints-servers, desktops, roaming laptops, and specialized equipment such as point-of-sale devices, ATMs, and self-service kiosks.

The price of tariffs fell significantly between 2011 and early 2012, and incumbents have launched low-end subsidiaries in order to compete with Free’s aggressive pricing policy. Complaints from rivals have been thrown out by the regulator, ARCEP, which has affirmed on more than one occasion that the operator is meeting the network coverage obligations imposed on it under the terms of its licenses. However, Free has also faced the criticism that as many as 90% of its customers’ calls travel over Orange’s network.

Free is planning to invest heavily in its network in 2012, but will also need to continue to grow its customer base. Both are essential if it is to be a credible, long-term competitor to the established operators.

Prices at the incumbents fall but customers flock to Free

Since Free Mobile began offering commercial services on January 10, 2012, a price war has consumed the French market. Free kick-started events when it launched its €19.99 package, which includes unlimited calls to calls to 40 countries, unlimited texts, and 3GB of data. This plan is also available for just €15.99 per month to customers who already subscribe to the triple-play services of Free’s parent company, Iliad.

The incumbent operators have responded by reducing prices; the cost of tariffs from the three main operators (Orange, SFR, and Bouygues) that are similar to Free’s main plan have fallen by nearly 40% on average in the past year. The three incumbents have also created low-cost brands: Sosh (Orange), Red (SFR), and B&You (Bouygues) are offering similar plans for between €19.99 and €24.90 per month, and like Free they do not specify a minimum contract length.

The effect of this aggressive strategy has been an abandoning by users of the incumbent operators. SFR lost 208,000 subscribers in the first two months of 2012, and Orange 201,000 in the same period, with an estimated 40% transferring to Free. Similarly, Bouygues Telecom’s CEO has stated that it has lost 134,000 customers to Free Mobile during the period January 1 to February 15, 2012. Daily portability requests rose to 40,000 per day throughout January; the average daily total in 2011 was just 12,000.

ARCEP has confirmed that Free is meeting its coverage obligations

The French regulatory and competition authorities have welcomed Free into the market, stating that its presence will improve competition and benefit consumers. However, despite the potential advantages of cheaper mobile services, significant dissent has come from other industry participants. Vivendi, a 44% shareholder in SFR, believes that Orange is offering favorable wholesale conditions to Free, while Alternative Mobile, a body that represents mobile virtual network operators, believes that Free is undercutting its wholesale rates.

At the heart of the criticism leveled against Free is the allegation that it has failed to meet its coverage obligations. Under the terms of the licenses awarded to it, Free Mobile was required to achieve 3G network coverage of 27% of the country’s population by January 12, 2012. This requirement extends to 75% by 2015 and 90% by 2018. In November 2011, ARCEP carried out verifications involving field measurements and calculations using a database geolocated at building level. The following month it reported that Free had indeed met its coverage obligations. Further complaints from telecom operator trade unions forced ARCEP to conduct a new round of testing. As of January 31, 2012 Free Mobile’s coverage extended to 28% of the population from 735 operational towers.

90% of Free customers’ calls use Orange’s network

ARCEP’s findings have been questioned, however, by the Agence Nationale des Frequences (ANFR) which claims that although Free has enough base stations of its own, too much of its traffic is passing through Orange’s network. Free Mobile’s services are available throughout mainland France, partly via Free’s own 3G network and partly as a result of a roaming agreement concluded with Orange in March 2011. A substantial proportion of Free customers’ calls have been traveling over Orange’s network, with estimates putting this figure as high as 90%. Orange has admitted that its network has been tested by this increased usage, but the strain is made easier to accept by the fact that it is in line for a payout of around €1bn in roaming revenues due to the new operator’s success.

Free’s low-cost approach has thus far been successful, and it has quickly amassed a large customer base. Its long-term objective is to control 25% of the French mobile market, and it intends to invest up to €250m during 2012 in deploying 2,500 mobile base stations. Free will need to work hard to sustain the success it has had so far, but it is already proving a credible threat to existing players that have long profited handsomely from what is one of the most expensive mobile markets in Europe. Free’s bold strategy may well provide the shake-up of the market that Iliad promised.

Modern APM falls into nine areas

The modern APM solution understands that the cultures within IT speak different languages and have different needs. While movements such as Agile and DevOps attempt to break the walls between traditional silos such as development, QA, operations, network engineering, senior management, and others, there remains the need to address the particular information requirements of these communities. APM tools either provide across-the-board functionality with interfaces targeting the specific communities, or they are solely focused on one or two communities. APM for pre-deployment development and post-deployment troubleshooting therefore provides developers with source-code-level detail and statistics, whereas operations-oriented APM is concerned with live production where operators are concerned with end-user experiences and end-to-end service delivery. Furthermore, operations care about the resource overheads incurred by deploying APM agents in production, and in sufficient numbers even low overhead agents can drain production resources and cause potential perturbations. So the types of solutions these communities want can differ markedly.

In its upcoming APM report (see Appendix), Ovum identifies nine segments of APM that apply in modern solutions:

• End-user experience monitoring, from desktop clients to web browsers and mobile devices
• Root-cause and predictive analytics
• Physical, virtual, and dynamic infrastructure, on cloud and traditional data center, including SaaS delivery channels
• Storage and databases
• Networks, including those carrying unified communications (multimedia) traffic
• Application server instrumentation and source-code-level detail for individual transactions
• Business transactions that cross-cut applications and IT services
• Executive reporting and dashboards
• Legacy systems such as mainframes

The vendors in the market approach these segments of APM from their particular histories and strengths, with the targeting of particular APM user communities more clearly defined than before, and new players continuing to enter the market with innovations.

There are two areas closely related to APM that Ovum believes will see increasing activity within the APM market: application performance testing and application security performance. The former is naturally of interest to QA and testing professionals, and APM tools that target this audience will include synthetic and real user load-testing. Cyber security has become an application-level concern, and as enterprise users increasingly work on devices that sit outside the firewall, such as web browsers and mobile devices, this is an opportunity for the APM market to address.

The three degrees of application dynamism

Modern multi-tier applications and services built for SOA environments are more dynamic than ever before, and this dynamism falls into three dimensions. First, the infrastructure on which applications run can switch in an instant across different cloud servers and virtual machines. Second, the applications may comprise mashups pulling in data from diverse sources, and rely on multiple and distributed components and services. Finally, applications are delivered faster and deployed more frequently than before with the rise of Agile methodologies, continuous delivery, and DevOps. For example, continuous delivery establishes a deployment pipeline that can trigger a code change to production use in a matter of minutes.

All three dimensions demand more from an APM solution. Solution configuration should be easy to keep up with frequent Agile drops, and it must recognize a distinct business transaction that cross-cuts multiple IT layers. It must also follow a transaction across physical and virtual boundaries, and it needs to support the needs of different users from developers needing source-code line detail to operators concerned with stability and service delivery in the production environment.

Telcos are delivering IT on the network

BT Connect, and in particular BT Connect IQ, the operator’s newly launched network performance management tool for telecoms managers and IT directors, are perfect examples of the new, robust capabilities in IT that telecoms service providers can now offer their enterprise customers. In our report Telco Differentiation Through IT Services we suggest that telcos’ capabilities in terms of IT services and applications delivery have increased so much that they are now often the first choice for enterprises that two or three years ago would have expected to outsource such functions to global systems integrators.

Enterprises want to play in their own IT sandbox

One of the key findings of Ovum’s enterprise survey work over the past year is the consistent level of adoption of and interest in intelligent networking. For example, many enterprises already use next-generation technologies, including Ethernet VPN, in advanced networking infrastructures. They now want to include enterprise applications management in the fixed services contract.

At the other end of the ICT spectrum, personal mobile devices are cascading into the organization and being used for business purposes as well as privately. CIOs’ priorities have therefore moved from getting a single contract to finding one that can cope with Android, Windows Mobile, and iOS equally and concurrently.

Wherever they are on their ICT roadmap, CIOs are looking to service providers for more help with everything from systems to software. They are looking to telcos for direct help in managing their outsourced services, or to provide the tools with which CIOs can take better control of networks and applications. As the network appears directly in the hands of the end-user employee, CIOs are increasingly prepared to consider moving the operating stack behind it into the care of their managed services partner.

Telcos are not yet finished with IT acquisitions

BT’s five-year acquisitions program started with networks and ended with applications and IT. More recently, NTT Com has acquired a global ICT portfolio, Verizon has made a series of IT investments culminating in the acquisition of Terremark for $1.4bn, and Orange Business Services has forged a new partnership with long-term airlines industry partner SITA. The latter could become the model for telco-IT partnerships that has so far eluded telcos, because it puts new emphasis on joint services development. It is not the last word, however: in 2012 tier-2 operators such as KPN and Singapore Telecom are to reorganize their IT services activities and relationships.

There will be more to come for enterprises and multinationals that want regional and local support. And just as with advanced videoconferencing, there will come a point when telcos need to map their capabilities together for the benefit of global organizations.

• Silicon for photonics: As transmission speeds increase, ancillary chips around the pure optics have increased in importance. Ciena’s Wavelogic3 and Alcatel-Lucent’s PSE for 400G upped the ante on the 100G client gearbox and 100G line coherent receiver DSP.
• “Silicon photonics”: The buzz around Cisco’s acquisition of Lightwire cast a spotlight on silicon photonics start-ups. As power consumption rises in importance, the barrier to photonics implemented on silicon is being lowered.
• Photonics for silicon: Optical interconnect to alleviate the packaging constraints of big chips is finally showing signs of broader interest: Finisar and Reflex demonstrated optical backplanes, Corning showed off a fiber used with Lightpeak, and Avago was revealed as the optical partner for Altera’s “optical FPGA.”

Silicon for photonics: hardware enables software-defined transponders

As the first transmitter “mega-chip,” Ciena’s new 32nm chip points to increasing reliance on signal processing with each optical generation. It, and the matching receiver chip, are programmable to different modulation schemes, e.g. changing between today’s QPSK and tomorrow’s16-QAM. Software-defined transponders are not to be confused with software-defined networking, which requires cross-layer coordination and control. (On the latter topic, a post-deadline paper from KDDI and collaborators claims the first OpenFlow-based multi-layer control field trial.) As optical transmission approaches the Shannon limit, the trade-off between bit rate and distance grows in importance. Programmable transponders allow this decision to be made on a channel-by-channel basis.

For more discussion of DSP megachips, see OFC/NFOEC 2012: Day 2 Recap, March 2012, and 2012 Is the Year of Merchant 100G, January 2012.

Silicon photonics: pieces coming together for density

The silicon photonics field is developing in many directions and is on the brink, we believe, of commercial fruition as market need and technology development intersect. (Look for a longer report from Ovum in a few months describing companies active in silicon photonics.)

Kotura finally put multiple previously-shown devices together to make an optical engine for 100Gbps single-mode transceivers. While the industry is contorting itself through CFP and CFP2 form factors, this approach enables a leap directly to QSFP+ density. It uses LAN-WDM per the LR4 standard, though 10km reach might need more than the 3.5W for QSFP+ compliance; the sweet spot is likely the 1–2km medium reach (MR4) currently under serious discussion for data center and client Ethernet, with the added benefit of fitting in a single fiber. Kotura’s echelle grating multiplexer could also combine a larger number of DWDM channels to make a 1.6Tbps device, similar to Infinera’s PIC approach.

Photonics for silicon: momentum building across a range of applications

One attendee described the mood this year as “less noisy but more real.” While there was nothing like the “splashy” IBM–Avago water-cooled interconnect of 2010, multiple vendors showed converging technologies that can underpin a range of applications from 40G/100G pluggable transceivers, board-to-board backplanes, to chip packaging.

Avago showed the optical PCIe chassis-to-chassis, which it demonstrated previously with partner PLX at the Intel Developer Forum, and chip-to-chip interconnect to Altera’s optical FPGA. Reflex Photonics showed an “optical BGA” package. IBM Research’s interconnect has now been flipped over so the light comes out the top instead of into the board, making it more similar to commercial products that work with fibers and optical fabrics. Both Reflex and Finisar showed chasses with optical backplanes for board-to-board interconnection. This is the same application in large routers and switches that has made false starts through the last decade, but we are encouraged by promising signs of ecosystem development. For more discussion on this topic, see OFC/NFOEC 2012: Final Recap, March 2012.

For consumer applications, Corning introduced Clearcurve VSDN fiber, bendable down to 1.5mm and strong enough to roll a desk chair over! This fiber is already shipping inside and outside Sony Vaio-Z, connecting a Lightpeak transceiver on the motherboard to the connector on the side of the laptop. The USB-like cable that plugs into that connector also uses this fiber. At the other extreme, keynote speaker Greg Papadopoulos said that optical interconnects completely change the current latency constraints and will drive a reinvention of supercomputer architecture.

The companies have combined their many assets, and the new carrier will compete for global enterprise business. There has been major progress in the integration of the two entities, but the new Level 3 now needs to push the integration further. It must develop more managed services, and pick up the pace of some of its key strategic enterprise services if it is to pose a real challenge to the tier-1 providers.

The new Level 3 has many key ingredients

The new Level 3 has an interesting mix of services, including network, channel, and enterprise service portfolios. Once it is fully integrated it will have extensive network resources in Latin America, as well as data centers in Europe and Latin America.

The integration of Level 3 and Global Crossings’ enterprise portfolios into one suite of services will increase the new company’s capabilities, and help it speed up the availability of some basic business services. The newly combined product portfolio already contains some strong offers in the network, voice, and managed services areas. In addition to this, the sales channels of the two companies will be combined to create a domestic and global presence in Europe, the US, and Latin America.

Both legacy companies were making progress in enterprise

Although both companies have strong roots in wholesale, over the past few years they have focused on developing fuller enterprise product portfolios. The combined company has made a major effort to integrate these enterprise product portfolios and define its roadmap for the next few years. 

The company reports that 38% of its revenues in 2011 came from wholesale, and it is keen to emphasize that it intends to remain a significant wholesale player. Indeed, Ovum believes that wholesale represents an even greater proportion of Level 3′s revenues than it reports. Despite how it classifies its revenues, the company sees wholesale as driving the scale that enables it to spread fixed costs over a wider base of customers and revenues. This allows it to make decent margins in enterprise as its growth in the sector continues.

Filling product gaps, defining a future roadmap, and picking up the pace

The analyst session revealed that, although a lot of the integration is fully underway, there is still a lot of work to be done. Level 3 must engage in additional production rationalization, further define its roadmap, and in fill in some of the gaps in its enterprise portfolio.

Key areas for development include hosting services, unified communications, advanced managed services, and call center services. Worryingly, though, the roadmap for these services and some of the other product plans seemed to indicate that they will not be available until 2014, which is very late. It will be hard for Level 3 to develop new business or take business from existing providers if it enters the market so late, but if it picks up the pace the opportunity is still there.

CSC has extended its long-standing partnership with Salesforce.com to bring Breezeway to the insurance industry

It is intriguing that CSC, with its strength in the North American life and annuity (L&A) and property and casualty (P&C) insurance industry, has chosen the Force.com platform from Salesforce.com (SFDC), with its strength in customer relationship management (CRM), to deploy Breezeway. CSC told Ovum that the cloud-deployed solution weaves together business acquisition, customer service, agent information, and client and contact information, and envelops the entire mix with functionality from the Force.com platform from SFDC. Furthermore, CSC told Ovum that Breezeway integrates with SFDC’s CRM (but does not require it) and provides access to insurance companies’ underwriting and core administration systems (such as policy administration, billing, and claims). Breezeway also enables agents to provide service to customers using face-to-face interaction, social media (such as Facebook), and realtime collaboration, while simultaneously connected to an insurance company’s customer-facing operational systems (such as underwriting, policy administration, billing, and claims).

It is logical for the CSC to initially target life insurers that use SFDC and the career agency distribution channel

CSC told Ovum that Breezeway is initially targeted at life insurers that use the career agency (known as “tied agency” outside of North America) distribution channel and are SFDC customers. Ovum believes this is a logical tactic for three reasons.

• Life insurers purchase, and can control, the systems that career agencies use to connect to insurers for business acquisition, customer service, and to fulfill other business requirements.
• CSC has a significant presence in the life insurance industry including among life insurers that use career agencies, particularly in supplying software systems or off-premise sourcing services to support insurance business operations.
• CSC can treat the life insurance space that uses career agencies as a laboratory for Breezeway to determine how its footprint can be expanded to life insurance companies that use both career agencies and independent agencies.

There be dragons – or, at least, insurers using independent agencies

Eventually, CSC will want to market Breezeway to insurance companies that use independent agency/broker distribution channels. Ovum believes this is the insurance space in which Breezeway will face extremely stiff winds. Insurance companies that use independent agencies/brokers do not make the purchase decisions for agency management systems or contact/lead systems; the owners of the independent agencies/brokers do. For the past three decades, Applied Systems, which is considered the vendor with the largest market share, and Vertafore, which is considered the vendor with the second-largest market share, have been selling agency management systems to independent agencies/brokers. During that time, both vendors have been enhancing the capabilities of the agency management systems they offer to include cloud-deployed systems, with business acquisition and customer service processes supported by online communication and collaboration between the agency and the insurance company.

CSC told Ovum they have no intention of offering agency management systems. However, the point to note is that the vendors offering agency management systems are beginning to expand their business functionality to include new application submission and customer service capabilities, all deployed through the cloud.

Ovum believes that SFDC must build a large presence in the independent agency/broker insurance space. However, selling SFDC’s CRM system to insurers that use independent agencies/brokers and to the insurers’ field offices is necessary for Breezeway to succeed in this part of the insurance market, although far from sufficient. It is imperative that a growing number of independent agencies/brokers also purchase SFDC’s CRM, in order for Breezeway to have an opportunity to displace Applied Systems’ and Vertafore’s thirty-year presence in the independent agency space.

More importantly, however, the method used to introduce this measure raises severe concerns. There are question marks over its compatibility with the EC framework, and it is likely to hamper regulatory certainty and the future credibility of AGCOM’s decisions.

The impact of the measure on competition could be beneficial, but is currently unclear

The Italian parliament is currently discussing legislation that would force Telecom Italia to separate the pricing of ancillary services such as maintenance and line activation from the monthly rental charge for local loop unbundling (LLU). This step may appear reasonable and pro-competition, but in some respects it is likely to create more problems than it solves.

It is certainly true that TI does not necessarily have to be the sole provider of maintenance services; indeed, it already outsources maintenance to other companies, often at the local level. It currently includes these services in the cost model used to determine the rates of the LLU service, so the provision that the parliament is trying to pass is likely to reduce the costs incurred by alternative operators. If the companies that already provide these services on behalf of TI start to act on their own in a competitive way, alternative operators may be able to save on the total price paid for unbundling the local loop.

On the other hand, operators purchasing access to the local loop are unlikely to create in-house teams to carry out maintenance services on their own, unless this proves to be a cost-saving exercise. For these reasons, it is difficult at present to assess the practical impact of the legislation.

It is also worth noting that separating maintenance services from rental rates is not a common practice in Europe. The tariffs for maintenance services are rarely, if ever, separated from those of the main access service: Telefonica does not do it in Spain, and Orange does not do it in France. In the UK, Openreach offers different tiers of maintenance services, but the basic levels of maintenance are always included in the line rental price.

The legislative provision could be incompatible with the EC framework

On the whole, the measure is likely to have a positive effect on the market, but there are serious doubts over the method used to bring it about. The content of the provision does not conflict with the EC’s regulatory framework: article 9 of the Access Directive 2002 states that reference offers must be sufficiently unbundled to ensure that companies do not pay for facilities that are not necessary for the service requested. However, that same article states that the power to oversee operators designated as having significant market presence (SMP) lies with national regulatory authorities, not parliaments.

The independence of the regulator was underlined even more clearly in the revised European framework issued in November 2009, which Italy failed to transpose by the May 2011 deadline. The framework strengthens national regulators’ ability to operate independently of any other body in relation to the performance of their regulatory tasks.

The proposed measure relates to a change in the cost model for the reference unbundling offer (RUO), an issue that clearly falls within the remit of the national regulator, AGCOM. The regulator’s powers are linked to the analyses of markets included in the EC’s 2007 recommendation on relevant markets. The 2003 Electronic Communications Code, which transposed the EC’s regulatory framework, sets out AGCOM’s power to carry out those market analyses and to impose the consequent measures on operators found to have SMP. AGCOM also has to approve TI’s reference offers before they can come into force.

The proposed amendment to the bill is likely to be challenged by the EC, which could open an infringement procedure against Italy. The Body of European Regulators for Electronic Communications (BEREC) has already expressed its concern over the measure, noting that the EC has taken legal action in similar situations in the past, and that the European Court of Justice decided in favor of NRAs in a similar case in December 2009. 

Such a precedent could undermine regulatory certainty

The attempt to separate ancillary services from the main LLU service is likely to conflict with both existing legislation and the EC’s regulatory framework. It also hampers the certainty of the regulatory process, and undermines AGCOM’s credibility, opening up the way to legal challenges and requests to overturn the regulator’s decisions. The precedent set by this episode could be detrimental to the whole regulatory environment.

If the government, the parliament, or any other institution wishes to propose changes to the telecoms environment, it should do so within the process of public consultations that is part of each market analysis. It should ultimately be down to AGCOM to decide whether or not any such change should be introduced.

Export credit assistance is commonplace

The Chinese government, in helping local vendors grow globally, is keeping with industry tradition. In the 1990s, when telecom was bound tighter to the state, North American and European officials often lobbied actively for export deals. Export loans often came into play. During the bubble, vendor-run financing became important, but the high default rate turned the industry against vendor financing. Some vendors still offer financing, though. Cisco Capital may be the biggest example, even if its deep cash reserves make it an exception. More common, though, is government-facilitated vendor financing. Ericsson has the Swedish Export Credit Corp, for instance, and won awards in 2010 for four separate Ericsson deals it financed: Turkcell, Telkomsel, Mocambique Cellular, and MTS. Nokia/NSN has Finnerva for financing. US-based vendors sometimes turn to the US Ex-Im Bank. But these are generally small deals.

What’s different in China is the scale. The loans tend to be spread across multiple years, and multiple product lines or projects, and are often enormous in size. America Movil and Reliance have both signed loan agreements for US$1bn or more with the China Development Bank (CDB), for instance; these are tied to Chinese vendor equipment purchases. Notably, these loans are guaranteed by “policy banks” such as the CDB, not the vendors. Policy bank loans are designed to “explicitly support the government’s policy objectives.” (See the February 2012 Inter-American Dialogue report, The New Banks in Town: Chinese Finance in Latin America.) The CDB’s president noted last year that through its support for Chinese tech companies such as Huawei and ZTE, the CDB has “become the principal source of finance of our country’s overseas investments.”

Government-facilitated bank financing is used selectively, as a supplement to other tactics. For big deals in emerging markets, vendor-arranged financing can often be a key factor. Moreover, the last 2–3 years have been tough for carriers funding large capex projects, and times will remain tight (see Prepare for Slower-growing Telecom Revenues and Capex, January 2012). Carriers are looking at many ways to lower their capex burden: network sharing, joint procurement, equipment leasing, pay-as-you-grow pricing, and yes, vendor financing.

Huawei and ZTE on a tear

Over the last decade, Huawei has grown tremendously. In 2000 it was virtually unknown outside China. By 2010 it had grown to rival Ericsson as the biggest telecom vendor. ZTE hasn’t reached that status, but is at the top of a second tier of vendors with around 5% of the network infrastructure market globally (including services). Huawei’s share is roughly triple that. Chinese vendors are driving the market.

Their growth is due to a range of factors; cheap prices were important in the early years, often needed to get in the door. But innovation, service, and reliability are the driving factors now. They are now accepted into nearly all tier-1 networks worldwide. Huawei in particular has proved itself to many of the most demanding customers around (see our June 2010 report, Huawei firmly entrenched as tier-1 vendor in Europe, say customers). Vendor financing has also helped win quite a few large deals, and turned some small deals into big ones.

Deal with it: what are your financing options?

Whether Chinese vendors’ access to government-subsidized loans is “fair” or not, rival vendors need to accept it; it’s a market reality. And deal activity seems, anecdotally, to have increased in the last year, as the two vendors have been fighting harder for incremental growth. Growth is getting tougher for them, as they both aspire publicly to improve their profitability, and “walk away” from unprofitable deals. They are battling each other more directly than usual; as Huawei’s head of solutions said recently, “ZTE is a huge threat for us.” As the vendor competitive landscape continues to shift, vendor financing seems likely to play a part. Vendors without the ability to help arrange financing may be disadvantaged. Given that many western suppliers remain strapped for cash and can’t afford the risk of financing, they will have to be ready with a sales pitch that (1) highlights downsides of Chinese bank financing, and (2) avoid bidding wars for projects that require financing, as the Chinese vendors have access to extremely deep pockets, and (3) focus on their many other capabilities (for instance, professional services or management capabilities).

The joining of little and large

Founded in 2007, Rosslyn is a 32-person, privately held, UK-based company that offers BIAS using its cloud-based RA.Pid platform to automatically extract, classify, and enrich data from enterprise systems such as SAP and Oracle without the need for a specialist in-house team or hardware. The focus of Rosslyn to date has been to provide the technology to enable procurement, finance, accounts payable, compliance, and audit teams to make faster and better decisions around spend data because the “heavy lifting” is undertaken automatically by Rossyln’s RA.DAR artificial intelligence engine.

Xerox has 100 years on Rosslyn and is probably best known for documentation, although its 57,400 global employees do a lot more than provide printers and copiers. Its BPO and IT outsourcing division, formally called ACS, which is partnering with Rosslyn will bring a range of consultancy skills in business process improvement in order to help companies that are using BIAS to not only make faster and better decisions, but also to improve underlying processes and information flows within the organization. The value of the combined service is that Xerox consultants will use their experience and expertise in advising other businesses to analyze and interpret data such as spend metrics from RA.Pid to, for example, help reduce payment cycles.

Ovum sees this partnership as very complementary. Rosslyn, with flagship customers such as Coca-Cola enterprises and Clifford Chance, has always focused on its technology, and it has even trumpeted the fact it did not have a raft of consultants and services people. However, with this announcement it has recognized that many of its customers are investing in BIAS because they are seeking business improvement, and technology alone cannot deliver that.

Rosslyn’s second partnership announcement this year

This was Rosslyn’s second partnering announcement of the year. Its first was to join QlikTech’s Qconnect partner program, enabling analysis undertaken in RA.Pid to be accessed via the dashboards and interfaces of QlikTech’s QlikView product, on multiple platforms including mobile devices.

The question therefore remains: why didn’t Xerox just buy Rosslyn outright? Ovum believes that if the relationship proves successful it would be a logical step for Xerox to expand the range and scope of its services by bringing Rosslyn into “the fold”, but a company that has been successful for more than 100 years has not done so without giving thorough consideration to its business decisions.

Compelling evidence of telehealth’s viability

Although the full results of the study will not be published for another two years, early findings suggest that if used correctly, telehealth can deliver value on several fronts: a 45% reduction in mortality rates, a 15% reduction in ER visits, a 20% reduction in emergency admissions, a 14% reduction in elective admissions, a 14% reduction in days spent in hospital, and an 8% reduction in “tariff costs.” The NHS reckons that telehealth can help to save approximately £1.2bn over a five-year period. Furthermore, the dismal hypothesis that the use of telehealth would result in users’ isolation could not be verified.

Results help to overcome barriers

As Ovum has already explained in other reports, one of the major obstacles to making telehealth part of standard healthcare delivery has been the lack of a robust business case: the evidence of the multitude of pilots on its use was diminished either by sample sizes being too small or trial durations being too short. The WSD project was created to overcome this obstacle, and has verified that the benefits of telehealth outweigh the drawbacks. Given the results of this large-scale study, it is no longer valid to claim that telehealth is untested to block its adoption. The project also demonstrates that telehealth does not work for all patients equally well: it appears to be most beneficial for those requiring a lot of monitoring and desiring more autonomy. It is important to note that a significant proportion of participants rejected telehealth on the grounds that they favor a more paternalistic approach and dislike technology. Another barrier to adoption was insufficient broadband capacity; this aspect is beyond the reach of the healthcare ecosystem. Nevertheless, as the proportion of those aged 65 and over grows – those who often develop more than one long-term condition and need constant care – telehealth and telecare present a viable course of treatment which enhances quality of life while cutting costs, although offerings must be stratified by individual needs.

Telehealth needs incentives and new business models to succeed

The project shows that innovation needs incentive schemes to facilitate adoption, as the required up-front capital investment for telehealth and telecare is often a major hurdle for cash-strapped healthcare organizations. As we have seen in the US, adoption of electronic health records has only begun on a large scale due to the US federal government’s “carrot and stick” approach. In Ovum’s opinion, innovation in this area will be accepted when new pathways for treating patients, including new business models, are designed. On this point, Paul Burstow, Minister for Care Services, suggested at the conference that telehealth and telecare services should be made available not with up-front capital investment but with monthly subscription fees – similar to the way in which people pay for iPhones. He cited the example of the Gloucestershire Hospitals NHS Trust, where the NHS works with Tunstall, a leading vendor of monitoring equipment: Tunstall covers the up-front costs, which include clinical engagement, pathway redesign, and training, and the NHS pays a monthly fee per patient.

The next step: the “3 million lives” campaign

The next step is to roll out telehealth nationwide. At the congress, the chief consultant for telehealth services at the US Department for Veterans Affairs showed that this is possible. Having grown the delivery of telehealth from 35,406 patients in 2008 to a planned 92,000 individuals in 2012, he claimed that telehealth works best with large networks where the delivery of high volume, low-cost applications forms the core of the service. However, the challenge in transforming a successful pilot into delivery of a mainstream service is in converting the interactions between stakeholders into replicable processes.

Based on the lessons learned from the project, the UK’s Department of Health launched the “3 million lives” campaign in January 2012 to drive the use of telehealth on a large scale. It identified that at least 3 million people with long-term conditions and/or social care needs could benefit from the use of telehealth and telecare services. In order to bring about the necessary transformational changes, Burstow has secured the collaboration of industry, government, and other stakeholders over the next five years to help make the widespread adoption of telehealth and telecare a reality. If all stakeholders take to heart the lessons presented at the conference, including those from the WSD project, and are clear about their objectives, their outcomes, and their timelines, they stand a good chance of transforming healthcare and social care with telehealth and telecare services.

Visions for a Digital London are missing the central character – the city itself

The central conceit of Samuel Beckett’s play “Waiting for Godot” is that the characters spend all of their time on stage waiting for someone who never arrives and may not even exist. The panel session on “Building Intelligent Cities” at the Digital London event held this week felt a bit like that. Three speakers – Rob Parkes from Alcatel-Lucent, Brendan Dick from BT Regions, and Simon Giles from Accenture – spent a lot of time talking about the “role of the city” in developing smart solutions. The speakers presented slides showing common platforms enabling applications across the health, transport, energy, and planning sectors, while Giles lamented the absence of more cities at the session to tell of their success. However, until the Q&A session, there was precious little recognition that the “city”, as described in smart city narratives, simply doesn’t exist in the UK’s capital.

Instead of a unified political authority with responsibility for infrastructure and local public services, London is comprised of an assortment of political entities, privatized utilities owned by foreign governments, and contracted-out service providers that are responsible for transport, waste, and housing. Put simply, London does not have a city government in the sense that “digital city” enthusiasts mean the term.

Everyone understands the problem, but candidates for a solution are thin on the ground

There was no shortage of analysis at the session. Dick acknowledged that London had excellent telecoms infrastructure, with extensive fiber rollouts and a multitude of wireless hotspots. However, he agreed that the question of what to do with the infrastructure was a bigger challenge than actually deploying it. Giles talked about the absence of vision or clear account of the digital city value chain. His preference for a market-based approach to the creation of sensor data was an interesting alternative to the more commonly proposed “open data” model, where the public sector gives its data away to private sector entities that are better placed to create value from it.

“Bottom-up” approaches are helpful, but will not deliver the full benefits of a digital city

In a frank acknowledgement that there was no likely prospect of any significant change to the urban political context, the panelists favored bottom-up solutions led by citizens and new kinds of vehicles such as mutuals and co-ops. Consciously evoking the British Conservative Party’s vision of a “big society” as a substitute for intervention by the state, they proposed this model as the only alternative to “throwing up your hands in despair and walking away”.

However, we are yet to be convinced. In other cities, the same vendors, service providers, and integrators have urged the importance of a joined-up approach so that the synergies of a common platform for different urban applications can be fully realized in the absence of a “killer” business model for any one application.

Why should this same principle not apply to London? Citizen-led projects such as FixMyStreet are helpful, but they are not the same as an enterprise resource planning system for the city. While there are many interesting urban applications being developed by start-ups and other organizations in London, they depend on the data collected and then published by the city and its agencies. So much more could be achieved and so many business cases could be turned positive if there was a coordinated approach from a properly constituted digital authority.

However, Nokia’s narrower strategic focus is just one part of the decision. Ovum believes that the modest adoption of the service – which had only attracted a few hundred thousand customers in two years – also played a significant role in its demise. We believe that this is the first of many exits from the mobile money space as the market is becoming increasingly crowded and adoption is too slow in some countries to justify continued investment. While we believe that mobile money will be a viable business, it will develop slowly, and there will be a number of failures alongside the successful deployments.

Strategic shift combined with a crowded market

Nokia launched Nokia Money in mid-2010 using Obopay’s platform, which it had previously invested $70m in. The service was run in partnership with Yes Bank and Union Bank, with Nokia acquiring a banking correspondent license from the Reserve Bank of India. Nokia’s plan was to use its extensive network of 200,000 retail locations in India to build an additional revenue stream alongside Nokia Life (formerly Life Tools), its set of agricultural, education, and entertainment content services. The vendor intended to expand Nokia Money internationally once it gained traction, following the strategy it adopted for Nokia Life, which was launched in India and then expanded to Indonesia, China, and Nigeria. It was a sound strategy as a good agent network is one of the critical success factors for any mobile money provider in emerging markets.

Unfortunately, Nokia Money did not work out, or more precisely, it did not work out fast enough. While it never released figures, Nokia is reported to have had between 100,000 and 250,000 mobile money customers in India. Regardless of the actual figure, it is clear that adoption was slower than Nokia would have expected after two years of operation, particularly considering the size of the Indian population and the low banking penetration in the country. In addition, a number of new players have entered the market, including telcos such as Airtel and Vodafone, payment organizations such as Visa, and banks launching their own services. Nokia CEO Steven Elop clearly made a call that adoption wasn’t strong enough and prospects weren’t bright enough to include Nokia Money in the new, narrow strategic focus that the company is pursuing.

Further market shakeout is expected

Ovum believes that Nokia’s exit from the mobile money space is the first of many. While the mobile money opportunity is enormous, the market is becoming too crowded, with telcos, banks, payment organizations, vendors, and over-the-top players rushing to gain a share of the market. As we argued in our recent reports Mobile Banking: Huge Opportunity, Much to Do and Making Money from Mobile Money in Emerging Markets, many of these players have unrealistic expectations of the returns in the mobile money market. In addition, the key issue of interoperability continues to hold back market development. Despite a huge wave of initiatives in the last year, progress in near-field communications payments in mature markets also remains slow and the ecosystem is still taking shape.

It has been said that people overestimate the impact of technology in the short term, and underestimate it in the long term. This may well be a fitting summary of what is happening in the mobile money market. We believe that mobile payments will be a viable market as there is a huge demand from several billion unbanked consumers with mobile phones in emerging markets. In addition, the convenience and performance of smartphones is getting far too great not to include mobile payment functionality for banked customers in mature markets. The greatest rewards in the mobile money space will go to those that gain sufficient traction to survive the initial flurry of competition. Nokia clearly decided that it is not one of them.

R will enhance Oracle’s existing data mining capabilities

Oracle Advanced Analytics contains two components: firstly, Oracle’s existing data mining technology with a set of graphical tools for building predictive models; secondly, a new set of advanced analytics capabilities built around Oracle R Enterprise, which involves integrating R’s statistical processing capabilities within the Oracle database and conversely taking advantage of the scalability of Oracle’s database platform.

Instead of using Oracle Data Mining between R and the Oracle database, Oracle has now plugged R directly into the Oracle Database engine. The Oracle R Enterprise allow the R user to access database objects transparently (rather than having to embed SQL in their applications).

The difference between these two approaches is notable. R itself does not provide Oracle with a differentiated advanced analytics product. However, this differentiated (and quasi-commercial) integration of R and the Oracle Database potentially does because it moves R from a PC-based analytics engine to one that uses the massive scalability of the Oracle Database engine.

Keeping the data scientist engaged

Oracle Advanced Analytics ensures that in the future, data scientists working in Oracle shops will have little reason to consider other providers. Ovum has seen many organizations working with an Oracle (or even an IBM) database look beyond their existing provider when advanced analytics is required. For the heavy lifting, statisticians/data scientists instead choose tools such as SAS, SPSS, and Matlab, which sit separate from the database. This invariably means additional time and expense in terms of integration costs, intermediate data staging areas, and training. Oracle Advanced Analytics attempts to change that. For existing R users, the ability to use the familiar R graphical client tooling while working on a massively parallel database is a key value add.

R is for Big Data customers now, and other Exa-products soon

At the moment, a key use case for R is enabling large-scale predictive analytics against Big Data sets. Oracle already provides an Oracle R Connector for Hadoop as part of its Oracle Big Data Connectors product. This effectively provides R users with direct access to Hadoop infrastructure and HDFS data from within the R development environment. The benefit for R users is that they do not have to learn a new language or be trained on a new interface to work with Hadoop/HDFS data stores. Nor do they necessarily have to have intricate knowledge or skills in Hadoop for production applications.

Additionally, Oracle is now re-distributing open source R on its Oracle Big Data Appliance, specifically targeting Hadoop customers building enterprise analytic applications. The integration allows R users to write R scripts that run seamlessly across R, Oracle Database 11g, and Hadoop environments.

The integration of Oracle Advanced Analytics is progressing, starting with an initial focus on Oracle OBIEE. This enables an R user, for example, to build a predictive model and visualization, and push it out in a parameterized form to a report or dashboard. End users are also able to bring up specific calculations generated by the R engine in the context of other OBIEE interfaces.

Oracle will allow users to run Oracle R Enterprise scripts for Big Data analysis against data stored in Oracle Exadata Database Machine, boasting impressive performance gains in testing. However, integration with the Oracle Exalytics In-Memory Machine is not yet on Oracle’s immediate roadmap for Oracle R Enterprise. For now, Oracle Exalytics users can only view Big Data analysis results from Oracle Exalytics (as per OBIEE).

Should SAS be worried?

R’s most significant drawback so far had been the lack of a strong association with an enterprise vendor. Tibco S+ barely scratched the surface of R’s potential, but Oracle clearly has the potential and muscle to take R mainstream. However, displacing or even competing with existing SAS deployments will probably be out of the question for the moment. SAS has a strong legacy and a thorough understanding of business painpoints, which in the past has helped it sell higher-value, industry-specific predictive solutions rather than a set of generic predictive tools. R is surely on the way to that goal, but even with Oracle’s significant help it will take a long time and several hundred deployments to get to that stage.

However, R and Oracle do represent a force that SAS should start to worry about. While there will always be more customers unwilling to bet on one database and analytics vendor, a few might actually consider it more convenient to go all Oracle, especially existing R users that also have an Oracle database, and those organizations building their analytic infrastructure from scratch.

Fast Data has hit the inflection point

Ovum defines Fast Data as processes requiring lower latencies than is otherwise capable with optimizations that are typically performed on disk-based storage. Fast Data is not a single technology, but a spectrum of approaches that process data that might or might not be stored. Besides in-memory databases, Fast Data encompasses high-performance, low-latency complex event processing (CEP) applications, where data streams are processed in memory to detect otherwise indecipherably sophisticated patterns. It also encompasses hybrid approaches employed by advanced SQL analytic data platforms that optimize utilization of cache and disk in conjunction with columnar architectures that are readily compressed to reduce I/O and table scanning overhead. Increasingly, Fast Data products are delivering on the promise of velocity in Big Data by embracing many of the appliance-based in-memory or hybrid architectures of advanced SQL platforms to accelerate processing of variably structured data.

Fast Data is nothing new, but Moore’s Law is taking the market mainstream

Fast Data technologies and applications are actually nothing new. In-memory data stores have been around since the early 1990s, but their cost has typically restricted them to highly specialized applications such as directories of router addresses for embedded systems, or high-performance event streaming systems developed by investment banks for conducting high-speed trading triggered by patterns in realtime capital markets feeds. In sectors such as process manufacturing, defense, and aerospace, there have long been systems capable of deterministic realtime response that, of necessity, have relied on various forms of cache or memory. Furthermore, caching is hardly unknown to the database world; “hot spots” of data that are frequently accessed are often placed in cache, as are snapshots of database configurations that are often stored to support restore processes, and so on.

What has changed is a combination of several factors. Growth of bandwidth, memory density (where circuit sizes are 10× denser today than a decade ago) and, of course, continuation of Moore’s law with commodity, multi-core processors, have brought pricing of cache or solid state-driven dependent systems to mainstream markets.

Fast Data is the third ‘v’ of Big Data

Of the four “v”s that define Big Data (volume, variability, velocity, and value), Fast Data is the third. Velocity has been primarily associated with:

• low-latency, high-volume CEP systems
• advanced SQL analytic platforms, which, for the most part, were initially designed for handling structured data
• document-oriented NoSQL data stores such as MongoDB or Cassandra which were designed for relatively simple, operational tasks such as file retrieval or user profile maintenance, with rudimentary analytics.

The explosion of data has in many sectors ramped up the urgency of Fast Data. Examples include border security, algorithmic or high frequency trading, smart city management, or social media analytics of realtime consumer sentiment. For such organizations, Fast Data is no longer a luxury, but a necessity.

Vendors are planting their stakes

While most major IT data, application, and platform players have had specialized in-memory products for around a decade, Oracle and SAP are making in-memory the next major stage for their rivalry: Oracle Exalytics versus SAP HANA. Initially, both are targeting a mix of analytic processing applications, including OLAP and the running of more complex, multi-stage problems that would have traditionally required lengthy batch runs. In the long run, SAP views HANA as a cornerstone of its stretch goal to become the second-largest database player by 2015. (See the Ovum report “How SAP Could Challenge Oracle,” for a more detailed discussion of SAP’s database strategy).

The need for complexity and speed is also penetrating the so-called “mainstream’ database market, as platforms add features such as compression, increased caching, and use of high-speed backplanes to improve response. As SAP broadens HANA eventually to more transactive use cases, it will inevitably find Oracle Exadata and, we expect, flavors of IBM DB2, SolidDB, and Microsoft SQL Server, in its competitive radar.

The floodgates are opening to Fast Data solutions

There is growing awareness that it has become feasible to derive operational intelligence from non-traditional (and in most cases, variable structure) data sources such as sensory or machine data or social networking interactions, and so the demand for providing the raw speed to make it real has also grown. In 2012, specialized platforms and solutions will emerge to address unanswered needs with Fast Data.

A good example is graph data, which deduces many-to-many relationships from such phenomena as social network activity, resource demand on urban infrastructure (e.g., transportation, water, or power), or healthcare diagnostics. For consumer brands, typical problems might be who are the opinion leaders in social tribes; for healthcare diagnostics, which patients of similar age or gender have similar symptoms, and so on. YarcData, a spin-off from Cray Inc, has announced a specialized platform that optimizes cache and disk designed exactly for this problem. YarcData is the tip of the iceberg of specialized solutions that will start emerging in 2012 as the Big Data community turns its attention to Fast Data.

Now, though, Israeli-based startup idomoo is providing a new type of video solution for customer service. It creates individually personalized videos for organizations that want to reach out to customers and help them understand complex issues. The key purpose of such videos is to explain bills or complicated insurance plans so that contact centers can forestall customer service calls and drive consumers to a particular action. Although Ovum considers the solution innovative, it feels that the target audience is limited and scalability could be challenging.

Video can help enterprises preempt customer needs, and reduce call volumes

The supplier idomoo works directly with enterprises to create scripts and flowcharts with fields for personalized customer information and different user scenarios. Once the video has been set up, the customer receives an email or SMS with a link to their video. The video includes a personalized greeting and information about the customer’s account, which could include billing details or an explanation of an insurance plan. It typically ends with a call to action for the customer. The vendor operates with a small in-house team, working with partners for video creation and sales, and using Amazon Web Services for rendering and storing the videos.

The aim of idomoo’s product is to help enterprises improve the customer experience by making information available before a customer calls the contact center. Once a customer has viewed a video, they receive a call to action, which could take the form of a link to a website or self-service mechanism to update their account details. The personalized videos are similar to proactive outbound calls from agents or automated IVR messages in that they allow the enterprise to automate and have a greater control over when the customer is contacted.

In today’s world of information overload, visual solutions stand out

Using idomoo’s personalized video solutions is a novel way to attract customers’ attention. Today’s customers are bombarded with information and advertising across the Web and mobile devices, and idomoo’s videos offer a new way to portray data in a visually stimulating format. The solution will enable enterprises to automate parts of live customer service conversations, reach a large audience, and intrigue customers. As the video can be watched at a convenient time for the customer it has the advantage of being less intrusive than an outbound call.

Ovum believes the use cases will be limited

There are a number of challenges that idomoo and its customers will need to overcome in order to successfully implement personalized video for customer service:

• Timescales. Working with partners, idomoo takes an average of 10 weeks to create a video. Although the data points can be altered based on customer needs, enterprises need to ensure the videos are still useful and relevant two to three months after the initial decision. Ideally the enterprise can reuse the video by updating customer data as and when needed.
• Cost per user. The most significant cost of making the videos is the set-up, design, and creation. Once the video has been produced, there is a small fee per customer video. In order to cover the cost of the video creation, enterprises will need to ensure the video is sent to a sizable user base and that the total cost per user is lower than if the customer were to speak with an agent.
• Familiarity. The videos are innovative and interesting because they represent a new way to view data. However, if a large number of different enterprises send similar videos, customers may lose interest and stop responding to the content. In addition, if the videos are used for marketing and sales campaigns as well as for specialized customer service queries, customers could easily become irritated.
• Feedback. Customers already receive high volumes of email and data on a daily basis and they need to be persuaded that an additional video communication can be useful. They should be given an opportunity to opt-in to video communications, and be offered an alternative. Enterprises should gather feedback to ensure that the videos are having a positive impact.

Ovum believes that although idomoo’s solutions are innovative and provide personalized information, the use cases are limited to explanations of complicated customer-specific information. The videos are in competition with many different data points and communications that customers receive, and so enterprises considering this solution should ensure that their customers have a clear course of action after watching the video. In addition, idomoo should develop additional use cases for the videos, for example displaying technical product information on a website or providing interactive mobile assistance.

OneChip Photonics moves from development to production –Julie Kunstler

Photonic integrated circuits (PICs) are not new to the optical communications industry, but their application to the FTTx market is new. PICs should enable cost reductions in the highly price-sensitive fiber access market. OneChip’s approach integrates all active and passive optical functions required for an optical transceiver on a single indium phosphide chip. OneChip is addressing both EPON and GPON, focusing on the subscriber side of the network – the ONUs/ONTs.

OneChip’s product will have to go through the usual qualification and design-in processes. During the years that OneChip spent in product development, prices for FTTx transceivers have declined rapidly, as reflected in equipment costs. For example, simple EPON ONTs are selling for under $28 in China, suggesting transceiver prices of $13 and less. It is too early to know how much further OneChip’s PIC product will be able to lower costs, but in the access market a 20% cost difference can justify new designs given the large volumes on the subscriber equipment side.

Some would argue that the massive shipments of PON equipment into China in 2011 mean that the market there is poised for decline. But FTTx household penetration in China is still well below 10%, and given government goals for penetration rates, we foresee a market for continued large volumes of PON equipment in the country, particularly on the ONU/ONT side.

We believe that the market remains very interested in OneChip’s PIC approach. OneChip’s product eliminates the need for active alignment due to its proprietary automated alignment technique. This capability fits well with movement to ONT devices based on bidirecitonal optical subassemblies (BOSAs), a trend that is rapidly gaining momentum in China.

Time will tell and we are standing by.

Optical chromatic dispersion compensation in coherent systems – Daryl Inniss

I do not ascribe to doomsday projections for the optical chromatic dispersion compensator (OCDC). At this year’s OFC/NFOEC conference, I found evidence that suggests OCDC can coexist with electronic dispersion compensation (EDC).

Teraxion and Proximion, OCDC vendors using fiber Bragg grating (FBG) technology, have shown system-level improvements when OCDC and EDC are used in the same system. Teraxion developed an OCDC for coherent transmission in submarine systems. Transmission distance in this application can be longer than 6,000km; the impairment is larger than what can be corrected with today’s electronic compensation technology. Proximion demonstrates that a combined OCDC/EDC solution lowers both the receiver power consumption and latency because less signal processing is needed. 

OCDC was introduced into networks with 10G transmission to overcome the dispersion impairment, thereby enabling long-distance transmission. These devices are lossy and hence require additional amplification, which increases the system cost and power budget. Coherent systems use electronic processing at the receiver to correct dispersion impairments, but present-day technology limits the amount of dispersion that can be compensated. Furthermore, heat generation and latency are functions of the amount of compensation – more electronic compensation requires more signal processing and more taps, and therefore generates more heat and increases latency. 

OCDC will continue to be needed for networks 10G networks – a transmission speed that is not going away anytime soon, even in this new age of coherent systems. In addition, I believe OCDC will be used with EDC in some networks to optimize system design.

PON on a stick may be on the verge of wider deployment –Julie Kunstler

During OFC/NFOEC, Finisar announced the industry’s first GPON stick product – that is, a GPON ONT in an SFP package. Basically, the SFP houses the complete ONT including the PON MAC chip and optics.

The EPON stick was developed several years ago. I remember the announcement quite well since my previous employer, Teknovus, supplied EPON MAC chips for some of these designs. The market opportunity has been small given the 2–3X price difference between a PON stick and the standard ONT approach; consequently, PON sticks were used for niche applications, such as plugging into the SFP receptacle on routing equipment.

We believe that the market opportunity for PON sticks is growing. Though the higher cost can’t be justified for low-end residential applications, several service providers are planning to deploy high-end home gateways with their respective FTTx networks. There are advantages to using the PON stick in these cases as it establishes a demarcation between the home gateway and the PON network. Unlike with a standard ONT, the subscriber can easily upgrade a home gateway by plugging in the PON stick. The price difference between a PON stick and a regular ONT does not seem prohibitive considering that a high-end home gateway can cost more than $100 or $150.

In addition, under various regulatory enviornments, there can be business and operational reasons for separating the network from the subscriber equipment, since the network may be open or shared while the service providers compete around the functionality of the subscriber equipment.

Opnext takes early lead in merchant 100G coherent – Daryl Inniss

Opnext is the first vendor to ship merchant 100G coherent interfaces. It announced shipping a 100G coherent solution to six customers worldwide.

Opnext introduced both a module and a line card. The 100G coherent transponder (OTM-100) uses soft-decision forward error correction and is in a 168-pin MSA-compliant package. The line card uses the transponder for its line-side optics, fits in one unit slot of a traditional equipment rack, and promises plug and play. The line card also supports multiple client-side daughterboards so customers have form-factor and data-rate flexibility for client-side modules.

The 100G coherent market is dominated by OEMs that have designed their own solutions. They have captive solutions and, in principle, need not purchase merchant modules or line cards.

A continuing question is the role of module suppliers in this market. Although history teaches us that component vendors reduce cost, coherent is a slightly different beast because it fundamentally changes the transmission paradigm. It is like the early days of DWDM when controlling transmission was a differentiator for OEMs; the full benefit of coherent is not known, so many OEMs have an opportunity to deliver differentiated performance and will want continue to control the transmission product as their “secret sauce.”

We believe there will be an opportunity for modules and that the market will transition, but the rate of change and ultimate extent of the total available market for component vendors is unknowable at this early stage.

ROADMs advancing to flexible grid, high channel count – Daryl Inniss

ROADM suppliers brought to the conference the piece parts the market needs to build a colorless, directionless, and contentionless node.

These include:

• The first twin-wavelength selective switch (WSS) with flexible grid spacing and a multicast switch (8×16), which JDSU introduced.
• The 1×15 WSS with flexible channel spacing to 25GHz at 5GHz granularity from Nistica.
• The CoAdna flexible grid WSS (12.5GHz spacing) with port count up to 1×23. CoAdna also introduced twin multicast switches in one package and tunable mux/demux for up to 96 channels at 50GHz.
• Oclaro offering a 1×23 WSS with 200ms switching time, touted to be the fastest in the industry. It also introduced intra-node amplifiers designed to compensate for losses in a ROADM node.

Finisar is notably absent from this group, but it already announced its high-port-count WSS with flexible grid some six months ago.

The ROADM showcase suggests component suppliers believe the next battleground is high port count and flexible grid. We believe the volume WSS market will continue to be the 1×9, but suppliers are competitively targeting a full product suite. We believe Nistica’s announcement is more about offering a flexible grid solution for this volume market than it is for the nominal “high” port count, which is for a 1×20-something WSS. Flexible grid granularity is not defined, so we believe we will continue to hear about variants until a standard emerges. Other piece parts needed to make colorless, directionless, and contentionless a reality are multicast switches and amplifiers. Integration of all these parts is to come, once the market settles on the feature set and price.

Finisar demonstrates optical backplane and developing ecosystem – Daryl Inniss

At this year’s conference, Finisar demonstrated technology for optical backplane, front panel I/O, and active optical cable. It introduced a board-mount optical assembly, a new transceiver form factor that offers 24 channels of 10G per lane (240G total) in a single board-mounted package. The demonstration included vario-optics, an electro-optic circuit board supplier, and Huber+Suhner, an optical connectivity supplier. The former demonstrated embedded optical flex circuits that connected the transceivers and enabled optical routing. Huber+Suhner provided the passive optical backplane connectors.

This demonstration highlights the advantage of optics in backplane applications: it delivers high bandwidth and virtually no electromagnetic interference, and its transmission generates little heat. But it’s the ecosystem development that’s really important here. The optical routing and connecting technologies are not new, but integrating them to deliver a comprehensive solution for optical backplanes is needed.

Current backplanes are copper at 10G per lane, but the market needs 28G lanes to support the evolution to 100G. Copper solutions will be technically challenged at this data rate and optics has a chance to contribute there. Two critical pieces needed are VCSEL arrays at 28G and an optical backplane ecosystem. Finisar demonstrated a VCSEL at 28G, and its ecosystem development is helping the market introduce a viable solution.

Petabit photonic cross-connect? Huawei thinks so – Ron Kline

The global bandwidth management market is in decline, and OTN switching is just beginning to take hold. However, most switching functionality is moving to the WDM product segment. Until now, there has been very little new product development for standalone optical switches, except for Ciena’s 5430. At OFC/NFOEC, Huawei unveiled a prototype of a large-scale switch that supports 10 Petabits of traffic (10,000Tbps), which is over 650 times larger than Ciena’s 5430 (figured in a multi-chassis application supporting 15Tbps switch capacity).

Huawei’s prototype uses optical burst switching (OBS) as a center-stage switch fabric in a traditional three-stage CLOS architecture. End-stage (first and third stage) switching is provided using OTN. Normally, I would be skeptical of the use of OBS. The technology can support very high capacities but has distance limitations that limit its use in traditional telco networks. Prior examples of OBS were for network deployment scenarios where optical switching capabilities would be required at each node, not even as a standalone switch, which is infinitely more complex. In Huawei’s implementation of OBS, the distance is no more than a few meters between end-stage shelves equipped with electrical OTN switching. The architecture will enable this switch to scale to very large sizes in the range of 24 Petabits but still take advantage of the key advantages of OBS, namely higher capacity and lower power consumption.

Who could possibly need a switch this big?

With 40G shipping in volume, 100G ramping, and future development focused on 400G, Huawei believes it can perfect the technology to be ready to support networks when wavelengths reach these kinds of capacities. Huawei may have to wait; it will be many years before operator networks approach these sizes and would need switches of this magnitude. Even though this is a prototype that is several years ahead of its time, it is innovative and stands out as one of the most interesting concepts I saw at the conference this year.

Huawei’s prototype uses optical burst switching (OBS) as a center-stage switch fabric in a traditional three-stage CLOS architecture. End-stage (first and third stage) switching is provided using OTN. Normally, I would be skeptical of the use of OBS. The technology can support very high capacities but has distance limitations that limit its use in traditional telco networks. Prior examples of OBS were for network deployment scenarios where optical switching capabilities would be required at each node, not even as a standalone switch, which is infinitely more complex. In Huawei’s implementation of OBS, the distance is no more than a few meters between end-stage shelves equipped with electrical OTN switching. The architecture will enable this switch to scale to very large sizes in the range of 24 Petabits but still take advantage of the key advantages of OBS, namely higher capacity and lower power consumption.

Who could possibly need a switch this big?

With 40G shipping in volume, 100G ramping, and future development focused on 400G, Huawei believes it can perfect the technology to be ready to support networks when wavelengths reach these kinds of capacities. Huawei may have to wait; it will be many years before operator networks approach these sizes and would need switches of this magnitude. Even though this is a prototype that is several years ahead of its time, it is innovative and stands out as one of the most interesting concepts I saw at the conference this year.

This demonstration highlights the advantage of optics in backplane applications: it delivers high bandwidth and virtually no electromagnetic interference, and its transmission generates little heat. But it’s the ecosystem development that’s really important here. The optical routing and connecting technologies are not new, but integrating them to deliver a comprehensive solution for optical backplanes is needed.

Current backplanes are copper at 10G per lane, but the market needs 28G lanes to support the evolution to 100G. Copper solutions will be technically challenged at this data rate and optics has a chance to contribute there. Two critical pieces needed are VCSEL arrays at 28G and an optical backplane ecosystem. Finisar demonstrated a VCSEL at 28G, and its ecosystem development is helping the market introduce a viable solution.

Distributed version control is a natural fit for distributed development

Distributed version control was born out of developers’ frustrations with poorly performing centralized version control systems. The factors that typically affect the performance of centralized version control systems are network latency and code branching/merging issues. These issues mean that transactions with the centralized repository can be slow, and the merging of code is tedious and often results in merge conflicts.

In distributed version control, the concept of a centralized repository doesn’t exist. Developers have their own local repositories, and exchange change-sets with each other as required. The lack of a centralized repository is the first stumbling block for most organizations. However, distributed versioning work models can be adapted to suit enterprise development environments, and the potential benefits far outweigh the cost of change.

The distributed version control tools market

The growing adoption of DVCS has led some software lifecycle management (SLM) and software development tools vendors to add support for these within their version control tools. For example:

• CollabNet has added support for distributed development to Subversion as well as cloud hosting of Git repositories through the Codesion acquisition
• Atlassian has added Mercurial hosting support through the Bitbucket acquisition
• AccuRev has released a tool called Kando to help enterprises manage Git repositories from within AccuRev SCM
• Perforce’s latest release includes a feature called Sandbox for local/private access.

In 2010, Ovum argued that enterprises should explore the capabilities of DVCS. We also stated that the software development market will shift towards distributed version control in the next five to seven years. Currently, we are in the middle of this shift. While the trend hasn’t exactly matched our expectations, it is quite close, and it indicates that distributed version control tools have had a significant impact on the software change and configuration management (SCCM) market.

In the short to medium term, Ovum expects that popular open source DVCS tools such as Git, Mercurial, and Bazaar will improve further in terms of usability, and add features for enterprise support. There has already been activity from established SCCM market players in this area, and we expect that more vendors will add support for DVCS, either through native development or through integrations with popular open source tools. Large IT vendors and SLM market leaders such as IBM and Microsoft will likely take a more cautious approach to this market, and may only enter the segment after the DVCS market starts to show commercial potential. If they do enter the market, it is likely to come through an acquisition of a smaller, niche vendor.

Both DVCS and Agile are developer-led trends

Ovum believes that the DVCS market will follow a similar evolution path to the Agile development tools segment. While the Agile segment didn’t have an open source background, it was a developer-led trend. Similarly, the distributed version control trend is a grass-roots initiative that is an attempt to conduct version control in a way that mirrors natural collaboration among developers.

The Agile market evolved slowly over the first half of the previous decade before gaining momentum in the second half. In the first five to six years of Agile, the main market players were niche vendors offering Agile project management consulting services. These later gave rise to Agile project management tools, with the majority of SLM market players taking a cautious approach. In the following five years, mainstream SLM platform vendors scrambled to add support for Agile to their SLM platforms. The entry of large IT vendors such as IBM and HP in the past few years has resulted in the Agile development market gaining prominence.

The DVCS market is likely to follow a very similar pattern. However, its evolution may be slower than the Agile market. This is because of the strong open source heritage of DVCS, which will likely result in slower development of enterprise-support features such as user access control, read/write access control, capable GUI front ends, cross platform support, and internationalization support. While commercial DVCS options exist (such as Plastic SCM, Code Co-op, and BitKeeper), they are not as commonly used as their open source counterparts. This means that the availability of skilled developers may be a constraint.

The DVCS segment is currently at the same stage as Agile was in 2006. Enterprise-friendly integrations are beginning to emerge, and enterprise adoption of the tools has begun in a cautious manner. Ovum expects DVCS adoption to grow in the medium term with the help of commercial open source vendors as well as proprietary solutions. However, most popular distributed version control tools can work in conjunction with a traditional centralized version control system.

Distributed version control is a growing trend. As with other developer-led trends, such as Agile and DevOps, it is gaining ground. It would be unwise for organizations to write off DVCS as a fad as it is an attempt at improving developer productivity with strong fundamentals such as better performance, easy branching, faster merges, and better collaboration compared to traditional centralized version control systems. All of these advantages aren’t trivial for developers.

These include:

• The first twin-wavelength selective switch (WSS) with flexible grid spacing and a multicast switch (8×16), which JDSU introduced.
• The 1×15 WSS with flexible channel spacing to 25GHz at 5GHz granularity from Nistica.
• The CoAdna flexible grid WSS (12.5GHz spacing) with port count up to 1×23. CoAdna also introduced twin multicast switches in one package and tunable mux/demux for up to 96 channels at 50GHz.
• Oclaro offering a 1×23 WSS with 200ms switching time, touted to be the fastest in the industry. It also introduced intra-node amplifiers designed to compensate for losses in a ROADM node.

Finisar is notably absent from this group, but it already announced its high-port-count WSS with flexible grid some six months ago.

The ROADM showcase suggests component suppliers believe the next battleground is high port count and flexible grid. We believe the volume WSS market will continue to be the 1×9, but suppliers are competitively targeting a full product suite. We believe Nistica’s announcement is more about offering a flexible grid solution for this volume market than it is for the nominal “high” port count, which is for a 1×20-something WSS. Flexible grid granularity is not defined, so we believe we will continue to hear about variants until a standard emerges. Other piece parts needed to make colorless, directionless, and contentionless a reality are multicast switches and amplifiers. Integration of all these parts is to come, once the market settles on the feature set and price.

Enterprise architecture is underused for business initiatives

Our study identified that the top three roles that enterprise architecture plays within organizations are all IT related. Enterprise architecture should be exactly the type of guidance required to provide a planning context and enterprise-wide understanding. However, it is often used as an IT-centric approach that needs substantial resources to even get underway, let alone maintain and derive value from.

As a result, it is little wonder that business executives look upon the approach with suspicion. They are persistently told that it is an important part of planning future IT-enabled business developments, but find it difficult to relate it to their own objectives and virtually impossible to get a clear answer on where the return on this investment lies. This is a pity, since the aim of enterprise architecture, supported by popular architectural frameworks, is to address an end-to-end view of the business and its operations.

Deliverables from enterprise architecture remain technology focused

When asked to rate the importance of deliverables from enterprise architecture, the respondents in our survey identified IT-based deliverables as the most valuable. Enterprise architecture is failing to meet the needs of an important constituency – the senior business decision maker. Complex IT-centric models lack a way of presenting a sufficiently abstract and easy-to-change view of the enterprise, especially when it comes to the aggregation and analysis of data relating to architecture, strategy, and operations. Many decision makers typically turn to the ubiquitous spreadsheet for such capabilities, which is less than ideal as it lacks the vital elements of control, governance, and collaboration.

An essential part of being able to provide the right information at the right time to the right people so that they can make the right decision is having this data easily accessible and in a form that is understandable to the recipient. However, having all the information available is one thing, but making it usable is where the real value can be found. While each stakeholder will have their own requirements for the information that they need to support their decision-making process, some general concepts can be applied across the board. Thought should be given to the viewpoints that are available from enterprise architecture, especially for business stakeholders where a rich picture or pie chart could be more appropriate than a complex model.

Enterprise architecture remains the preserve of IT management

In our survey, 68% of organizations stated that IT management was responsible for enterprise architecture. An important aspect of successful enterprise architecture is executive buy-in at the highest level. There has to be a fundamental belief in architecture, which can only come from the prime strategists within an organization. This is more than just having support from a project sponsor; it is about having the board-level understanding of the possibilities of architecture, how it will affect the organization, what the cost and disruption elements are, and how the organization can grow and change around a truly adaptable environment.

Involving all stakeholders in an enterprise architecture initiative is both an essential and ongoing aim for any organization. Ideally, it will be “owned” at senior management level, and the appointed architecture board will represent all stakeholders. The person leading the agenda from a corporate perspective needs to ensure that architecture is an integral component in business decisions and that there is a clear picture of the responsibilities for the whole organization.

Good range of applications grows risk of bring-your-own-software (BYOS)

The enterprise software market offers a good range of software-as-a-service (SaaS) tools sold under the “freemium” model or at a low enough price for individuals and small groups to procure through departmental budgets or with the corporate credit card.

Certain software markets are at a higher risk of bring-your-own than others. Productivity software, contact management, salesforce automation (SFA), collaboration, file storage, expense management, time tracking, and project management are at greater risk of experiencing BYOS. 

Two aspects are key to whether a particular software market is at significant risk of BYOS:

• If a tool offers value to the individual user before a critical mass of usage has been reached, or even before anybody else has used the tool. For example, a contact management or SFA tool can provide significant value to an individual sales person even if nobody else uses the tool. Task management tools are similar. In comparison, a supply chain execution (SCE) solution would be of little use if nobody else is using the tool.
• If it is not necessary to agree on standards (processes, naming conventions, and so on) to derive value from the tool. When standards are necessary a neutral authority has to step in to build consensus, and develop those standards into the tool. Most often that group is IT. The traditional enterprise software sales approach is likely to be more viable in such cases, and the market is unlikely to have many successful vendors operating on the freemium and BYOS model.

BYOS introduces a number of challenges over and above standard SaaS application risks

Key SaaS risks revolve around two broad categories. The first involves possible violations of government and industry body regulations protecting personally identifiable information and other types of sensitive data. The second category covers jurisdiction on the physical location of stored information. BYOS tools increase the magnitude of risk across both categories as these vendors are typically not familiar with large enterprise requirements or accommodating the interests of such companies through custom contracts and custom operational arrangements. For example, the typical BYOS vendor is unlikely to allow individual customers to audit its operations. The BYOS vendor is also less likely to offer a custom contract that prohibits data from being transferred across national borders.

The other major challenge with BYOS tools is that feature sets essential for ensuring accountability and continuity in high-scale environments could be missing. Integration with lightweight directory access protocol (LDAP), archival options, and audit trails are examples of such feature sets.

It’s not all bad news; BYOS can be co-opted

BYOS is not without its advantages. The advent of BYOS provides the unprecedented opportunity to base technology selection decisions on hard data on what has actually worked in practice.

Also, not all BYOS vendors want to operate under the radar; they differ considerably on their level of enterprise focus. Ovum’s research in this area indicates that for almost every software category, there would be a vendor that offers the right certifications, custom contracts, and feature sets such as LDAP, the option to export data, and audit trails.

Recommendations for enterprises

The process of drafting a BYOS policy needs to be informed by the realization that corporate IT has little control over the entire application access process. The device could easily be employee-owned and the access technology could be 3G or a Wi-Fi network outside of office premises. In a widely cited 2003 interview with Rolling Stone magazine, Steve Jobs said about the music piracy problem: “You’ll never stop that. So what you have to do is compete with it.”  

IT organizations therefore need to adopt an app store approach to providing alternatives to inappropriate BYOS tools. There are two defining aspects of the app store – the process of finding the right app must be easy and the range of apps available must make it likely that the most appropriate app will be available. Ovum believes both are non-negotiable. If the enterprise app store is not easy and convenient, the employee or the departmental manager will inevitably go back to procuring software with the corporate credit card or by simply sign up to “freemium” BYOS

BYOS tools cannot be accessible to groups that handle information protected by regulations, and such groups need to be educated that use of such tools is unacceptable. Also, the risk that the combination of BYOS and employee-owned devices poses to data security norms should force corporate IT to re-evaluate removable storage device policies and data access policies in general.

For years, IT managers have been chastised for not being sufficiently business-focused. The lack of business alignment has been the topic of countless editorials, surveys, and self-help groups. The barrier between business and IT has emerged in many forms, either as org-chart boundaries or in senior committee and governance structures. Sometimes the differences have become so chronic that frustrated project managers have spoken openly about project specifications being “thrown over the wall.”

The wall must eventually come down

Walls exist elsewhere in modern enterprises, but sooner or later they must come tumbling down. The combined impact of generational change and consumer IT has been responsible for breaking down the divide between business and IT, despite the failed efforts of countless committees and training courses.

In past decades, frustrated business executives would declare “I am not an IT person” and “I am not interested in technology.” Today’s graduates have already lived a lifetime with technology, the Internet, and social networks. They are now demanding access to social networking and improved technology as part of their conditions of employment.

Today’s IT challenge is not about managing and maintaining the walls that create separation and boundaries, but about finding efficient and effective ways of tearing them down.

Reactions to recent natural disasters are showing the way

These changes are not just limited to the corporate world. Citizens are now engaging with government and industry in fundamentally different ways. Indeed, the reactions to a recent series of natural disasters provide some very useful insights into how much citizen behavior has changed.

New Zealand’s earthquake and Japan’s tsunami provided clear examples: in each case, cloud-based and crowdsourced systems were developed and commissioned within days, using the combined IT capabilities of citizens and volunteers. During Australia’s floods, citizens turned to social networking in droves. Last year, the Queensland Police Facebook site became the most widely used source of up-to-date information.

A United Nations report into the earthquake in Haiti observed that citizens were found sending text messages for help from under the rubble. Citizens also used social media to message friends and relatives overseas to seek assistance. The UN report found that what came next was “like drinking from a fire hose”; an entire population mobilized itself with its own personal technology to provide its own assistance. In one of the world’s poorest countries, formal government IT infrastructure was no match for the combined IT power of a mobilized population.

In each of these examples, 21st-century people power has managed to break down barriers. It has delivered robust and pragmatic solutions where traditional development methods could not.

There are clear lessons for IT strategists

These are just the first tentative steps in what may be a long period of change. Even so, a number of clear lessons are emerging.

• Social networking is already a powerful force in the community. Now is the time to consider its use within existing business processes and systems under development.
• Large, risky projects are giving way to smaller projects that can take advantage of existing internal and externally sourced services.
• Citizens and business colleagues are emerging as valuable partners. It is better to embrace their enthusiasm than try to hold them back; now is the time to tear down walls, not to build them.

Opnext introduced both a module and a line card. The 100G coherent transponder (OTM-100) uses soft-decision forward error correction and is in a 168-pin MSA-compliant package. The line card uses the transponder for its line-side optics, fits in one unit slot of a traditional equipment rack, and promises plug and play. The line card also supports multiple client-side daughterboards so customers have form-factor and data-rate flexibility for client-side modules.

The 100G coherent market is dominated by OEMs that have designed their own solutions. They have captive solutions and, in principle, need not purchase merchant modules or line cards.

A continuing question is the role of module suppliers in this market. Although history teaches us that component vendors reduce cost, coherent is a slightly different beast because it fundamentally changes the transmission paradigm. It is like the early days of DWDM when controlling transmission was a differentiator for OEMs; the full benefit of coherent is not known, so many OEMs have an opportunity to deliver differentiated performance and will want continue to control the transmission product as their “secret sauce.”

We believe there will be an opportunity for modules and that the market will transition, but the rate of change and ultimate extent of the total available market for component vendors is unknowable at this early stage.

The EPON stick was developed several years ago. I remember the announcement quite well since my previous employer, Teknovus, supplied EPON MAC chips for some of these designs. The market opportunity has been small given the 2–3X price difference between a PON stick and the standard ONT approach; consequently, PON sticks were used for niche applications, such as plugging into the SFP receptacle on routing equipment.

We believe that the market opportunity for PON sticks is growing. Though the higher cost can’t be justified for low-end residential applications, several service providers are planning to deploy high-end home gateways with their respective FTTx networks. There are advantages to using the PON stick in these cases as it establishes a demarcation between the home gateway and the PON network. Unlike with a standard ONT, the subscriber can easily upgrade a home gateway by plugging in the PON stick. The price difference between a PON stick and a regular ONT does not seem prohibitive considering that a high-end home gateway can cost more than $100 or $150.

In addition, under various regulatory enviornments, there can be business and operational reasons for separating the network from the subscriber equipment, since the network may be open or shared while the service providers compete around the functionality of the subscriber equipment.

Teraxion and Proximion, OCDC vendors using fiber Bragg grating (FBG) technology, have shown system-level improvements when OCDC and EDC are used in the same system. Teraxion developed an OCDC for coherent transmission in submarine systems. Transmission distance in this application can be longer than 6,000km; the impairment is larger than what can be corrected with today’s electronic compensation technology. Proximion demonstrates that a combined OCDC/EDC solution lowers both the receiver power consumption and latency because less signal processing is needed. 

OCDC was introduced into networks with 10G transmission to overcome the dispersion impairment, thereby enabling long-distance transmission. These devices are lossy and hence require additional amplification, which increases the system cost and power budget. Coherent systems use electronic processing at the receiver to correct dispersion impairments, but present-day technology limits the amount of dispersion that can be compensated. Furthermore, heat generation and latency are functions of the amount of compensation – more electronic compensation requires more signal processing and more taps, and therefore generates more heat and increases latency. 

OCDC will continue to be needed for networks 10G networks – a transmission speed that is not going away anytime soon, even in this new age of coherent systems. In addition, I believe OCDC will be used with EDC in some networks to optimize system design.

Poor results across the board for CRM outsourcers

If there was one constant among the major global CRM outsourcers at the end of 2011, it was that there was no discernible trend in relation to revenue performance. While some vendors showed a decent improvement over their year-end 2010 levels (most notably TeleTech with growth of 8% and Sitel with 6%), other competitors in this space barely kept their figurative heads above water, posting revenue increases of under 5% year-on-year. As an example, Convergys performed tepidly, increasing sales by only 3% over 2010 levels. Meanwhile, Stream Global Services improved its 2011 performance, with revenue up 6% on the previous year, but it is questionable whether these levels will be sustainable considering the recent executive churn at the company.

For a number of CRM outsourcers, 2011 proved to be very challenging indeed. Transcom’s, revenue performance declined 6% from 2010, while Startek saw revenues decline a catastrophic 17% between 2010 and 2011.

Single-digit margins are the new norm in CRM outsourcing

For the CRM outsourcers that were profitable in 2011, margins were thin at best. In the case of most vendors tracked by Ovum that showed positive margins, a large number remained in single-digit territory, with several under 5%. Among those that went into the red, the worst was Startek, which posted a net loss of $26m on revenue of $219m. What is becoming apparent to industry observers is that players in this space are facing significant pressure to remain profitable and that action is required in order to maintain commercial viability.

Action and innovation required to increase profitability

It has long been acknowledged that among the various outsourcing segments, contact center work is perhaps the most margin-sensitive, due to its commoditization. However, in order to increase profitability, contact center outsourcers will need to pursue alternatives to agent-only customer-facing services. Economies of scale by adapting automated alternatives into the services mix will be essential to reduce cost-heavy headcount, as will providing high-value services such as customer knowledge analytics consulting and technology-based offerings. From a labor standpoint, pushing home-based agents as a delivery method makes sense, given the lower-cost nature of this business model compared to turnover-heavy facilities-based deployments, be they offshore or onshore. The window to improve profit margins will be relatively short and shareholders are likely to be impatient. It is crucial that CRM outsourcers move to diversify their offerings and front-office delivery into more profitable areas.

CSC’s long saga with the NHS

CSC’s engagement with the NHS to install a national patient record system worth £3.1bn has been a saga spanning almost a decade, marked by failure to meet deadlines for the implementation of iSoft’s Lorenzo electronic health record (EHR) software. As CSC was the prime contractor to the NPfIT it received all of the blame, and had payments withheld for failure to deliver Lorenzo on time and on budget. In a bid to sort out the mess and cut its losses, it ended up acquiring iSoft in May 2011 for £116m. The move enabled CSC to exercise more control over its subcontractor, obtain the intellectual property rights on the software, and extend its client base and skill set. The software provider has a large installed base of (often older) clinical systems in the UK and other markets, especially Germany and Australia, the latter being iSoft’s home market.

As a consequence of CSC’s inability to meet implementation deadlines, the UK government, which was, in any case, committed to reducing public sector spending and curtailing this bloated, over-budget, and hugely delayed project, eventually abandoned the NPfIT. Instead, it gave each trust the autonomy to make its own decision to implement an EHR system. It also refused to pay CSC. This resulted in CSC having to write off a large part of its net investment in its contracts with the NHS, amounting to roughly £1bn in fiscal year 2012.

What does this mean for CSC?

So far, the full details have not been publicly announced, but it seems that the truncated agreement will result in CSC delivering far less than it was originally contracted to do. Not only will the Lorenzo software have less functionality than initially specified, but it will also be delivered to a much smaller number of trusts than initially planned. Furthermore, the original contract may be extended for an extra year.

Assuming that a binding agreement between the NHS and CSC is established later on this month, CSC will reduce the losses of its £1bn write-down, and it may even recover them entirely. In addition, it will be in a position to sell software and services to the NHS and compete to win business from individual trusts, therefore remaining a key player in the UK healthcare market. It may encounter skepticism from trusts that consider Lorenzo to be too complicated and expensive, and take too long to deploy. However, its £45m, seven-year, all-encompassing IT deal with an optional three-year extension with the Royal Berkshire NHS Foundation Trust, signed in November 2011, nicely demonstrates that it is possible to overcome such doubts. CSC’s experience in working with UK healthcare organizations will also be helpful as it seeks to win engagements with healthcare providers in other countries.

What’s in it for the NHS?

The NHS has emerged from the NPfIT experience with the insight that a top-down, centrally driven IT program is not suited to the needs of individual caregivers and has therefore shifted powers to local trusts and opened up the field for competition among vendors. However, the NHS has commissioned the very same player whose mega-contract it cancelled not so long ago. Is this due to a lack of alternatives? Perhaps so; NPfIT has made the UK healthcare market less attractive for other contenders. In Ovum’s opinion, a more likely reason is that the sheer complexity of implementing clinical software and the change management surrounding it, even at the level of an individual trust, is so demanding that only a player with direct experience is in a position to conclude such an undertaking successfully, without adding yet more delays. If that is the case, it makes good sense for the NHS to continue working with CSC.

A recent ruling by the Nigerian High Court found that Bharti Airtel’s ownership of Zain’s Nigerian operation was null and void because Econet Wireless was not consulted on the sale. As a result, Airtel Nigeria must change its name and reinstate Econet’s 5% shareholding in the operator. In response to the decision, Econet has announced bring a $3.1bn damages claim against Airtel. This threat will place a dampener on Airtel’s expansion initiatives in Africa, and could affect Bharti Airtel as a whole as its Nigerian operation accounts for 9% of the company’s consolidated profits.

Legal wrangling could force a shift in focus

Airtel Africa can’t get distracted by legal battles, and must keep its focus on its core business of maintaining and growing its African operations. However, the possibility that it will have to pay $3.1bn in damages to Econet will seriously affect its network rollout plans in Africa. There is already evidence of this happening, with Airtel reporting that its African capex fell by 14% year-on-year in 3Q11.

In addition, media reports have indicated that Airtel’s Kenyan operation is 12 months behind schedule on its 3G rollout plans and coverage goals, and it is experiencing similar delays in its Ugandan operation. Airtel has offered no explanation for these delays.

In Nigeria, Airtel is also coming under pressure from the Nigerian regulator, which has ruled that network operators must improve the quality of their service or they will be prevented from signing up new subscribers. Airtel’s main competitor in Nigeria, MTN, has responded to this ruling by announcing that it will invest $1.4bn over the next year to expand its network.

Setbacks are to be expected, but opportunities still abound

In Kenya, Airtel’s market share fell to 14% as the operator lost 202,970 subscribers between 1Q11 and 2Q11. In Nigeria, Airtel experienced a similar setback, with its subscriber base falling by 145,000 over the same period.

Despite these setbacks, Airtel’s revenues from its African operations increased by 16% year-on-year to reach $1bn at the end of 2011. Over the same period, the operator’s EBITDA increased by 62%, and its EBITDA margin increased from 19.1% in 2010 to 26.7% in 2011.

Airtel’s varying experiences in Africa demonstrate that emerging markets provide considerable rewards for operators, but also come with significant risks. When looking to enter these markets, operators and investors need to be aware of the risks involved, and must make contingency plans in the event that they become a reality.

Operators’ contingency plans should include crisis containment strategies, which need to ensure that significant setbacks do not cause investors and consumers to lose confidence in the operator. If this occurs, it can cause a downward spiral that is difficult for operators to break out of.

Airtel’s due diligence comes under question

Before acquiring an existing operation or entering a new market, every operator conducts a market assessment study and goes through a rigorous due diligence process. However, it is often the small issues that become a crisis. As a result, operators need to carefully assess the risk factors that they could potentially encounter in a market, and evaluate and manage the risks accordingly.

Airtel was obviously aware of the legal battle that it inherited when it acquired its Nigerian operation, but it failed to recognize that the matter could become a major issue.

The ruling by the Nigerian High Court against Airtel shows that emerging markets are developing, and that the rule of law and ownership of investors is being protected. Econet Wireless was long regarded as the minnow in the legal battle with Airtel, and was fighting over a clause in the original shareholder agreement that gave it the option of first refusal for the remaining equity held by local investors.

Another example that could result in a similar reversal and restoration of ownership comes from Libya, where LAP Green is seeking to have its 75% stake in Zambian national network, Zamtel, restored after having it forcibly removed by the government amid allegations of irregularities and corruption during the sale. LAP Green has indicated that it will take the matter to the international court in The Hague.

When looking to enter emerging markets, operators and investors must proceed with caution and ensure that all eventualities and risks have been identified and assessed. Airtel’s issues in Nigeria highlight that the operator may not have been as thorough in its due diligence as it could have been when it acquired Zain’s African assets.

Anti-Financial Crime solution suite drives sales growth

The Anti-Financial Crime practice at SAS Institute is flourishing. It is the highest growing solution area at SAS in the Americas, and fourth in other geographies, although it is important to note that the base is smaller when compared to other key product areas at SAS. In addition, the practice is the key segment by sales value in the Americas, just behind core products including Analytics, Data Management, and Foundation. The company is one of only a few vendors that leverage anti-financial crime solutions across several industries, and this also puts SAS in a unique position for growth. In theAmericas, anti-financial crime solutions represent the top SAS product sales to federal, state, and local governments, financial services, and health life sciences.

SAS Institute’s solutions are based on a well-known and respected horizontal data and analytics platform on which the anti-financial crime requirements are built. The vendor creates bespoke solutions in conjunction with clients on top of these, which it then productizes for the broader market. This incorporates a lot of real-life business process and domain expertise, which in a non-competitive area such as compliance is highly valuable for other institutions. The level of embedded out-of-the-box functionality has improved significantly over the past few years since the first release in 2000, and it is now considered a mature enterprise-wide solution addressing both anti-fraud and AML requirements (detailed information can be find in the Ovum report “Selecting an Anti–Financial Crime Solution in Retail Banking”, October 2011). The enterprise audience clearly digested the solutions on offer, with the sales numbers proof of this. The platform is especially useful for larger institutions that require a high level of customization and control over risk models. Ovum believes that the vendor, with a significant research and development spend, has a sound foundation for further expansion, and the solution area will continue to grow at a high rate.

The goal is to increase out-of-the box functionality

Ovum, in its Solution Guide, recommends that retail banks should shortlist the SAS solution when evaluating anti-financial crime platforms. Nonetheless, the world constantly changes and the product roadmap is key for enterprises interested in a long-term strategy, especially when investing in enterprise-wide platforms. SAS is planning new releases this year of the solutions on offer for Q1 and Q4. Key improvements will include integrated alert analytics, packaged ETL (extract, transform, load) tools, and the greater integration of AML alerts onto its ECM (enterprise content management) platform. In addition, the vendor has developed a new online banking transaction model and a new ACH/Wire model, a key user of which is a large universal bank headquartered in Charlotte, North Carolina. An interesting new release is the Credit Abuse option, a reflection of the broader long-term trend of converging fraud and credit risk analytics. In addition, in 2012 enterprises will have access to customer management of network-based detection and integrated content categorization. Beyond the current year, with certain clients SAS is developing a more functional KYC, which includes the monitoring of various customer scores, and this will eventually be translated into a stand-alone solution.

The roadmap proves the claim that SAS is increasingly adding out-of-the box functionality to its products. An important factor for the company is the ability to maintain long-term relationships with key clients, such as HSBC, with which SAS is jointly developing new solutions that will become stand-alone offerings. The list of such references has recently increased in parallel with the number of new products in the portfolio.

Wasn’t Pentaho already supporting Big Data?

Pentaho was one of the earliest BI vendors to support Big Data analysis, and in October 2010 the company began to support Hadoop in Pentaho Kettle, a visual environment that helps end users to graphically construct ETL jobs. At the time, the Big Data components of Kettle were only available to customers and were not available in the open-source version of Kettle. However, early 2012 the company open-sourced all Big Data capabilities in Pentaho Kettle and added support for NoSQL datastores including HBase, Cassandra, and mongoDB.  At the same time, Pentaho changed Kettle’s open-source license from LGPL to Apache. The intention behind the license change was to be fully compatible with the Apache license used by Hadoop and several of the leading NoSQL databases. The Apache license is incompatible with the LGPL license with respect to distributing a combined work, which makes Apache projects hesitant to embed or distribute any LGPL-licensed code.

Pentaho’s goal was to remove the barriers to Kettle’s adoption and to fuel the widespread adoption of Big Data technology including Hadoop and NoSQL. Ovum believes that Kettle could well accelerate the “operationalization” of Big Data. As Big Data developers, analysts, and data scientists across companies experience Kettle, they may potentially choose Kettle over other programmatic approaches. Pentaho’s end-game could then be to pitch the full Pentaho Business Analytics suite at organizations such as these.

Cassandra support expands Pentaho’s horizons

With its support for Cassandra, Pentaho has demonstrated its commitment to expanding Kettle to other NoSQL datastores. To date, the Hadoop ecosystem has overshadowed all other distributions in the NoSQL world. However, many less-hyped NoSQL data stores have also evolved in parallel. One such popular distribution is Cassandra, which targeted at live interactive retrieval of data from Hadoop, replacing HDFS as the file store. Cassandra is ideal for large data sets that change very often and require realtime or very low-latency lookups. Because Cassandra has a smaller development community than Hadoop, the ecosystem is still lacking the basic tooling that Hadoop possesses. A tool that easily helps users move data from relational systems into Cassandra, or to move data out of it, is a welcome addition to the stable.

NoSQL as an ETL tool for Big Data is a valid use-case

While it is still too early to predict what use-cases will best justify investment in NoSQL databases, one of the most popular is to use NoSQL databases as an ETL tool for Big Data. Organizations are now exploring the option of using NoSQL databases alongside traditional ETL tools, each handling different kinds of data, and ultimately bringing a refined version back to the central data store for further manipulation and analysis.

Pentaho is certainly not the only vendor to provide tools for the ETL use-case. For users that are well-versed with the Hadoop ecosystem, open-source projects such as Pig, Oozie, Hive, Flume, and Avro are good starting points. Most of these projects attempt to abstract the map/reduce steps and reduce the need for custom programming for simple ETL tasks.

Several BI and data-management vendors also provide tools for easy data integration from their native environments into Hadoop.

• IBM BigInsights provides connectors for DB2, Netezza, IBM Smart Analytics System, and InfoSphere Warehouse.
• Oracle provides four different adapters that help move data to and from any Hadoop instance into the Oracle Database 11g and R.
• SnapLogic offers its HDFS Snap technology for getting data in and out of Hadoop, using Pig, Hive, and Flume.
• Informatica’s Informatica for Hadoop helps get data from Hadoop/HDFS into a variety of databases and analytics platforms.

Pentaho’s Hadoop approach is simple yet effective

Penatho’s approach to Big Data differs from that of other BI vendors in the market. Unlike the mega-vendors, Pentaho does not have any ambitions to offer its own version of Hadoop or make a play for the database layer. Unlike the data-management vendors, Pentaho does not aim to offer pre-built connectors that take Hadoop data and write target-specific formats for a large number of analytics and database solutions.

Instead, Pentaho is aiming to get Kettle bundled with every download of Hadoop, Cassandra, MongoDB, and other NoSQL software. The vendor believes that users will inherently choose Kettle over programmatic approaches to Big Data ETL, which could make Pentaho the analytics solution of choice.

Bloomberg does not do many product launches, so the pizzazz with which it surrounded the launch of Next, including a simulcast by executives before media audiences gathered in New York and London, and plans to follow in other cities, underscores the importance that it places on this development.

This is a logical next step, making the terminal friendlier to general users

Next is more of an evolution than a revolution. Thousands of the company’s customers are wedded to the core functionality of Bloomberg Professional (still often referred to simply as “the terminal”): they access a huge range of financial markets content, including news, data, and analytics, using four-letter codes that may seem arcane to the outside world but, once learned, become etched on users’ memories. Indeed, thanks to this service, Bloomberg has grown into an industry heavyweight. The issue with Next, therefore, was how to improve the existing service and justify its prices without interfering with the elements that users love.

To this end, Bloomberg has added some fundamental enhancements such as a natural language search capability, hierarchical menus by topic, the ability to search for a specific information requirement by name rather than by code (e.g. “EBITDA for IBM in Q4 of 1999″), and workflow streamlining.

Searchability and links to related pages are important additions

An example of workflow streamlining is in bond price discovery. Previously, a user would have to type in four separate codes: one to view broker pricing, one to see where there has recently been a lot of trading, one to discover what emails have recently mentioned a particular bond and its price, and one to see at what level Bloomberg values the bond. With Next, links to all four codes can now be grouped together on one page, giving rapid click-through access to more detailed research in each area. Similarly, in equities, one page now shows links to historical earnings, historical versus estimated earnings, analyst comments, and consensus comparisons.

Workflow streamlining makes a lot of sense and answers a market need. Companies are moving toward multi-asset and multi-venue strategies, whether for arbitrage or hedging purposes. This means that for each trade executed under such strategies, data is gathered on many more topics. Furthermore, individual traders are not necessarily experts in every asset or venue involved, so helping them to gather relevant data in a timely and meaningful fashion is a welcome contribution to their workflow process.

The Bloomberg executives presenting Next stressed that not only does it make life easier for experienced users who can now “get stuff faster,” but it also makes life easier for neophytes who have yet to memorize a long list of codes. As Bloomberg Professional’s user interface becomes more similar to users’ experience on the Internet, it is easier and more intuitive to use, which, in turn, opens it up to a larger potential user base.

Next looks good for existing customers, but will it bring new ones on board?

Ovum firmly believes that the launch of Next is a pre-emptive strike to stanch any loss of existing users. It combines Bloomberg’s vast pool of content (which is an inherent advantage over, for example, Google) with enhancements in searchability and workflow streamlining to counter the challenge from free information providers, of which Google is the prime example. Indeed, since migration to the Next user interface represents no additional cost to customers, and user training is provided free of charge, around one third of 313,000 Bloomberg Professional subscribers have already moved across.

Which begs the question: why announce it now when a third of its customers already use it? Bloomberg does not need the press to communicate the existence of Next to the remaining two thirds. Clearly, Bloomberg wants potential customers to become aware of the changes that it has made in usability and spread the word to the non-converted.

The question, therefore, is whether Bloomberg Professional, with its Next makeover, is sufficiently compelling to attract new customers, given its still not insignificant price tag compared to cheaper and “free” alternatives such as general web search engines. Of course, no self-respecting trader is going to rely on trawling the Web for their information, but cheaper alternatives to Bloomberg Professional are emerging from companies such as Xignite.

Perhaps, as things stand, this is not hypercritical, as Bloomberg has a large and very loyal customer base. But the company needs to look for new subscribers to offset any erosion of its subscriber base caused by cheaper competitors, particularly in emerging markets. While the changes included in Next are a welcome development for existing customers, they are unlikely to convince potential customers to pay for the service, as cheaper alternatives become more compelling.

Intel will use InfiniBand to help achieve its goal of enabling the creation of so-called Exascale computers. On a less exotic but still high-performance plane, Mellanox is shipping network products that represent a convergence of Ethernet and InfiniBand. The company’s network cards and switches already support both technologies, and will soon be able to switch automatically between the two as required. Ethernet has a history of sweeping aside technology challengers. In the case of InfiniBand, it has met its match, in both senses of the word.

InfiniBand already underpins high-performance computing

InfiniBand emerged as a heavily backed technology in 1999, when it was pitched as a successor not only to Ethernet for data networking, but also to Fibre Channel for storage networking. Because of its heavyweight backing from Intel, IBM, Cisco, Hewlett-Packard, Sun, and Microsoft, its prospects appeared very strong. However, in 2002 when the Internet bubble had just burst, Intel canceled its plans to develop InfiniBand silicon. That ended any hopes of InfiniBand becoming a high-volume, low-cost, mainstream technology.

InfiniBand survived that blow by finding a niche in high-performance computing (HPC) or super-computing applications. At about the same time that Intel changed its InfiniBand plans, the HPC market began a rapid transition to the use of very large clusters of commodity x64 servers. Knitting together thousands of servers into clusters requires a high-performance network, and InfiniBand suits that purpose well. As a result InfiniBand has been displacing Ethernet in HPC clusters. Currently about 40% of the world’s 500 largest supercomputers use InfiniBand, and this percentage is growing.

InfiniBand is becoming mainstream

At the same time, the need for high-performance networks has expanded beyond the exotic HPC sector, because of the spread of computationally intense workloads into mainstream commercial applications. This has driven InfiniBand usage into server clusters designed for database and Web 2.0 applications, and the back-end internal networks of mainstream appliances and storage systems sold by Oracle, IBM, EMC, and other suppliers.

InfiniBand and Ethernet converge

Ethernet has a long history of winning technology wars, to the extent that “Ethernet always wins” has become an industry cliche. ATM and Token Ring are among the rivals and challengers that have been swept aside by Ethernet. For several years, Ethernet has also been eating into Fibre Channel’s share of the storage networking market via Ethernet-friendly iSCSI. More recently, Ethernet has presented another attack on the storage market in the form of a technology called Fibre Channel Over Ethernet.

Despite this background, InfiniBand has survived and prospered, mostly because of one important technical edge. InfiniBand provides the extremely low latencies needed by high-performance applications, because it includes an architectural feature called remote direct memory access (RDMA), which allows data transfers to be completed without passing through protocol stacks.

Because of the ubiquity of Ethernet and the need for customers to protect their Ethernet investments, there has been a demand for versions of Ethernet that also feature RDMA. The most successful of these have been built to a standard called RDMA over Converged Ethernet (RoCE), which was ratified by the InfiniBand Trade Association in 2010. RoCE puts InfiniBand on top of Ethernet, and allows low latencies to be enjoyed by customers who want to continue using Ethernet rather than switching wholesale to InfiniBand. However, RoCE does not match the very low latency of InfiniBand, and it has other technical disadvantages compared to InfiniBand, such as higher power consumption.

Mellanox gives customers the best of both worlds

Founded in 2001, Mellanox has long dominated the InfiniBand market, and over the last five years its revenue has grown at a very healthy 40% CAGR. In 2011 the company reinforced its position by buying Voltaire, another important InfiniBand supplier. Since last year, Mellanox has been repeating its InfiniBand success in the Ethernet market where it is selling 10Gbps and 40Gbps network cards and switches.

Mellanox is also selling network cards that support a choice of technologies including Ethernet, RoCE, and InfiniBand, and has said that later this year it will ship switches that also offer this choice. Extending the flexibility, Mellanox then plans to ship cards and switches that will automatically detect and handle multiple types of network traffic, and will switch between them dynamically.

Either way, InfiniBand will achieve its goal

It is still quite possible that Ethernet in the form of RoCE will relegate InfiniBand back to its extreme high-end HPC niche. If this happens, it will be for the same reason that Ethernet has always triumphed in the past: customers want to continue working with familiar and trusted Ethernet. But even if it does, InfiniBand will still have scored a technical victory because RoCE is an implementation of InfiniBand on top of Ethernet. InfiniBand will have achieved its original goal of becoming a mainstream networking technology, albeit by converging with Ethernet.

Telefonica is on a global services roll

In mid-February, Telefonica announced that it had won a contract in the UK to provide fixed voice services to all BAE Systems sites. The deal covers PBX maintenance, fixed calls, and lines (including PSTN, ISDN, and broadband). Under this contract, which is worth over £18m, O2 Unify will manage 40,000 BAE ports and over 3,500 lines.

The BAE win was quickly followed by an announcement that General Motors (GM) had selected Telefonica as the global connectivity partner for its in-car OnStar services outside North America. This could lead to millions of Telefonica SIMs being embedded in GM vehicles worldwide. Telefonica had previously also announced deals with Network Rail, BSkyB, Daimler, and G4S. The Network Rail agreement, which will also be managed through O2 Unify, is of particular interest: the goal is to refresh the whole of the company’s current Cisco switch and router estate across 450 sites, including four data centers in the UK.

After five years, it has attained a top-tier spot

Ovum’s recent analysis of 1H11 contracts signed by telcos for the provision of managed services into enterprises indicates that Telefonica is gaining momentum. We have tracked the market for almost five years, and this was the first half in which Telefonica broke into the top five: its average deal size of $28.9m placed it 4th among global tier-1 telcos. Ovum analyzed over 1,100 public and non-disclosed contracts for the period in question, and the operator captured nearly 10% of total global contact value (TCV). An analysis of the top 250 contracts for 1H11 reveals that Telefonica’s market share was only 2% less than that of Orange Business Services. Overall, Telefonica looks like the fastest-improving challenger, having doubled the average size of its key deals in 1H11 compared to a year earlier.

If we break the figures down by type of service, Telefonica’s user demand is consistent with that of other operators provisioning managed networks, although there are some differences. Ovum believes Telefonica is able to offer managed mobile and fixed–mobile services beyond the typical range for other providers, especially across Europe and Latin America. A high percentage of its contracts include fixed and mobile services in Spain and across Latin America, while newly-signed business accounted for 60% of its deals by number and TCV. This is well above the service provider aggregate of 40%. While there is still more work to be done to “globalize” its contracts (Ovum defines a truly global contract as one including service delivery in at least ten countries), hints that it will more closely with China Unicom in the near future could lead to the rollout of services in Asia.

It must focus on service delivery and support

Telefonica’s 2009 deal to provide services to Deutsche Post DHL was its big break in multinational global services, yet the operator itself admits that the deal did not go to plan. It has taken the lessons learned to heart, and with a new master service agreement in place, was set to begin to deliver in earnest in mid-2011. The operational hurdles it encountered with DHL have also led the carrier to redefine and refocus on service delivery.

At its last “48 Hours” conference with key enterprise customers, Telefonica detailed its new global-local service management approach and outlined the further investments to be made in its global services centers in Prague, Madrid, and Miami. These investments include a ramping up of “service factories” to support locally managed accounts. In essence, a “center of excellence” service model is emerging at Telefonica, one where local service centers provide tier-1 services to non-globally managed accounts such as those taken on by O2 Unify.

Given the hiccups with DHL, it will be interesting to see if the lessons Telefonica learned from the experience will allow it ensure a smooth operational rollout of its services across its new stable of major contracts. If everything goes well, the operator will be well-placed to consolidate its position in the top tier; if not, Ovum expects the pace of its customer acquisitions to slow as it works to digest its newly won deals.

OneChip’s product will have to go through the usual qualification and design-in processes. During the years that OneChip spent in product development, prices for FTTx transceivers have declined rapidly, as reflected in equipment costs. For example, simple EPON ONTs are selling for under $28 in China, suggesting transceiver prices of $13 and less. It is too early to know how much further OneChip’s PIC product will be able to lower costs, but in the access market a 20% cost difference can justify new designs given the large volumes on the subscriber equipment side.

Some would argue that the massive shipments of PON equipment into China in 2011 mean that the market there is poised for decline. But FTTx household penetration in China is still well below 10%, and given government goals for penetration rates, we foresee a market for continued large volumes of PON equipment in the country, particularly on the ONU/ONT side.

We believe that the market remains very interested in OneChip’s PIC approach. OneChip’s product eliminates the need for active alignment due to its proprietary automated alignment technique. This capability fits well with movement to ONT devices based on bidirecitonal optical subassemblies (BOSAs), a trend that is rapidly gaining momentum in China.

Time will tell and we are standing by.

FTTx networks – keep them simple and make them smart – Julie Kunstler

The OFC/NFOEC Press Luncheon featured executives from three operators with FTTx network deployments: Google, Verizon, and NTT. Google’s VP of access services, Milo Medin, also served as one of the speakers in the Plenary Session.

Google’s FTTH network is being deployed inKansas City,KansasandKansas City,Missouri. It will compete with Time Warner and AT&T. Google is facing challenges similar to those faced by Verizon and NTT: it takes time to lay fiber even when the local government is supportive. Google does not have a killer application for its 1Gigabyte-per-subscriber service, but customers are likely to do more of what they have been doing, including streaming billions of hours of content from Netflix alone.

There are limits to what subscribers are willing to pay for broadband, so operators advocate keeping the costs of the network build down while keeping the network and equipment simple but smart. Smart subscriber terminals (ONTs, ONUs) can be upgraded remotely through the central office’s OLT if those boxes have embedded processors to support this function. Keep the number of terminal designs to a minimum – it saves training time and simplifies the choices subscribers need to make.

While it feels as if FTTx networks have been around for quite some time, we are at the beginning of massive FTTx deployments. And we are truly only starting to embed the early lessons learned from those initial rollouts.

The battleground is set for 400G – Ron Kline

100G is in its early deployment stages with revenues just beginning to ramp, but the market leaders are not standing still. Last week Ciena announced its third generation of coherent optics processors, WaveLogic 3, and this week Alcatel-Lucent announced its third generation of coherent processors, Photonic Services Engine (PSE). The new chipsets promise improved performance for 100G and also provide a foundation for 400G.

High-speed optics, particularly 100G, is provided using a combination of optical components (lasers, modulators, transimpedance amplifiers, etc.) and digital signal processing (DSP) provided via ASIC (application-specific integrated circuit) chipsets, which digitally compensate for optical impairments prevalent in high-speed optical transmission. This has become known as coherent processing.

Nortel (now part of Ciena) developed the first coherent optics for 40G, which it introduced in 2006 and was at the time a big differentiator in the market. Since then the technology has become the standard for 100G and has been adapted by nearly every vendor competing in the space. No longer is just having coherent processing a differentiator. Now differentiation depends on how advanced your coherent DSP is, which is why these announcements are so important.

Ciena’s and Alcatel-Lucent’s new chipsets will provide new capabilities that significantly expand performance, such as dynamically programming modulation formats to suit applications, bandwidth shaping, and soft-decision FEC. In essence, the new coherent capabilities will enable smarter line cards that can be optimized based on latency, capacity, and reach requirements. It is important to note that these are technology announcements, not product announcements, but they do provide insight into what will be coming in the future. 

While Alcatel-Lucent and Ciena are showcasing their coherent capabilities, Huawei Technologies is also demonstrating its first-generation 400G technology at the show using OFDM (orthogonal frequency division multiplexing) and PDM 16QAM modulation.

Given the level of interest at OFC in high-capacity optics, the show is living up to its reputation for showcasing leading-edge optical technology.

Bandwidth abundance, disaster recovery, and exaFLOPs highlighted at opening plenary – Dana Cooperson

OFC/NFOEC officially kicked off Tuesday morning with a plenary session featuring Milo Medin, Google’s VP of access services, on optics’ role in creating abundant bandwidth; Greg Papadopoulos, venture partner at New Enterprise Associates, on the coming era of “exascale” computing; and Isao Sugino, of Japan’s Ministry of Internal Affairs and Communications, on the impact of last year’s disastrous earthquake and tsunami on the country’s communications planning and infrastructure.

Abundance is in the eye of the beholder…if not the investor. The plenary kicked off with Medin, who had a very positive perspective on what in polite telecom circles is commonly seen as a huge problem: the yawning disconnect between traffic and service revenue growth rates. Noting that revenues are note tracking traffic increases, Medin characterized this as evidence of abundance and thanked the audience, because “without you, literally, the world would be living in an era of bandwidth scarcity, and not abundance.” While the sentiment was nice, the industry would be much healthier if revenues– and profits– tracked traffic growth more closely.

From gigaFLOPs to exaFLOPs in 30 years: let there be light. Papadopoulos, meanwhile, provided a persuasive vision of how optics will help usher in the “exascale” era of computing: fast optical interconnects will allow I/O, compute, and memory to be consolidated, leading to a massive increase in compute scale. Silicon photonics (in the news recently when Cisco announced it was buying Lightwire for $271m) will likely have a role in creating interconnects that meet reliability, power, and cost requirements.

Japan’s determination to extract something positive from the 2011 disaster provided inspiration. Sugino-san recalled the devastation that followed last year’s tsunami, describing the extent of the damage to the communications infrastructure and the heroic measures taken to restore service. He further detailed the plansJapanhas put in place to improve network resiliency while lowering power consumption and increasing capacity. The goal? Limiting disruption, congestion, and blackouts in the event of another such event.

Heterogeneous integration of compound semiconductors with silicon photonics could be the next step – Karen Liu

Silicon photonics is gaining momentum, but lasers cannot be integrated because they require a different material system. The next step could be heterogeneous integration, which combines compound semiconductors with silicon photonics on wafer scale for light generation and other functions – all while retaining compatibilitiy with CMOS foundry processing.

We had a chance to chat with heterogeneous integration start-up Skorpios at this year’s OFC conference. We’ve been curious since NSN and Ericsson made a strategic investment in the company in September 2011. Skorpios emphasizes its aim to create a variety of devices that address everything from access to long-haul transmission with a common set of application-agnostic design blocks. This goal is a key part of the silicon photonics vision: to emulate the successful 40-year history of CMOS electronics by prioritizing reusable common platform development over application-optimized device designs. Aurrion is another new company that advocates heterogeneous integration.

Speed dating with EXFO, Averna, and Phoenix Photonics – Daryl Inniss

The annual OFC/NFOEC Exhibitor Breakfast is a “speed-dating” event designed to expose conference exhibitors to press and analysts. I met test and measurement companies and was introduced to advances and new product offerings.

EXFO, a leading optical spectrum analyzer supplier, developed new software to improve optical signal-to-noise ratio (OSNR) accuracy. The evolution of transmission networks to ROADMs and the introduction of multi-bit/symbol modulation formats have introduced errors when using traditional OSNR measurement techniques. EXFO uses a polarization technique to reduce the errors. Its new software optimizes measurements on a per-channel basis and is available now.

Averna is a test engineering company that integrates test systems. It is tackling an important problem: test is typically homegrown and requires significant resources to scale, transfer, and update – consider engineering teams transferring products to a contract manufacturer. Averna provides a centralized database, analytical tools, and the ability to remotely control test sets and define enforcement rules.

Phoenix Photonics is a UK-based company focused on polarization control and detection. Its unique technology is based on side polishing the optical fiber to access and control the propagation properties of the light. Interestingly,Phoenix’s approach can also apply to the emerging area of spatial mode division multiplexing, the technology being considered to increase optical fiber capacity.

EXFO, a leading optical spectrum analyzer supplier, developed new software to improve optical signal-to-noise ratio (OSNR) accuracy. The evolution of transmission networks to ROADMs and the introduction of multi-bit/symbol modulation formats have introduced errors when using traditional OSNR measurement techniques. EXFO uses a polarization technique to reduce the errors. Its new software optimizes measurements on a per-channel basis and is available now.

Averna is a test engineering company that integrates test systems. It is tackling an important problem: test is typically homegrown and requires significant resources to scale, transfer, and update – consider engineering teams transferring products to a contract manufacturer. Averna provides a centralized database, analytical tools, and the ability to remotely control test sets and define enforcement rules.

Phoenix Photonics is a UK-based company focused on polarization control and detection. Its unique technology is based on side polishing the optical fiber to access and control the propagation properties of the light. Interestingly,Phoenix’s approach can also apply to the emerging area of spatial mode division multiplexing, the technology being considered to increase optical fiber capacity.

We had a chance to chat with heterogeneous integration start-up Skorpios at this year’s OFC conference. We’ve been curious since NSN and Ericsson made a strategic investment in the company in September 2011. Skorpios emphasizes its aim to create a variety of devices that address everything from access to long-haul transmission with a common set of application-agnostic design blocks. This goal is a key part of the silicon photonics vision: to emulate the successful 40-year history of CMOS electronics by prioritizing reusable common platform development over application-optimized device designs. Aurrion is another new company that advocates heterogeneous integration.

Genesys’ separation from ALU gives it more flexibility

All indications are that the private equity-owned software company sees a more flexible growth landscape ahead of it. Coming out from under ALU’s wing, Genesys can be more nimble and quick to respond to changing business conditions in the contact center environment. The company’s executives and subject matter experts talked at length – and with much subtlety and understanding – about the challenges that today’s enterprises face in coping with service delivery. What remains murky is the precise pathway that Genesys will take to bring its product line in sync with a more complex service landscape.

The challenge for Genesys in the next few years is to adapt to a world where telephony infrastructure is less often the cornerstone of successful service delivery, where advanced decisioning engines and analytic applications will play more of a role in determining the context of customer interactions. Increasingly those interactions will happen across contact channels, making it harder to define where a “call” begins and ends, for example. Genesys isn’t the only company facing this challenge, of course, but at the moment it is the only one that gets to push the “reset” button and present the industry with a new path to progress, centered on the company’s key offering, Genesys Conversation Manager.

Ovum is confident that Genesys has the expertise and the market savvy to understand the depth of the challenge that lies before it. The company has a stable core of state-of-the-art technology that performs well at high levels. Independent of ALU it also still has a global footprint, with potential for growth across all product lines and regions.

Genesys provides less a roadmap than a series of guideposts

Genesys’ experts talked a lot about the context in which they are operating, i.e., an increasingly multichannel, cross-channel, mobile, and hosted landscape. There are many more options for contact centers to construct a mix-and-match patchwork of applications that combine different parts of the Genesys portfolio with tools from other vendors, including many that are not thought of as traditional contact center offerings (such as social media, unified communications, and back-office tools).

The executives acknowledged that the company’s revenue mix is changing, with maintenance and subscription revenues growing fast as hosted pay-per-use pricing expands. They are also seeing what they described as “better diversity” among product segments, even though they continue to lead with the core inbound offering. Workforce optimization is a key growth area.

Perhaps because they are poised at this transitional moment and are shaking the ALU cobwebs off, they talked little about precisely what the product plans and roadmap would incorporate. Instead, the subject matter experts spent a great deal of time walking through scenarios that depicted the ways in which traditional calls are giving way to “interactions” and “conversations” – in part to demonstrate Genesys’ current ability to help enterprises transition to more complex interactions, and in part to reassure analysts that Genesys does indeed understand the gravity of the changes that are about to take place in thousands of contact centers worldwide. Rather than spell out exactly what the product upgrade cycle would look like through 2012, 2013, and beyond, the company gave broader hints that what it would put forward would be a series of strategic transitions: a strong focus on improving the TCO of the Genesys platform; a unification of user experiences across modules; a deeper direct engagement with large customers; and a deeper commitment to cloud deployment, including at the low end, through partners.

The company also identified a large opportunity in applying routing rules to workflows that go beyond the contact center via its intelligent Workload Distribution (iWD) offering.

Larger challenge: moving from routing to resolution

One element that still remains from the old ALU Genesys is its focus on inbound routing. The company has a clear vision of what its role will be in taking control of customer interactions, even as channels multiply and contexts become more complex. Whether we’re talking about mobile interactions or integrated social media or customers who cross from IVR over to agented service, Genesys has a keen understanding of the mechanical aspects of keeping those interactions going. It grasps the need for speed, quality, continuity of information, and cost-effectiveness – all the things that go into good interaction management.

However, it does stop short at the point where it is time for the interaction to reach a resolution. Most of its technology and attention focuses on making sure that the routing, however complex, results in the customer reaching the right person along with the necessary information. But then it steps out of the interaction, to some extent trusting that the next branch of infrastructure will provide a mechanism for problem resolution, whether that comes from a CRM system, knowledge management, or analytics engine.

There are some signs that Genesys is aware of this as a gap it could fill. It has a good analytics system (acquired with Informiam several years ago) that it has underleveraged. It has a partnership ecosystem that connects it with vendors across that application space. And it talked a little bit about building a common data model to tie disparate systems together. That, along with the iWD platform, may provide a tempting substrate on which to build out a more robust answer to the question: Once we route the interaction correctly, how do we make sure it’s resolved properly?

It is premature to criticize the new Genesys for not having a handle on that second phase yet. Ovum believes that Genesys’ first steps out of the gate are positive and position it well for the challenges ahead.

Abundance is in the eye of the beholder…if not the investor. The plenary kicked off with Medin, who had a very positive perspective on what in polite telecom circles is commonly seen as a huge problem: the yawning disconnect between traffic and service revenue growth rates. Noting that revenues are note tracking traffic increases, Medin characterized this as evidence of abundance and thanked the audience, because “without you, literally, the world would be living in an era of bandwidth scarcity, and not abundance.” While the sentiment was nice, the industry would be much healthier if revenues– and profits– tracked traffic growth more closely.

From gigaFLOPs to exaFLOPs in 30 years: let there be light. Papadopoulos, meanwhile, provided a persuasive vision of how optics will help usher in the “exascale” era of computing: fast optical interconnects will allow I/O, compute, and memory to be consolidated, leading to a massive increase in compute scale. Silicon photonics (in the news recently when Cisco announced it was buying Lightwire for $271m) will likely have a role in creating interconnects that meet reliability, power, and cost requirements.

Japan’s determination to extract something positive from the 2011 disaster provided inspiration. Sugino-san recalled the devastation that followed last year’s tsunami, describing the extent of the damage to the communications infrastructure and the heroic measures taken to restore service. He further detailed the plansJapanhas put in place to improve network resiliency while lowering power consumption and increasing capacity. The goal? Limiting disruption, congestion, and blackouts in the event of another such event.

Informatica’s business rides on the tailwind of several powerful IT trends

A series of acquisitions over the past several years has expanded Informatica’s reach into information lifecycle management (ILM), complex event processing (CEP), and low-latency messaging (ultra messaging), as well as filling gaps in its B2B and data quality offerings. This broadening portfolio will certainly help Informatica to grow its business, and reach its goal of $3bn revenue. Informatica claims to have only scratched the surface of these opportunities to date, and sees growth potential in several areas including:

• Big Data: Ovum expects new horizontally focused solutions built around existing products like data quality, data integration, and MDM that target Big Data scenarios.
• Social media: A large chunk of big data comes from social feeds, yielding significant opportunities for Informatica’s MDM, data profiling, and data quality tools to leverage its new HParser Hadoop data parsing tool.
• Mobility and mobile data: This presents a triple-edged opportunity for Informatica for parsing device data, virtualizing and replicating data on demand, and making Informatica tools consumable on small devices. For now, this is a statement of future direction because Informatica as yet lacks full capabilities here.

Informatica continues to extend leadership in cloud integration

Consumption of data integration services from the Informatica Cloud is growing at over 100% annually, with most of the growth coming from new customers. Apart from ease of use, setup, and deployment, Informatica differentiates its cloud offerings with a hybrid model that also enables on-premise deployment. It also claims that its Secure Agent technology is years ahead of its rivals. It is ramping up its OEM program to get third-party platform-as-a-service (PaaS) providers to embed its data integration engine.

Informatica’s cloud story is not yet complete because not all of its tools have yet made it there, providing room for growth. Informatica’s cloud roadmap is practical, emphasizing useful services such as the contact validation offering that it introduced with the latest release. However, there are several challenges, such as the difficulties of making its platform simple enough to enable self-service on mobile devices such as iPhone or Android. Users still need to understand the complexities of database schema, which may not easily be rendered on a small device.

Informatica’s MDM business is expanding in different flavors

This is proving to be one of Informatica’s growth hotspots, especially for cloud-based solutions. Not surprisingly, MDM is the first product module that has been readied for the new Informatica 9.5 platform. Ovum expects that it will carry a list of functional upgrades including data support, data governance, cloud integration, and matching algorithms for Big Data (including social and mobile).

Informatica’s MDM strategy is three-pronged. It helps companies to shift their MDM strategies from single to multiple domains, it provides support for social and mobile data MDM with enhanced capabilities in the Informatica 9.5 platform, and it includes packaged solutions aimed at addressing specific horizontal and vertical use cases.

Social, mobile, and Big Data environments represent key targets for the growth of Informatica’s MDM business. There is an increasing need to recognize MDM use cases driven around data dimensions such as volume, velocity, variety, complexity, and location, and to support these flavors of MDM with appropriate, matching algorithms. Location data is a key element of the mobile MDM puzzle. Location-based business questions are typically based on proximity rather than exactitude, and the key is to be able to extrapolate this proximity in a business context.

Informatica 9.5 will help to address big data MDM requirements, thanks to some promised parallelism capabilities embedded into the platform. In the future, customers will be able to take advantage of clustering techniques using Hadoop and processing frameworks.

Informatica’s biggest challenge is to make MDM more relevant to the business. It needs to evolve MDM into more of a solutions approach. While not calling MDM an “application”, Informatica is beginning to apply a more solutions-oriented approach to MDM, such as with industry groups like pharmaceuticals where it is packaging pre-defined models, integration routines, business rules, hub instances, interfaces, and so on. With many of Informatica’s application partners similarly venturing into the MDM space, Ovum believes that Informatica has less to lose by raising its solution profile here.

Big Data is on Informatica’s radar

Like other BI and database vendors, Informatica has discovered Big Data. Its ability to extract from Hadoop is nothing special, but Informatica took a step ahead late 2011 with the release of HParser.

Ovum expects Informatica to extend its core tools to work natively inside HDFS on the assumption that customers are not simply using it as a staging platform any more. Adoption will grow directly in relation to the degree that Informatica automates processing, to the point where users do not have to learn MapReduce. Further opportunities will come from extending HParser with templates or other shortcuts for deciphering sensory data, and adapting ILM to help enterprise Hadoop customers face the limits of how much data and infrastructure they can afford to keep online.

Deregulation has created a more competitive enrollment environment

The deregulation of the Australian higher education market enables institutions to increase their student enrollment levels without fiscal penalties. This new freedom offers considerable growth and expansion opportunities, but also increases the level of competition among institutions to recruit and retain students. The impact on Group of Eight (Go8) universities is unlikely to be transformational, as demand for admission to these institutions will continue to outpace availability regardless of recruitment strategies. However, for those outside this prestigious group the stakes are high, as this new, more competitive market adds an element of uncertainty to their ability to fill classrooms and, given the tuition-driven nature of this segment of the market, to balance institutional budgets. It should therefore be no surprise that implementing CRM for the first time or expanding existing deployments is a top priority for most Australian colleges and universities. Consequently, Ovum anticipates that the uptake of CRM in the Australian market will be a fast-moving, pervasive trend during the next 12 to 24 months.

Enterprise-wide CRM is the end game for most institutions

Unlike their US counterparts, many Australian colleges and universities envision a comprehensive approach to CRM and are seeking to execute it according to that vision far more rapidly than US institutions have done. Although the first forays into CRM adoption are likely to be small and departmentally based, IT decision-makers understand, and are committed to, the philosophy that meeting enrollment goals is just as much about retaining matriculated students as enrolling new students. Consequently, an initial pilot is likely to be watched closely by stakeholders across the institution and subsequent departments and programs are likely to be added in quick succession. Furthermore, forward-looking institutions will have created strategic and tactical plans for migrating to enterprise-wide CRM deployments long before implementations have begun. Ovum therefore believes that the Australian higher education market will perceive CRM solutions to be particularly compelling if they scale without large additional investments, support a broad array of department needs, and target a diverse set of interaction types. The challenge will be in finding solutions that fit these criteria.

Institutions have few options for supporting the entire student lifecycle

When seeking to support the entire student lifecycle from prospect to alumnus, institutions typically look first to their SIS provider for a CRM solution, as they often have attractive data persistence and integration capabilities. Leading examples include Oracle’s PeopleSoft CRM for Higher Education and Datatel+SGHE’s Banner Enrollment Management Suite. Given Oracle’s strong presence in the market with its Campus Solutions product, Ovum anticipates similarly strong uptake of Oracle’s CRM solution, driven, at least in part, by a virtuous cycle of reference accounts. Datatel+SGHE should also see a similar pattern of adoption of Banner and the Banner Enrollment Management Suite, but on a smaller scale. Nevertheless, as neither Oracle nor Datatel+SGHE provide SIS for a large percentage of the market, many institutions whose SIS vendors do not offer a CRM solution will need to look further afield. 

Given RightNow Technologies’ strong presence in Australia and its solution’s particular strength in supporting student enquiries across the lifecycle, Ovum believes that this vendor is likely to see increased adoption of its solution, particularly as it will have a closer relationship with Campus Solutions and receive a valuable bump in industry-specific and local market support as a result of its acquisition by Oracle earlier in 2012. 

Although not currently packaged for enterprise-wide deployments or sold in the Australian higher education market, Datatel+SGHE’s Recruiter solution offers intriguing possibilities as it is built on the Microsoft Dynamics platform. Recruiter is SIS-agnostic and contains all of the tools and capabilities necessary to support the entire student lifecycle. Ovum believes that if Datatel+SGHE makes Recruiter available in this way, it offers a potentially attractive solution for Australian colleges and universities whose current SIS vendors do not deliver enterprise-class CRM solutions.

Ovum would also advise institutions to keep an eye out for the emergence of local vendors using Salesforce.com’s Force.com platform to develop CRM solutions specifically for the Australian higher education market. This development approach offers opportunistic vendors the ability to deliver localized, industry-specific capabilities in a rapid and cost-effective way without sacrificing best-of-breed functionality, particularly in the area of multi-channel communications and true multi-tenant software-as-a-service (SaaS).

Vendors tend to claim that their systems can meet all of their enterprise customers’ mobility requirements. In many cases, however, their offerings provide only a partial solution, and often address just one dimension of an enterprise’s mobility needs. Although all three dimensions may not be urgent at the same time for every enterprise, they are the areas with the most relevance for customers.   

Device and service management have taken off

Most enterprises today do not approach mobile device and service management in a mature way. They typically started providing mobile service by issuing one type of standard, company-owned device with a few standard plans in order to allow remote email access. Life was simple: all enterprises had to do was support BlackBerry devices and pay for one corporate mobile service plan. The landscape has changed, however, and today’s enterprise must face the onslaught of a multitude of new devices, along with policy challenges, the growing use of mobile applications aside from email, and the trend towards the consumerization of IT. This wave of change has disrupted and destroyed the old support models.  

Providing mobile IP telephony is now a key requirement

Most enterprise customers have by now invested in IP telephony (IPT). It would be a wasted opportunity not to integrate the corporate IPT system with a mobile platform and thereby extend its features and functions to corporate mobile devices. Most organizations have already integrated their IPT infrastructure across their major sites and branch offices, or have at least centralized its management. Now they must extend that infrastructure in order to maximize utility and lower overall communications costs. Extending IPT infrastructure to mobile devices could increase employee access to corporate resources and reduce both roaming and voice usage on mobile devices.

Mobilizing resources is about more than just people

Enterprises have probably already considered allowing mobile access to corporate systems, email, and data, and will be aware that it involves supporting the mobilization of people, core assets, and business processes. Mobilization presents businesses with a range of new opportunities, including the tracking and monitoring of assets, shipments, and service staff that have not previously been tracked.

There has been an uptick in interest in machine-to-machine communications, driven by businesses that are able to justify the cost of mobile services through the benefits they offer in terms of improving business processes and creating competitive advantages. Many enterprises have already successfully implemented mobile field sales force automation through solutions such as Salesforce.com. They should now consider opening up their other enterprise resource planning systems, and thinking seriously about the benefits of realtime tracking of deliveries, technicians, and goods.

High-speed optics, particularly 100G, is provided using a combination of optical components (lasers, modulators, transimpedance amplifiers, etc.) and digital signal processing (DSP) provided via ASIC (application-specific integrated circuit) chipsets, which digitally compensate for optical impairments prevalent in high-speed optical transmission. This has become known as coherent processing.

Nortel (now part of Ciena) developed the first coherent optics for 40G, which it introduced in 2006 and was at the time a big differentiator in the market. Since then the technology has become the standard for 100G and has been adapted by nearly every vendor competing in the space. No longer is just having coherent processing a differentiator. Now differentiation depends on how advanced your coherent DSP is, which is why these announcements are so important.

Ciena’s and Alcatel-Lucent’s new chipsets will provide new capabilities that significantly expand performance, such as dynamically programming modulation formats to suit applications, bandwidth shaping, and soft-decision FEC. In essence, the new coherent capabilities will enable smarter line cards that can be optimized based on latency, capacity, and reach requirements. It is important to note that these are technology announcements, not product announcements, but they do provide insight into what will be coming in the future. 

While Alcatel-Lucent and Ciena are showcasing their coherent capabilities, Huawei Technologies is also demonstrating its first-generation 400G technology at the show using OFDM (orthogonal frequency division multiplexing) and PDM 16QAM modulation.

Given the level of interest at OFC in high-capacity optics, the show is living up to its reputation for showcasing leading-edge optical technology.

Google’s FTTH network is being deployed in Kansas City, Kansas and Kansas City, Missouri. It will compete with Time Warner and AT&T. Google is facing challenges similar to those faced by Verizon and NTT: it takes time to lay fiber even when the local government is supportive. Google does not have a killer application for its 1Gigabyte-per-subscriber service, but customers are likely to do more of what they have been doing, including streaming billions of hours of content from Netflix alone.

There are limits to what subscribers are willing to pay for broadband, so operators advocate keeping the costs of the network build down while keeping the network and equipment simple but smart. Smart subscriber terminals (ONTs, ONUs) can be upgraded remotely through the central office’s OLT if those boxes have embedded processors to support this function. Keep the number of terminal designs to a minimum – it saves training time and simplifies the choices subscribers need to make.

While it feels as if FTTx networks have been around for quite some time, we are at the beginning of massive FTTx deployments. And we are truly only starting to embed the early lessons learned from those initial rollouts.

In the meantime, here is a roundup of Ovum analysts’ comments on Monday’s action.

Ovum panel confirms the move to 100G; operational issues remain key for data centers and service providers – Julie Kunstler

As the temperature hit 80 degrees inLos Angeles, energy savings was a hot topic at Ovum’s 40G/100G panel on Sunday afternoon. The discussion also covered possible alternatives to “pure 100G” and the narrowing gap between service providers and data centers.

(1) According to Ovum analysts, data centers are keenly focused on power issues – balancing power needs with availability of renewable energy and balancing heat dissipation with natural cooling. Why else would data centers be located in cold climate places? Density remains a key issue in long-haul and metro, but too much density can create very hot boxes so there is a balancing act. Service providers and data centers are interested in energy savings, but it is the top issue for data centers, which are focusing on energy savings as it becomes the major cost issue, overtaking considerations around real estate. Service providers are evaluating energy savings while data centers are implementing their plans.

(2) Can 100G happen by combining 2x40G with 2x10G? Ovum analysts were not optimistic. While this approach works mathematically, the pricing pressures on 100G are happening this year, making 100G more and more attractive. As usual, the equipment vendors are applying forward pricing, meaning that today’s prices assume significant reductions in the costs of the optics.

(3) The gap between the requirements of data centers and service providers seems to be narrowing. At the same time, different types of service providers and data centers are proliferating, from specialist data centers to very large enterprises running their own data centers and from full communications service providers to content service providers. The commonality is the use of the cloud to provide services and support clients/subscribers.

Pluggable, tunable 100G transceiver from Oclaro – Daryl Inniss

Oclaro has announced the first pluggable, tunable 100G transceiver that supports metro and long-haul applications.

The device uses the CFP form factor and basically is a WDM variant of the IEEE 100GBase-LR4 and 100GBase-ER4 standards. The unit’s direct-detect technology should help it deliver low power consumption compared to coherent solutions. It uses indium phosphide (InP) for the laser and modulator, which helps deliver small size. Oclaro uses the same technology in its tunable XFP – using the same manufacturing platform will help lower cost. Product launch is expected by the end of 2012.

Oclaro’s new transceiver will point the industry in the right direction, but business results may be years away. Pluggable and tunable WDM transceivers are here to stay, independent of data rate. Note that it took about 10 years from inception for the market to deliver a tunable, pluggable 10G WDM transceiver; Oclaro is on track to help the market deliver in only two years for 100G.

WDM PON R&D efforts continue, but meaningful market deployments are years away – Julie Kunstler

Many different approaches to NG-PON2 – self-injected WDM, tunable WDM, UDWDM, OFDM – were presented at a Monday morning workshop titled “Technologies for NG-PON2: Why I Think This Technology Is the Clear Winner.”

WDM PON efforts have been presented at OFC for years now. And for years, some analysts have questioned WDM PON’s commercial merits in the access market. Perhaps so many acronyms, along with the proprietary approaches, provide the clearest message: there is no consensus around NG-PON2, and without consensus volume deployments are unlikely.

More recently, WDM PON proponents are focusing on niche applications such as wireless backhaul and business services. These markets may have room for somewhat higher-cost solutions, but they are not large enough to generate volume-related price declines.

From an operations perspective, will a service provider want to build and run multiple ODNs, or can WDM PON coexist with already deployed EPON or GPON? There were a variety of answers to this question, suggesting that more R&D efforts are needed and that field testing will be required to ensure coexistence.

Participants agreed that PIC (photonics integration) is needed to bring down the cost of WDM PON. There have been PIC development efforts for PON but few, if any, deployments to date. Consequently, expecting PIC to bring down the cost of WDM PON is a risky strategy.

We are not seeing much in the way of 10G PON equipment shipments (10G EPON equipment is shipping). It seems that some of the market noise around WDM PON may be fueled by service providers that are taking a wait-and-see stance for the next major PON development. This approach keeps vendors researching the next great approach for WDM PON.

OSA Executive Forum showcases industry optimism, tenacity, and 100G – Dana Cooperson

The 13th annual OSA Executive Forum was held Monday, March 5. The program, as usual, provided a one-day distillation of the optical communications market.

The discussion focused more on practical, near-term plans and goals than on bleeding-edge technology. This reflects the focus of the industry: ramping 100G volume deployments. Leading system vendors Alcatel-Lucent and Ciena are releasing second-gen 100G coherent chips and solutions, while as many as a dozen vendors are jumping in and posting revenues for their first products.

In fact, most sessions – starting with the keynote by Ihab Terazi, Verizon’s VP of global network planning, which highlighted Verizon’s planned 100G deployment in North America – took a robust 100G market as a given, although some cautious notes were also sounded. Kathy Tse, AT&T’s director of photonic technology planning, pointed out that her company’s extensive and economical 40G deployments have given it the luxury of judicious deployment of 100G technology. And several speakers, including Bikash Koley, Google’s network architecture manager, noted that expensive CFP-based router–ON client interconnects were dampening demand. Still, Joe Berthold, Ciena’s network architecture VP, exhorted the industry to stick with the roadmap and cost-reduce CFP rather than veer off in another direction: “If everyone doesn’t get on this, then we’ll be in real trouble.” Indeed, no one wants to see a rocky repeat of 40G’s torturous path to volume.

The overall tone of the speakers, from start-ups to service providers, was optimistic, despite the lack of easy answers to the perennial conundrum of how to improve margins throughout the food chain and particularly at the component level. Optical communications remains a challenging market peopled by determined, devoted practitioners ready to attack a new set of opportunities brought about by data center and other growth applications.

Voltaire said ‘Better is the enemy of good’ and Inniss added ‘and the cause of the industry’s systemic low margins’ – Karen Liu

Speakers at the OIDA workshop on Optoelectronic Manufacturing held Monday called for structural changes to stimulate innovation, from chip-level standardization to offshoring restraint.

Tom Lee, an electronics design professor at Stanford University currently serving a stint as program manager at DARPA, favors a move to standardized chip-level processing similar to what exists for CMOS. He compared today’s photonics with the state of digital silicon circa 1970, when design was dependent on individual brilliance rather than systemic learning. He exhorted the industry to give up chasing the last few dBs of performance at the expense of common processes, quoting Voltaire who said “better is the enemy of good.” Nonintuitively, settling for “good enough” on the individual design basis is what allowed the separation of standardized process development and differentiated device design in CMOS, which ultimately enabled the far more dramatic improvements in performance.

TheCanadianPhotonicsFabricationCenterwas formed when the National Research Council bought Nortel’s fab assets after the telecom implosion. Its charter was to de-risk innovation by providing a resource for prototyping and early production of a wide variety of compound semiconductor materials and non-telecom industrial applications. Yet exactly 10 years later, its fabs are filled mostly with telecom optics production. The difference is that the Center serves multiple customers, including non-Canadian companies. Its customers are producing full commercial volumes as well as prototypes for new telecom components.

These voices in support of structural improvement at the chip level were in line with our own recommendation at the OSA Executive Forum, simultaneously happening in the next room. Daryl Inniss presented analysis which suggested that too many material systems might be responsible for systemic low gross margins in optical components manufacturing.

Erica Fuchs, assistant professor of engineering and public policy atCarnegie-MellonUniversity, presented results of a study on the impact of offshore manufacturing on innovation using the optoelectronics and automotive industries as case studies. She found that moving assembly overseas had no impact on monolithic chip innovations, and it actually increased innovation for packaging technology. But if both assembly and chip fabrication were moved offshore, there was a decrease in chip innovation and no improvement in packaging innovation.

Tom Lee, an electronics design professor at Stanford University currently serving a stint as program manager at DARPA, favors a move to standardized chip-level processing similar to what exists for CMOS. He compared today’s photonics with the state of digital silicon circa 1970, when design was dependent on individual brilliance rather than systemic learning. He exhorted the industry to give up chasing the last few dBs of performance at the expense of common processes, quoting Voltaire who said “better is the enemy of good.” Nonintuitively, settling for “good enough” on the individual design basis is what allowed the separation of standardized process development and differentiated device design in CMOS, which ultimately enabled the far more dramatic improvements in performance.

The Canadian Photonics Fabrication Center was formed when the National Research Council bought Nortel’s fab assets after the telecom implosion. Its charter was to de-risk innovation by providing a resource for prototyping and early production of a wide variety of compound semiconductor materials and non-telecom industrial applications. Yet exactly 10 years later, its fabs are filled mostly with telecom optics production. The difference is that the Center serves multiple customers, including non-Canadian companies. Its customers are producing full commercial volumes as well as prototypes for new telecom components.

These voices in support of structural improvement at the chip level were in line with our own recommendation at the OSA Executive Forum, simultaneously happening in the next room. Daryl Inniss presented analysis which suggested that too many material systems might be responsible for systemic low gross margins in optical components manufacturing.

Erica Fuchs, assistant professor of engineering and public policy at Carnegie-Mellon University, presented results of a study on the impact of offshore manufacturing on innovation using the optoelectronics and automotive industries as case studies. She found that moving assembly overseas had no impact on monolithic chip innovations, and it actually increased innovation for packaging technology. But if both assembly and chip fabrication were moved offshore, there was a decrease in chip innovation and no improvement in packaging innovation.

Itron reinforces its long-term growth strategy with SmartSynch acquisition

Itron provides end-to-end smart metering solutions to utilities around the world. Its offerings include: electricity, gas, water, and thermal energy measurement and control technology; communications systems; meter data management software; knowledge application solutions; and professional services.

In February 2012, Itron announced plans to acquire long-standing partner SmartSynch for approximately $100m. The SmartSynch deal is the latest in a series of acquisitions: in 2004 it entered the electricity meter manufacturing business through the acquisition of Schlumberger Electricity Metering, and in 2007 it acquired Actaris Metering Systems.

Itron’s acquisitions are part of wider industry consolidation. In January 2012, Landis+Gyr acquired the remaining stake in meter data management software provider Ecologic Analytics to strengthen its smart grid offerings. In December 2011, Siemens announced plans to acquire eMeter to enhance its smart grid portfolio and integration capabilities.

The acquisition comes at a time when Itron is seeking to correct its plunging stock prices. In August 2011, the company brought President and CEO LeRoy Nosbaum out of retirement to help remedy its ailing share price: over an 18-month period the company’s stock had fallen 33%. Within two months of rejoining the company,  Nosbaum announced a restructuring plan to lay off 7.5% of Itron’s workforce and close around one third of its manufacturing facilities. The company also announced plans to repurchase up to $100m in shares during the ensuing 12 months, in the belief that its share price did not represent the company’s true value.

The SmartSynch acquisition adds cellular capability to Itron’s portfolio

Founded in 1998 and headquartered in Jackson, Mississippi, US, SmartSynch provides cellular networks for smart grid projects. It will diversify Itron’s communications offering with a product that uses cellular networks such as GPRS or Wi-Fi.

The acquisition will add SmartSynch’s two flagship products, SmartMeter and GridRouter, to Itron’s portfolio. Itron is planning to expand its presence in less saturated markets such as Europe and Asia. With SmartSynch’s technology in its portfolio, Itron will be able to provide a solution using existing cellular networks in these growth areas without investing in a new data transmission and collection network. Since 2001, Itron and SmartSynch have worked together to provide cellular-based smart grid communications to utility customers. SmartSynch’s technology is already integrated with Itron’s Centron C1SX residential and Sentinel commercial and industrial (C&I) electric meters.

Itron gains a competitive edge

The SmartSynch acquisition not only adds a complementary technology to Itron’s portfolio, but also adds some prestigious names to its customer list. SmartSynch has more than 130 customers, including nine of the top 10 utilities in North America. In September 2011, SmartSynch won a contract to deploy its communications technology in 1.8 million smart meters to support US utility Consumers Energy’s grid and meter modernization program. The deployment is scheduled to start in August 2012 and be completed by 2019.

Itron expects SmartSynch to deliver revenues of around $50m in 2012. The acquisition will enable Itron to use SmartSynch’s sales networks to sell its meters. In its 4Q 2011 earnings call, Itron said that the acquisition will help it to generate additional meter sales and improve its margins.

Itron faces competition from a large number of companies providing similar products and services. The acquisition of SmartSynch gives it a broader range of communications technologies to market directly to its customers, and enables it to support a range of customer requirements, including hybrid communications networks combining RF mesh and cellular.

At the announcement of the SmartSynch acquisition, the company also reported its results for the fiscal year ending December 31, 2011. It reported revenue growth of around 8% to $2.4bn and non-GAAP earnings per share of $4.29, up 10% from the previous year. Shares of Itron surged more than 20% the day after its announcements.

The discussion focused more on practical, near-term plans and goals than on bleeding-edge technology. This reflects the focus of the industry: ramping 100G volume deployments. Leading system vendors Alcatel-Lucent and Ciena are releasing second-gen 100G coherent chips and solutions, while as many as a dozen vendors are jumping in and posting revenues for their first products.

In fact, most sessions – starting with the keynote by Ihab Terazi, Verizon’s VP of global network planning, which highlighted Verizon’s planned 100G deployment in North America – took a robust 100G market as a given, although some cautious notes were also sounded. Kathy Tse, AT&T’s director of photonic technology planning, pointed out that her company’s extensive and economical 40G deployments have given it the luxury of judicious deployment of 100G technology. And several speakers, including Bikash Koley, Google’s network architecture manager, noted that expensive CFP-based router–ON client interconnects were dampening demand. Still, Joe Berthold, Ciena’s network architecture VP, exhorted the industry to stick with the roadmap and cost-reduce CFP rather than veer off in another direction: “If everyone doesn’t get on this, then we’ll be in real trouble.” Indeed, no one wants to see a rocky repeat of 40G’s torturous path to volume.

The overall tone of the speakers, from start-ups to service providers, was optimistic, despite the lack of easy answers to the perennial conundrum of how to improve margins throughout the food chain and particularly at the component level. Optical communications remains a challenging market peopled by determined, devoted practitioners ready to attack a new set of opportunities brought about by data center and other growth applications.

ATM management outsourcing operations are gaining traction

In 2005 the vendor reported its first revenues from ATM management outsourcing services in North America. Since then it has been down a long route to establish credible services, which are finally showing a return on investment. While constantly expanding since its inception, in 2011 the integrated ATM management outsourcing operations in North America generated about 200% revenue growth over the prior year. The 310 new contracts and 430 contract extensions to existing customers show that the business is healthy, and retail banks are considering the concept of buying a service instead of a product. However, the real milestone for Diebold was the recent win of its first significantly large customer, TD Bank, which has 4,400 ATMs to be brought under an outsourcing contract. Because this is a relatively new deal for the vendor (December 2011), and it still needs to be proven in practice, it demonstrates that the service can resonate not only among small credit unions and community banks, but also among mid-size and large retail banking institutions. One size never fits all, and the largest organizations can demand their own terms, as was the case with Bank of America, which licensed Diebold’s OpteView Resolve, a network-monitoring solution for managing it in-house (rather than by the vendor) for 17,000 ATMs. For such a scale, the vendor can definitely show flexibility. Nonetheless, the long-term direction for Diebold is clear: move as many machines as possible to an outsourcing contract.

Integrated security services are the next focus area for Diebold

After building the ATM management outsourcing business in North America, Greg Steffy has been named vice president, North American Security Solutions, responsible for integrating the security sales organization. The vendor already has proven experience in selected security services, and has a number of banking clients. The new direction is to leverage its business model of self-service channel management outsourcing services in the security area in North America. While the fundamental infrastructure including a monitoring center and an army of technicians on alert is already in place, the vendor is now counting on the power of a single point of contact. The managed services will include managing installation, communication, video surveillance, alert management, and anything else needed to provide a sound electronic security service. The concept has already been proven at some locations, such as at PNC Bank, which leverages Diebold security outsourcing for a branch network of 2,400 locations. That said, the concept of the total management of security services is still relatively new among retail banks, and the vendor will need to make a lot of effort to build up a solid customer base that could prove the success of an integrated services approach.

The traditional IT security model is broken

There was agreement between the security experts and a number of exhibiting security vendors that traditional signature-based defense in-depth strategies are no longer effective. The approach is seen as broken, and needs to be replaced by more dynamic, intelligence-led approaches that focus on prioritizing protection services to meet business risk and core data protection requirements.

All of this sounds like good news if it means old perimeter-based strategies are to be consigned to the technology bin and replaced with a new generation of protection solutions. However, when the security vendors talk about the broken nature of their business and the ineffective levels of protection provided by today’s security solutions, they mean the solutions of their competitors. As far as their own products are concerned the blinkers remain firmly in place. Many are looking to improve and extend their existing product portfolios, but this continuing sticking-plaster mentality does little to inspire confidence in the future of the security industry.        

With increasing speed and openness comes risk

The keynote themes at RSA 2012 consistently covered the need for change within the security industry, but there is not enough evidence at grass-roots level to suggest that root-and-branch changes will be arriving anytime soon. We are all making more extensive use of online technology services, moving data between business systems and collaborating with business partners. Business is more open and therefore its data is being put at greater risk.

Safer, faster, and easier business systems are needed. The emphasis at RSA 2012 was on the need to reduce risk wherever possible, using intelligence-led approaches to identify and fix vulnerabilities at the earliest possible stage, but accepting that there is no such thing as risk-free IT. As a result, unless IT security improves its levels of protection, trust in the digital world is at risk.

Stop adding new functionality to security solutions that have already failed

There are about 6 billion mobile phone subscribers worldwide, with less than a quarter of the globe having a landline infrastructure. Mobile device usage will continue to grow as new powerhouse economies such asChina,India, and areas ofAfricacontinue to grow. The need already exists for new forms of security. The industry recognizes this and is making some of the right mobile protection moves, but progress is being inhibited by an obsession with adding new facilities to products that have already failed.

Technology-savvy mobile device users are already adopting new approaches to accessing business systems far more quickly than organizations can manage the situation and defend themselves. Employees are once again bypassing IT because of its static responses and because in many organizations there are few controls in place to manage the use of devices that the company does not own. IT and the security vendors must work smarter. They need to use the speed and power of the Internet to their own advantage, and utilize intelligence systems to control users and deal with malware attacks as they happen.

Getting what you need from IT security 

The event’s opening keynote from RSA executive chairman, Art Coviello, was preceded by a gospel choir that delivered a rendition of Jagger and Richards’ “You can’t always get what you want”. The theme for the conference was set.

Following high-profile security breaches, the IT security posture of business has had to change during the last year, and for the most part not in a good way. Coviello emphasized that no organization is free from risk, and most will suffer (or have already suffered) security breaches, many of which will prove costly. However, the costs and the impact of a breach can be kept to a minimum if the breach is identified as quickly as possible and remedial action is taken. No organization finds it acceptable to have their systems breached, but even if you can’t always get what you want, technology should help organizations get what they need. Sadly this message has not got through to many security vendors, leaving business to defend itself with last-generation security tools.

Tata puts CWW in play, but a bidding war is unlikely

Tata’s statement that it is in the process of evaluating a possible cash offer for Cable&Wireless Worldwide at least confirms that CWW is in play, but whether it will spark a bidding war remains to be seen. Few telcos have even $1bn to spend on an acquisition that will require commercial and technical integration, soak up management time, and distract attention from growing the business. Nevertheless, CWW has much to offer, and aspiring global services providers, especially ambitious emerging operators in Asia-Pacific, may end up kicking themselves if they miss out.

Tata’s advisers can connect with CWW

Tata may have been a slow starter in the race for CWW, but it has caught up quickly. It has appointed Standard Chartered Bank (SCB) to advise on a possible deal. SCB is one of CWW’s biggest customers, and an astute commercial partner in the network contract and banking advisory businesses. It will be well aware that CWW operates a global multiprotocol label switching (MPLS) network with a center of gravity between London and Hong Kong, that it favors advanced Ethernet through the WAN service, and that it has made high-definition business video a specialty. Tata has a very similar emphasis; the fit between the two is obvious. Chinese walls may limit what SCB’s advisory team can share with its own networks department, but it is otherwise in a good position to make the underlying case for a combination of CWW and Tata.

An important factor is Tata’s global network of data centers. In his interim trading statement, CWW’s chief executive, Gavin Darby, said that the telco had too few of this type of asset, and that they would be an investment priority.

Enterprises love video, but also want mobility

A merger with Vodafone has already been mooted for CWW. Although a combination of Tata and CWW would be simpler to engineer and is a more direct fit, the Vodafone merger would be more interesting to the innovative enterprise. CWW with Tata is more of the same, whereas CWW with Vodafone could accelerate the development and deployment of global fixed–mobile and unified communications services, which enterprises want and which global telcos have struggled to deliver.

Nevertheless, it is a win-win for enterprises, especially multinationals. Their number one issue today is the higher cost of routes into the emerging markets where they are expanding their business operations, and a combination of CWW and Tata would be a big help with that. The partner CWW chooses will deliver either lower costs or great new services, which will make the merger a happy outcome for enterprises.

WDM PON efforts have been presented at OFC for years now. And for years, some analysts have questioned WDM PON’s commercial merits in the access market. Perhaps so many acronyms, along with the proprietary approaches, provide the clearest message: there is no consensus around NG-PON2, and without consensus volume deployments are unlikely.

More recently, WDM PON proponents are focusing on niche applications such as wireless backhaul and business services. These markets may have room for somewhat higher-cost solutions, but they are not large enough to generate volume-related price declines.

From an operations perspective, will a service provider want to build and run multiple ODNs, or can WDM PON coexist with already deployed EPON or GPON? There were a variety of answers to this question, suggesting that more R&D efforts are needed and that field testing will be required to ensure coexistence.

Participants agreed that PIC (photonics integration) is needed to bring down the cost of WDM PON. There have been PIC development efforts for PON but few, if any, deployments to date. Consequently, expecting PIC to bring down the cost of WDM PON is a risky strategy.

We are not seeing much in the way of 10G PON equipment shipments (10G EPON equipment is shipping). It seems that some of the market noise around WDM PON may be fueled by service providers that are taking a wait-and-see stance for the next major PON development. This approach keeps vendors researching the next great approach for WDM PON.

ZTE’s shifts indicative of a morphing industry

Over the last few years, the telecom vendor landscape has been reshaped by tough times: Nortel’s bankruptcy, Motorola’s split, waves of downsizing at Nokia/NSN, top-line malaise at Alcatel-Lucent, and distressed/”nonstrategic” asset sales/M&A at most of the large vendors. As this has occurred, ZTE and Huawei have pushed ahead, expanding overseas R&D and sales teams, announcing aggressive vendor financing programs, and making plans to expand into entirely new market areas. (See, for example, ZTE’s 2009 analyst event signals aggressive approach to downturn, April 2009.)

ZTE is becoming a serious competitor in global markets, even if it sometimes is in the shadow of its larger and more vocal neighbor (Huawei). For the four quarters ended 3Q11, ZTE’s share of the global market for network infrastructure and infrastructure-related services was 5.4%, from 2.8% in 3Q08. It is still heavily reliant on China, more so than Huawei, but it also now claims sales of at least one product/solution to all of the top 30 (non-US) telecom operators worldwide. Within the second tier of vendors (see Telecom Vendors’ Earnings and Strategy – 3Q11), ZTE is now at the top of the group, as its annualized network infrastructure revenues sped past tier-2 rival NEC in early 2010. As many of the industry’s giants have struggled, ZTE doubled its quarterly run rate, from $1,547m in 3Q08 to $3,261m in 3Q11. Yet, ZTE has struggled to enter the top tier, and it is generally viewed as a bit slower and less adept at PR than some rivals. The reorg may help.

From product pushers to solution solvers

ZTE’s recent reorg, it says, was planned internally over the last four months of 2011, and implemented in January 2012. Many employees have been redeployed. The key change creates a “Solution Operation Division” within R&D. This new group aims to bridge R&D with marketing, align ZTE’s offerings with customer needs, and knit together product divisions. Solution Operation now has around 3,000 employees, based in Shenzhen but with teams spread worldwide. It will take time to implement all the changes. Some people, we understand, have new job titles but lack clearly defined job responsibilities: big company reorgs always come with a lag, even in China. But it’s a promising sign that ZTE seems determined to improve.

Shift to solutions making an impact in Bearer group

ZTE’s current reorg is ambitious, stretching across the company. ZTE’s recent experience with restructuring its Bearer Networks division may come in handy though. This new division, created in 2008 to tie together optical and IP, has already shown a stronger focus on applications and solutions.

Since 2008, ZTE’s Bearer engineers have focused more on application problems, less on specific IP or optical product lines. The best example of this is the ZXCTN product series. ZXCTN targets the mobile backhaul application, and was created organically by the new Bearer Division. ZTE has had a lot of success with ZXCTN, with wins at units of Telefonica, America Movil, MTN, and Telecom Italia Mobile; many smaller carriers; and of course China’s big three carriers.

Solutions like ZXCTN have helped ZTE grow share. In 2008, ZTE held 4.8% of the global optical networks (ON) market, but nearly 10.9% in 2011. ZTE’s goals for its Bearer division are to grow annualized revenues to US$4.8bn by 2013, and become third globally in the combined ON/IP market. On both counts, ZTE is still far from its goal, partly due to underperforming legacy IP/SPSR (service provider switching & routing) products. This may be one area where a Solution group sitting within R&D will help ZTE feed customer demands from marketing straight into development. R&D often takes years to go from idea to product/solution ready for deployment, though, so we’ll have to be patient. (For more, see our 2010 profile, Can ZTE Attain Tier-1 Standing for Bearer Networks Division?)

(1) According to Ovum analysts, data centers are keenly focused on power issues – balancing power needs with availability of renewable energy and balancing heat dissipation with natural cooling. Why else would data centers be located in cold climate places? Density remains a key issue in long-haul and metro, but too much density can create very hot boxes so there is a balancing act. Service providers and data centers are interested in energy savings, but it is the top issue for data centers, which are focusing on energy savings as it becomes the major cost issue, overtaking considerations around real estate. Service providers are evaluating energy savings while data centers are implementing their plans.

(2) Can 100G happen by combining 2x40G with 2x10G? Ovum analysts were not optimistic. While this approach works mathematically, the pricing pressures on 100G are happening this year, making 100G more and more attractive. As usual, the equipment vendors are applying forward pricing, meaning that today’s prices assume significant reductions in the costs of the optics.

(3) The gap between the requirements of data centers and service providers seems to be narrowing. At the same time, different types of service providers and data centers are proliferating, from specialist data centers to very large enterprises running their own data centers and from full communications service providers to content service providers. The commonality is the use of the cloud to provide services and support clients/subscribers.

The device uses the CFP form factor and basically is a WDM variant of the IEEE 100GBase-LR4 and 100GBase-ER4 standards. The unit’s direct-detect technology should help it deliver low power consumption compared to coherent solutions. It uses indium phosphide (InP) for the laser and modulator, which helps deliver small size. Oclaro uses the same technology in its tunable XFP – using the same manufacturing platform will help lower cost. Product launch is expected by the end of 2012.

Oclaro’s new transceiver will point the industry in the right direction, but business results may be years away. Pluggable and tunable WDM transceivers are here to stay, independent of data rate. Note that it took about 10 years from inception for the market to deliver a tunable, pluggable 10G WDM transceiver; Oclaro is on track to help the market deliver in only two years for 100G.

While in the post-financial-crisis banking environment institutions are focusing on simplification, rationalization, re-engineering, and automation of business processes, Oracle bravely tackles these requirements with its Flexcube product, and is now also upgrading to a new SOA-based banking platform to achieve greater efficiency and competitiveness. While Flexcube is actively sold across the world, the new SOA-based banking platform is targeted at large banks that are looking for a component-based solution.

Flexcube implementation at Ping An Bank is a major milestone

Ping An Bank, a medium-size bank in China with about $45bn in assets, after a six-month evaluation process selected Oracle Flexcube in March 2010, and 18 months later accomplished the implementation project. The project required the localization of the core banking suite for Chinese banking requirements, and met the objective of increased cross-selling to customers, and the ability to launch and amend products without IT involvement. This project is a major achievement for both the bank and the vendor. While Ping An Bank now has a platform for further growth, Oracle has reached an important milestone in the Chinese market where its presence requires a solid investment in terms of product development and maintenance resources. This project is therefore an important foundation for the vendor for further expansion in the difficult-to-penetrate Chinese market. While SAP, TCS, and Temenos entered China earlier, Oracle has only now made this important first step, and it is fair to assume that it is well-positioned to gain a greater share of the Chinese core banking market given the demand for its core systems and existing products that are adapted to current conditions.

Oracle wins a key project to implement its new SOA-based banking platform

Oracle’s new SOA-based banking platform is broadly based on Oracle’s horizontal technology assets that include Oracle Fusion Middleware. The win of Australia’s Suncorp is a major achievement because it can show the widespread adoption of Oracle’s technology. The first phase of the Suncorp transformation program will include implementing Oracle’s CRM platform. The second phase will include the core banking implementation, and the bank will also deploy Golden Gate, Active Data Guard, Oracle Data Integrator, Oracle Business Intelligence Enterprise Edition, OBIEE, WebCenter, SOA Suite, Oracle Service Bus, Oracle Enterprise Manager, E-Business Suite, IDM Suite, and BPA Suite, all from Oracle.

The project is a move toward simplification

The decision is a loss not only to CSC, whose Hogan platform will be replaced, but also to SAP, which was a runner-up for the Suncorp deployment. This project is a move toward simplification, a trend that is part of the new way of doing business in the banking industry that goes beyond technology. For example, Suncorp is planning to sanction employees to use their own devices by end of this year, because a mobile workforce will allow the bank to reduce real-estate costs. This objective of simplification is meant to be accomplished mainly by the implementation of Oracle software suites, starting with the new SOA-based banking platform. A similar engagement initiated in 2010 at National Australia Bank put Oracle in much more competitive position versus SAP, TCS, Infosys, and others because it was based on Oracle’s own technologies. This was a major technology upgrading task, and the largest undertaking so far to leverage other Oracle assets for the deployment of a banking platform.

BPaaS could be a boon for technology vendors

With BPaaS, technology vendors have created a tactical cloud-deployed sourcing approach that could accomplish several objectives simultaneously, such as enabling vendors to:

• Service smaller sets of business functional activities, such as first notice of loss, within a larger business functional process such as claims management and adjudication. In the BPO or BPaaS spaces, vendors are deploying not only software or systems but also insurance business functions for insurance companies. BPO or BPaaS directly impact the jobs of insurance business people as well as the IT staff that are supporting the insurance business function.
• Price on a per-activity usage basis, according to the frequency the insurer uses the set of business functional activities being deployed as a BPaaS.
• Leverage existing process knowledge from previous and current BPO engagements to identify the business activities that occur more frequently. This in turn enables vendors to target these business activities as potential themes, platforms, and IP to be deployed as BPaaS offerings across the entire insurance industry.
• Focus only on the high-frequency insurance business functional activities (if the vendor’s knowledge domain does not already encompass high-frequency activities).
• Enable insurers to become more comfortable with BPO and aspects of cloud deployment. This enables vendors to offer a variable cost/low-commitment services model.

Is BPaaS a boon or bane for insurance companies?

BPaaS effectively allows insurers to get a taste of BPO without the associated commitment. But even deploying a small set of business functional activities requires integration with existing insurance operational processes and potentially significant changes to the insurer’s business operational systems to use a vendor’s BPaaS solution.

Moreover, BPaaS, similar to other services offered by vendors, brings a mix of positives and negatives to insurers. It is crucial that insurers continually balance these, as well as their organizational comfort factors, competencies, and values before making any BPaaS decisions.

From a positive perspective, insurers using BPaaS to deploy business functional activities have an opportunity to do the following:

• Outsource specific sets of business functional activities (e.g. FNL) and take advantage of the benefits a cloud deployment can bring.
• Pay for business functional activities as they are used (pay each time the business functionality is required).
• Obtain a more accurate accounting of how often the business functional activities are deployed within the BPaaS environment in a specific timeframe.
• Streamline the business functional activities deployed as BPaaS to potentially reduce costs.
• Become comfortable with BPO and/or cloud deployment to the extent of the criticality of the insurance business functional activities being deployed as BPaaS.

However, insurers also need to be wary in certain areas. For example, they could:

• Potentially waste any cost savings previously invested in the support of the business functional activities now deployed as BPaaS by not reinvesting in new market-facing initiatives such as improving customer service.
• End up paying more to support the set of business functional activities.
• Lose the knowledge supporting the business functional activities, and in turn, not be able to easily bring the business functional activities back in-house if the company reverts to an in-house model.
• Become hostage to the technology vendor’s price increases unless the insurer has wisely not locked itself into a fixed, long-term contract.

Is BPaaS an unpalatable option for insurance sourcing?

BPaaS could be an indigestible option for the purchase of services if insurers do not completely understand how the business functionality aligns with the value-add the insurance company brings to the marketplace and its own DNA. However, insurers should consider using BPaaS if they take the time to do the following (at a minimum):

• Undertake a reasoned determination of the business functionality, which is reasonable to deploy as a service, including the granularity of the business functionality and still be able to add value to the marketplace as an insurance company, plus their own internal maturity in engaging with external service providers.
• Craft a BPaaS contract that specifies, as far as possible, price changes that may occur based on various conditions such as length, breadth, and scope of services being procured.
• Ensure issues such as security, privacy, and availability of the business function being deployed as a service will be taken care of to meet the insurer’s corporate and regulatory requirements.

SingTel boasts over 400 million mobile customers across nine countries, and its restructure is the first time that a pan-Asian mobile entity has structurally divided into consumer, enterprise, and “digital services” units. SingTel has labeled these units Consumer, ICT, and Digital L!fe respectively. Each of these regional units will have their own CEOs, which have been drawn from SingTel’s stable of experienced managers, including old hands Allen Lew and Paul O’Sullivan.

The move creates a vehicle for SingTel to streamline and consolidate its investment in innovation. However, it will not be easy to implement given the vast differences within Asia-Pacific and the fact that SingTel is not a majority shareholder in most of its affiliates.

SingTel responds to over-the-top competition

Ovum believes that SingTel’s regional restructure is a bold but necessary move. If there was one lesson to be learned from Mobile World Congress 2012, it was that operators need to re-invent themselves in the post-voice era. This restructure is SingTel’s platform for renewal. While domestic operators have found success by dividing their businesses into consumer and enterprise segments, this is the first attempt by a regional mobile group to divide itself along these lines.

We particularly like the new Digital L!fe unit, which is SingTel’s direct attempt to disrupt adjacent verticals and over-the-top (OTT) players. There is a lot of innovation within the SingTel Group that can be harnessed. Some of the most innovative pricing models in Asia-Pacific have come from emerging markets such as Indonesia and the Philippines – two markets where SingTel has a presence. Conveying this innovation throughout the Group, setting common strategies for disruptive technologies, and devising clever bundles and add-ons that challenge the OTT players head-on are a must for the new SingTel.

M-advertising a long road to walk

In addition to its reorganization, SingTel announced the $321m acquisition of mobile advertising company Amobee. Mobile advertising will be a slow gain rather than a quick win for SingTel.

In 2009, there were a significant number of telco-led mobile advertising initiatives. However, by 2011 there were very few. During that period, the advertising networks that deliver content to mobile apps on smartphones entrenched themselves, which has made it difficult for telcos to get a foothold in the mobile advertising market. This makes SingTel’s decision to acquire Amobee rather than build its own business a correct one.

Beware of regionalization pitfalls

The implementation of SingTel’s reorganization strategy poses several challenges and risks for the operator.

Firstly, it cannot ignore country management completely. The markets within SingTel’s regional footprint differ significantly in their demand-side characteristics, particularly in the consumer segment. This is true even for relatively similar markets, and is demonstrated by the uneven success of its Digital Life products, which have done well in Singapore, but have made much less progress in Australia. Balancing the company’s regional strategy with country-focused, day-to-day operational management is essential and will require a matrix-style approach that will add complexity.

Secondly, SingTel’s ability to impose on its subsidiaries is limited because it is a minority shareholder in most cases. The exceptions are in its home market of Singapore and in Australia, where it owns Optus outright. It is possible that a two-tiered regional strategy will emerge, where SingTel pursues tight regional integration in Singapore and Australia, and a looser arrangement for its other subsidiaries.

There is no avoiding these complexities if SingTel is to accomplish what it is setting out to do. In effect, SingTel is trading away the short-term simplicity of country-by-country management in favor of the long-term benefits of cross-market learning and consolidation. It will not be an easy transition.

We believe operators may be able to take advantage of the Akamai technology–based solution to augment and extend their nascent CDN solutions. However, many major operators have already committed to their CDN architectures either by building capacity or acquiring complementary CDN operators.

Akamai offers three options

Akamai’s Aura Network Solutions gives network operators three options:

Managed CDN

• Managed CDN
• Licensed CDN (LCDN)
• Smart Cloud Accelerator.

The Managed CDN is a turnkey CDN using dedicated capacity to the operator’s business that Akamai manages on its infrastructure. With the LCDN, operators license Akamai’s edge-server software to build and manage their own CDN capacity inside their networks. The Smart Cloud Accelerator provides CDN and caching capabilities using Ericsson’s SmartEdge Border Network Gateway and Mobile Packet Gateway.

We believe Akamai wants to use Aura Network Solutions to expand its total addressable market by providing solutions to operators. The operators will serve as intermediaries between Akamai and end customers to which Akamai could not effectively or efficiently sell its CDN services. In addition, Akamai is looking to extend its business from a purely CDN capacity market with increasingly thin margins towards a higher margin software solutions and managed services business.

Akamai has already embarked on a value-added service strategy with programs such as the Akamai HD Network – effectively a video service management platform – and it has seen the writing on the wall. The standalone CDN market is in a race to the bottom, and Akamai wants to play a new game, one in which the operators can leverage Akamai technology to counterbalance contracting margins via integrated solutions including CDN, hosting, storage, applications hosting, and other cloud services. At the same time Akamai is able to promote itself as a truly differentiated provider.

Aura Network Solutions in more detail

Running on the Akamai network, the Managed CDN can decrease carriers’ time-to-market because it can be built, configured, and implemented within a few months, according to Akamai. The LCDN option allows operators to build and manage their own CDN capacity inside their networks. It can be deployed on standalone servers or integrated with third-party network elements. These CDNs can then interoperate with Akamai’s network to extend their reach.

After announcing their intention to work together at last year’s Mobile World Congress, Ericsson became Akamai’s first distribution partner to embed Akamai technology in its equipment. The Smart Cloud Accelerator is designed to enable wireline and wireless operators’ broadband networks to connect with Akamai’s Intelligent Platform, which can deliver global reach and connectivity. Akamai said its technology will also be embedded as an option in Ericsson’s next-generation IP service delivery platform, the Smart Services Router (SSR), and the two companies are working to develop an Akamai blade.

Smaller operators will be most receptive to Akamai’s new Aura

Aura Networks Solutions is a strong proposition that will attract market interest. The different options provide choice based on the telco’s interest and ability to develop its own solution, while the partnership with Ericsson increases Akamai’s access to new customers.

However, for some this may have come too late. Larger carriers (e.g. AT&T, BT, DT, Level 3, TSIC, and Verizon) have already entered the CDN market on a wholesale and retail basis. Therefore Akamai will most likely gain the bulk of its business from regional and smaller network operators that have not yet developed a content delivery service. Even carriers that have started to deploy CDNs will be intrigued by Akamai’s technology and approach.

RCS will not be enough

In the comment MWC 2012: Another year, another RCS announcement, we expressed our reservations about the launch of Joyn, especially as there are products with richer features already available in the market. While inaction and disappointments have mostly followed previous RCS announcements, we sense that this time around there is greater urgency by telcos to get OTT-like services to market, especially after seeing the impact of WhatsApp on KPN’s financial results in the Netherlands. As Ovum highlighted in the report The Casualties of Social Messaging, telcos lost $13.9bn in messaging revenues in 2011, which accounted for approximately 9% of total messaging revenues.

RCS does have its merits. As a standards-based platform, it is supposed to be interoperable across telco networks. In addition, the involvement of telcos means that the RCS plugin will be native on smartphones and won’t require users to download and install other apps. However, while these are valid features, the emergence of services such as WhatsApp shows that customers do not see RCS’s positive factors as game changers. As long as OTT apps are free and there are enough users attracted to them, they can quickly achieve a scale that neutralizes any telco’s innate advantage.

Vendor solutions can complement RCS

The major challenge for vendors is to convince telcos that their solutions can complement RCS. AT&T has already shown that this is possible. In January 2012, it launched a unified communications service for its business customers that goes well beyond what RCS has to offer.

When comparing the demonstrations of Joyn with demonstrations of Acision’s BMSC, Metaswitch’s Accession, and Comverse’s Social Support System (S3), it was clear that the vendor solutions offered richer features. Acision’s end-to-end RCS-e solution includes a basic IP multimedia subsystem core, a RCS-e application server, RCS-e clients, and provides seamless messaging across RCS-e and social network chat services such as Facebook Messenger and Google Talk.

Unlike Joyn, which is smartphone-only, Metaswitch’s Accession delivers the same features across fixed phones, PCs, tablets, and smartphones. It therefore allows users to push calls to and pull calls from other devices. Comverse’s S3 solution offers something different. It aggregates social media communications and messages wherever an open application programming interface is available. Telcos can then use this for their business processes, business support systems, and value-added services (VASs). For example, a telco can integrate its customer care solutions into social media portals, enabling it to interact directly with customers.

Vendors such as Symantec, Comviva, Almira Labs, and F5 also showed us the products that they can bring to telcos to help them launch new services or acquire new capabilities.

Getting it right is the big challenge

Orange’s Director of Technical Strategy, Yves Bellego, highlighted what is surely a growing concern with all these vendor solutions. Telcos do not want to integrate too many boxes/components on their network as the increased complexity could undermine quality of service. To their credit, several vendors have already taken this on board and are offering their solutions as a cloud-hosted service.

However, some telcos are still misreading the market. Recently, we were astonished to learn of an emerging market telco that still retains a 70% share of VAS content revenues. It was this type of situation that encouraged VAS providers to move en masse to OTT platforms in the first place.

Why Iceland and why now?

Verne Global’s hosted data center is not the first in Iceland; there is also the smaller Thor Data Center, owned by local IT service provider Skyrr. Since 2007 the government has tried to lure data center operations to Iceland with its educated workforce and cheap, abundant, and dual-sourced renewable energy supply. Electricity in Iceland is around 80% cheaper than in London, according to Verne Global, which has guaranteed price predictability for its power in Iceland for the next 20 years as part of a contract with the country’s largest energy utility.

There is extensive power infrastructure in Iceland, mostly because of its three aluminum smelters, which include Alcoa and Rio Tinto Alcan. Iceland has limited natural resources beyond renewable energy and fishing, yet these aluminum producers import bauxite from as far away as Australia because the shipping costs are offset by power cost savings and stability.

Iceland’s renewable energy sources are largely untapped. Estimates vary, but it is thought that only 20-25% of the hydrothermal and geothermal sources potentially available for electricity production are currently utilized. The country’s location on the Mid-Atlantic Ridge makes Iceland one of the most geologically active areas. However, the Verne Global data center is located west of the island’s volcanic activity; the company claims that arctic breezes and the Gulf Stream push volcanic ash away from its facility and toward Western Europe.

So why have businesses not flocked to store their data in Iceland? Until recently, the country’s value-added taxes (VAT) were a deterrent to companies considering large server deployments. But imported servers are no longer subject to VAT, which puts Iceland’s tax policy on par with those of other EU countries.

Running an IT workload in Iceland

Concerns about data latency caused by Iceland’s remote location may also deter businesses. The Verne Global data center cannot accommodate very low-latency applications such as financial trading, online auctions, and gaming. Three high-bandwidth networks, Danice, Farice, and Greenland Connect, connect Iceland to mainland Europe and the US, and Emerald’s transatlantic cable is in the works. In a few months’ time, Colt will have a point of presence in the Verne Global facility which will connect directly to Colt’s pan-European backbone. Network latency to the UK will not exceed 40 milliseconds, which is suitable for most IT applications. Connectivity options include Ethernet and IP services.

The Verne Global facility is a 100,000-square-foot shell on a 45-acre campus that can support more than 1000MW of IT load, and the company plans to have two substations at the facility. Colt can build, configure, test, and ship a 5,400-square-foot modular data center from the UK to Iceland within four months, far quicker than the typical two-year build-out for traditional designs. Customers’ density options range from 4kW to 16+kW racks.

The data center is energy efficient with a power usage effectiveness (PUE) score of 1.2 or lower. That is because it is cooled by outside air, so requires no chillers or evaporative economizers. It uses cold air containment aisles, and unobstructed space below a raised floor allows maximum air flow from variable-speed fans.  

Verne Global has announced a handful of customers so far. They are mostly IT service and cloud providers, including Iceland-based GreenQloud, an Amazon Web Services Elastic Cloud Compute (EC2) and Simple Storage Service (S3) drop-in replacement service. The only publicly announced enterprise customer is Icelandic online gaming company CCP Games, which will use the facility for back-office and test and development operations. What the company lacks is a Fortune Global 500 customer announcement or two, which would validate its facility and help establish business confidence in Iceland within the European and US business markets. Ovum expects that a large customer will likely “ease into” Iceland and use the facility initially for backup or back-end operations. This will likely happen once the Emerald cable is laid, which, in the next couple of years, will attract new carriers.

New CEO has experience with company turnarounds

CSC’s appointment of Lawrie was well-received by the market; investors, at least, appeared supportive as CSC’s struggling stock price had its biggest one-day gain in 30 years. No doubt many are optimistic that Lawrie is the right person to lead CSC out of its current malaise with his leadership and management experience (current CEO Mike Laphen announced his retirement during last year’s NHS drama).

In his 27 years at IBM, Lawrie held various senior leadership positions, including heading up worldwide sales and distribution for products and services, general manager of IBM’s EMEA business, and general manager for industries in Asia-Pacific. He also served as CEO at Siebel Systems from 2004 to 2005 (prior to Siebel’s acquisition by Oracle in 2006), so he has experience dealing with enterprise-level software. Lawrie is currently CEO of UK banking software company Misys, where he was a key player in a proposed merger with fellow banking software company Temenos.

Lawrie served under legendary IBM CEO Lou Gerstner, who pivoted IBM from a product- to an IT services-centric business throughout the 1990s, and instituted major structural and organizational changes. CSC doesn’t necessarily need a full-scale business transformation on that kind of scale, but Lawrie’s IBM experience could help the vendor quickly execute on any broader changes that are deemed necessary.

What changes might be in store will not come into focus until Lawrie assumes his post, and he has made few if any public comments. It helps that he is an external candidate, bringing an “outside looking in” perspective to any strategic decisions. In a release announcing his appointment, Lawrie said that “a sharp focus” on technology-enabled services will allow CSC “to continue to leverage our deep industry expertise” and serve its clients.

NHS and SEC issues will linger for CSC in the near term

Wading through remaining issues with the NHS will clearly be among Laurie’s top near-term priorities. As much as CSC may want to put the NHS IT project in the rear-view mirror, it will linger for the vendor in some form for years. For example, CSC is on tap to collect $150 million in annual maintenance revenues as part of the now-aborted plan to introduce nationwide patient record systems, which CSC deployed far later and less extensively than originally contracted, leading to its current payment dispute with theUKgovernment and the $1.49 billion write-down. CSC says it is in ongoing discussions withUKgovernment officials regarding disputed payments on current work and any future contracts.

Lawrie’s experience working in theUKand throughout EMEA should be an asset as the dispute plays out, especially as CSC tries to contain the damage to its overseas reputation. But as if the situation with the NHS was not challenging enough, an ongoing SEC inquiry could prove even more so for Lawrie, depending on the outcome. The SEC is investigating accounting practices in CSC’s Nordic business, and the vendor recently disclosed that the investigation has been expanded to include its Australian business.

Lawrie will be taking the reigns of a company that still engenders a high degree of goodwill thanks to its past successes among global enterprise and public sector clients, especially those in the US federal government (the outsourcer for example was recently awarded substantial contracts with the US Navy and several Australian government agencies). The NHS project was without doubt a major stumble; once he is officially on the job, Lawrie needs to ensure this failure does not define the outsourcer’s long legacy or impede its future growth.

But we note that the expression “glass half full, glass half empty” applies to both optical component (OC) and chip vendors. The boom provided volume alongside poor margins caused by price pressures in China. The PON component vendors could use a “time-out” to improve ROI. This could be an option for OC vendors, but not IC vendors.

Blame accelerated developments on China’s PON boom

China was not the first country to deploy PON on a large scale, but its service providers began evaluating next-generation PON components and systems before one million Chinese households were even connected to FTTH networks. At the same time, the price pressures in China exceeded those seen in Korea, which were already intense. Today, simple EPON-based ONTs (subscriber-side) are selling for under $28 in China and EPON-based PON OLT ports (central office side) are selling for less than $100.

Component vendors faced several options, including focusing on cost savings while moving to 10G PON or exiting the market. Exiting the China market meant saying goodbye to the largest PON market in the world and possibly to future markets. Consequently, most vendors chose to speed up development efforts.

Speedy innovation and integration does not guarantee ROI

ROI for certain PON development efforts may take a long time at best. 10G EPON component vendors are ready but the current market is tiny and the market outlook for 2012 is not strong. 10G PON was considered the next logical step for PON, especially for EPON-based FTTB deployments. 10G EPON made a lot of sense; it could support 10X the number of subscribers compared to 1G EPON. Over the last several years, FTTH began to gain favor over FTTB, implying a smaller market opportunity for 10G EPON.

Based on a rough back-of-the-envelope calculation, one million 10G ONT/ONU PON MAC chips would need to be sold at $10 each to cover $10m in development costs. Fewer than 8,000 10G ONT/ONU devices were shipped in 2011.

While service providers will upgrade 1G EPON-based MDUs to 10G EPON, the rate of upgrades will be slower than forecasted by PON MAC chip vendors, thereby extending the time frame to reach ROI.

OC vendors have a little more flexibility than IC vendors

Component vendors could choose to opt out of certain market developments or at least adopt a wait-and-see approach. The consequences could be severe and might be quite different for an OC vendor versus an IC vendor.

For example, several OC vendors have backed away from supplying optical transceivers to the ONU/ONT market while they have maintained some supply to the OLT transceiver market. This strategy might work at the OC level when PON equipment vendors are not concerned about mix-and-match of transceiver suppliers between the OLT and ONU/ONT. Within the nascent 10G PON market, most OC vendors are supplying both OLT and ONU/ONT transceivers but a few may eventually back off from the ONU/ONT segment once the market grows and prices drop significantly.

IC vendors do not have this option. While different PON MAC chip vendors have conducted interoperability testing for the OLT and ONU/ONT, in reality, there has been minimal, if any, mix-and-match in the field. Equipment vendors and service providers want the same PON MAC supplier for both the OLT and ONU/ONT to ensure seamless end-to-end operations. In addition, the equipment vendors and service providers want to see 10G plans from IC vendors – both PON MAC and optical interface chip suppliers – to ensure seamless upgrades.

PON component market is not for the weak

As we prepare for OFC/NFOEC next week in Los Angeles, I am reminded of the long lists of warnings that accompany amusement park rides. The PON component market is not for the fainthearted, but the challenges, innovations, price points, and ever-increasing demands will keep the adrenaline flowing.

As the mobile industry gathers in Barcelona for the industry’s largest annual event, we provide our view on the most interesting announcements from the third day of MWC 2012.

Schmidt paints a future for the human race, with Google at the center – Tony Cripps

Google executive chairman Eric Schmidt’s keynote presentation at MWC described his impassioned vision of the future connected world.

Schmidt’s keynote painted a realistic picture of a world where the vast majority of the global population will be able to participate in and help develop the digital world. But of course, it also represents an opportunity for Google, which it fully intends to exploit.

Schmidt’s expectation that Android smartphones will be available for between $100 and $150 by next year already looks inevitable and will begin to redefine the handset market. The eventual goal of seeing the price of Android devices brought down into the $70 range also looks like becoming a reality as technology advances and huge economies of scale begin to drive the Android economy. Android’s astonishing growth so far may well look modest in coming years.

Schmidt’s words may not have been a comfort to everyone in the room, especially given the massed crowd of mobile industry stakeholders in Barcelona. The company’s activities have already made it difficult for other mobile ecosystem players to offer value-added services (VASs) to their subscriber bases, especially towards the higher end of the market. This effect now looks to be accelerating and driving downwards into the global mass market, meaning that its impact will become more profound in both new markets and new segments.

The onus increasingly looks to be falling on those parties to lobby for a more equitable competitive landscape in regards to VASs and network access, or to seek closer, more beneficial partnerships with Google and other major over-the-top players.

Six ICT ministers offer bold visions for the future, but can they make it work? – Emeka Obiodu

The recognition that telecommunications infrastructure is of strategic importance for national development in emerging markets isn’t new. However, at an Alcatel-Lucent event at MWC 2012, six government ministers from emerging markets all proclaimed that they are prepared to shape their regulatory and fiscal agendas around the development of telecoms infrastructure.

Government representatives from Brazil, Colombia, Kenya, Lebanon, Mexico, and Nigeria all set out a robust and coherent approach, including special purpose financial vehicles, tax regimes, and legislative frameworks.

In the end, it comes down to innovation in processes and approach. While the moderator’s question on whether public sector innovation is an oxymoron raised chuckles, the preparedness of the ministers to go against established convention in the pursuit of their laudable goals must be commended.

Ovum’s forthcoming reports, Next-Generation Networks Investment Strategies and The Neutral Host/Open Access Model for ICT Infrastructure Rollout, will explore the notion of innovative approaches to infrastructure rollout further.

Innovation in the public sector is never an easy journey as both emerging and developed market governments can testify. However, we are impressed by the vision and determination of these administrations in confronting the task ahead of them.

Connected cars get a little smarter – Jeremy Green

The automotive sector is clearly now more important in operators’ M2M strategies than it has been in the last few years. So who better to close the first day of MWC’s speech sessions than Bill Ford, an executive with the eponymous motor company and great-grandson of the famous car company founder himself?

As well as launching a “Blueprint for Mobility” and a new car (a first at MWC), Ford said some surprisingly sensible things. Foremost among these was the suggestion that connected cars should be about making journeys more efficient by providing alternative transportation options if congestion is unavoidable. According to Ford, future pedestrian, bicycle, private car, and commercial and public transportation traffic will be “woven together into a single mobile network to save time, conserve resources, lower emissions, and improve safety”.

Ericsson used MWC to publicize its own project with Volvo, Goteborg Energi, and the Viktoria Institute that will enable a smarter paradigm for the charging of electric cars. The system uses M2M connectivity to enable a car’s charging profile to be controlled by the owner, even when it is plugged into an ordinary dumb power point. This means that, as with a smart-grid point, users are able to charge their batteries when electricity is cheapest. This will provide a clear payoff in terms of sustainability as it will ensure that the load on the grid is spread more evenly.

Foursquare’s efforts to increase user relevance must avoid pitfalls – Eden Zoller

With 15 million users having checked in over 1.5 billion times and boasting support from 750,000 merchants, Foursquare is now looking to the next level of contextual personalization to drive its business. The location-based social network has a considerable amount of user data to leverage and it now plans to use that data to proactively suggest things that Foursquare users can do and see in their vicinity.

This would function in a similar way to the old Microsoft Clippy “office assistant” service, creating what Foursquare co-founder Dennis Crowley described as a contextually personalized “buzz in your pocket”.

However, what Foursquare needs to remember is that the Clippy prompts often got suggestions wrong, which created an unwelcome annoyance for users. Foursquare will have to ensure that its push services are genuinely useful. While it has the depth of customer data to do this, another major challenge for the company is leveraging that data in a way that is respectful of user privacy. Any mistakes in this area will hit Foursquare hard.

Orange aims for top position in emerging markets – Eden Zoller

At an MWC roundtable attended by Ovum, Marc Rennard, Orange’s Executive Vice President for Africa, the Middle East, and Asia, said that Orange is looking to increase revenues from its emerging market operations from its current €3.4bn to €7bn by 2015. However, Rennard stated that if Orange cannot be the number one or two operator in its Middle East and African markets, it will review its position.

The major challenge facing Orange is how to cost-effectively build out network infrastructure, particularly in larger African markets. Rennard said that network sharing will help to reduce some of these costs.

The other challenge is moving users from basic voice and SMS to more advanced data services. Rennard said that Orange would be interested in joining forces with other operators to collectively source phones for emerging markets, using their collective buying power to pass cost benefits on to consumers.

However, the pricing of data services to price-sensitive consumers is an issue that needs to be addressed. Rennard did not have any easy solutions for this problem, but said that part of the answer lies in new business models for mobile broadband. Exactly what these business models should be was not clear, particularly as Rennard had reservations about how far mobile advertising can help in this context.

Innovation in telecoms is happening now, but will telcos benefit? – Steven Hartley

The Innovation session at MWC 2012 showcased a fantastic array of innovations in the telecoms industry. However, as with all discussions around telecoms innovation, the greatest financial beneficiaries may not be the telcos – at least not directly.

An array of examples was presented from both large and small players, demonstrating that the telecoms industry and the Internet are still evolving rapidly. Most were too far along the development curve to be considered “weak signals”, with the majority of innovations on display near to production. Overall, they session provided a good indication of what to expect in the industry over the next couple of years.

One particularly impactful demonstration was Audience’s EarSmart voice processing technology, which noticeably cancels background noise for voice calls and voice recognition. Another was Blipper’s augmented reality application, which projected a recipe book onto a ketchup bottle. Unsurprisingly, it won a trip to AT&T’s Innovation Foundry as the audience’s choice for best innovation.

However, it is difficult to see how any of the examples on display will help telcos to increase their revenues. Audience’s EarSmart fits into the same category as HD voice services – while it may offer differentiation, it will not necessarily provide incremental revenues. Blipper’s app is a great marketing tool, but it is hard to see the revenue benefits for a specific telco. Instead, it will need cross-telco support to proliferate and become more valuable to marketers.

Of course, telco innovation isn’t just about making money. There are also customer experience, loyalty, and churn considerations that can help operators to save money. However, we left today’s session with the opinion that a great deal of money will need to be saved if all of these efforts are to pay off.

The Innovation session at MWC 2012 showcased a fantastic array of innovations in the telecoms industry. However, as with all discussions around telecoms innovation, the greatest financial beneficiaries may not be the telcos – at least not directly.

An array of examples was presented from both large and small players, demonstrating that the telecoms industry and the Internet are still evolving rapidly. Most were too far along the development curve to be considered “weak signals”, with the majority of innovations on display near to production. Overall, they session provided a good indication of what to expect in the industry over the next couple of years.

One particularly impactful demonstration was Audience’s EarSmart voice processing technology, which noticeably cancels background noise for voice calls and voice recognition. Another was Blipper’s augmented reality application, which projected a recipe book onto a ketchup bottle. Unsurprisingly, it won a trip to AT&T’s Innovation Foundry as the audience’s choice for best innovation.

However, it is difficult to see how any of the examples on display will help telcos to increase their revenues. Audience’s EarSmart fits into the same category as HD voice services – while it may offer differentiation, it will not necessarily provide incremental revenues. Blipper’s app is a great marketing tool, but it is hard to see the revenue benefits for a specific telco. Instead, it will need cross-telco support to proliferate and become more valuable to marketers.

Of course, telco innovation isn’t just about making money. There are also customer experience, loyalty, and churn considerations that can help operators to save money. However, we left today’s session with the opinion that a great deal of money will need to be saved if all of these efforts are to pay off.

The recognition that telecommunications infrastructure is of strategic importance for national development in emerging markets isn’t new. However, at an Alcatel-Lucent event at MWC 2012, six government ministers from emerging markets all proclaimed that they are prepared to shape their regulatory and fiscal agendas around the development of telecoms infrastructure.

Government representatives from Brazil, Colombia, Kenya, Lebanon, Mexico, and Nigeria all set out a robust and coherent approach, including special purpose financial vehicles, tax regimes, and legislative frameworks.

Innovation in the public sector is never an easy journey as both emerging and developed market governments can testify. However, we were impressed by the vision and the determination of these administrations in confronting the tasks ahead of them.

Internet for the people is the goal for emerging market leaders

At MWC 2012, Ovum attended a ministerial roundtable hosted by Alcatel-Lucent, where six ministerial delegates representing over 600 million people spoke passionately about the role of ICT in their societies. Following on from a similar roundtable at last year’s event, when the delegates focused mainly on the state of ICT infrastructure in developed markets, ministers (or their representatives) from Brazil, Colombia, Kenya, Lebanon, Mexico, and Nigeria offered a clear vision for the future of ICT in their countries. For them, empowering their people with affordable and efficient access to the Internet is the ultimate policy goal.

The end may justify the means as long as there is something that justifies the end

Bitange Ndemo, Permanent Secretary in Kenya’s Ministry of Information and Communications, stated that Kenya will push ahead with the creation of a special purpose vehicle that will gather funds from both public and private sources to build a national, open-access LTE network.

In Colombia, the Minister for Communications and Information Technology, Diego Molano Vega, stated that the government was still committed to auctions for the next round of spectrum licensing, but pointed out that the proceeds will not simply disappear into government coffers. Instead, it will be set aside as a de facto “universal access fund”, which will be used to provide cheap access to lower income users.

The Secretary of Telecommunications in the Brazilian Ministry of Communications, Maximiliano Salvadori Martinhao, said that the Brazilian government is proposing to cut telecoms taxes by $2bn to enable telcos to better invest in new infrastructure. Although not quite as radical as the proposals presented by the representatives from Kenya, Colombia, and Brazil, panelists from Lebanon, Mexico, and Nigeria also offered their own pragmatic visions.

The “criticality of ICT infrastructure” is a cause worth fighting for

Ovum understands the ministers’ passion, and we sympathize with their challenges. While their visions are clear, the obstacles are daunting. The Lebanese Minister of Telecommunications, Nicolas Sehnaoui, talked about the cost of time and the dangers of the political process impeding progress. Mony De Swaan Addati, the Commissioner at the Federal Commission of Telecommunications of Mexico, bemoaned how legal challenges and parliamentary processes present never-ending obstacles. The representatives from Colombia and Kenya talked about the importance of localized content in utilizing ICT infrastructure.

The Nigerian Minister of Information and Communication Technology, Omobola Johnson, provided the most succinct encapsulation of the goals and challenges ahead. For her, ICT infrastructure is critical for economic development and must be given an equal priority to transport and power investments. However, realigning governmental resources and processes to match this “ICT infrastructure as development” objective in the face of competing demands will be a Herculean task.

In the end, it comes down to innovation in processes and approach. While the moderator’s question on whether public sector innovation is an oxymoron raised chuckles, the preparedness of the ministers to go against established convention in the pursuit of their laudable goals must be commended.

Ovum’s two forthcoming reports, Next-Generation Networks Investment Strategies and The Neutral Host/Open Access Model for ICT Infrastructure Rollout, will further explore the notion of innovative approaches to infrastructure rollout.

Below, Ovum analysts attending OFC 2012 offer their views on what they expect to see at this year’s event.

Components: Looking for innovation, cost reduction

Julie Kunstler, Daryl Inniss, and Karen Liu

We are looking for the next transformative optics technology that supports consumers’ insatiable bandwidth demand in a cost-effective manner. We see continued urgency for smaller size, lower power consumption, and cheaper solutions; consequently, we expect to see new technologies being trialed to achieve these goals. The best technical solution wins in this market, bringing an even playing field for technologists. We plan to scour the exhibition in search of the undiscovered golden nuggets.

Although we expect a number of product announcements in the usual areas – ROADM components, 40G/100G modules, and chipsets – we seem to be in a cycle where the surprises are coming from the research conference side. The rapid progress of 100G has drained the research pipeline a bit, and new ideas are needed for “beyond 100G.” Some topics are less familiar to optical communications than other fields: optical MIMO, plasmonics, graphene modulators.

Finally, as PON-based FTTx deployments continue around the world, service providers are paying more attention to network diagnostics and management. One possible solution is embedding OTDR (optical time-domain reflectometer) into OLT optical modules, enabling service providers to monitor and diagnose problems while minimizing traffic interruptions. At OFC, we will track the development efforts of optical transceiver vendors for embedded OTDR.

Network Infrastructure: Optics’ role in revenue enhancement

Dana Cooperson and Ron Kline

We will see additional announcements at the component and systems level to reinforce 2012 as the year when 100G hits the mainstream and 400G and 1Tbps come closer to reality. Optics’ fundamental role of “more bits faster, farther, and cheaper” will continue.

However, at OFC we should also see evidence of the role optical communications can play in revenue production: Optical transport capabilities will be increasingly integrated with higher-layer capabilities to enable a growing set of enterprise and consumer applications. How will communications service providers, aided by their suppliers, tap this new generation of (packet) optical systems to build smarter networks that can, for example, provide end-to-end SLAs for communications-as-a-service (CaaS)? What control and management plane capabilities will be “wrapped around” multi-terabit DWDM systems to allow tuning of latency and other performance metrics for different applications? What are the implications of IT and telecom becoming ever more closely linked? Look for evidence at OFC that the optical communications community is embracing its wider role. Juniper’s planned demo of its “converged supercore in a multi-vendor environment” is just one example of 100G-based networking in a multi-layer world.

Telco Enterprise: New services, network intelligence, and features

Mike Sapien

Although OFC/NFOEC is typically about the movement from speeds and feeds from the components to the hardware level, I look forward to hearing about new services, new capabilities, and expanded network features that will enable service providers to improve their offerings for enterprise customers. The goal is to meet enterprise market requirements for real-time applications, lower latency, high-demand data center environments, cloud-based services, and global reach. The data center has clearly replaced the traditional local wire center, but what are service providers doing with their networks to adjust to this architectural shift? I hope to see some answers at OFC.

Get a new view on social media

Operators and equipment vendors need to think about social media differently as it increases its role as a primary interface for Internet activity. Ovum Chief Telecoms Analyst Jan Dawson will participate in the Service Provider Summit Panel II, The Role of the Network in the Age of Social Media, on Wednesday, March 7, 11:00–12:30 in the OFC/NFOEC Exhibit Floor Theater.

At an MWC roundtable attended by Ovum, Marc Rennard, Orange’s Executive Vice President for Africa, the Middle East, and Asia, said that Orange is looking to increase revenues from its emerging market operations from its current €3.4bn to €7bn by 2015. However, Rennard stated that if Orange cannot be the number one or two operator in its Middle East and African markets, it will review its position.

The major challenge facing Orange is how to cost-effectively build out network infrastructure, particularly in larger African markets. Rennard said that network sharing will help to reduce some of these costs.

The other challenge is moving users from basic voice and SMS to more advanced data services. Rennard said that Orange would be interested in joining forces with other operators to collectively source phones for emerging markets, using their collective buying power to pass cost benefits on to consumers.

However, the pricing of data services to price-sensitive consumers is an issue that needs to be addressed. Rennard did not have any easy solutions for this problem, but said that part of the answer lies in new business models for mobile broadband. Exactly what these business models should be was not clear, particularly as Rennard had reservations about how far mobile advertising can help in this context.

With 15 million users having checked in over 1.5 billion times and boasting support from 750,000 merchants, Foursquare is now looking to the next level of contextual personalization to drive its business. The location-based social network has a considerable amount of user data to leverage and it now plans to use that data to proactively suggest things that Foursquare users can do and see in their vicinity.

This would function in a similar way to the old Microsoft Clippy “office assistant” service, creating what Foursquare co-founder Dennis Crowley described as a contextually personalized “buzz in your pocket”.

However, what Foursquare needs to remember is that the Clippy prompts often got suggestions wrong, which created an unwelcome annoyance for users. Foursquare will have to ensure that its push services are genuinely useful. While it has the depth of customer data to do this, another major challenge for the company is leveraging that data in a way that is respectful of user privacy. Any mistakes in this area will hit Foursquare hard.

The automotive sector is clearly now more important in operators’ M2M strategies than it has been in the last few years. So who better to close the first day of MWC’s speech sessions than Bill Ford, an executive with the eponymous motor company and great-grandson of the famous car company founder himself?

As well as launching a “Blueprint for Mobility” and a new car (a first at MWC), Ford said some surprisingly sensible things. Foremost among these was the suggestion that connected cars should be about making journeys more efficient by providing alternative transportation options if congestion is unavoidable. According to Ford, future pedestrian, bicycle, private car, and commercial and public transportation traffic will be “woven together into a single mobile network to save time, conserve resources, lower emissions, and improve safety”.

Ericsson used MWC to publicize its own project with Volvo, Goteborg Energi, and the Viktoria Institute that will enable a smarter paradigm for the charging of electric cars. The system uses M2M connectivity to enable a car’s charging profile to be controlled by the owner, even when it is plugged into an ordinary dumb power point. This means that, as with a smart-grid point, users are able to charge their batteries when electricity is cheapest. This will provide a clear payoff in terms of sustainability as it will ensure that the load on the grid is spread more evenly.

The recognition that telecommunications infrastructure is of strategic importance for national development in emerging markets isn’t new. However, at an Alcatel-Lucent event at MWC 2012, six government ministers from emerging markets all proclaimed that they are prepared to shape their regulatory and fiscal agendas around the development of telecoms infrastructure.

Government representatives from Brazil, Colombia, Kenya, Lebanon, Mexico, and Nigeria all set out a robust and coherent approach, including special purpose financial vehicles, tax regimes, and legislative frameworks.

In the end, it comes down to innovation in processes and approach. While the moderator’s question on whether public sector innovation is an oxymoron raised chuckles, the preparedness of the ministers to go against established convention in the pursuit of their laudable goals must be commended.

Ovum’s forthcoming reports, Next-Generation Networks Investment Strategies and The Neutral Host/Open Access Model for ICT Infrastructure Rollout, will explore the notion of innovative approaches to infrastructure rollout further.

Innovation in the public sector is never an easy journey as both emerging and developed market governments can testify. However, we are impressed by the vision and determination of these administrations in confronting the task ahead of them.

For a more detailed look at this announcement, see Ovum’s comment Six governments in search of a new policy framework for telecoms infrastructure.

Telcos to use NFC technology to boost mobile payments

Telcos face a confluence of challenges, including harsh economic conditions, technological change, business transformation, and Internet players eating into their core service revenues. One of the most promising new areas for telcos is growth in mobile payments. Smartphones have become central to the daily lives of millions of people and it seems logical that they will be used for payments and other financial transactions. Telcos rightly view NFC services as a foundation for new revenue streams from services such as mobile health, mobile money, interactive TV, personalized content portals, and productivity-related applications. For example, Google Wallet allows a consumer to store credit-card information in a virtual wallet and then use an NFC-enabled device at terminals that accept MasterCard PayPass transactions. A smartphone’s SIM card or UICC (universal integrated circuit card) stores information about a single user’s multiple accounts, including their debit cards, credit cards, and loyalty cards. NFC permits subscribers to select which payment method they wish to use and also collects reward points from a loyalty scheme that the user has signed up for.

Telcos view subscriber data as a strategic asset. Some are taking the idea so far as to redefine themselves as data-services companies. NFC-based transactions over a telecoms network allow operators to collect additional subscriber data such as spending patterns and to mine it for targeted promotion and advertisements. The important point for telecommunications service providers to recognize is that mobile payments, along with mobile advertising and machine-to-machine services, can underpin substantial new business that will fuel revenue growth. The acceleration of mobile payments highlights the opportunity for mobile operators to reduce costs, increase convenience, and reduce fraud for industries such as retail, healthcare, banking, and government that participate in NFC.

Mobile operators are aggressively exploring NFC technology

The development and adoption of NFC technology has received a major boost globally as large telcos invest in this area. Many tier-1 operators such as China Mobile and China Unicorn in China, O2 and Vodafone in the UK, subsidiaries of T-Mobile and Orange in Poland, and telcos in the United Arab Emirates and Israel are planning commercial NFC projects in 2012. In the US, Verizon, AT&T, and T-Mobile have invested more than $100m in the ISIS joint venture to create a single digital wallet service that is accessible on a nationwide mobile commerce network using smartphone and NFC technology.

A significant market opportunity for IT vendors

The rapid growth in smartphones along with the growing interest in mobile e-commerce has led major telecoms handset manufacturers, IT vendors, and even Internet companies to enter the NFC market. The success of NFC is going to be driven by the technology, but also depends on the business model implemented around it. Ovum believes that in addition to an NFC platform, IT vendors can also provide advice and business consultancy services for telcos in this relatively new market. It is important for IT vendors to facilitate and assist telcos in selecting NFC applications and go-to-market strategies that fit best with each telco’s overall strategic goals. IT vendors can offer value to telcos by providing market opportunity assessment, business modeling, and recommendations for market trial and launch.

Google executive chairman Eric Schmidt’s keynote presentation at MWC described his impassioned vision of the future connected world.

Schmidt’s keynote painted a realistic picture of a world where the vast majority of the global population will be able to participate in and help develop the digital world. But of course, it also represents an opportunity for Google, which it fully intends to exploit.

Schmidt’s expectation that Android smartphones will be available for between $100 and $150 by next year already looks inevitable and will begin to redefine the handset market. The eventual goal of seeing the price of Android devices brought down into the $70 range also looks like becoming a reality as technology advances and huge economies of scale begin to drive the Android economy. Android’s astonishing growth so far may well look modest in coming years.

Schmidt’s words may not have been a comfort to everyone in the room, especially given the massed crowd of mobile industry stakeholders in Barcelona. The company’s activities have already made it difficult for other mobile ecosystem players to offer value-added services (VASs) to their subscriber bases, especially towards the higher end of the market. This effect now looks to be accelerating and driving downwards into the global mass market, meaning that its impact will become more profound in both new markets and new segments.

The onus increasingly looks to be falling on those parties to lobby for a more equitable competitive landscape in regards to VASs and network access, or to seek closer, more beneficial partnerships with Google and other major over-the-top players.

With 2012 now well under way we have already seen a flurry of ICT procurement activity that gives an indication that this will be an active year for the market, with changes to the way these very procurement requirements are being advertised and managed. However, while we have seen a number of contracts let and initiatives introduced that aim to open up the market to a wider supplier base, some of these, such as centralizing requirements into large-scale frameworks, potentially exclude all but the large-scale vendors or risk running counter to promoting greater competition.

Redesigning the shop window

The Government Procurement Service (GPS), the government’s procurement arm (formerly Buying Solutions), has made some progress in addressing the need to overhaul existing practices and processes in public sector procurement. It has achieved a 26% reduction in procurement cycle times against the 2009/10 baseline (target 30%), making it a less daunting prospect for some vendors. It has also launched new e-procurement tools to make access to centralized deals easier. These include the Government eMarketplace (GeM) to host centrally maintained catalogues, and the Dynamic Marketplace to enable open market access to SMEs. However, in parallel to these, large frameworks continue to be the chosen procurement vehicle.

Centralized buying often means that only the big guys can deliver

A number of high-value, multi-supplier frameworks have recently been announced. These are aimed at centralizing overall procurement requirements of public sector buyers, thereby bringing down costs through scale buying. So far the GPS has awarded, among others, a £500m framework contract to Atos, Logica, Civica, and Capita for the supply of a range of software solutions for local government. It has also awarded a £500m contract for payroll, HR, and finance IT services to Logica. However, is not just the GPS that is driving centralized procurement. West Midlands Police is leading a partnership with Surrey for a seven-year major shared services deal, and it is expected that the contract will be open to other police authorities in England andWales. With the deal potentially being worth between £300m and £3.5bn, depending on the number of forces that come on board, this is something that many of the smaller players are unlikely to be able to invest in.

Benefits of frameworks are clear but innovation isn’t always one of them

The advantages of a framework are well understood. There is no need to publish a notice on OJEU every time requirements arise, which mean reduced tendering costs. There is also less time between requirement/need arising and this being met/filled, a key benefit when bearing in mind the typically lengthy OJEU process. In addition, economies of scale enable suppliers to offer more competitive prices. However, while there is no obligation to buy anything within most frameworks, they can inhibit some authorities because they don’t always meet their potential requirements, leading them to conduct their own tender process, which can leave suppliers on the framework missing out on the business. Frameworks are costly to the supplier and can be exclusive to all but the very biggest vendors, or those with an existing strong PS heritage.

Hotly contested space is still likely to get hotter

Frameworks are nothing new, and have been the preferred procurement vehicle for the public sector for many years. Furthermore, places on these frameworks will be more hotly contested than ever, making it even tougher for new entrants and SMEs to gain a foothold.

However, with hosting, managed print services, and desktop 21 as potential frameworks to be let later this year, the pitfalls and benefits of this procurement vehicle are something that vendors big and small are likely to have to grapple with. Success will be down to flexing to market appetite and requirements. Vendors that can change business models, or that have existing models that fit with the sector’s requirements, will be the most successful. For example, for agencies that want to keep services in house or share services with other agencies, Logica’s successful win with the FS, payroll, and HR framework was in part due to its flexibility to scale up or down with agencies’ requirements. That said, while the single-supplier framework recently won by Logica promises to deliver 38% savings compared to current framework prices, it is precisely because Logica has sufficient scale to shoulder much of the capex that smaller agencies can enjoy these savings, something that a smaller vendor is probably not in a position to do.

Government should not hinder momentum

According to the GPS, it has saved £550,000 by transferring MSFT licenses and reusing licenses rather than buying new. Improved pricing on frameworks such as the GSi (Government Secure Intranet) Convergence Framework offers customers savings of 20% or more and also offers greater service levels and additional services. However, in some cases further progress along the road to greater competition in the market is being hindered by delays in procurement timetables. For example, while Logica’s framework agreement for financial services, HR, and payroll services, which is available now, allows plenty of time for transitioning before the existing framework expires, there are other instances where delays to expected contracts have had a significant impact on market appetite.

The PSN has suffered setbacks and inhibited take-up by agencies and departments due to delays in the procurement timetable. In some cases this has meant local authorities have re-signed with their incumbent vendors for some network services simply because the correct commercial vehicles were not in place for them to pursue alternatives. New initiatives such as the PSN, which has at its heart aggregating requirements and standardizing services meaning new vendors can come to market, require the necessary stepping-stones to be in place for this to happen, and if they are not, the progress of PSN and all it can offer is drastically inhibited.

Although savings have been achieved through centralization of procurement as well as cost and contract renegotiations, without adequate commercial vehicles to stimulate and broaden the market to a wider supplier base in the necessary timescales, there will be little shakeup of the supplier landscape, and the benefits that greater competition could bring to the UK public sector marketplace will be significantly inhibited.

As the mobile industry gathers in Barcelona for the industry’s largest annual event, we provide our view on the most interesting announcements from the second day of MWC 2012.

Facebook looks to overcome device-side limitations with new initiatives – Eden Zoller

Yesterday, Facebook announced that it is “taking on mobile web standards” as part of a new cross-industry W3C group that aims to drive consistent HTML5 implementation for mobile devices. Approximately 30 companies have already announced their support for the Core Mobile Web Platform Community Group, including Samsung, HTC, Sony, Nokia, AT&T, Verizon, Vodafone, Orange, and Telefonica.

The group’s primary goal is to address the fragmentation that threatens to undermine the mobile user browsing experience by focusing on device-side implementations of HTML5 and associated technologies. Facebook’s interest in the W3C’s initiative is clear. The mobile web is far more important to Facebook than Andriod or iOS as it has no control over either of the device operating systems.

Facebook also announced an initiative that is designed to improve the user experience of operator billing by reducing the number of steps that users have to go through in the verification process. Facebook CTO Brett Taylor said that “the payment experience on the mobile web is broken for users”, clearly implying that Facebook is the one to fix it.

Facebook is becoming increasingly adept at rallying the mobile ecosystem to causes that ultimately enhance its own position and business interests. While partners may benefit from the processes championed by Facebook, they should never lose sight of the fact that Facebook’s ultimate motivation is about gaining greater control.

Everybody has won and all must have prizes, says Orange top brass – Steven Hartley

At a dinner last night, Orange CEO Stephane Richard proclaimed that it was now time for operators to invest in their networks. According to Richard, the key drivers of this are the demand for high-speed (fixed and mobile) broadband and the potential opportunities for new services, with payments singled out for particular attention. It was an upbeat and optimistic speech that matched the first day of the event.

Richard stressed that he was not there to complain, but rather to talk about a digital, connected future. This attitude suggests a growing maturity in the operators’ response to the challenges they face. The rhetoric of “them and us” in regarding content providers and technology choices that tainted last year’s event is gone. In its place is a more measured response.

A clear example of this came when Orange CTO Thierry Bonhomme stated that deploying Wi-Fi was as important as rolling out LTE. Orange has made no secret of its fondness for Wi-Fi over the years. However, when Bonhomme’s statement is combined with the prevalence of Wi-Fi announcements at MWC 2012, it is clear that it is no longer Wi-Fi “or” cellular, but Wi-Fi “and” cellular that will be crucial to operators’ management of their future traffic demands.

Global TD-LTE Initiative sets targets – Daryl Schoolar

Yesterday, the Global TD-LTE Initiative (GTI) held its 2012 summit at Mobile World Congress. The summit was held approximately one-year after the formation of the Initiative.

The purpose of the GTI is twofold. Its first goal is to ensure interoperability with the more common frequency duplex (FDD) version of LTE. Its second goal, which is closely related to the first, is to ensure that TD-LTE isn’t merely a Chinese technology, which would doom it to the same fate as TD-SCDMA. The 2012 summit provided an update on these goals.

From what was presented, it appears that the GTI is making good progress. Its membership now includes 40 communications providers and 30 equipment and device vendors. Carrier representatives at the event not only came from China, but also came from India, Japan, and the US.

Progress on the integration of the two variants of LTE was highlighted by Qualcomm’s latest chip, which supports both standards. This chipset will enable roaming between TD and FDD LTE networks, and will encourage operators to consider the deployment of a network that supports both variants of LTE, such as Hi3g in Sweden.

The GTI also provided targets that it hopes to reach by 2014. These targets included the deployment of 500,000 commercial base stations covering 2 billion people. China Mobile will play a major role in reaching these goals. The company announced at the event that it will deploy 20,000 base stations in 2012, and it plans to have 200,000 in service by the end of 2013.

While the growth of TD-LTE requires success outside of China, it is also dependent on success within the country. Large-scale deployments in China will play an important role in ramping up the overall ecosystem for the technology, and will encourage other mobile operators to deploy TD-LTE as well.

Telstra to sell prepaid LTE dongles and new Android tablets – Nicole McCormick

Telstra – Australia’s only LTE operator – has announced the launch of two new LTE-enabled devices, Samsung’s Galaxy Tab 8.9 4G and a prepaid dongle.

Telstra continues to aggressively push LTE. Its LTE1800 network was launched in September 2011, offering postpaid dongles only. It then launched the HTC Velocity 4G LTE smartphone in January 2012.

The addition of an LTE tablet and prepaid dongle to Telstra’s device portfolio demonstrates that the operator is keeping its IT systems and LTE device ecosystem ahead of the curve as it works alongside the international vendor community to develop LTE devices for the 1800MHz band.

The latest devices will help to expand the appeal of Telstra’s LTE service to a wider audience. Samsung’s smartphone range has already struck a chord in the Australian market, with the Samsung Galaxy S II the second-highest selling smartphone in the country.

Ovum believes that these device additions add weight to Telstra’s first-to-market LTE proposition for blue-chip customers. In comparison, Telstra’s main rival, Optus, will only launch a limited LTE service in April 2012, while Vodafone Australia is focusing on upgrading its network to HSPA+ and has put LTE on the back-burner.

OTT doomsday cancelled, but the struggle with regulators will continue, say CEOs – Emeka Obiodu

The first keynote at MWC 2012 packed a punch as the CEOs of Vodafone, AT&T Wireless, China Mobile, and Telecom Italia outlined their visions of the mobile future and the challenges ahead. Their overriding message was that the mobile industry will continue to deliver value to customers, and will be the main architect of the future connected world.

It is hard to disagree with them. However, while the optimism was well placed, it will be the challenges ahead that will prove to be much more difficult. Telecom Italia CEO Franco Bernabe summarized the dilemma by saying that all players in the industry must share in its rewards, risks, and challenges. Two central players in the telecoms industry came in for particular scrutiny.

Firstly, and probably as expected, the role of over-the-top (OTT) players in the ecosystem was high on the agenda. While in the past, the discourse towards OTT players has seemed adversarial, at this year’s event the CEOs spoke with a more conciliatory tone. Throughout the keynote speeches and in the other briefings and exhibitions that we saw, there was a sense that the doomsday scenario of a few years ago – when the big OTT players were expected to deliver a knockout blow to telcos – has gone. Instead, we have seen a more pragmatic telecoms industry that is aware of its limitations and confident in its strengths. Vodafone CEO Vittorio Colao captured this realism well. He stated that only telcos can provide the ubiquity, excellence, convenience, and trust that customers want for the future.

The sternest words at the keynote speech were saved for regulators, with Colao bemoaning an “auto pilot” regulatory regime, particularly in Europe. While using the example of mobile termination rates looks like a PR disaster, he has a genuine point. In the quest to use telecoms to spur economic growth and further society, regulatory authorities have been fixated on reaping the rewards presented by the industry. These have come in the form of spectrum licensing, adding new entrants to already crowded markets, and introducing a seemingly unending round of price cuts. Perhaps what is needed for the future – whether for governments, telcos, regulators, OTT players, vendors, or, most importantly, customers – is to equally share in the risks and challenges.

M-health technology sophistication is there, now policy and funding need to catch up – Charlie Davies

A study commissioned by Telenor into the benefits of m-health in 12 different countries highlights the potential reach and breadth of mobile health innovations. The results demonstrate the scale of innovation occurring in mobile health, finding that there are an estimated 500 projects globally. The study also provides an indication of how diverse the services are. They range from the provision of pre-natal information provided via mobile phone for pregnant women in India to significant potential reductions in costs for elderly care at home using mobile alarm and communications systems.

While m-health innovation is strong, mechanisms for widespread adoption are not. Commenting on the study, Telenor Group CEO Jon Fredrik Baksaas warned that “many projects are struggling with achieving scale. Both regulatory actions and ecosystem collaboration is required to create the necessary scale”.

As we highlighted in our report Video Conferencing and Healthcare: A New Chapter in Collaboration, progressive healthcare policies and new incentives for professionals to adopt these services (including better reimbursement mechanisms) are critical to e-health initiatives gaining momentum. The industry as a whole needs to promote the benefits of e-health to skeptical policy makers, which will require a significant amount of stakeholder engagement.

Greenpeace names telecoms industry climate laggards…but are they shamed? – Jeremy Green

Greenpeace International has used MWC 2012 to blast the telecoms industry’s climate laggards. While some operators and vendors have clear strategies for carbon reduction, others have shown what Greenpeace regards as a failure of leadership in wise energy choices.

Bharti Airtel, which is acknowledged as a market leader in terms of innovation, came in for particular criticism. Greenpeace gave Bharti a score of zero out of 60 for failing to disclose its carbon emissions, set any targets for emission reduction, or declare a roadmap for a move away from its dependency on diesel.

While Bharti’s overall “green” score was 6/60, NTT actually managed to achieve an overall score of zero. In comparison, NTT’s competitor Softbank achieved the highest score of 35/60, and received plaudits for championing clean energy.

Sadly, Greenpeace only compared a few operators, and scored vendors Alcatel-Lucent and Ericsson on a common scale. This makes it difficult to evaluate the ratings or place the telecoms industry in any kind of overall context.

Perhaps there is scope for a scale to rank NGO rankings too?

Cisco recalibrates its infrastructure play around small cells – Daryl Schoolar

Today, Cisco announced two new enhancements to its mobile infrastructure portfolio: the availability of its Hotspot 2.0 Wi-Fi-compliant access points for service providers, and small-cell (Wi-Fi/femtocell) gateway functionality on its ASR5000 platform. This platform also supports the vendor’s 2G, 3G, and LTE mobile packet core networks.

In addition, and possibly most importantly, Cisco announced real commercial customers for these solutions. At an event often noted for its roadmap and network vision announcements, an announcement with real customers attached always stands out. However, the real significance of these announcements goes beyond just the “solutions” announced by Cisco.

In many quarters, Cisco has been undervalued as a mobile infrastructure provider. Much of this blame falls in two areas. Firstly, Cisco does not sell a macro base station, which is the traditional cornerstone of the wireless infrastructure market. Secondly, it has done a poor job of marketing itself as a mobile infrastructure provider.

Today’s announcements are part of a bigger effort on Cisco’s part to change its market perception, with the vendor using its small-cell announcement as a stage to recalibrate itself in the mobile infrastructure space. Cisco now has a much richer story to tell to mobile operators, which have increased their focus on small cells and carrier Wi-Fi solutions – two areas that Cisco is strong in – and other assets such as backhaul and mobile packet core.

Today, Cisco announced two new enhancements to its mobile infrastructure portfolio: the availability of its Hotspot 2.0 Wi-Fi-compliant access points for service providers, and small-cell (Wi-Fi/femtocell) gateway functionality on its ASR5000 platform. This platform also supports the vendor’s 2G, 3G, and LTE mobile packet core networks.

In addition, and possibly most importantly, Cisco announced real commercial customers for these solutions. At an event often noted for its roadmap and network vision announcements, an announcement with real customers attached always stands out. However, the real significance of these announcements goes beyond just the “solutions” announced by Cisco.

In many quarters, Cisco has been undervalued as a mobile infrastructure provider. Much of this blame falls in two areas. Firstly, Cisco does not sell a macro base station, which is the traditional cornerstone of the wireless infrastructure market. Secondly, it has done a poor job of marketing itself as a mobile infrastructure provider.

Today’s announcements are part of a bigger effort on Cisco’s part to change its market perception, with the vendor using its small-cell announcement as a stage to recalibrate itself in the mobile infrastructure space. Cisco now has a much richer story to tell to mobile operators, which have increased their focus on small cells and carrier Wi-Fi solutions – two areas that Cisco is strong in – and other assets such as backhaul and mobile packet core.

Greenpeace International has used MWC 2012 to blast the telecoms industry’s climate laggards. While some operators and vendors have clear strategies for carbon reduction, others have shown what Greenpeace regards as a failure of leadership in wise energy choices.

Bharti Airtel, which is acknowledged as a market leader in terms of innovation, came in for particular criticism. Greenpeace gave Bharti a score of zero out of 60 for failing to disclose its carbon emissions, set any targets for emission reduction, or declare a roadmap for a move away from its dependency on diesel.

While Bharti’s overall “green” score was 6/60, NTT actually managed to achieve an overall score of zero. In comparison, NTT’s competitor Softbank achieved the highest score of 35/60, and received plaudits for championing clean energy.

Sadly, Greenpeace only compared a few operators, and scored vendors Alcatel-Lucent and Ericsson on a common scale. This makes it difficult to evaluate the ratings or place the telecoms industry in any kind of overall context.

Perhaps there is scope for a scale to rank NGO rankings too?

A study commissioned by Telenor into the benefits of m-health in 12 different countries highlights the potential reach and breadth of mobile health innovations. The results demonstrate the scale of innovation occurring in mobile health, finding that there are an estimated 500 projects globally. The study also provides an indication of how diverse the services are. They range from the provision of pre-natal information provided via mobile phone for pregnant women in India to significant potential reductions in costs for elderly care at home using mobile alarm and communications systems.

While m-health innovation is strong, mechanisms for widespread adoption are not. Commenting on the study, Telenor Group CEO Jon Fredrik Baksaas warned that “many projects are struggling with achieving scale. Both regulatory actions and ecosystem collaboration is required to create the necessary scale”.

As we highlighted in our report Video Conferencing and Healthcare: A New Chapter in Collaboration, progressive healthcare policies and new incentives for professionals to adopt these services (including better reimbursement mechanisms) are critical to e-health initiatives gaining momentum. The industry as a whole needs to promote the benefits of e-health to skeptical policy makers, which will require a significant amount of stakeholder engagement.

The first keynote at MWC 2012 packed a punch as the CEOs of Vodafone, AT&T Wireless, China Mobile, and Telecom Italia outlined their visions of the mobile future and the challenges ahead. Their overriding message was that the mobile industry will continue to deliver value to customers, and will be the main architect of the future connected world.

It is hard to disagree with them. However, while the optimism was well placed, it will be the challenges ahead that will prove to be much more difficult. Telecom Italia CEO Franco Bernabe summarized the dilemma by saying that all players in the industry must share in its rewards, risks, and challenges. Two central players in the telecoms industry came in for particular scrutiny.

Firstly, and probably as expected, the role of over-the-top (OTT) players in the ecosystem was high on the agenda. While in the past, the discourse towards OTT players has seemed adversarial, at this year’s event the CEOs spoke with a more conciliatory tone. Throughout the keynote speeches and in the other briefings and exhibitions that we saw, there was a sense that the doomsday scenario of a few years ago – when the big OTT players were expected to deliver a knockout blow to telcos – has gone. Instead, we have seen a more pragmatic telecoms industry that is aware of its limitations and confident in its strengths. Vodafone CEO Vittorio Colao captured this realism well. He stated that only telcos can provide the ubiquity, excellence, convenience, and trust that customers want for the future.

The sternest words at the keynote speech were saved for regulators, with Colao bemoaning an “auto pilot” regulatory regime, particularly in Europe. While using the example of mobile termination rates looks like a PR disaster, he has a genuine point. In the quest to use telecoms to spur economic growth and further society, regulatory authorities have been fixated on reaping the rewards presented by the industry. These have come in the form of spectrum licensing, adding new entrants to already crowded markets, and introducing a seemingly unending round of price cuts. Perhaps what is needed for the future – whether for governments, telcos, regulators, OTT players, vendors, or, most importantly, customers – is to equally share in the risks and challenges.

Telstra – Australia’s only LTE operator – has announced the launch of two new LTE-enabled devices, Samsung’s Galaxy Tab 8.9 4G and a prepaid dongle.

Telstra continues to aggressively push LTE. Its LTE1800 network was launched in September 2011, offering postpaid dongles only. It then launched the HTC Velocity 4G LTE smartphone in January 2012.

The addition of an LTE tablet and prepaid dongle to Telstra’s device portfolio demonstrates that the operator is keeping its IT systems and LTE device ecosystem ahead of the curve as it works alongside the international vendor community to develop LTE devices for the 1800MHz band.

The latest devices will help to expand the appeal of Telstra’s LTE service to a wider audience. Samsung’s smartphone range has already struck a chord in the Australian market, with the Samsung Galaxy S II the second-highest selling smartphone in the country.

Ovum believes that these device additions add weight to Telstra’s first-to-market LTE proposition for blue-chip customers. In comparison, Telstra’s main rival, Optus, will only launch a limited LTE service in April 2012, while Vodafone Australia is focusing on upgrading its network to HSPA+ and has put LTE on the back-burner.

Yesterday, the Global TD-LTE Initiative (GTI) held its 2012 summit at Mobile World Congress. The summit was held approximately one-year after the formation of the Initiative.

The purpose of the GTI is twofold. Its first goal is to ensure interoperability with the more common frequency duplex (FDD) version of LTE. Its second goal, which is closely related to the first, is to ensure that TD-LTE isn’t merely a Chinese technology, which would doom it to the same fate as TD-SCDMA. The 2012 summit provided an update on these goals.

From what was presented, it appears that the GTI is making good progress. Its membership now includes 40 communications providers and 30 equipment and device vendors. Carrier representatives at the event not only came from China, but also came from India, Japan, and the US.

Progress on the integration of the two variants of LTE was highlighted by Qualcomm’s latest chip, which supports both standards. This chipset will enable roaming between TD and FDD LTE networks, and will encourage operators to consider the deployment of a network that supports both variants of LTE, such as Hi3g in Sweden.

The GTI also provided targets that it hopes to reach by 2014. These targets included the deployment of 500,000 commercial base stations covering 2 billion people. China Mobile will play a major role in reaching these goals. The company announced at the event that it will deploy 20,000 base stations in 2012, and it plans to have 200,000 in service by the end of 2013.

While the growth of TD-LTE requires success outside of China, it is also dependent on success within the country. Large-scale deployments in China will play an important role in ramping up the overall ecosystem for the technology, and will encourage other mobile operators to deploy TD-LTE as well.

The company proposes to use search to update customer details and improve routing before a conversation begins, ensuring that agents have accurate information and that the customer speaks to the correct person. NewVoiceMedia is going against the grain by using the Web to improve traditional contact center channels, but it can use its search capabilities to provide added value to contact centers by pulling customer information from social media and communities into the CRM system and improving realtime agent guidance.

Contact centers need to improve voice interactions

Today’s customers often begin interactions by searching the Web, and subsequently follow up with a phone call when they are unable to find the information they need online. They often find that they have to speak to an agent to get more detailed or specific answers: web self-service channels typically have low first-contact resolution rates, and the majority of issues are still resolved through a conversation with an agent. However, customers remain frustrated with ineffective interactive voice response (IVR), telephony, and routing systems. Contact centers need assistance improving their telephone interactions as well as their Web capabilities.

NewVoiceMedia’s solution searches the Web before a call connects to an agent

NewVoiceMedia’s solution collects information from outside the contact center and marries it with existing CRM data, where available, in order to improve the customer interaction. It carries out a browser-based web search as soon as a call reaches the contact center, even before a customer is transferred to an agent. By searching the Web in realtime using a telephone number, the solution is able to determine a customer’s location or the name and location of a business. The contact center can use these results, alongside any matching information from the CRM record, to help route the customer to the correct agent, who will then have accurate customer details. In the event of an issue with web or CRM connectivity, the interaction can still be routed in the traditional manner.

NewVoiceMedia is taking advantage of the proliferation of customer information across the Web to simplify customer service and provide a better experience for both customers and agents. It should help address some of contact center customers’ core issues with telephone interaction, including incorrect routing that leads to numerous transfers and their having to repeat information.

NewVoiceMedia can use its realtime search technology to assist agents

NewVoiceMedia’s current web search solution is limited; information that is available solely from a telephone number is variable, and web searches may not necessarily pull up any information that does not already exist in the CRM record. However, NewVoiceMedia has the scope to extend its capabilities to further benefit contact centers, for example by using a telephone number and location to search for information on social sites and communities. This could include advice or opinions about products and services, which NewVoiceMedia can then use to populate a CRM record or to help an agent understand the customer’s path across different channels. The challenge lies in separating valuable content from noise, and ensuring that information is correctly matched to a particular customer record.

Contact center vendors should connect data across channels

In 2011 the tech media was rife with stories about new realtime analytics, social media, and cross-channel customer experience tools. Contact center vendors have been focusing their R&D efforts on incorporating multichannel capabilities into their routing, CRM, monitoring, and analytics solutions. However, as enterprises look to improve the entire customer experience, vendors must also ensure that traditional telephone and email tools are not neglected.

Vendors have an opportunity to leverage customer information from the Web and from mobile channels to improve telephone interactions. They should look for innovative ways to improve voice interactions at the same time as enhancing their multichannel capabilities. Vendors should develop solutions that pull information from the Web to assist agents by updating a knowledgebase or providing guidance, just as NewVoiceMedia is doing. Similarly, information and updates from telephone calls should be used to proactively push information to customers using web and mobile tools.

At a dinner last night, Orange CEO Stephane Richard proclaimed that it was now time for operators to invest in their networks. According to Richard, the key drivers of this are the demand for high-speed (fixed and mobile) broadband and the potential opportunities for new services, with payments singled out for particular attention. It was an upbeat and optimistic speech that matched the first day of the event.

Richard stressed that he was not there to complain, but rather to talk about a digital, connected future. This attitude suggests a growing maturity in the operators’ response to the challenges they face. The rhetoric of “them and us” in regarding content providers and technology choices that tainted last year’s event is gone. In its place is a more measured response.

A clear example of this came when Orange CTO Thierry Bonhomme stated that deploying Wi-Fi was as important as rolling out LTE. Orange has made no secret of its fondness for Wi-Fi over the years. However, when Bonhomme’s statement is combined with the prevalence of Wi-Fi announcements at MWC 2012, it is clear that it is no longer Wi-Fi “or” cellular, but Wi-Fi “and” cellular that will be crucial to operators’ management of their future traffic demands.

Nokia reinforced its support of Windows Phone at MWC 2012 with the announcement of its first Lumia handset aimed at the mass market (the Lumia 610), and a 3G variant of its flagship Lumia 900 handset for the global market. Hoping that Symbian still has relevance in top-end “hero” devices, Nokia also launched the Symbian-based PureView 808, which offers the most compelling photographic experience yet seen in a smartphone with a 41MP sensor and astonishing low light and detail performance.

Lumia 610 demonstrates the reality of mid-range Windows Phones…

While the extension of the high-end Lumia 900 to the global market is an important next step in Nokia’s plan to regain smartphone leadership, far greater significance may ultimately be attributed to the success or otherwise of the Lumia 610.

The Lumia 610 is one of the first Windows Phone devices to run on an 800MHz Qualcomm MSM7x30 series chipset rather than a 1GHz or 1.4Ghz MSM8x55. The lower specification does not noticeably erode the user experience of Microsoft’s software platform, which remains perfectly fluid if (understandably) not as sprightly as on higher-specified devices.

While the design language is more classically “Nokia” than the more standout designs and materials the Lumia range has been notable for so far, the 610 nonetheless looks like an attractive package for mid-market and prepaid customers.

… but it must deliver in the market to change the smartphone status quo

In Ovum’s view, the combination of Nokia, Microsoft, and an aggressively marketed mid-range Windows Phone handset looks strong. However, should the Lumia 610 fail to kick-start demand, both company’s hopes for renewed relevance in the smartphone market will be seriously dented.

Mobile operators also have a lot riding on the success of Nokia’s Windows Phone strategy as they need greater diversity in their device portfolios. While operators are not quite in a position to divide and conquer with respect to OEMs and their platform partners, they need to be able to play them off against the rest in order to secure the strongest possible position for their suppliers and subscribers.

All in all, the Lumia 610′s launch may prove pivotal to the future trajectory of the smartphone market.

Nokia is learning to add value to apps in meaningful ways

Adding to the appeal of Nokia’s Windows Phone devices is an increasingly useful array of Nokia-developed applications that are preloaded onto all devices in the range. As well as improving user experience, these apps help differentiate the Lumia family from Windows Phone devices developed by other OEMs.

The apps include Nokia Transport (a route planner for public transport), Nokia Reading (a news stand and e-bookstore application), a significant update to Nokia Drive (including offline waypoints and search), offline access to songs in Nokia Music, and a number of extensions designed to improve the functionality of the device’s camera.

Following Nokia’s abortive attempt to become a major player in generic online services with Ovi, it is good to see the company showing more developer flair in terms of creating mobile apps that better showcase its strengths and those of the underlying Windows Phone platform.

Photographic flair of PureView 808 is dampened by Symbian tie

It’s a pity that Nokia was unable to combine the photographic prowess of the PureView 808 with the style of the Lumia 900. Such a device may well have been the first smartphone to truly deserve the title of “superphone”.

However, a simple “cut and shut” to integrate the PureView 808′s camera technology with the Lumia 900′s wouldn’t have been practical in the time available. In addition, the development work on the 808 was clearly done using Symbian, and may not yet be supported by Microsoft’s restrictive hardware.

Ovum’s concern is that the PureView 808′s Symbian Belle operating system might reduce its appeal at the high-end of the market, where it will inevitably be targeted. This may not prove to be too much of an obstacle in markets where Nokia is not currently selling its Windows Phone devices, but it could be a problem where it does. In a market where the OS and the user experience it creates is increasingly perceived by consumers as a key part of the buying decision, the 808′s undoubted photographic prowess offers an interesting counterargument.

The acquisition, which is logical because it provides SAP with a market-leader in cloud-based talent management to complement its traditional on-premise products, is not game-changing because SuccessFactors is being kept independent rather than being folded into SAP. While Dalgaard is tasked with enhancing SAP’s grasp of the cloud business model, SuccessFactors’ R&D group is remaining outside of SAP. Adopting SuccessFactors’ technology and turning over SAP’s overall SaaS and cloud R&D strategy and execution to SuccessFactors executives could signal that SAP is upping its cloud game to take on Salesforce.com and Oracle, but the acquisition appears to be more about driving incremental revenues than about radical acceleration into the cloud.

This is about business model DNA, not radical technology shifts

IT vendor acquisitions can have a number of rationales such as gaining new products to sell, adding intellectual property and patents, keeping a company away from a competitor, and acquiring management or technical talent. SAP has made very clear that its acquisition of talent-management vendor SuccessFactors is about providing existing SAP customers with a new product, thereby generating further revenues from them, as well as further sales to non-SAP customers. In addition, much was made of leveraging SuccessFactors’ understanding (the term “DNA” was used repeatedly in the announcement) of the cloud business model to improve SAP’s success in cloud. At the same time, SAP was equally clear that SuccessFactors would be run as a separate company and that SAP’s on-premise and on-demand HR application lines would continue as before.

The acquisition is a smart move for SAP, which should be able to dramatically increase SuccessFactors’ sales pipeline via SAP’s own large direct sales force, cross-selling into its significantly larger customer base, and expanding channel and partner opportunities.

Little synergy beyond sales and marketing

During the various announcements and in the supporting material, SAP was clear that SuccessFactors’ technology would not be the basis for future core SAP HR products. Neither did SAP indicate that at some point in the future SuccessFactors customers would be able to move to a next-generation SAP platform that would offer all the HR function and would be part of a unified enterprise applications portfolio. This is in contrast to Oracle’s approach of offering the customers of its acquired products (PeopleSoft, Siebel, for example) the option of staying with their original application or migrating “relatively” easily to the Fusion platform. Nor was there any discussion about combining R&D functions in order to improve efficiency and encourage the sharing of technology.

SAP did announce that it will provide better (perhaps slightly less expensive or faster to implement) integration of SuccessFactors with SAP’s underlying technology and enterprise applications. However, this is not likely to be radically different from the existing integration options available before the acquisition. There were also points made about using HANA, leveraging analytics, and making use of SAP’s mobility technology. Again, because SuccessFactors already had analytics and mobile capabilities, these are likely to be incremental improvements.

Overall, it is Ovum’s assessment that the value of this deal is in the marketing and selling synergy that SAP will reap, not any dramatic improvement in customer value through technology exchange or long-term roadmap options. Yes, there will be incremental improvements in integration packaging and discrete functions such as analytics, but nothing major.

Recommendations for IT managers: business as usual

There is little risk for existing or prospective SuccessFactors customers due to the explicit and repeated messages that SuccessFactors will be a stand-alone SAP company with continued R&D investment and selling outside the SAP customer base. This is also true for SAP Career OnDemand, which has a similar commitment as a continuing product. As a consequence, IT managers in contract negotiations with SuccessFactors or SAP should not put their work on hold, but instead should move forward as normal.

While there is little risk for IT managers there is also little reward for committing to SAP and SuccessFactors as a combined long-term strategic supplier. IT managers making long-term procurement decisions should therefore treat SuccessFactors and SAP as separate vendors that have to make strong value propositions independent of minor incremental improvements in the integration packaging.

Suggestion: set up a phone-based analyst conversation

Ovum clients are encouraged to set up phone-based inquiries to talk with analysts about the implications of SAP’s acquisition of SuccessFactors to their ongoing procurement projects and IT strategy and plans.

Today, Facebook announced that it is “taking on mobile web standards” as part of a new cross-industry W3C group that aims to drive consistent HTML5 implementation for mobile devices. Approximately 30 companies have already announced their support for the Core Mobile Web Platform Community Group, including Samsung, HTC, Sony, Nokia, AT&T, Verizon, Vodafone, Orange, and Telefonica.

The group’s primary goal is to address the fragmentation that threatens to undermine the mobile user browsing experience by focusing on device-side implementations of HTML5 and associated technologies. Facebook’s interest in the W3C’s initiative is clear. The mobile web is far more important to Facebook than Andriod or iOS as it has no control over either of the device operating systems.

Facebook also announced an initiative that is designed to improve the user experience of operator billing by reducing the number of steps that users have to go through in the verification process. Facebook CTO Brett Taylor said that “the payment experience on the mobile web is broken for users”, clearly implying that Facebook is the one to fix it.

Facebook is becoming increasingly adept at rallying the mobile ecosystem to causes that ultimately enhance its own position and business interests. While partners may benefit from the processes championed by Facebook, they should never lose sight of the fact that Facebook’s ultimate motivation is about gaining greater control.

Uncertainty over PSG was damaging to HP’s future prospects

We applaud Whitman, who was appointed a little more than a month before the announcement, and HP’s board for acting swiftly and decisively to eliminate the uncertainty surrounding HP’s intentions for PSG.

The announcement in August 2011 by former CEO Leo Apotheker that PSG was undergoing a strategic review that could last well into 2012, leading to a sale or possible spin-off of the business, was disastrous on all fronts: strategically, financially (impacting stock price), and operationally (creating confusion among its enterprise client base and HP employees). The announcement sent shockwaves of uncertainty through enterprise and public sector IT executive circles. It called into doubt HP’s ability to execute a clear strategy, not only for PCs but for any product or solution. IT executives need insight into strategic vendors’ long-term intentions before they make budget decisions, and HP’s actions provoked widespread questions about its stability.

Whitman demonstrated early on that she is not hesitant about reversing Apotheker’s decisions.  IT executives will welcome this approach, as it shows that Whitman might be able to stabilize HP and repair any damage to its reputation as a long-term strategic supplier to IT.

PSG’s products must be made more relevant

Regardless of the talk of the “post-PC era,” we find that IT executives still consider PCs to be an important part of their IT infrastructure. In our conversations with dozens of IT executives in recent weeks not one has told us that they will eliminate PCs. However, it is very clear that the old approach of making PCs “better, faster, and cheaper” is not viable for attracting enterprise and public sector customers. Rather, HP will need to make the PC more relevant to organizations’ needs to modernize IT.

For example, HP needs to embed technology in its PCs that makes them uniquely easier to manage using HP’s management software suite. Yes, HP’s software will still need to manage other vendors’ PCs, but that should not prevent HP putting some “secret sauce” in PCs to enhance their manageability by HP’s own software. This would also make the management software suite more attractive and demonstrate cross-HP synergy.

HP will need to do more than undertake product changes to make PSG more relevant; business model changes are also required. One example would be to make it easier for IT to support a BYOD (bring your own device) policy by working with its retailer partners to create products and service bundles that employees can buy. Efforts like this would build on the company’s Workplace360 service, which includes PC hardware and a pre-selected bundle of desktop lifecycle services designed to support specific user profiles (as discussed in the Ovum Opinion “HP’s new workplace services reflect the influence of cloud on traditional IT services”).

HP should consider our IT Super Themes – IT Modernization, Consumerization of IT, Connected Society, and Mobility to name a few – when considering product upgrades for, and development of, PSG. PSG product innovation should be a high priority.

Recommendations for enterprise and public sector IT

While IT managers who have committed to HP as a strategic supplier can be reassured to a certain extent, there is still reason to remain vigilant. HP has work to do: it must set a clear strategy, invest in and support that strategy, and demonstrate a higher degree of sustained stability than it has previously to further restore customers’ confidence. However, it has taken a substantial first step forward.

For more information

Ovum clients are encouraged to schedule an analyst inquiry to discuss the implications of the contents of this Opinion. Related reading includes:

“HP’s turmoil adds uncertainty and risk for CIOs,” September 2011

“HP’s credibility as a predictable strategic IT supplier: strengthened or shaken?” August 2011

“HP’s new workplace services reflect the influence of cloud on traditional IT services,” August 2011

“Pan-HP collaboration a missed opportunity at the HP summit,” March 2011

As the mobile industry gathers in Barcelona for the industry’s largest annual event, we provide our view on the most interesting announcements from the first day of MWC 2012.

Nokia offers Windows Phone to the masses while daring photographers to go Symbian – Tony Cripps

Nokia announced the Lumia 610, its first Windows Phone aimed at the mass market, and the PureView 808, a Symbian-based smartphone targeted at extreme mobile photographers.

The Lumia 610 is a 3G variant of Nokia’s high-end Lumia 900 device, the extension of which to the global market is itself an important next step for the device vendor. However, far greater significance may ultimately be attributed to the success or otherwise of its little brother, the Lumia 610.

The lower specification of the 610 does not noticeably erode the user experience of Microsoft’s software platform, which remains perfectly fluid if not as sprightly as its higher-specified siblings. Overall, the 610 looks like an attractive package for the mid-market and prepaid customers.

The combination of Nokia, Microsoft, an aggressively marketed mid-range Windows Phone device, and an appealing array of Nokia developed applications looks strong on paper. However, should the offering fail to kick-start demand, both companies’ hopes for renewed relevance in the smartphone market will be seriously dented.

The PureView 808 offers perhaps the most compelling photographic experience yet seen in a smartphone. It comes with a 41MP sensor and astonishing low light and detail performance that is sure to appeal to specialist buyers.

Ovum’s main concern is that the PureView 808′s Symbian Belle operating system might detract from its appeal to a broader market, where it deserves recognition.

It’s a pity that Nokia was unable to combine the photographic prowess of the PureView 808 with the style of the Lumia 900. Such a device may well have been the first smartphone to truly deserve the title of “superphone”.

Alcatel-Lucent’s lightRadio goes live at MWC 2012 – Daryl Schoolar

Last night, Alcatel-Lucent (ALU) held an analyst event prior to the first day of MWC 2012. While a significant portion of the event was a review of the mobile industry and where ALU fits into it, the vendor did use the gathering to make a significant announcement. The company announced that, in conjunction with Telefonica, it has deployed a live LTE network at the site of MWC using its lightRadio base stations. In total, the deployment at the site involves 64 base station sectors; 51 sectors supported by macro base stations, 11 sectors supported by metro cell sectors, and two metro cell sectors using beamforming antenna technology. The entire deployment uses the 2.6GHz spectrum band.

This announcement is a big step forward for ALU. While at last year’s MWC the vendor presented its lightRadio base stations as a concept, this year it is showing that the concept has become a reality. The Barcelona deployment uses many of the elements laid out by ALU at MWC 2011. Not only does the network use ALU’s now familiar small cube lightRadio base stations; it also includes cloud RAN (pooled base band units) and small cells and macrocells working in the same environment. At an event where many announcements are “concepts” and “roadmaps”, ALU’s deployment with Telefonica gives the vendor something very real to share with potential carrier clients. As the biggest mobile operator show of the year, the value of that cannot be ignored.

Ericsson strikes back with full services portfolio – Steven Hartley and Daryl Schoolar

Ericsson started MWC 2012 with a press conference that covered most of the industry’s buzzwords: capacity, Wi-Fi, mobile payments, content distribution networks, cloud, and video. However, the nature of the announcements, as well as their volume, highlights how Ericsson is responding to its rivals.

The “boxes” (picocell with integrated Wi-Fi, high-capacity gateway, and golf ball-shaped casing) were just a part of Ericsson’s story. The majority of CEO Hans Vestberg’s time was taken up with announcing services and solutions that go far beyond hardware. These included a partnership in mobile commerce with Western Union, data centers, and the results of an Akamai trial in Indonesia.

This highlights just how far Ericsson has re-aligned its strategy compared to its rivals. The vendor is clearly under pressure in the infrastructure space from the likes of Huawei, but by focusing on the “wraparounds” it can clearly differentiate itself. It will be difficult for Ericsson’s rivals to gain the scale and skills in the services arena to compete with the vendor anytime soon.

Another year, another RCS announcement – Jeremy Green

The GSMA has maintained one of its most venerable traditions by announcing a new release to the Rich Communication Suite (RCS) specification at MWC 2012. Despite a long history of such announcements, there are no commercial RCS services anywhere.

The specification is now at release 5.0, and includes support for “IP-based voice and video calling, geo-location services, and cloud storage”. Last year, the GSMA announced an “enhanced” version of the specification with less functionality.

As is also part of the tradition, commercial launches are promised for later in the year. This time the launches are scheduled for mid-2012 and involve operators in Spain. According to the GSMA, other operators in France, Germany, Italy, and South Korea are “also committed to commercial launches in 2012″.

Most exciting of all, RCS now has a consumer brand – “Joyn”. According to the GSMA’s Director General, Anne Bouverot, Joyn “…will act as a mark of assurance to customers that they will have simple and direct access to enriched voice and messaging services wherever they are and whatever network they are using”.

Operators face SMS revenue decline as IP messaging trend bites – Neha Dharia

Acision has reported that SMS still dominates mobile messaging. However, operators have been taking steps to launch IP-based messaging services in an effort to remain competitive in the messaging market.

There is no doubt that SMS is currently a sound revenue stream, with the service earning operators approximately $153bn in 2011. However, as Ovum’s report The Casualties of Social Messaging reveals, there is an increasing shift towards IP-based messaging. Even though this shift is bound to smartphone users, it has still managed to cost operators $13.9bn in messaging revenues. This loss accounts for 9% of total messaging revenues, and is large enough to make operators sit up and take notice of this emerging threat.

In response, many operators are planning to offer their own IP-based voice and messaging services, including through the rebranded RCS, which will be known as “Joyn”.

Visa over-the-air payments provisioning needs NFC critical mass – Catherine Haslam

Visa’s announcement of a platform capable of provisioning mobile payment accounts over-the-air (OTA) has the potential to fill a significant hole in the current payments ecosystem.

A major barrier for many operators looking to offer payment services is the need to build a relationship with one or more financial institutions, which typically involves long and complicated negotiations. Visa’s platform will eliminate this process by replacing it with a simple contract with the financial services company.

By expanding its traditional intermediary role in payments to mobile, Visa is doing what it has been threatening to do for several years. The fact that it is also supporting non-Visa payments shows that the company recognizes that ubiquity is the key to success in mobile money systems.

However, Visa is not entering into an open market. It will face strong competition from international financial hub systems, such as the mWallet and HomeSend services offered by international carrier BICS, and it has a number of barriers that it must overcome.

Visa must establish a viable business model that operators will accept. BICS already has a well-respected model and many existing operator customers. However, Visa’s brand and scale should make this possible, especially if it can offer operators a plug and play solution.

A bigger barrier in the short to medium term will be that the system relies on near-field communications (NFC) in the consumer device and at the point of sale. This will present a considerable challenge to Visa as NFC is still a long way from reaching critical mass.

The connected world demands relationships, not just eyeballs – Eden Zoller

The GSMA predicts that the number of connected devices will increase from 9 billion today to 24 billion by 2020. This represents a global business opportunity of $4.5tn by 2020. However, at the Connected Consumer keynote at MWC 2012, speakers from eBay, Best Buy, and Interpublic Group (IPG) warned that brands will not reap the benefits of this growth unless they rethink the way that they interact with consumers. 

Ovum could not agree more, and we urge brands to approach mobile advertising in terms of relationships rather than focusing on eyeballs and reach alone. Mobile advertising is about engagement. Facebook is acutely aware of this, and will make it a mantra when it launches mobile advertising in the coming months.

At the keynote, the speaker from eBay mentioned an iPad app that illustrates how this can work. The app in question alerts eBay users of products related to the program that they are currently watching. This underscores the notion that mobile advertising has to be relevant or it will be ignored or perceived as spam.

There is also a danger that social media savvy consumers will hit back. As Michael Roth, the CEO and Chairman of IPG, warned “if you pepper consumers with stuff they are not interested in, you will get vigilante consumers who will shut you out”.

Another key theme to emerge from the Connected Consumer keynote was that connected devices have the potential to be the central dashboard of people’s lives. However, the industry must do more to make this a reality. Best Buy CEO Brian Dunn warned that operators’ expensive and confusing data plans and the practice of locking devices are inhibiting visions of a connected world. Ovum agrees with this sentiment, and believes that the connected consumer value proposition is not yet being fully developed.

Baby steps for Skype on Windows Phone – Tony Cripps

Skype’s debut on Windows Phone – nine months after Microsoft announced that it was acquiring the VoIP provider – fills one of the obvious application gaps on Microsoft’s latest smartphone platform.

In its initial guise, Skype for Windows Phone runs as a standalone application and offers a fairly typical Skype experience on smartphones. Ovum expects this to change in future iterations, with Skype becoming a more pervasive part of the Windows Phone software platform and experience. We expect that Microsoft will increase Skype’s utility by integrating it tightly with applications and services across the phone.

This is an important step in Microsoft’s strategy to make Skype a ubiquitous – and unavoidable – part of its product portfolio that is integrated wherever it makes sense to do so. Making Skype a pervasive service has much greater potential to disrupt existing models of communication than one that is dependent on users proactively choosing to install it.

In this capacity, it could act as a social “glue” by helping to drive usage of the service and considerably increasing sales of Skype-enabled Microsoft products in the future. It could also eventually help to blur the lines between business users and consumers, with Skype increasingly seen as a convenient communication tool that is available anywhere.

For now, only a statement of direction

Don’t get too excited by Teradata’s announcement: it is vague and represents only a statement of direction. While both companies are promising joint development and marketing, they have not yet promised any specific deliverables.

Teradata has clarified that its pre-existing alliance with Cloudera for funneling transformed Hadoop data into the Teradata data warehouse remains in force. However, Ovum believes that the new alliance with a rival, and the rapidity with which it was announced, signifies that Teradata will make Hortonworks its strategic Hadoop partner, and that Hortonworks is hungry to place facts on the ground while it is still in the process of readying its first Hadoop distribution, which will not hit general availability until mid-year.

Why did both choose to announce their intentions prior to disclosing a firm roadmap? Big Data customers are realizing that in the long term they will need a blended platform solution so they can run analytics problems in the right environment, and apply premium SQL platforms and commodity NoSQL platforms, with features such as flatter key-value stores in place of indexes, where they make sense.

Teradata views the combination as using Hadoop as a bulk data aggregation and discovery platform, with refined data loaded into Teradata Aster for high-performance MapReduce processed analytics. Ovum believes that Teradata underestimates Hadoop’s potential as an analytics platform in its own right, especially as the performance and robustness of its components are improved by the Apache community. Nonetheless, nothing is carved in stone here. There is plenty of room for Teradata Aster to evolve its strategies with Hortonworks over time.

Similarly, providing more blended platform solutions was the driver behind Oracle’s and EMC’s recent announcements for providing Hadoop support (either on their own or through a partner), a strategy that Ovum expects other Advanced SQL players to replicate in the coming months.

In addition, as with Linux before it, high-profile announcements involving both Cloudera and Hortonworks signify the maturing of the market. Like its open-source commodity cousin Linux (where SUSE challenges Red Hat), analytics platform and solution providers are demanding a second Hadoop source to keep the players competitive.

Teradata jumped the gun

All too often, vendors make grand strategy pronouncements that often become forgotten when they fail to execute on their vision. We don’t believe that this will happen to Teradata’s Hortonworks announcement because the Big Data market is too dynamic and too promising an opportunity to permit this.

Teradata tells us that the Hortonworks announcement was the product of months of discussion between both parties. However, if this wasn’t a rush decision, we wonder why both parties don’t have anything more concrete to announce. For this reason we believe that Teradata made the Hortonworks alliance announcement a bit too soon. To carry more credibility, Teradata didn’t need to have a full-blown roadmap because this is a market for which vendors and customers are still in learning mode. However, we believe that Teradata should have at least locked down an initial deliverable to lend substance to the strategic pronouncement.

Nonetheless, we don’t think that Teradata will keep us in the dark for too long, and we expect the first product announcements in Q2.

Teradata will apply a solutions focus to its Hortonworks alliance

Ovum has little doubt that Teradata intends to deliver on what for the moment is a statement of direction. Based on Teradata’s history, we expect that it will extend core capabilities such as specialized prebuilt analytics functions, user-defined functions, geospatial data support, text analytics, and various industry-specific logical data models to work in Hadoop where applicable. We believe that this could be accomplished through development of prebuilt MapReduce programs that Teradata could build that would work against Hadoop and could utilize the patented SQL-MapReduce technology originated by Aster Data prior to its acquisition. In this scenario, Hortonworks would continue its role as platform provider, but Teradata would certify that such functions work against the distributions that Hortonworks commercially supports. We also believe that the logical outcome of such a solutions-based platform would be an OEM arrangement that is delivered by Teradata, with out-of-the-box level-two or three support from Hortonworks.

Skype’s debut on Windows Phone – nine months after Microsoft announced that it was acquiring the VoIP provider – fills one of the obvious application gaps on Microsoft’s latest smartphone platform.

In its initial guise, Skype for Windows Phone runs as a standalone application and offers a fairly typical Skype experience on smartphones. Ovum expects this to change in future iterations, with Skype becoming a more pervasive part of the Windows Phone software platform and experience. We expect that Microsoft will increase Skype’s utility by integrating it tightly with applications and services across the phone.

This is an important step in Microsoft’s strategy to make Skype a ubiquitous – and unavoidable – part of its product portfolio that is integrated wherever it makes sense to do so. Making Skype a pervasive service has much greater potential to disrupt existing models of communication than one that is dependent on users proactively choosing to install it.

In this capacity, it could act as a social “glue” by helping to drive usage of the service and considerably increasing sales of Skype-enabled Microsoft products in the future. It could also eventually help to blur the lines between business users and consumers, with Skype increasingly seen as a convenient communication tool that is available anywhere.

The GSMA predicts that the number of connected devices will increase from 9 billion today to 24 billion by 2020. This represents a global business opportunity of $4.5tn by 2020. However, at the Connected Consumer keynote at MWC 2012, speakers from eBay, Best Buy, and Interpublic Group (IPG) warned that brands will not reap the benefits of this growth unless they rethink the way that they interact with consumers. 

Ovum could not agree more, and we urge brands to approach mobile advertising in terms of relationships rather than focusing on eyeballs and reach alone. Mobile advertising is about engagement. Facebook is acutely aware of this, and will make it a mantra when it launches mobile advertising in the coming months.

At the keynote, the speaker from eBay mentioned an iPad app that illustrates how this can work. The app in question alerts eBay users of products related to the program that they are currently watching. This underscores the notion that mobile advertising has to be relevant or it will be ignored or perceived as spam.

There is also a danger that social media savvy consumers will hit back. As Michael Roth, the CEO and Chairman of IPG, warned “if you pepper consumers with stuff they are not interested in, you will get vigilante consumers who will shut you out”.

Another key theme to emerge from the Connected Consumer keynote was that connected devices have the potential to be the central dashboard of people’s lives. However, the industry must do more to make this a reality. Best Buy CEO Brian Dunn warned that operators’ expensive and confusing data plans and the practice of locking devices are inhibiting visions of a connected world. Ovum agrees with this sentiment, and believes that the connected consumer value proposition is not yet being fully developed.

Visa’s announcement of a platform capable of provisioning mobile payment accounts over-the-air (OTA) has the potential to fill a significant hole in the current payments ecosystem.

A major barrier for many operators looking to offer payment services is the need to build a relationship with one or more financial institutions, which typically involves long and complicated negotiations. Visa’s platform will eliminate this process by replacing it with a simple contract with the financial services company.

By expanding its traditional intermediary role in payments to mobile, Visa is doing what it has been threatening to do for several years. The fact that it is also supporting non-Visa payments shows that the company recognizes that ubiquity is the key to success in mobile money systems.

However, Visa is not entering into an open market. It will face strong competition from international financial hub systems, such as the mWallet and HomeSend services offered by international carrier BICS, and it has a number of barriers that it must overcome.

Visa must establish a viable business model that operators will accept. BICS already has a well-respected model and many existing operator customers. However, Visa’s brand and scale should make this possible, especially if it can offer operators a plug and play solution.

A bigger barrier in the short to medium term will be that the system relies on near-field communications (NFC) in the consumer device and at the point of sale. This will present a considerable challenge to Visa as NFC is still a long way from reaching critical mass.

Acision has reported that SMS still dominates mobile messaging. However, operators have been taking steps to launch IP-based messaging services in an effort to remain competitive in the messaging market.

There is no doubt that SMS is currently a sound revenue stream, with the service earning operators approximately $153bn in 2011. However, as Ovum’s report The Casualties of Social Messaging reveals, there is an increasing shift towards IP-based messaging. Even though this shift is bound to smartphone users, it has still managed to cost operators $13.9bn in messaging revenues. This loss accounts for 9% of total messaging revenues, and is large enough to make operators sit up and take notice of this emerging threat.

In response, many operators are planning to offer their own IP-based voice and messaging services, including through the rebranded RCS, which will be known as “Joyn”.

For more information on Joyn, see Ovum’s MWC comment Another year, another RCS Announcement.

The SCT should aim for greater competition in the upcoming auction

The SCT is to auction licenses for the use of a pair of strands of dark fiber that are assets of the state-owned Comision Federal de Electricidad (CFE). The strands were laid in 2006, and access to them was first sold to Axtel in December 2007. The SCT hopes the auction will introduce to Mexico a third national network for the transmission of data, voice, and video.

It is not the first time that the Mexican government has used an auction to grant access to state-owned fiber optic lines. In May 2010, two portions of a nationwide fiber network were put on sale by the SCT at the request of the CFE. On that occasion, a consortium of three operators, Megacable, Telefonica, and Televisa, won the auction as the sole bidder for the two fiber strands. The reserve price was MXN858.6m, and the consortium’s successful offer was MXN884.0m, which secured a 20-year lease of the 20,000km long strands. Iusacell, which had shown interest and had asked to participate, was not permitted by the SCT to reach the offer stage. The operators forming the joint venture subsequently announced their intention to invest a combined MXN1.3bn in upgrading the infrastructure for future use.

Given the rather closed nature of the 2010 auction, it is important that this time the regulator ensures a competitive process in which more operators participate. If the auction is to stimulate broadband development, as is the government’s intention, the regulator should obligate operators to guarantee a certain level of investment during the timeframe of their license, in order to bring about the much-needed network upgrades.

Granting access via an auction is unusual, but could be appropriate in this case

Although allowing users to access the CFE’s network is likely to enhance competition and enable operators to reach a wider number of users, it is an unusual method of granting access, and is not one that is common elsewhere. In other countries, regulators generally consider imposing passive or active access obligations on an incumbent. These often including non-discrimination and price control obligations, and are intended to ensure that other operators are able to reach end users via the incumbent’s infrastructure, and compete with its services. Obligations are imposed when the owner of a network is designated a dominant player following a clear and thorough market analysis. In Mexico this process found the CFE to have significant market power, which explains why taking this different approach is a fair way to ensure competition.

Better regulation is required to ensure widespread access to the infrastructure

Auctioning the CFE’s unused fiber network is a welcome step towards more infrastructure-based competition. The incumbent, Telmex, is the owner of the main fixed network in the country, but the upcoming auction will allow other operators to reach more customers and deploy new services. However, it does not solve issues that have long affected the Mexican telecommunications market, issues that must be addressed through clear and fair regulatory measures.

The Federal Telecommunications Act (LFT) establishes that any “right of way” available to a licensee must also be made available to other licensees in a non-discriminatory way. This includes the ducts and poles through which public networks are installed. However, there are no regulatory measures that guarantee that operators provide access to their passive infrastructure. This is where prompt and decisive action by the regulator is necessary, since operators are hindered in the deployment of their networks by many bureaucratic barriers, including the need to request rights of way and access to other operators’ infrastructure. This is a huge obstacle to competition, as the process for obtaining authorization can be long and uncertain.

Legislation is in place to ensure that incumbents share ducts, poles, and other infrastructure, but this is enforceable only where a specific ruling declares an operator to be dominant. After the condition of dominance has been ruled, the obligations are still not automatically applied, but must be imposed by the regulator. In practice, this has not happened so far, mainly due to legal challenges brought by operators.

Some progress is being made. Rules on rights of way were passed at the end of 2011, and allow for the installation of ducts for fiber optics, each of which can host three sets of fiber. However, policymakers and regulators must address this issue more thoroughly by creating a regulatory framework that guarantees non-discriminatory passive access between operators.

This is particularly important for the deployment of NGA; passive access is proving to be a key aspect of the regulatory measures to encourage fiber development. Some European regulators, including AGCOM in Italy and the CMT in Spain, obligated their national incumbents to provide passive access even before the EC issued its recommendation on NGA in 2010. Unless it introduces similar provisions, Mexico is not likely to see a significant development of alternative infrastructures.

The GSMA has maintained one of its most venerable traditions by announcing a new release to the Rich Communication Suite (RCS) specification at MWC 2012. Despite a long history of such announcements, there are no commercial RCS services anywhere.

The specification is now at release 5.0, and includes support for “IP-based voice and video calling, geo-location services, and cloud storage”. Last year, the GSMA announced an “enhanced” version of the specification with less functionality.

As is also part of the tradition, commercial launches are promised for later in the year. This time the launches are scheduled for mid-2012 and involve operators in Spain. According to the GSMA, other operators in France, Germany, Italy, and South Korea are “also committed to commercial launches in 2012”.

Most exciting of all, RCS now has a consumer brand – “Joyn”. According to the GSMA’s Director General, Anne Bouverot, Joyn “…will act as a mark of assurance to customers that they will have simple and direct access to enriched voice and messaging services wherever they are and whatever network they are using”.

Overall, the iPhone has a positive impact on carrier financial performance, but this is only seen over the duration of a contract. This means that the positive impact of an iPhone sale is felt immediately by Apple, which pockets the full price and the healthy associated margins, whereas carriers receive the benefit over the course of two or more years, and start that period in the red.

iPhone subsidies are similar to those offered on high-end Android devices

The iPhone is subsidized to the tune of $450 by all three major US carriers that offer it, taking the subsidy as the difference between the full retail price these carriers quote and the on-contract price they offer. This is a substantial cost per subscriber, and if every activation were subsidized in this way would have cost AT&T $3.4 billion, Verizon Wireless $1.9 billion, and Sprint $810 million in the fourth quarter. Of course, the reality will be lower, since not all customers will have been eligible for the full subsidy. But this helps to explain why profits dipped at all three carriers in the quarter; subsidies do indeed have a big short-term impact, although one that is well understood by the financial analysts that follow these companies and by the companies themselves.

However, these subsidies are no higher than those offered on a number of other high-end smartphones, including the HTC Vivid and Galaxy S II on AT&T, the HTC Thunderbolt and LG Revolution on Verizon Wireless, and the EVO 3D on Sprint. All of these are also subsidized at between $450 and $470 on the same basis. So, whether each carrier had sold millions of iPhones or millions of high-end Android devices would not have significantly altered the associated subsidy cost. Of course, the cost is still significantly higher than if the carrier simply did not sell devices to those subscribers at all.

Other costs are lower for the iPhone

Subsidies are only one of the costs associated with a smartphone subscriber, albeit one which hits the books immediately, and one which puts the customer’s lifetime value firmly in the red at the beginning of a contract. But other costs can also be significant, notably those for devices returned by unhappy customers, customer-service calls for device problems, and contract cancellations driven by dissatisfaction. According to multiple surveys, return rates are lower for the iPhone than for any other device, and customer satisfaction is higher, which puts both of those costs lower for the iPhone than other devices. In addition, in places where Apple has retail stores, it picks up much of the slack for customer service through its Genius Bars, taking those costs off the carriers’ books. In all, then, the other costs associated with an iPhone subscriber may well be lower than for other devices even if the subsidy cost is similar or higher.

 Revenues may also be higher for iPhone subscribers

Sprint indicated shortly after it announced that it would begin selling the iPhone that not selling the device had been the biggest driver of subscriber churn for the last several years. As such, the company anticipated better retaining of customers who might consider jumping ship for the iPhone, and winning back some customers who may have left for AT&T or Verizon to obtain one. The fourth quarter results suggested that at least the second objective was achieved: 40% of Sprint’s iPhone activations in the quarter were from customers new to Sprint. When AT&T first launched the iPhone it also saw approximately 40% of iPhones going to new customers, although that number has since fallen to 20–25%, with Verizon also seeing similar numbers. So at least some of these heavily subsidized devices are driving gross adds for these carriers, which has a direct impact on revenue.

iPhones typically require two-year contracts in the US, and also require minimum spend levels of anywhere from $50 to $70 per subscriber. Over the course of two years, that revenue adds up to well over $1,000. AT&T and Verizon have churn rates between 0.9% and 1.2%, which means their subscribers stick around for seven to nine years, rather than just two years (although of course they will receive further subsidies during that period). So the initial outlay of $450 is easily covered by the associated revenues. Since churn is also lower for iPhone subscribers, a fact AT&T has repeatedly discussed but not quantified, average iPhone subscribers may be expected to stick around even longer.

In addition, AT&T has suggested in the past that its iPhone subscribers have ARPU 60% higher than the overall ARPU of its postpaid subscriber base (though the gap has likely narrowed since then as more of the postpaid base uses smartphones). However, since a large proportion of first-time iPhone users are upgrading from non-smartphones (48% at Verizon in the first quarter of 2011), this also provides a revenue lift.

A complex equation which pays off better and faster for Apple

This analysis suggests that the iPhone does indeed have a more beneficial impact on carriers who sell it in the millions to their subscribers than a short-term quarterly view would suggest. However, the payoff for carriers takes place over a longer period of time and ultimately with lower margins than it does for Apple, which pockets the full cost of the phone and the associated margins immediately.

This analysis is limited to the financial impact of stocking and selling the iPhone. There is an entirely separate issue which should be of at least as much concern to operators, which is the way in which Apple and Google are becoming the de facto suppliers of content, applications and services on mobile devices, and displacing operators in the process. But that may prove at least as hard to resist as the urge to stock the iPhone in the first place.

Ericsson started MWC 2012 with a press conference that covered most of the industry’s buzzwords: capacity, Wi-Fi, mobile payments, content distribution networks, cloud, and video. However, the nature of the announcements, as well as their volume, highlights how Ericsson is responding to its rivals.

The “boxes” (picocell with integrated Wi-Fi, high-capacity gateway, and golf ball-shaped casing) were just a part of Ericsson’s story. The majority of CEO Hans Vestberg’s time was taken up with announcing services and solutions that go far beyond hardware. These included a partnership in mobile commerce with Western Union, data centers, and the results of an Akamai trial in Indonesia.

This highlights just how far Ericsson has re-aligned its strategy compared to its rivals. The vendor is clearly under pressure in the infrastructure space from the likes of Huawei, but by focusing on the “wraparounds” it can clearly differentiate itself. It will be difficult for Ericsson’s rivals to gain the scale and skills in the services arena to compete with the vendor anytime soon.

Last night, Alcatel-Lucent (ALU) held an analyst event prior to the first day of MWC 2012. While a significant portion of the event was a review of the mobile industry and where ALU fits into it, the vendor did use the gathering to make a significant announcement. The company announced that, in conjunction with Telefonica, it has deployed a live LTE network at the site of MWC using its lightRadio base stations. In total, the deployment at the site involves 64 base station sectors; 51 sectors supported by macro base stations, 11 sectors supported by metro cell sectors, and two metro cell sectors using beamforming antenna technology. The entire deployment uses the 2.6GHz spectrum band.

This announcement is a big step forward for ALU. While at last year’s MWC the vendor presented its lightRadio base stations as a concept, this year it is showing that the concept has become a reality. The Barcelona deployment uses many of the elements laid out by ALU at MWC 2011. Not only does the network use ALU’s now familiar small cube lightRadio base stations; it also includes cloud RAN (pooled base band units) and small cells and macrocells working in the same environment. At an event where many announcements are “concepts” and “roadmaps”, ALU’s deployment with Telefonica gives the vendor something very real to share with potential carrier clients. As the biggest mobile operator show of the year, the value of that cannot be ignored.

Nokia announced the Lumia 610, its first Windows Phone aimed at the mass market, and the PureView 808, a Symbian-based smartphone targeted at extreme mobile photographers.

New Windows Phones

The Lumia 610 is a 3G variant of Nokia’s high-end Lumia 900 device, the extension of which to the global market is itself an important next step for the device vendor. However, far greater significance may ultimately be attributed to the success or otherwise of its little brother, the Lumia 610.

The lower specification of the 610 does not noticeably erode the user experience of Microsoft’s software platform, which remains perfectly fluid if not as sprightly as its higher-specified siblings. Overall, the 610 looks like an attractive package for the mid-market and prepaid customers.

The combination of Nokia, Microsoft, an aggressively marketed mid-range Windows Phone device, and an appealing array of Nokia developed applications looks strong on paper. However, should the offering fail to kick-start demand, both companies’ hopes for renewed relevance in the smartphone market will be seriously dented.

PureView 808

The PureView 808 offers perhaps the most compelling photographic experience yet seen in a smartphone. It comes with a 41MP sensor and astonishing low light and detail performance that is sure to appeal to specialist buyers.

Ovum’s main concern is that the PureView 808’s Symbian Belle operating system might detract from its appeal to a broader market, where it deserves recognition.

It’s a pity that Nokia was unable to combine the photographic prowess of the PureView 808 with the style of the Lumia 900. Such a device may well have been the first smartphone to truly deserve the title of “superphone”.

For a more detailed look at this announcement, see Ovum’s comment MWC 2012: Nokia reinforces its support of Windows Phone.

It came as no surprise that HTC should launch three new Android-based smartphones at Mobile World Congress. Of considerable interest though was how the company used its new devices – the One S, One V, and quad-core One X “superphone” – to showcase its simplified “One” branding, slimmer portfolio, and a “back to basics” strategy for differentiation built around the core smartphone experiences of photography and music.

Simpler branding and portfolio will reap rewards

HTC’s strategy to streamline its branding and offer fewer, better-differentiated products is a reaction to both market forces and engineering necessity. The iPhone has shown the benefits of a focused device strategy in which a single device can accommodate the demands of users across multiple segments. While HTC is not going down this route of offering a single smartphone, it will benefit considerably from a more streamlined approach to its sales and marketing strategies.

This approach also has huge benefits in terms of handset development, with the problem of managing multiple software builds across many devices dramatically reduced. HTC currently maintains approximately 40 variations of Android across its broad portfolio of carrier partners, some of which demand high levels of customization. By focusing on a smaller number of devices, HTC will be able to significantly reduce this complexity.

Re-focusing on core competencies and openness is a smart move

HTC’s strategy for differentiating the One series in the crowded smartphone market was perhaps the most interesting aspect of the launch. Instead of offering “me too” value-added services (VASs) and apps, HTC has chosen to focus on perfecting core smartphone functionality (principally the camera and music playback), increasing utility, and adopting an open approach to integrating with other devices.

The One series’ promised low-light performance, fast start, and ability to shoot video and still pictures simultaneously are stand out features. In addition, HTC has extended its use of the Beats Audio audio processing technology across the One range, and has promised to revive the notion of “hi-fi” music playback.

On the utility side, HTC is providing pre-integration and 25GB of free cloud storage (for two years) via a new relationship with DropBox. However, in the spirit of openness, HTC’s carrier partners and end users can choose other, comparable services if they wish. Also of interest is a wireless “dongle” for connecting One devices to the HDMI socket of modern TVs, thereby turning them into over-the-top set-top boxes.

Differentiating, but how desirable?

Ovum believes that HTC’s decision to go down this route is a pragmatic one. Trying to compete with larger, more diversified vendors in the smart devices space by offering in-house VASs or creating bespoke integrations between its smartphones and other devices within its portfolio was never going to be practical for HTC. While a considerable success in its own right, the company lacks the deep pockets and breadth of product portfolio to lock consumers in to its particular multi-screen vision.

The major question for HTC is: will this slightly prosaic approach to differentiation ultimately be enough to keep it competitive among a myriad of more all-encompassing but ultimately more complex buyer propositions?

Only time will tell. But for smartphone vendors at the higher end of the market, knowing whether it will be enough may be essential to their future survival in an increasingly cut-throat space. While there is certainly a niche for tech-savvy consumers that are able to piece together their own multi-screen propositions from separate components, 2012 may prove pivotal in determining how large that niche actually is.

Cisco CEO John Chambers stated that “in the long run, Huawei is the company’s toughest competitor. Huawei will always compete on price.” Huawei also has internal optics development. We believe the Lightwire acquisition will allow Cisco to compete on performance parameters such as power consumption as well as price. In the telecom transport arena, other OEMs such as Alcatel-Lucent, Ciena, and of course Infinera increasingly vertically integrate for differentiation.

Cisco backs up its transceiver value proposition

The Lightwire organization will become part of Cisco’s Transceiver Modules Group Business Unit and Supply Chain Operations Group. This group resells merchant transceivers with Cisco-specific features. Along with its compatriots, Cisco drove MSAs (multisource agreements) to make transceivers from multiple suppliers interoperable and price-competitive. In striking contrast, Cisco will now have its own differentiated optical technology at 100G for both long-haul (CoreOptics acquisition in 2010) and datacom/metro (Lightwire). This change reinforces our view that 40G/100G has opened the door for dramatically new technologies to enter.

The price difference between Cisco-approved transceivers and vanilla pluggables has fueled customer disobedience, resulting in a sizable gray market for non-approved transceivers from low-cost suppliers. We believe with differentiating technology Cisco can now point to the obvious superiority of its transceivers and thus continue to control the supply of optics into its switch ports.

Cisco commitment speaks to importance of hardware technology

It once seemed that Cisco and other system vendors valued software and the intelligence it enabled above hardware. With system designs up against heat dissipation limits, low-latency networks bounded by physical distance, and datacom optics straining to hit 40G and 100G, we are now in an era when having leading hardware matters again. In telecom optical transport, Cisco – along with Alcatel-Lucent and Ciena – has its own coherent 100G ASIC.

Cisco is one of the few players with the scale in Ethernet switch ports to exploit vertical integration for cost reduction. However, Lightwire’s technology takes a holistic approach to the optical and associated electronic components, unlike today’s typical architecture which separates the two. Hence we see the greater value for Cisco is to differentiate on superior power consumption, density, and, in future, speed.

Fabless IC model makes vertical integration possible

Cisco’s CoreOptics and Lightwire “optical” investments are still a far cry from buying a laser fab or transceiver operation. Lightwire is fabless, relying on external foundries but differentiating on novel device design. This is the same model system houses use for digital electronics ASICs. Both CoreOptics and Lightwire rely on purchased lasers (Lightwire makes an optical modulator but not the laser). The transaction is neutral or favorable for merchant laser vendors, including CyOptics.

What happens to Cisco’s transceiver suppliers?

Cisco dominates the datacom transceiver landscape, dictating vendor roadmaps. Cisco could now take its Lightwire chips to contract manufacturers to make its own, bypassing its transceiver suppliers. But it could have done so before too. Huawei has continued to buy from its component suppliers even while its vertical integration gives it additional options. We believe Cisco will continue to work with its existing favored vendors as we see no compelling reason to replicate the effort it has already put into infrastructure and process development with them. Internal development of optics does give visibility into underlying cost structures for increased negotiating power, but Cisco is already very familiar with transceivers.

Validation of photonic and vertical integration for telecom and datacom

We believe that Cisco’s in-house capability can accelerate silicon photonics and integrated opto-electronics acceptance. Component vendors need to work with a strong lead customer for new – particularly radically new – products. Infinera leapt ahead of the industry with optical integration by being its own customer.  A further direction for speculation is whether Cisco will eventually join computer vendors HP, Oracle, and IBM in photonics for chip-to-chip interconnect.

High-quality fake packaging and low prosecution risk are increasing the proliferation of counterfeits

Counterfeit branded medications represent a low-risk, high-return activity for criminals. Combating counterfeiting crime is difficult for a variety of reasons, but the overriding issue is the difficulty in identifying and quantifying the damages. Without this information, pharma and law-enforcement agencies have an uphill battle to be able to pass more punitive laws, obtain the cooperation of foreign authorities, and receive additional funding and support. While the risks for criminals are low the damage to brand images, business reputations throughout the supply chain, and consumer faith are significant – not to mention the potential risk to patients. Counterfeiters’ methods have become increasingly sophisticated, rendering the fake packaging nearly indiscernible from the legitimate packaging. Thus, patients and healthcare practitioners cannot rely upon visual inspection to spot fake packaging or to recognize invalid lot numbers to validate the authenticity of our medications. Track-and-trace technology exists to alleviate this burden and governments around the world are implementing related regulation to mandate enforcement.

Local and national governments are enacting track-and-trace regulations

California is requiring pharmaceutical manufacturers to implement the necessary technology to create an item-level “pedigree” for 50% of their drug shipments in 2015 and the remaining 50% in 2016. Track-and-trace solutions use unique barcodes and RFID tags to uniquely identify authentic drug packages and pallets. These identifiers are scanned at each step along the way to the dispensing point, to create an electronic record of the drug’s movements, known as an electronic pedigree or e-pedigree. Application of such technology will not only greatly enhance the security of the supply chain and ease validation of medications but also enable rapid recalls and combat the resale of stolen or diverted supplies. While California is the first state to implement such regulation, the FDA is moving towards a federal solution and published standards for item-level serial numbers in 2010. A timeline for a nationwide mandate by the FDA remains unclear as bills introduced in Congress to grant the FDA with the necessary authority have not progressed and the FDA has not disclosed if it will act without congressional authorization. Meanwhile, many other national governments are requiring certain levels of serialization within the 2015–2016 timeframe. 

Although track-and-trace solutions are a necessary and important step towards combating counterfeit drugs, they require a highly sophisticated infrastructure at the international level in order to function properly, which will require significant coordination and investment from many stakeholders within the ecosystem. As a result, other technologies such as mobile product authentication (MPA) are also being developed to catch fake medications. With the increasing proliferation of mobile devices such as smartphones, pharmaceutical manufacturers have started using scannable QR codes or scratchable code fields to enable consumers to determine the authenticity of drug packaging at the point of purchase. While not foolproof, this technology does provide assurance to the consumer about the authenticity of the medication, especially in emerging markets where there is a high incidence of counterfeit drugs and a lack of infrastructure to support more sophisticated authentication systems.  

Enterprises should monitor developments and evaluate implementation plans

Due to the complex and global nature of the pharmaceutical supply chain, enterprises should monitor developments in the countries in which they operate and plan accordingly. A pilot involving 2D barcodes to satisfy recent amendments to the EU Pharma Directive will commence in 2013.  Pharmaceutical manufacturers should either participate in or monitor such pilots and adjust their mid-range planning and budgetary allocations accordingly. As regulatory deadlines approach the demand for qualified resources to implement necessary track-and-trace solutions could outstrip supplies. Therefore, pharmaceutical manufacturers are encouraged to develop the necessary capability to ensure future regulatory compliance as soon as possible.

Industry-specific professional services – a “chicken and egg” dilemma

Most technology vendors targeting the Asian higher education market struggle to provide consultants that have a highly sought after triumvirate of skills: technical knowledge, industry experience, and a local address. Institutions bemoan consultants, who while well-intentioned have little understanding of their business processes or local requirements, and as a result slow the implementation process because of the need for on-the-job training. However, it is difficult to hold vendors accountable for providing local consultants with higher education experience and technical skills when the enterprise applications market is still so young in Asia. The supply of individuals in the region who have administered an SIS solution and are now in a position to support the implementation of these solutions at other institutions is very limited, and the ones that do exist are in very high demand. Oracle is moving down a path of facilitating and then monitoring partnerships between global or regional services firms and local ones as a strategy for creating and skilling up quality providers. Ovum believes that Oracle’s approach shows considerable promise but anticipates that a ”chicken and egg” dilemma will continue for professional services for most vendors until the market matures, and therefore the flying in of industry-specific resources from North America and Europe is likely to continue. The silver lining may be that in the absence of professional services, Asian institutions will develop internal capacity more rapidly, adopt more vanilla deployments, and be less dependent over the medium-to-long term on outside resources for upgrades and ongoing maintenance.

The competitive landscape for SIS is underserved

Once an institution has decided to use a commercial, off-the-shelf (COTS) student information system instead of custom development, there are very few options available. Certainly, institutions have the option of working with vendors that offer horizontal enterprise resource planning (ERP) applications, but many have indicated a preference for working with those that offer fully integrated ERP and SIS solutions. Consequently, Oracle and Datatel +SGHE, the interim name for the newly merged Datatel and SunGard Higher Education organization, are the most well known and widely adopted vendors in the region that are able to offer this capability. While Oracle’s Campus Solutions and Datatel+SGHE’s Banner solution are mature applications with a large and global installed base, Ovum nevertheless believes that additional competition would serve to accelerate the development of regional support both from a technical and a professional services perspective. At this time, it is unclear where this additional competition will come from. SAP represents a potentially attractive option, but given the small installed base for its Campus Management SIS solution, particularly in theUS, competing with the more established international solutions will be difficult. Commercially supported open source, such as Kuali, is another viable option, although the solution itself is not yet complete and the availability of professional services is likely to be even more difficult than for Oracle or Datatel+SGHE.

Institutions must take the stage and the podium

Institutions, particularly those in Hong Kong and Singapore where SIS implementations are more mature, must present their experiences at industry conferences both locally and on the global stage. The Asia-Pacific region is a high-growth and high-priority market for most vendors, and by becoming more vocal about their unique experiences and needs institutions will be better positioned to advocate on their own behalf. Joining and then becoming active members of end-user organizations, such as the Higher Education User Group (HEUG), would be an important first step toward achieving this aim. In addition, institutional IT leadership should look to replicate the success of Australia’s CAUDIT organization, which is an effective model for sharing best practice, fostering innovation, and leveraging economies of scale in order to obtain more favorable terms with vendors.

Today, Huawei announced the newest additions to its SingleRAN base station portfolio with the AtomCell and Adaptive Radio Unit (ARU).

Both of these additions play a role in delivering upon the vendor’s previously announced GigaSite network strategy. GigaSite presents Huawei’s network vision on how to best deliver network coverage and capacity across multiple environments (urban, suburban, and rural).

While there are similarities between what Huawei has announced and what other vendors have announced in the past, this does not diminish the importance of Huawei’s new products. Both the AtomCell and ARU address the need for mobile operators to maximize their network capacity and coverage while minimizing the cost of running their networks.

Today, Jasper Wireless announced an agreement with NTT DoCoMo to wirelessly connect machine-to-machine (M2M) and consumer electronics devices across Japan.

This is a good result for Jasper as it shows that it is continuing to win tier-1 operators as customers. It also adds a major Asia-Pacific player to its stable, confirming its status as a global M2M platform provider. This is especially important as some “own-platform” operators are beginning to win some large global deals.

This is also a return to the M2M field for DoCoMo, which more or less “reorganized” its M2M unit out of existence back in 2004, despite a great deal of initial enthusiasm for M2M that included a wide range of consumer-oriented product concepts. The huge M2M growth that was forecast in the consumer electronics market has so far been slow to materialize, but the re-entry of DoCoMo could be the shot in the arm that this segment of the M2M market needs.

With Wi-Fi, Ericsson puts its money where its mouth is

Since at least early 2011, Ericsson has been talking about the value of Wi-Fi as part of mobile operators’ networks. The vendor even introduced support for Wi-Fi offload on its mobile packet core in 2011. The one piece that Ericsson was lacking was an actual Wi-Fi access point. On Tuesday, February 21, Ericsson took care of that when it announced plans to acquire North American Wi-Fi access point vendor BelAir Networks. BelAir specializes in carrier-grade Wi-Fi solutions. BelAir’s primary market has been North American service providers; AT&T and Comcast are two of its most notable customers.

A winning combination

As it stands today, Ericsson’s acquisition of BelAir Networks appears to be a winning proposition for both companies. The acquisition fills a portfolio gap for Ericsson and puts it ahead of its traditional base-station competitors who have noted the importance of Wi-Fi offload, but lack their own Wi-Fi access points. Owning the access point gives Ericsson control over its development, an important factor in integrating Wi-Fi with cellular. Relying on a third-party vendor wouldn’t have given Ericsson the same control. BelAir, for its part, will gain access to markets outside of North America, where it has had little success. It also gives BelAir access to much greater R&D resources than it had before. Both companies will need to work hard to better integrate Wi-Fi into the cellular network, but they would have had to do this individually before. They can now work together.

How competitors should respond

Alcatel-Lucent, of all of Ericsson’s traditional base-station competitors, might be best positioned to respond to this acquisition, having already announced its LightRadio Wi-Fi plans earlier in the month. Alcatel-Lucent’s plans include working closer with carrier-grade Wi-Fi access point providers and developing its own integrated Wi-Fi/small-cell solution. Nokia Siemens Networks has also previously announced plans to support Wi-Fi offload within the mobile packet core network. However, this should not prevent either vendor from looking to acquire one of BelAir’s access point competitors, Ruckus Wireless. Huawei and ZTE should consider building their own carrier-grade Wi-Fi network solutions. Cisco, probably BelAir’s strongest competitor, needs to remind mobile operators of Cisco’s legacy in 802.11 and Wi-Fi offload network deployments. Cisco also needs to communicate that it can do, or will do, many of the same things Ericsson is promising to do with BelAir.

Approaching government ICT procurement with fresh eyes

Ovum was involved in a range of events last week with former US Government CIO Vivek Kundra, who played a key leadership role in the Obama administration’s technology, innovation, and government reform agenda. Kundra is now with Salesforce.com, leading the company’s drive to win business in emerging markets.

We conducted an on-stage interview with Kundra at the CIO Strategy Summit inMelbourne. He spoke articulately and with passion about the need for reform in government services, the role of ICT in driving modernization, and the need for radical reform in the way ICT projects and operations are procured and managed. He also conveyed a sense of the power of a “beginner’s mind” and a pragmatic can-do attitude coupled with action and the backing of top executives (in his case, the US President).

His leadership of the ICT Dashboard to “name and shame” those involved in poorly performing projects and the creation of the data.gov and apps.gov services and the Cloud First strategy have been an inspiration to many other countries that are seeking to follow a similar path of reformist zeal. The Cloud First strategy, in particular, was a bold commitment to changing the way the government ICT procurement game was played.

Kundra explained that his approach was to make an impact by “sprinting rather than running a marathon”, but he nonetheless leaves a legacy that has delivered reforms that will be hard to reverse. He has also provided a role model for other reform-minded executives. It actually is possible to personally make a difference, even in one of the largest bureaucracies in the world.

For those involved in the e-government and ICT strategy games of federal and state governments over the past decade, Kundra’s messages were inspirational, but also slightly demoralizing because of the feelings of nostalgia they invoked.

ICT strategy in government is lost in the labyrinth

The demoralizing aspect of listening to Kundra talking was the sense of being in a time warp. Several executives commented after the event that Kundra reminded them of how ministers and senior executives in federal and state governments used to, but now seldom do, talk with excitement and passion about the opportunities for ICT to modernize public services and enable innovation in policy and service delivery.

The trouble is that the e-government agenda became bogged down and lost in the fragmented back-end infrastructure and systems of agency labyrinths. In recent years the government ICT dialogue has become dominated by whole-of-government win-lose arm-wrestling between agencies in the pursuit of economies of scale and standardization in the ICT plumbing. The Gershon Review of federal government ICT spending and a number of similar reviews in state governments have turned ICT into a problem rather than an opportunity, a cost to be minimized rather than an enabler of transformation to be leveraged and driven hard. In addition, too many of the resulting whole-of-government procurement and shared services strategies and major ICT projects have either been total failures or have yielded disappointing results.

The result has been that ministers and senior agency executives have tended to “run for cover” on ICT strategy, seeing little political capital or promotion prospects in being associated with a high-risk, high-maintenance, expensive, “problem child”.

Visionary executives need to get their ICT mojo back

Kundra’s visit, with his focus on service delivery outcomes, capitalist economy cloud-sourcing strategies, and the need to use sunlight as a disinfectant for moribund procurement and management practices, is a timely reminder of the need to focus on the bigger picture and on the need for speed and action. It is time for Australian governments to wake up from their preoccupation with inward-looking “socialist economy” thinking on ICT.

ICT is an essential catalyst for innovation in 21st century government, not a scarce resource to be rationed and centrally controlled. Visionary executives need to seize the reins of ICT procurement from the hands of process-bound bureaucrats. They could then start driving policy and service delivery innovation by sourcing modern ICT services from a dynamic and efficient “capitalist economy” ICT market available on tap from a cloud near you.

EU countries are required by the EC’s 2009 recommendation on fixed and mobile termination rates to develop a pure long-run incremental cost (LRIC) model, but only around half of the EU27 currently use a form of LRIC. This statistic is unlikely to please the EC, and although several countries expect to meet the 2013 deadline, others will be far from compliant. Meanwhile the regulation of SMS termination has been limited to just three European countries so far, although this number may yet increase.

Cost-oriented MTRs are the preferred choice for the majority of NRAs

Since 2009, NRAs across the EU have been obliged to consider cost-based methodologies when calculating mobile termination rates for operators they designate as having significant market power (SMP). Of the 30 countries Ovum has studied, 21 have implemented some form of cost-based model. This number includes 15 that use a variation of the LRIC model. For example, the Swedish regulator uses a bottom-up LRIC plus (BU-LRIC+) model that allows for the recovery of common costs and business overheads. On the other hand, the Spanish NRA uses a top-down fully allocated cost (TD-FAC) model that includes operators’ audited figures in its calculations.

Although LRIC is widely used, benchmarking also remains a popular choice. Nine NRAs use this approach, which is often based around BEREC’s MTR snapshot report. While Malta develops its LRIC model, its MTRs are being set using the average of the lowest 75% of rates in the EU, as outlined in the snapshot. The Estonian regulator, meanwhile, believes that developing a cost-based model would be expensive and unnecessary for such a small country, and instead uses benchmarking.

Some countries will meet the EC’s deadline, but others must up their game

The EC’s recommendation sets a deadline of January 1, 2013 for mobile termination rates in EU countries to be symmetric and calculated using a pure LRIC model. However, at the time of publication of Ovum’s report, and with the EC’s deadline only 10 months away, only Denmark and the UK have implemented a pure LRIC model and removed asymmetry between operators. Others are expected to follow suit and take the required steps during 2012–13; France introduced symmetric MTRs in 2009 and is geared to be compliant with the recommendation by January 1, 2013, when pure LRIC rates come into effect in the country.

Several countries will struggle to meet the EC’s deadline, however, and some will certainly fail. It is unlikely that countries which are yet to develop and implement pure LRIC will do so in the time available. The Czech Republic is currently developing a pure LRIC model, but has not issued a date by which the process will be complete. Hungary has developed a pure LRIC model, but does not expect to achieve cost-based, symmetric rates until 2014. The fate of the Netherlands’ MTR regime, meanwhile, will remain undecided until the EC, BEREC, and OPTA have concluded their discussions.

SMS termination is not widely regulated across Europe

Ex-ante regulation of SMS termination remains a rarity. France was the first of the 30 European countries studied in Ovum’s report to impose regulated SMS termination rates, and only Denmark and Poland have followed suit. The French regulator ARCEP has classed single-network markets for wholesale SMS termination as susceptible to ex-ante regulation, and determined that all French operators have SMP in SMS termination on their own networks. In 2010 it extended the scope of its ex-ante regulation to incorporate overseas operators. It introduced glidepaths to reduce rates to €0.01 per SMS as of July 2012 in mainland France, and January 2013 in the overseas territories.

In Poland, the new-entrant MVNO Mobyland has had SMS termination rates set by the regulator, in addition to the voice call obligations that were already in place. The former Danish NRA, the NITA, conducted a successful three-tier test for dominance, and subsequently set symmetric maximum rates for four national MNOs. More recently, its successor, the Danish Business Authority (DBA), has proposed to regulate SMS termination on new-entrant Lycamobile’s network. However, it has since received a serious doubts letter from the EC expressing grave concerns, and an in-depth investigation with BEREC has begun.

The market for SMS termination is not currently on the EC’s list of markets susceptible to ex-ante regulation. Unless the EC decides that are competitions issues in this market that are in need of addressing, we are unlikely to see rapid movement in this area.

Kaiser has already experienced considerable success in engaging patients through online means. If properly leveraged, Ovum believes the mobile app could help to further deepen patient engagement and lead to a litany of additional benefits for all stakeholders involved. Because Kaiser is one of the largest managed-care organizations in the US, others are likely to take note and respond with similar solutions. Ovum suggests that because the mobile health space is new and full of both identified and unidentified challenges and potential pitfalls, all healthcare organizations should tread carefully and proceed wisely.

Kaiser’s medical records mobile app could benefit all stakeholders

Kaiser’s newest medical records mobile app is not the its first foray into the patient-centric mobile-health space. In 2008, Kaiser provided a select group of patients with SMS-based appointment and treatment reminders, and in July 2011, it released the KP Locator, a mobile app designed to help patients easily locate physician offices. While these first apps certainly benefited patients, the capabilities and features of the January 2012 health record app are more robust and promising because not only does it offer patients the ability to view their medical records, it also allows them to perform a range of tasks, including scheduling appointments and refilling prescriptions. 

Ovum believes the My Health Manager mobile app has the potential to benefit all stakeholders. Not only will patients have access to important healthcare data, but also they will become more engaged in healthcare decision-making and become better able to make their data more actionable. Interactive tools such as reminders and appointment-scheduling will prompt and encourage patients to interface with the mobile app again and again. The app’s quick access to lab results and easy prescription refilling processes will make adoption and continued use more likely. Moreover, additional channels of patient-provider and patient-payer communication will be opened, helping to enhance relationships and collaboration and to promote an environment where all stakeholders feel more invested in patient care. Providers can also take comfort in knowing that patients are better aware of relevant diagnoses, laboratory results, and treatments. The My Health Manager help will alleviate some of the provider’s administrative burden, particularly by automating the appointment-scheduling process. Kaiser itself also stands to gain a great deal from successful adoption. Conventional wisdom suggests that healthcare IT has the power to significantly reduce costs while simultaneously enhancing the quality of care. In an environment where payers are continuously under pressure to accomplish these very goals, mobile health applications such as My Health Manager will certainly help.

The recent release of Kaiser’s mobile health app is just the beginning

Executives at Kaiser have publicly identified the deployment of the My Health Manger app to be only an initial step in a much large mobile health strategy. Ovum believes there is value in Kaiser expanding its repertoire. There are many types of patient-centered mobile apps, such as disease-management solutions, that could deliver value to both Kaiser and its patients. However, before expanding further, Ovum suggests that Kaiser should take its time to not only work out the inevitable usage and technology kinks it will experience with Mobile Health Manger, but also to gauge patient response. Kaiser has a patient population of nearly 9 million scattered throughout the US. Such a large and highly diverse population will present challenges, some of which will be region-specific, to which Kaiser must give significant consideration. Kaiser is in a good position to learn a great deal about how patients use mobile health apps and to utilize this knowledge to create better mobile health solutions. For Kaiser, patience will be a virtue and if it is pursued, success will follow.

Other payers will follow Kaiser’s lead, but should do so cautiously

Many payers and providers look to Kaiser as a beacon and expect it to lead the way in producing innovative ways to topple and confront healthcare’s most deleterious issues. For this reason, Ovum expects that for many payers, Kaiser’s app will serve as a model for emulation. Payers will begin to follow suit and either leverage existing third-party apps or create their own. While Ovum believes it is important and worthwhile to engage patients through mobile mediums, we recommend that payers and other organizations that consider using mobile health applications do so gingerly. The world of mobile health is a new one, full of uncertainty and obstacles, and general disinclination on the part of patients to use these solutions will be one of the most prominent obstacles. Payers will experience an uphill battle in encouraging patients to become adopters. If not astutely implemented and managed, the deployment of mobile health applications among patient populations could have less than stellar results and below-expected usage rates.

Budget constraints are creating an IT “investment gap” that some employees are willing to fill

From an IT perspective, most employees are content to use whatever PC or laptop they were given by the IT department to do their jobs. However, an increasing percentage of tech-savvy users are calling into question the suitability of the traditional PC or laptop for their roles. Despite Microsoft’s decade-long tinkering with slates, tablet computers, and stylus devices, the evolution of the corporate Windows laptop appears to have stalled in recent years, and the arrival of the iPad has exposed a new modality that we all knew existed but that no mainstream technology company had been able to successfully exploit – until now. Flat or decreasing IT budgets have undoubtedly resulted in a technology investment gap, and it is this gap that a growing band of end users are willing to fill using their own devices – if only the IT department would allow it.

A range of factors are driving employees to use their own personal devices

A substantial percentage of corporate computers are still running Windows XP, and although Microsoft and its partners in the IT security industry have worked hard to address the innate vulnerabilities of this operating system, the IT department has been left with little choice but to lock down desktops to prevent malware infestations. With access to USB ports blocked and the ability to install useful apps revoked, end users are starting to use their personal devices to get things done.

Consumer-centric file synchronization tools, document collaboration services, and social networking sites are increasingly being used for business purposes. This suggests that the traditional enterprise collaboration market is not serving the needs of business users particularly well. However, concerns over data leakage and employee time wasting have led to many organizations blocking access to these websites. Frustrated by this, employees are once again turning to their smartphone or tablet devices to be collaborative and productive anytime, anywhere.

All employees are consumers, and hence influenced by sophisticated tech marketing

The marketing of consumer-centric, high-tech equipment, software, and services has grown steadily in the last five years, and the “millennial” generation is now as tech conscious as it is fashion conscious. The eagerness of young professionals to stay connected, participate, and make an impression has helped fuel the sale of smartphones and now tablets. The middle managers above them, mindful of being seen to be “moving with the times,” have also embraced these more easy-to-use devices.

With consumer demand primed and a glimpse of business potential in view, business leaders now have to consider whether they are to ride or break the BYOD wave, the size of which could be of tsunami proportions. Ovum does not believe there is currently any hard evidence to support the argument of a true cost benefit, but there may well be an untapped business benefit or opportunity.

IT management might allow work email on a personal phone, but it is not yet prepared to support anything else

Accessing work email via a personal device is how most organizations and their employees experience BYOD today, but the fact that most IT managers feel it is too risky to integrate personal devices into the corporate network should be of concern to CEOs and employees. The ability to perform a “remote device wipe” operation on a mobile device means organizations have some control over intellectual property and business-confidential information contained in email messages. However, what if a sensitive file attachment, such as a spreadsheet or company report, is detached from the email and stored on a device that is being backed up to the cloud?

Most employees using a smartphone to access work email will have agreed to an IT department-initiated “device wipe” in the event of the device being lost or stolen. However, what if that employer becomes an ex-employer and decides to send a remote wipe command to your personal device and it is not being backed up in any way? You now have a factory default-condition device, and those photos you took are lost.

Managing the “dual personality” of devices operating under a BYOD policy presents some real challenges, and although it is still early days, we are seeing a growing range of solutions targeting this area.

Recommendations for organizations

Any business thinking about rolling out a BYOD scheme should develop a policy that takes the following into account: specific data security requirements, employee demand, which devices enhance productivity and value, and which devices best suit the tasks at hand. Any policy needs to have buy-in from employees; if their personal devices are liable to be accessed remotely, wiped, or requisitioned by the company, they need to understand the terms and have given consent.

The BYOD trend is not a fad; it is set to continue, at least in the medium term. Employees will want to bring in new devices regularly, so CIOs need to stay up to date on consumer product launches and closely monitor what is being brought onto the corporate network.

For more information see the Ovum report The BYOD Gap: Trends, Strategy, and the State of Mobile Device Management.

Without doubt, cloud computing is no longer a buzzword and is here to stay. The rapid rise of cloud computing is adding to the existing heterogeneity of enterprise application portfolios and creating issues that are beyond the capabilities of traditional application integration approaches. It is time IT leaders focused on improving integration capabilities, especially for cloud services.

The complexity of application integration will continue to increase

SaaS-based enterprise applications are fast becoming a component of the enterprise software stack. It is important that these applications interact with other on-premise and cloud-based applications to deliver their true value to the IT and business sides of the enterprise. At times, integration is required between disparate applications deployed across multiple locations. In such instances, security and governance are also key concerns.

Many organizations are realizing that cloud computing can lead to more information silos and greater integration complexity. Cloud service providers often claim that they provide web services APIs to ease the integration between SaaS and on-premise applications; however, on-premise applications may have been developed under a different set of standards and consequently not interact with SaaS applications. Complexity of application integration can further increase in cases in which the infrastructure applications are run on is delivered as a service (infrastructure-as-a-service). There are several other complex application integration scenarios, including multiple-enterprise process automation, in which the traditional approaches did not deliver expected results.

Traditional approaches are a poor fit for imminent application integration requirements

Traditional approaches to application integration can be classified into two categories: one that involves integration platforms such as enterprise service buses (ESBs) and extract, transform, and load (ETL) tools; and another that involves custom code development. The first approach is an expensive proposition, considering the costs involved in the procurement, implementation, and maintenance of integration platforms. The second approach provides a solution to a specific problem and, owing to the constant necessity of maintaining highly skilled technical staff (for maintenance and upgrading of initial code), invariably leads to greater expenditure in the long run. In the past, for many enterprises application integration remained the “achilles’ heel” for IT. Traditional approaches were unfit for meeting the ever-evolving requirements of application integration in a timely and cost-effective manner, and did not deliver the expected results.

One can argue that most of the issues related to application integration are rooted in the fundamental mistake of defining application integration as a point function. Clearly, applications run on distributed infrastructure across different locations and use distributed data sources, and therefore a point-to-point perspective leads to point solutions that are not capable of supporting a different set of applications.

Given the ever-evolving complexity of application integration, organizations have been forced to look out for suitable alternatives to traditional approaches to application integration. Alternatives that cater to a wider range of application integration scenarios and are cost effective to implement in a suitable time period are likely to witness surges in adoption, and cloud-based integration platforms could fit the bill.

The value proposition of cloud-based integration platforms is attractive

A new class of cloud-based integration offerings, often called integration platform-as-a-service (iPaaS), is fast emerging as a suitable option for a wide range of application integration scenarios: cloud to cloud, cloud to on-premise, and on-premise to on-premise. These platforms extend the functionality provided by earlier integration-as-a-service offerings, and provide design and runtime governance as well as enabling efficient execution and management of integration flows between independent applications. iPaaS suites build on the SOA heritage and strengthen the tie between integration and governance. Although these offerings are not yet mature, there are clear indications that iPaaS suites will support the needs of on-premise-to-on-premise application integration and can be a suitable alternative to traditional integration approaches. iPaaS suites ensure that enterprise users do not need to purchase and deploy any hardware and application infrastructure, and provide typical benefits of cloud services such as reduction in upfront capex, easier upgrades, and flexible pricing.

iPaaS suites are a good option for small and medium-sized enterprises (SMEs) that do not have well-established integration capabilities and are looking for consolidated suites that cater for a wide range of application integration requirements. In the case of large enterprises, iPaaS offerings are best suited for integration scenarios that would be otherwise too expensive to implement in the traditional manner. In the near-term, large enterprises will continue to rely on established integration capabilities for most of their application integration needs. Enterprises that have used integration-as-a-service offerings in the past are expected to gradually move to a superset of functionalities offered by iPaaS suites.

Business intelligence on the go

As noted in Ovum’s opinion piece Enterprises must beware of the hidden service costs of BYOD, the bring-your-own-device (BYOD) trend is gaining real momentum. Employees are looking to use their own smartphones and/or tablets to access their companies’ in-house applications. Enterprises, meanwhile, see the value in not needing to provide the devices and relying on users’ own service agreements and warranties if devices break down. With this trend, the use of mobile devices as everyday work tools is increasing significantly, leading enterprises to look for products that will offer BI anywhere, at any time. For the worker on the road, the benefits of mobile BI are clear: they can present up-to-the-minute and geo-sensitive data to clients on a real-time dashboard, be alerted of deviations in KPIs while traveling between meetings, and collaborate with co-workers instantaneously wherever they are. However, the benefits of mobile BI are not just for the road warrior; it can also be an important tool in the office. For many years, the routine has been to bring a static report to a meeting, discuss and amend it with co-workers, head back to your desk to make the changes, and generate a new static report. Mobile BI makes this process more efficient by taking out a lot of the “back and forth.” Employees can bring interactive reports to meetings on their mobile devices, instantly query and analyze based on feedback and discussion, and generate new reports without ever leaving the room.

Admittedly, mobile BI has witnessed many false dawns, hampered by technical (bandwidth) and usability (form factor) issues and unclear business benefits. However, as there is a mature selection of high-performance mobile devices, a network infrastructure that allows for rapid sending and receiving of data, and a progressing need for businesses to quickly respond to changes to stay competitive, Ovum believes mobile BI will take off in 2012.

The constant addition of platforms and devices has made it difficult to maintain a consistent experience for a wide variety of users, which has led to a constantly evolving mobile BI market. Currently IBM with Cognos Mobile and Microsoft, which allows mobile access through Microsoft SharePoint Server, seem to be doing the best job out of the mega-vendors of meeting this need. However, the other mega-vendors are likely to improve their current mobile solutions during the year by enhancing their own product lines or through acquisitions.

The end user wants ease, but also control

Another trend impacting the BI market is giving end users greater control over their analytic needs via self-service capabilities. With a generation of workers that have become accustomed to the ease and speed with which companies such as Facebook, Google, and Amazon gather and present relevant personalized data, there is great interest in, if not expectation for, a BI solution that allows an employee to retrieve and analyze relevant business data in a similar fashion.

Through intuitive UIs and an ability to easily access multiple sources of data, self-service BI puts the control with the user. The front end allows the user to easily and quickly create personalized dashboards and data mashups via, for example, a drag-and-drop interface, which lets them see the data they want to see in a simple way. With in-memory technology, this data can be analyzed and presented at great speeds. Behind the curtains, self-service BI relies on a robust back end in which data sourcing gives the user connectivity to retrieve data from multiple sources both inside and outside the business, without using complicated queries or other forms of programming. This means the user does not need to understand the complexity of retrieval to access data.

One of the greatest indicators of the importance of self-service might be found in BI vendor QlikTech’s exponential growth and current momentum on the market. With emphasis on self-service business discovery underpinned by in-memory processing, the QlikView solution provides an easy way for business end users to access, analyze, and explore data intuitively and dynamically.

Vendors’ ability to satisfy the end user will be key

With enterprises encouraging a larger group of employees (not just the seasoned BI analyst) to access and analyze company data from several sources, BI vendors will be wise to invest in solutions that have powerful back ends and easy, highly customizable, and mobile front ends. 

The trend to please the end user, encouraged by the ease of use of modern websites and applications, will continue to grow throughout the next couple of years. Enterprises have realized the potential of having a large population interact with company data to allow for more informed decisions, and will invest in products that allow any type of user to use them effectively.

Some vendors are already leading the way in mobile and self-service BI, and soon all of the major vendors are likely to have solutions that will cater to the diverse BI end user.

OS update adds missing features but too late to save the Playbook

The Playbook OS 2.0 update finally brings a standalone email application to the device, among a number of other features which should have arguably been on the device at launch. On the personal information management (PIM) front, the update brings calendar and contacts applications which feature Facebook, Twitter, and LinkedIn integration. The update adds improved integration with BlackBerry handsets through BlackBerry Bridge, and enhanced mobile device management by adding compatibility with BlackBerry Balance and Fusion.

The update also brings the anticipated Android Player runtime to the Playbook OS, allowing Android applications to run on the device. However, as noted in the previous Ovum comment, RIM’s BBX puts most of its developers back to square one, applications will need to be recompiled by developers and resubmitted to the BlackBerry App World in order to run on the device, meaning that they are unlikely to have much traction.

This update, combined with the recently reduced price, has finally made the Playbook an attractive product. However, Ovum believes it is too late to save the device in the long term. RIM is now making a loss on each Playbook it sells at the new price points (a fact that it admitted in its recent financials) and given the current competition in the market, even with the new functionality or even new hardware, it will be almost impossible for RIM to successfully increase the price of the Playbook back to a profitable level. Without the benefit of volume cost savings, it is therefore unlikely that RIM will be able to make a profit on the Playbook franchise. Finding itself in this position, RIM is therefore unlikely to commission any further production of the devices and may cease selling the Playbook after the current stock has been depleted.

New features and management tools may bring renewed enterprise interest

Ovum believes that the update is unlikely to dramatically change the fortunes of the Playbook tablet device, in a market which remains largely dominated by the Apple iPad. However, these new features undoubtedly make the Playbook a more complete product, and by addressing the product’s shortcomings RIM may be able to tip the balance for some potential enterprise customers. As with its BlackBerry handsets, the Playbook is arguably the most enterprise-friendly tablet offering, with integrated device management and security features such as BlackBerry Balance. For enterprises that already support BlackBerry handsets, the Playbook offers a relatively simple and low-risk way to trial tablets in the business. When these new features are combined with the more aggressive pricing of the Playbook, some enterprises may consider taking another look at the Playbook.

Playbook OS 2.0 offers glimpse at BlackBerry OS 10

The upcoming Blackberry OS 10 platform, which RIM will use on both its smartphone and tablet devices, will be built on the QNX-based Playbook OS 2. Although we may see some changes to the OS ahead of its evolution into OS 10, it is likely that the two operating systems will share many core features. For this reason, the Playbook OS 2 gives us the strongest indication yet of the look and feel of the upcoming OS, as well as its features and capabilities.

Like the seventeenth century work of English literature “The Pilgrim’s Progress from This World to That Which Is to Come”, Mobile World Congress 2012 (MWC) promises to reveal further progress made by operators on their journey to profitability. A growing realization of their role and influence in the ecosystem will be apparent at the event, as will a more open approach to capitalizing on revenue and cost-saving opportunities. However, MWC 2012 will not see telcos arriving at the world “which is to come”. The work required in customer experience management shows that there is still a long way to go, but it is evident that telcos are beginning to find the way.

Below, the Ovum analysts attending MWC 2012 give their views on what they expect to see at this year’s event.  

Moving on from the data Vanity Fair – Steven Hartley, Telco Strategy

The progress made by operators in responding to the increase in mobile data traffic will be interesting to note at this year’s event. Operators are beginning to set aside old assumptions, prejudices, and ways of doing business. While there is no doubt that we will hear a lot about quality of service in relation to monetizing data traffic, this will be less antagonistic than in the past.

We also expect to see more evidence of maturity and pragmatism from operators, and fewer demands that everyone must play by their rules. Operators’ growing realization of their position in the ecosystem means that the watchwords at MWC will be “partnership” and “co-operation” as telcos look to minimize the impact that mobile data traffic growth will have on their profitability. Although there will be more LTE announcements, we do not expect LTE to be portrayed as the ultimate answer to operators’ problems. Instead, it will be one part of the wider solution.

Wi-Fi becomes part of the mobile highway – Daryl Schoolar, Networks & Infrastructure

Wi-Fi will be a major infrastructure theme at this year’s MWC. There have already been several product announcements prior to the conference, highlighted by Alcatel-Lucent’s lightRadio Wi-Fi introduction. However, the biggest Wi-Fi story at the event will be Ericsson’s major endorsement of the technology, which has been demonstrated by its recent acquisition of BelAir Networks. While Wi-Fi was once merely tolerated by the mobile community, this year’s event will fully cement the technology as an integral part of mobile operators’ infrastructure strategies.

Telcos put their faith in innovation – Emeka Obiodu, Telco Strategy

Innovation will yet again be a buzzword at this year’s event. Whether it is from the telcos themselves, the numerous vendors hoping to partner with telcos, or the over-the-top players that can afford to go it alone, we expect the conference to be awash with new product and service launches. We are particularly keen to see innovations that leverage the telcos’ core capabilities in other areas.

A focus on payment to lighten the burden – Eden Zoller, Consumer

Ovum expects to see a slew of mobile payment-related announcements at this year’s event, spanning new services, devices, and partnerships. Hot spots will undoubtedly include near-field communications, which, due to increasing device support, is finally starting to look feasible after a number of false starts. Mobile wallets have increased in popularity over the past year, and MWC will see more activity in this increasingly competitive market as operators battle for prime position. We also expect to see innovation in services that add value to the core payment proposition, particularly mobile advertising, marketing, and social- and location-based applications.

Customer experience management: Telcos still have some way to go to reach the Celestial City – Mark Giles, Telco Operations

Customer experience management will be the buzzword for many of the IT vendors at this year’s conference. While the term is perhaps becoming over-used, this only serves to demonstrate just how much work is still required for telcos to meet their customers’ service expectations. Beyond the usual OSS and BSS announcements, we expect to see significant activity around software tools that provide stakeholders across the telco (and even third parties) with better visibility, both into the internal workings of the business and into the wealth of customer data that is held therein.

New certifications mean businesses can recycle IT gear without worry over remnant data

President Obama’s National Strategy initiated a requirement that the federal government’s purchasing arm will only buy IT products that comply with its environmental performance standards, and will ensure that all government electronics are reused or recycled by recyclers certified to one of two new electronics recycling standards: R2 or e-Stewards. These new voluntary industry standards can of course be used by all of corporate America, and should be. Certified recyclers must scrub data from hard disks, remove ID labels, and provide customers with verification and tracking numbers to give companies confidence that no sensitive data remains. These safeguards mean that businesses can take their unwanted IT equipment out of storage facilities and recycle it without concern, as long as the recycler is certified.

E-waste export requirements needed for US sustainability initiatives

However, the new federal requirements fail to close a loophole in US law that allows even toxic e-waste to be exported to developing countries where it is often disassembled by unprotected workers for valuable components such as gold, copper, and steel. Scarcer components found in electronics such as gallium, europium, and palladium are more difficult to extract and tend to be discarded in unregulated third-world dumps.

The problem is that, unlike all other developed countries, the US has not ratified the Basel Convention, a 1989 global treaty that seeks to ban the export of toxic waste to developing nations. As much as 80% of e-waste in theUS that is collected for recycling is thought to be exported in this way. Until the advent of the e-Stewards Standard, this posed a problem for organizations that have sustainability initiatives that include recycling unwanted IT equipment. Recycling of e-waste should be considered “green” or at least responsible, and exporting it to poisonous e-waste dumps in Africa or China or India is neither.

It is difficult to determine whether a recycler engages in e-waste exporting. Under the new requirements, recyclers used by the federal government must be certified as either R2 or e-Stewards. Both standards have been accredited by ANSI-ASQ National Accreditation Board and both have strong data-disposal requirements. However, only e-Stewards requires that e-waste is not exported to developing countries (it implements the Basel Convention Ban decision of 1995). While e-Stewards certification is gaining popularity, its adoption lags behind R2, primarily because e-Stewards certification is more rigorous than R2 (e-Stewards comprises 52 pages of requirements, versus 11 pages for R2, and incorporates the ISO 14001 Environmental Management System). R2 recyclers can simply export electronics through various loopholes in R2, and can profit from doing so.

Currently, the onus is on customers to vet recycling contractors’ operations, which requires time and diligence, especially given that R2 recyclers, while they may not necessarily export e-waste, are not required to have all of their facilities in compliance with R2 standards. This means that an R2-certified recycler may have certain facilities that are not R2-compliant, and it is not required to disclose this information to its customers. IT vendors that recycle e-waste tend to have proprietary standards and requirements.

However, a legal solution may be forthcoming in the form of a federal e-waste bill, the country’s first, which could become law as early as this year. The Responsible Electronics Recycling Act (RERA) is making its way through Congress and would bring the US in line with the strict sanctions already adopted by Europe and elsewhere that ban toxic IT scrap from being shipped to developing countries.

While it is a Sisyphean challenge to pass any type of sustainability bill in the current Congress, the RERA may prove to be the exception as it has bi-partisan support, mostly because it is seen as a job creator. Should it succeed in its current form, the bill will not only create recycling jobs in the US, but also go a long way in shoring up the e-waste outcomes of organizations.

Vendors are staking a claim in a dynamic market

Oracle’s move is not unexpected given the recent acquisitions made by its competitors, but it also emphasizes the urgency that major enterprise application vendors attach to establishing a strong position in cloud-based software. Both Oracle and SAP have existing on-premise HCM solutions, but both have been prepared to pay out large sums on cloud-based capabilities, either instead of or in addition to transitioning their existing solutions to the cloud. In Oracle’s case the proposed acquisition of Taleo is intended to complement the existing Oracle Fusion HCM Cloud Service.

The acquisition also emphasizes that customer needs may best be met by different styles of enterprise applications, and although in one sense SaaS can be seen simply as an alternative delivery channel, there is a wider market requirement represented by a fundamentally different commercial and technology model. We expect that the two models will meet the needs of different customer scenarios, depending on factors such as organization size, business velocity, existing IT environment, business strategy, vertical market, and scale of access. However, this does leave application vendors potentially having to support two or more suites, and for cloud-based software it is clear that right now it helps to buy in order to gain customer base, market share, and some aspects of technology.

Because distribution, and much else, works very differently for SaaS, we believe Oracle will recognize the fundamental difference between the two models and, while taking advantage of the expertise and experience that its acquisitions bring, let the acquired companies operate more independently than it has in the past. Our belief is therefore that Oracle will offer both Oracle Fusion HCM (cloud and on-premise) and Taleo (via cloud) for the foreseeable future, and maintain separate development paths.

Further consolidation of SaaS markets is likely during the next 12 months

We believe both Oracle and SAP have seen the emergence of a strong independent market for SaaS applications (led by Salesforce.com, with NetSuite, SugarCRM, Workday, Success Factors, and Taleo as part of the same cohort) as a threat to their established business. They will therefore look to consolidate a category before the competition becomes too strong, as has happened during the past six months in HCM.

We expect to see further acquisitions from Oracle and others during the next 12 months, with potential target areas including collaboration, ecommerce, marketing, customer service, and IT helpdesk. Workday is the largest remaining independent SaaS provider in the HCM space, and although the company has stayed resolutely independent thus far, it will be interesting to see whether it proves an attractive (if likely expensive) acquisition target for a major application vendor.

Recommendation for enterprise and public sector IT executives

We have observed significant skepticism with every new acquisition, but Oracle has demonstrated for the past seven years that it will continue to support and extend enterprise applications that it has acquired. Although SaaS is a different business model from on-premise applications, Ovum believes Oracle will continue this pattern. As a consequence, IT managers in negotiations with Taleo do not need to delay or cancel any pending deals. That said, there is always the risk that Taleo’s talent management service will be subsumed into a broader Oracle HR SaaS suite, so IT should incorporate contract terms and conditions that will protect the company if Oracle chooses to keep the technology but eliminate the standalone service aspect.

Ovum clients can log an enquiry via crmgroup@ovum.com for further analysis and advice from the Ovum analyst team.

However, more problematic for the security industry was the aftermath of the breach. There was an urgent need to get the right security messages across to the business community. How to reposition existing risk strategies was one of many issues that needed to be addressed. What happened was a major shift in positioning, from the standard message of “defense in depth will keep everything safe” to “no matter how secure you think you are, any organization can suffer a security breach.” Business organizations were advised to act as though they had already been breached. The new emphasis was on the need to identify breaches at the earliest opportunity and deal with the impact as quickly as possible. After all, following the RSA experience, how could any organization expect to deal with an APT?

The answer to these questions is not so complex. Malware threats have continued to increase, and although some of the attacks may be more targeted and persistent, there is too much emphasis on the APT label. Following on from the very genuine cyber breach of RSA itself, APTs have been used as a catch-all excuse each time organizations fail to identify a security breach. Unless the bar is being set unreasonably low, most attacks do not to meet the intended criteria for APTs. Categorizing too many of the recent breaches as genuinely advanced forms of attack is wrong. Often, their success revolves around little more than basic social engineering and a supporting cast of pre-built malware tools. The security industry needs to overcome its inertia and get back to providing the risk-based protection each business needs. RSA 2012 is the perfect time to start the healing process.

APTs are one small part of the overall security problem

A genuine APT is a cyber attack that is highly targeted, thoroughly researched, amply funded, and tailored to a particular organization. It can employ multiple vectors and use “low-and-slow” techniques to evade detection. It can be expensive to deliver and requires a strong support infrastructure.

That notwithstanding, the use of next-generation APTs will, like most other forms of malware, become commonplace. APT kits will be sold; commoditized versions are already appearing and being used to attack mainstream business targets. At this stage APTs are no longer special and will ultimately be replaced by the next generation of cyber attack, other high-profile organizations will be found wanting, and the whole circus will start again.

The fixation that the security industry has with APT, or indeed the most recent forms of “hacktivism” – which involve hacking, or breaking into a computer system, for politically or socially motivated purposes using up-rated forms of DDoS – only hides the real problems.

It does not matter what labels the industry invents to describe how malware threats are delivered. What is required is better and more agile forms of protection. The need to protect “Big Data,” user mobility, and the growing bring-your-own-device (BYOD) culture will make the headlines at RSA this year. However, for business users, the underlying requirement is for security systems that provide the right levels of risk-based protection for however and from wherever people choose to work and access information systems.  

Big Data, mobility, and BYOD will force security changes

Alongside APT threats, the need to secure “Big Data” environments and protect mobile operations will drive the security agenda at RSA 2012. Big Data may be the new buzz word, but the reality is that most enterprises already hold very large quantities of data and need to work hard to analyze existing vulnerabilities.

Mobile device usage and the latest BYOD culture puts further strain on already-stretched IT resources. Security systems are now required to protect corporate data that resides on an ever-expanding range of mobile devices, many of which are not owned by the organization and will never be under full IT control.

However, although large volumes of data are held across a wide range of fixed and mobile devices, applications, networks, and cloud-based services, it is important to remember that only a small percentage of that data is sensitive enough to need the strongest levels of enterprise protection. Our security systems need to be intelligent and agile enough to know where that data is in order to protect it.  

What is needed from security industry leaders at RSA is initiatives that focus on protecting sensitive data, key business applications, and vulnerable devices. We require programs that make use of realtime security intelligence and data analytics to identify risk and fix problems as they occur.

The SME segment is the Holy Grail of cloud services

The SME IT market is estimated at $1tn, and Parallels believes public cloud services represented only 3% of this spend in 2011. Therefore, the potential for growing this market is massive. Most SMEs are using some limited form of cloud service today (for example, hosted web presence, hosted email, or hosted business applications), and approximately 60% of these services are sold through channels such as hosting companies and telcos. The opportunity that Parallels is seizing is to enable these service provider channels to offer greater breadth and depth of cloud services by streamlining the delivery platforms, as well as a diverse range of cloud services, including bundled offers, easily and efficiently. Parallels claims to already have 50% of cloud service providers as clients (including 12 of the world’s top 30 telcos). The company’s current strategy is to help this existing service provider base grow, rather than chasing the many new service providers that are just entering this immature market. Although this sounds like a sensible approach, there are important opportunities to develop new markets. For example, the franchised or fragmented enterprise, such as motor vehicle dealerships and life insurance agents, could provide a new opportunity. In this group of users a central holding company has to provide IT services to large number of small operations, which may all have different needs and operate in different locations with widely different internal IT skills. 

Another opportunity is with smaller, localized telcos that focus on selling IP-based telecoms solutions to SMEs, and have developed deep understanding of SME customer needs. These telcos are keen to supplement their existing SME portfolios, including adding IT-centric hosted offerings. This is particularly relevant as Parallels just announced a new offering, hosted PBX, which it hopes will be taken up by its existing service provider customer base. However, this type of solution has been available for almost a decade and already offered by many large and small telcos worldwide. Adoption has been modest given the long time these solutions have been available and that Parallels’ base of IT-centric service providers are unlikely to find such a solution easy to sell. Indeed, when questioned at the conference, none of the panel of Parallels’ existing service provider customers stated that they would be likely to offer this solution.

The SME market: highly diverse with little standard use of applications

SMEs represent a highly diverse market, covering a broad range of company size, industry vertical, geographic influence, and IT skills. As a result, there is little standard use of applications (beyond the Microsoft Office suite).

Parallels has announced its Application Packaging Standard (APS), which is its approach to decoupling the development of applications from the ability to provision and distribute these applications to SME customers. APS has been greeted by Parallels’ servicer provider customer base with enthusiasm. APS allows service providers to offer bundled solutions designed for specific needs. It achieves this by delivering different applications from different sources in a single solution.Enterprisecustomers prefer to purchase bundled standard solutions, and understanding this difference is central to Parallels’ success.

VFCache does not require application knowledge

Unlike processing power, which continues to followMoore’s law of exponential growth, disk drive performance stagnated several years ago. This has caused storage to be a performance bottleneck for many applications. One way to overcome this problem is to place data as close to the applications as possible, within servers themselves, on high-speed flash drives. Using flash in this way is certainly not new. However, EMC’s VFCache is not the same as the majority of existing server flash deployments.

The most important difference is that VFCache does not require customers to know which data should be stored in flash. This is critical knowledge because without it flash deployments can be a very disappointing waste of money. However, gaining it requires expertise and detailed understanding of application I/O profiles. VFCache sidesteps this problem. It monitors data traffic and automatically identifies the hottest or most frequently accessed data that would be best stored in flash. If data access patterns change, VFCache changes the data it is storing.

Flash drives are not just used in servers. They are also frequently used to boost the performance of disk arrays. In most of these instances, the flash drives are put under the control of array-based automatic tiering functions, because this spares customers the need to understand application I/O profiles. Without automatic tiering, flash usage in disk arrays would be far less widespread. VFCache and other server-side products will have a similar effect on flash usage in servers.

VFCache is not yet integrated with back-end storage

VFCache will work with any EMC or third-party external storage system. This is because VFCache drives work entirely independently of any other server or storage function, and simply create a write-through cache copy of data. However, this will change during 2012, when EMC integrates VFCache with the automatic tiering systems in its own disk arrays. This will transform VFCache into an extra, top-level tier of storage that will be under the control of EMC arrays.

Array-based tiering software monitors data traffic, and moves the hottest or most frequently accessed data to the fastest tier of disk or flash drives within an array, and the coldest data to the slowest tier of disk drives in the same array. After they have been integrated with VFCache, EMC’s tiering functions will move the very hottest data from an array into VFCache. This explains why the label for the overall architecture is server-side flash. The integration will result in a layer of storage that is under the control of a disk array, and from a storage supplier’s point of view is on the other (server) side of the storage network.

Other suppliers are hot on EMC’s heels

Other large storage makers hinted last year that they were working on similar initiatives. Following the VFCache launch this month, Hitachi Data Systems and NetApp declared that they have similar products in the wings. Both companies promised to leapfrog EMC in terms of technical features, and Hitachisaid its product will ship this year.

Who should control data location?

EMC is integrating VFCache with its array-based tiering functions because the two systems are working toward the same goal of maximizing performance by putting the hottest data on the fastest storage devices, as close as possible to the servers. If they are not aware of what the other is doing, they will duplicate each other’s efforts. However, the operating systems that run servers also cache data within system memory in order to maximize performance. VFCache might be more efficient if it were aware of the data being held in that cache, but this would involve cooperation between server makers such as HP and IBM, both of which are major storage rivals to EMC, and an architectural decision about whether servers or storage systems should have ultimate control of data location.

None of the projects demonstrated were commercial, and none had the remotest chance of becoming so. However, the tools that these developers are building and the open-source platforms that they are using may prove to be the foundations of the next stage of technological development.

Citizen cyberscience is bringing the creativity and power of open source into the M2M domain

Citizen cyberscience incorporates much more than IoT projects. Several of the projects presented at the summit involved crowd-sourcing image scanning to human processing power. Examples included the climate data-gathering initiatives Oldweather.org and Stardust@home, in which thousands of home-based users offer their eyes and brains to perform visual data analysis and data-entry tasks. Others were about using the power of cloud-based tools to empower community activists, such as the balloon mapping kits developed by the US-based Public Laboratory for Open Technology and Science that provide a low-cost DIY alternative to satellite image capture and processing.

Connected sensor networks were a dominant theme, evidenced by the DIY “air quality egg” sensor as much as by the EU-funded EveryAware sensor data platform. Open-source hardware was also well represented at the summit, with the clearest example being the small-scale Italian electronics manufacturer Arduino, which was also an event sponsor.

It is hard to overstate the enthusiasm that some of the demonstrations generated, or how infectious they were. Workshops enabled participants to build temperature and humidity sensors, and write code to extract the data they collected to file. Other participants went further, connecting their sensors and streaming data to the IoT data-hosting platform provided by Pachube, which was also a conference sponsor.

The DIY projects pioneered by the citizen cyberscience movement don’t pose any sort of commercial threat to telecoms operators’ M2M businesses as they don’t scale up to the size of deployments needed for industrial applications. They also aren’t designed to offer the same kind of reliability, and security isn’t even an afterthought. However, the over-the-top architecture, which separates out data gathering, aggregation, and connectivity, will catch the eye of commercially-oriented players that are yet to enter the market.

The telecoms industry needs to turn up the power on the “weak signals” antenna

The idea of the “weak signal” – defined as “developments with ambiguous interpretations of their origin, meaning, or implications” – is gaining ground in the arena of future studies. However, telecoms operators have more reasons than most to pay close attention to these signals. In the early 1990s, a group of particle physicists at CERN created the World Wide Web, not because they imagined advertising-based businesses such as Google or transaction-based sales giants such as eBay and Amazon, but because they needed a new kind of tool to do their job properly. Telecoms operators largely ignored this development, focusing their efforts on vertically-integrated “value-added services networks”, most of which are now not even memories. While the telecoms industry correctly identified that the information economy was ripe for a new set of tools that would transform its scale, scope, and economics, it massively misunderstood the way in which the platform would evolve.

The “Internet of Things” is widely recognized as the “next big thing”, and if the telecoms industry ignores innovative solutions such as those on display at the Citizen Cyberscience Summit, it may miss vital clues that could inform its future strategy. As a result, it could be time to turn up the power on the “weak signals” antenna.

LightSquared had previously received concessions from the FCC, which had been keen to add competition to the US mobile market, but the latest decision leaves the wholesale-only operator with few options. It seems probable that it will be unable to launch services, and the market will be poorer for the loss of this aggressive new competitor.

Limited options

LightSquared has stated that it will continue to seek a workable solution, and that it intends to fight the decision. It could challenge the FCC in court, and its aggressively worded official response, which accuses the FCC of “bureaucratic irresponsibility”, looks like a precursor to formal action. However, any such action would be a protracted affair, with lawyers and politicians the major winners. A better solution for the company and the market would be some form of spectrum swap, but only spectrum held by the military looks feasible for this. Even that option would take time, something that LightSquared, fast running out of money, does not have.

The LightSquared story might have been one of market disruption and innovation, but now looks likely to descend into a scramble to salvage something for investors that have put up around $4bn so far. This latest decision may mean the end for both LightSquared and its wholesale-only model.

LightSquared threatened to disrupt the emerging US LTE market

LightSquared might have been the catalyst that prompted other providers to deploy long-term evolution (LTE) faster, and develop their consumer propositions. The company’s wholesale-only model was based on a low-cost, flat LTE architecture, and threatened to create a new mobile broadband pricing paradigm, with single-dollar rates per gigabit plus volume discounts. It also planned to open its network through APIs so that its wholesale customers could differentiate their own traffic and services.

The failure of LightSquared and the FCC to find a practical solution to the GPS interference issue represents a missed opportunity for the US mobile market. Just as competitive local exchange carriers with a wholesale focus motivated the incumbent carriers to become more proactive with DSL, so LightSquared might have prompted a reaction from AT&T and Verizon.

The winners and losers if LightSquared fails

Spectrum is always a scarce resource, and so LightSquared’s spectrum is valuable to other carriers in the US. In theory, LTE spectrum can be aggregated, so existing holders could use an interference-free subset of the band in conjunction with their own spectrum to increase capacity. In practice, though, it would be a very small subset. Furthermore, the current reality is that at least 10MHz of continuous spectrum is needed for LTE to offer performance gains over HSPA. This may change with LTE-Advanced, which includes plans for combining non-contiguous spectrum blocks, but for now it limits the value of LTE spectrum in comparison to more mainstream bands.

One of LightSquared’s major assets is its customer base. It has over 30 customers, all of which will have made plans based on the expectation that the network would launch in 2012. LightSquared’s leadership team has also made reference to receiving cold calls from major retailers and corporations, which suggests that there is additional, pent-up demand.

Should LightSquared fail to launch, Clearwire will be one of the major beneficiaries. Organizations such as FreedomPop that had signed contracts with LightSquared have already stated their intention to switch to the WiMAX wholesaler. Best Buy is currently a Clearwire customer but had signed up to LightSquared with the intention of switching, which is now unlikely to happen. Where once it would have worried about losing customers to LightSquared, Clearwire can now target the company’s customer list, although it may face more aggressive pricing demands than those it is used to.

Possession is nine-tenths of the law

The axiom “possession is nine-tenths of the law” has prevailed in this matter, as existing GPS signals have continued to encroach on LightSquared’s spectrum. With any major technical deployment, existing technologies and customers have a strong position, and when those customers are large government agencies their strength is even greater. This seems to have been overlooked by LightSquared, perhaps because the FCC gave it encouragement in its early stages by giving it a temporary approval.

Such practicalities can easily cause innovators to fail, but it is important to recognize that the flaw lies in the deployment rather than the concept. A compromise solution may arrive too late for LightSquared, but we hope that the wholesale-only model will live to fight another day.

From a user perspective, this is broadly positive for both ACI and S1 clients. Product sets and client bases are largely complementary, with cash management perhaps the most significant area of real overlap. ACI brings financial strength and stability that should reassure S1 clients, while an enhanced online and mobile banking offering should provide a higher trajectory growth path for ACI that will benefit existing clients in the longer term. It also provides scale, which is an increasing requirement in the banking tech market.

S1 broadens ACI’s reach in online and mobile banking

ACI is best known for its retail payments business, with BASE24 well entrenched as the top provider of ATM and point-of-sale (POS) switching engines for banks that use external software in this area. Its market share here is particularly strong with top-tier banks in developed markets, although it does also have a good presence across the Americas and Asia-Pacific. In addition, it is a major player in ancillary payment areas, such as fraud or payment service management. Less well known is ACI’s activity in the wholesale payments and online cash management markets. Its position here is relatively restricted in North America, particularly on the cash management side, but it does have a notable presence with the larger banks in this market.

By contrast, S1, as one of the leading providers of online banking across the retail, business, and corporate sides of banking, is more renowned for its banking channel platform software, although its offering is very much a multi-channel platform (including branch and voice). Accordingly, it has moved strongly into the fast-growing mobile banking space on both the retail and corporate sides. Its presence is strongest in North America, but unlike ACI, this is spread across the top and lower-tier banking segments, with a good position in both the tier-2 and tier-3 bank segments, and in the US community-banking sector.

While there is definite overlap in the online cash management space, overall S1 does give ACI greater visibility and access to some of the top bank investment priority areas across the broader digital channel space. Ovum’s recent Business Trends study of 256 banks across North America, Europe, and Asia-Pacific found that online and mobile banking were consistently identified across regions as top investment priorities for 2012. The key challenge for ACI has always been that its core payments market is stable but low-growth. S1 should allow ACI to strengthen and further internationalize its offering for the digital channel space, which when combined with ACI’s broader geographical coverage and financial strength should make it well-placed to achieve higher growth. That said, cross-selling between solution areas in banking has tended to be far stronger in theory than practice. However, this should give ACI the critical mass in this area to drive the necessary investment in both product and sales channels.

The overlap between ACI and S1 in retail payments is limited

In addition to its banking channel platform, S1 also has an offering on the retail payments side that appears on paper to directly overlap with BASE24. In 2004 S1 acquired Mosaic Software, which had a payment-switching engine called Postilion. However, in reality the overlap is limited due to both target client and geographic focus. BASE24 is a top-tier payment switch, with significant base in developed markets. While ACI has increased platform support, its core customer base runs on HP’s NonStop platform (often still referred to as Tandem by those using it), where the primary requirement of a payment switch is being able to do very high volumes extremely reliably. Postilion, on the other hand, is an open platform offering that runs on Windows or Unix. Its primary success has been in Middle Eastern and African markets, and low-tier banks outside these regions where volumes are generally lower and cost is a relatively significant consideration.

It is therefore credible for ACI to claim that these are complementary, rather than competing, offerings. The challenge is more that it will need to convince the smaller banks that ACI is still interested in these markets (a case also for S1′s community banks in the US). ACI is oriented around large accounts and deal sizes, and will need to adapt to continue to service these acquired markets.

Scale is going to be a prerequisite for banking technology vendors

As the banking technology market has evolved from a largely country-specific local market to a more global one over the last decade or so, the vendor landscape has witnessed significant consolidation. For mature markets, in particular, where overall spending growth is expected to remain low for a number of years, this trend is set to continue. Specialist banking vendors are increasingly finding their market invaded by the big horizontal enterprise application vendors such as Oracle and SAP, as well as the Indian IT services companies such as TCS and Infosys. Because spending growth will be driven by developing markets, vendors will need to become truly international.

With the need to sell worldwide comes the requirement to have a global presence and the required delivery and support network. To a degree, partners can help increase presence, but as S1 has found out, this can only go so far. The challenge is therefore the need for scale to do this profitably. The required size to be a sustainable and credible “end-game” enterprise application vendor, increasingly important in vendor selection, seems to be growing. ACI and S1 together reach the pro forma $650m revenue mark, making them one of the larger licensed-based banking software providers to date. However, $1bn has been increasingly mooted as a required rule of thumb to achieve in at least the medium term. On this basis ACI may have further to go, although of course the immediate priority should be in ensuring it achieves a happy marriage with S1 in the short term.

SOA has the potential to deliver business value, provided that business and IT leaders work together to develop a strategy that focuses on aligning the potential benefits of SOA with current and near-term business needs. Proper implementation of this strategy with effective business-IT coordination will ensure that SOA-related investments are tied to realistic business outcomes that are measurable and, more importantly, justifiable.

SOA calls for radical changes in IT practices and organizational culture

SOA signifies a significant transformation in design methodology for enterprise software and enables development of flexible business processes with loosely coupled and interoperable services that cater to specific business requirements. Ideally, SOA initiatives should be run by the IT organization and driven by business requirements so there is synergy between technical design and business needs. An effective business-IT interaction is therefore necessary to achieve successful SOA implementations. This is a tall order for many enterprises – more so for large organizations given the significant disconnect between business and IT. Faced with such challenges, IT organizations often follow the path with the least amount of risk and refrain from implementing any large-scale changes in established operations, and consequently the associated SOA implementations deliver outcomes that fall short of expectations. It is clear that effective business-IT coordination is necessary for identification of areas in which SOA can help drive business results. This will also ensure that there is an agreement between the two parties on the metrics to be used to determine the success of individual SOA projects and the overall ROI on the SOA-related expenditure.

Demonstrate the business value of SOA by mapping potential benefits to expected business results

While pushing the case for funding of SOA initiatives, IT leaders invariably position SOA as a reuse holy grail that will help reduce the cost of IT, and do not focus on other potential benefits such as business agility, better application functionality, and greater infrastructure manageability. This approach is flawed because service reuse benefits are difficult to demonstrate and establish, as the majority of SOA implementations are only two to four years into existence. Interestingly, for IT leaders SOA is more about technology that delivers value to IT and less about architecture that delivers value to the lines of business. This leads to misalignment between business needs and expected outcomes for SOA-related investments. In the past, owing to this misalignment, enterprises went too far ahead with SOA initiatives only to find that the initiatives did not live up to inflated expectations.

IT leaders often complain that line-of-business leaders have little regard for SOA and are reluctant to commit funds to SOA initiatives, as they are unsure if SOA-related investments will deliver any business value. In order to build a strong business case for SOA, IT leaders should identify the current and near-term business needs and map these to the potential benefits of SOA implementation. Once this is done, a clear specification should be provided for the costs associated with SOA implementation and those associated with non-SOA solutions. Average implementation time for these solutions should also be considered. More often than not, there will be a tangible value attached to the solution of a business problem, which will pave the way for desired business results. IT leaders must demonstrate that SOA-related investments will deliver these business results within the required timelines, and hence are justified.

Unrealistic ROI expectations will lead to disappointment

SOA implementations often involve upfront costs in the form of middleware, hardware, and network upgrades, suitable security components, and monitoring software. Other costs incurred during deployment include the effort involved in modification of legacy applications and the costs associated with training IT staff. Most of the benefits of SOA, including service reuse and reduction in the costs of IT, are not immediately realized, and therefore SOA implementations should be seen from a long-term perspective. Line-of-business leaders must understand that SOA may not deliver cost savings and other associated business results for all individual projects. Business leaders should wait until the time SOA implementations reach maturity, and thereafter can anticipate better ROI as the service reuse rate climbs and the technical staff becomes conversant with SOA. A short-sighted view based on a limited understanding of the potential benefits of SOA will result in premature discussion around the possible reasons for the shortfall, which will shift the focus to a different set of issues. Last but not least, it is important to understand that SOA is one component of solutions to the various business issues that enterprises face in the current operating environment, and is by no means a silver bullet for any of them.

Will Egypt’s outsourcing value proposition remain intact?

The big question on the minds of outsourcing players and observers since the latest round of wide-scale violence in Egypt kicked off in January 2012 is whether the country can survive over the long term as a delivery site for all aspects of outsourcing. Since 2005 it has proven to be one of the fastest-growing destinations for both BPO and IT services work, attracting blue-chip names such as Microsoft, Teleperformance, Sykes, and Stream Global Services with its large, multilingual, and educated labor pool. However, outsourcers need to be wary of how enterprise perceptions have soured on Egypt in recent months. This was demonstrated in Ovum’s 2011 CRM Outsourcing Business Trends survey, in which Egypt’s ranking as a location to be considered for offshore service delivery dropped significantly from the previous year (from the top 10 to the bottom five). The reasons so many vendors flocked to Egypt are still present: price points remain low relative to onshore countries, the talent pool is voluminous, and government investment in technology/network infrastructure is intact. However, with rioting a nearly nightly image on TV screens, US NGO workers being prevented from leaving the country, and discussions swirling around an abrogation of the peace treaty with Israel, Ovum wonders how much tolerance enterprises being supported from Egypt will demonstrate before seeking calmer delivery waters.

Regional perception spillover is a lingering concern for outsourcers

A big concern for outsourcers beyond the turmoil inEgyptis the extent to which unrest may pervade other traditional outsourcing destinations in the Middle East. Tunisia, which remains one of the largest destinations for front-office outsourcing in the Middle East, seems not to have scared off many organizations in the way of outsourcing investment. However, the future may not be so certain in Jordan, which has begun to develop an offshore niche in IT services delivery as a hub in the Middle East. Ovum cautions that vendors need to keep a close watch on unrest that may make clients of service delivery in this region nervous, and do all that they can to reinforce the Middle East’s benefits as a location of choice for outsourced delivery.

Western enterprises are averse to risky business

The ongoing situation in the Middle East is one of a number that are making enterprises across developed countries concerned about the security of delivery from offshore locations. Notwithstanding Egypt’s turmoil, worries in Mexico about omnipresent drug violence and corruption are top of mind for many firms. That, coupled with the prolonged global economic slowdown, is pushing executives to reconsider locations perceived to be too much of a gamble, and in some cases eschew offshoring altogether. What outsourcers operating in Egypt need to consider is the extent to which this sentiment will impact their profitability, regardless of the country’s above-discussed strengths.

It has been more than a decade since the launch of Salesforce.com, yet it is hard to find an equivalent success story beyond a handful of major markets – CRM, human capital management (HCM), and collaboration. Across many enterprise software markets, such as enterprise resource planning (ERP), supply chain management (SCM), business process management (BPM), and business intelligence (BI), SaaS remains a marginal force at best. This warrants a serious evaluation of where SaaS works and where it does not, and why.

SaaS only offers an advantage over the status quo when certain conditions hold

It would be appropriate to start such an evaluation with a definition of SaaS. For an application to qualify as SaaS it must meet three conditions: the architecture should be multi-tenant, the application should be hosted off-premise in a data center not owned or managed by the end-user company, and licensing should be term-based.

In an attempt to analyze the issue based on first principles, it would be useful to consider the total cost of ownership (TCO) for software implementation. TCO for software implementation comprises: application licensing; hardware; infrastructure software licensing; customization; integration; business process re-engineering; and training.

SaaS impacts just three areas: hardware, software infrastructure (such as database software), and licensing. The rest are functions of organizational complexity and are not dependent on the business model or the delivery model. Of the areas impacted by SaaS, it is not entirely clear if licensing costs are always lower for SaaS – term licenses are hardly new in the on-premise software business. Monthly license payments are also largely a myth, in Ovum’s experience. Annual subscriptions are much more common, which are very similar to term licensing schemes.

It is logical to assume that SaaS is the cheaper option when licensing, hardware, and software infrastructure account for a high percentage of TCO. This tends to be the case when customization, integration, business process re-engineering, and training costs are relatively low. Such elements are likely to register a collectively low value if:

• a standard software solution bought off-the-shelf is likely to suffice (so customization and process re-engineering costs are low),
• the user base is from a single department (so integration costs are likely to be low),
• users are already trained in the tool, for example if it has existed for some time, such as CRM, or is used outside of work, such as collaboration (so training costs are low).

Also, when a standard solution does suffice, a multi-tenant architecture is possible. This creates an important cost advantage: low application maintenance cost.

In addition, the SaaS low-touch, low-cost sales model is only possible when a standard solution is likely to suffice, as it reduces the deal value and makes the proposition easy to assess, and when the user community is from a single department, as it reduces the number of hoops through which the sales team must jump.

Ovum maintains a list of top vendors in every major enterprise software market, defined as the largest vendors which collectively account for 50-80% of each market. As part of a research study on the importance of SaaS, Ovum calculated the percentage of top vendors in each market which provide a SaaS solution. For the CRM, HCM, and collaboration markets, 40%, 50%, and 64% of the top vendors, respectively, provide a SaaS solution. For BI and BPM, 20% and 26% do, respectively. For SCM, less than 5% do. Likewise, by Ovum’s estimates, only the CRM, HCM, and collaboration markets are served by SaaS vendors which feature in the top 14 publicly traded SaaS companies. Whatever metric we choose, the results are conclusive: SaaS is a lot more successful in enterprise software markets in which standardized solutions suffice. Maintaining contacts and sales records, managing the employee appraisal cycle, and encouraging groups to talk in a Facebook-like environment are tasks that differ far less across companies and industry sectors than managing production processes, reporting production performance, and managing the supply chain.    

Recommendations for enterprises and vendors

Enterprises must assess the words “cloud” and “SaaS” very carefully. If they are associated with solutions that are unsuitable for SaaS, it is unlikely that the purported benefits of SaaS will materialize. A solution could still be a good candidate because of its functional superiority, but the much-hyped benefits of SaaS would probably not be realized. Also, an application could be based on a single-tenant architecture, hosted off-premise, and referred to as “cloud” – but cloud does not equal SaaS.    

For vendors, it is important to disaggregate SaaS into the following components.

• SaaS is a way of providing low upfront costs. But this can also be provided through a term license, which does not necessitate a SaaS model or the use of “SaaS” as a marketing term.
• SaaS is a way of setting up application access quickly and providing low time-to-value. But there are situations in which the need for low time-to-value can be addressed with an appliance model or a low-deployment-time methodology (such as templates). Use of the term “SaaS” in such circumstances is quite inappropriate and likely to be viewed with skepticism. The most inappropriate term that Ovum has heard is “SaaS in a box.”
• SaaS is a way of enabling application access from anywhere. For all but the largest of enterprises and the most resourceful of IT organizations, deploying a high-usability web-accessible application is much tougher than simply buying subscriptions. It does not require a multi-tenant infrastructure, and appropriating the term “SaaS” for the ancient Application Service Provider (ASP) model is likely to be viewed with skepticism.

Procurement of mobility services is still largely on a national level

A major problem that multinationals face in bringing mobility under control is the decentralized and uncoordinated development of mobility within the organization. Unlike other aspects of IT and communications, mobility has tended to infiltrate organizations from the bottom up. While we see some advances in the creation of global frameworks, the procurement and operational aspects of mobility are still typically national. About half of MNCs in Asia-Pacific already have some type of framework agreement whereby they can separate national contracts with a common set of terms and tariff structures. This is significant progress when compared to a couple of years ago, but over 70% of MNCs in Asia-Pacific still have national contracts.

As a result, national providers of mobility services in major markets such as India and China remain highly important, even if decision-makers have assigned central responsibility for their mobile strategy on a super-regional or global basis. IT managers should push these national providers to develop a more centralized approach, or they should seek alternative providers that can help them integrate services on a global or regional level, and bring spending and usage under control.

Growing complexity is driving managed mobility services

Given the difficulties MNCs have in coping with the various aspects of mobility, it is no surprise that interest in managed mobility services is growing. Such services help MNCs handle relationships with mobile service providers, manage the device fleet, roll out and manage secure data applications, analyze invoices, and allocate costs back to departments and users.

Services providers are recognizing these customer demands, and a growing number offer elements of managed mobility such as contract, expense, and device management.

In addition, there is increasing pressure on enterprises to allow employees to use their own devices. The proportion of businesses with a policy of allowing only company-provided devices is expected to fall to under 50% within two years. This trend adds a further level of complexity, and CIOs must evaluate providers to ensure that it is reflected in their device management capabilities and partnerships.

Regional and global telcos are well-placed for this opportunity

CIOs must also consider international plans when evaluating solutions and suppliers. MNCs headquartered in Asia-Pacific but looking to enter the international scene must take into account their operations and expansion plans when considering providers as potential long-term partners.

Over three-quarters of MNCs headquartered in Asia-Pacific have operations outside the region. Approximately 30% of the employees of these companies are based in other regions, particularly North America and Europe. Providers’ ability to extend services consistently into these markets should be considered in a procurement process.

Despite all these questions, there is a good level of certainty about which operators MNCs expect to provide their international mobile services. The majority of MNCs can point to a mobile network operator as their current main international provider for mobile services. This is good news for telcos, which are well-placed to embrace this emerging opportunity. This is the time to act, as enterprises seek long-term relationships with their managed mobility services providers.

Two-line services may provide an elegant technical solution to the challenge of using of a mobile device for both business and personal purposes, a practice complicated by the consumerization of IT, emerging enterprise mobility policies, and the trend towards bring-your-own-device (BYOD). It allows the end user to control services and applications based on two different phone numbers, and with caller ID enabled operators can, in theory, direct and manage services within the network and on the mobile device. Ovum expects to see two-line services gain popularity first in emerging regions such as Latin America and Asia-Pacific, spreading quickly to developed countries should they prove effective.

BYOD at its simplest

With two numbers, the end user can have one for business purposes and one for personal use. Customers are already accustomed to having two numbers, but at the moment they must still carry a device for each number. It may be early days for two-line services, with most still in the development stage, but they have the potential to become “the poor man’s BYOD”.

Service providers benefit in many ways

Another benefit of the two-line service is the ease with which it allows operators with most of their OSS/BSS infrastructure built around the phone number to provide management, billing, and support. It is certainly easier than trying to manage business and personal usage on one device with one number. Operators will have to make some changes to their back office, but having a second number allows them to offer separate billing for business and personal use. In addition, having two mobile plans on one device will increase ARPU per device, with heightened data usage and potential upsells. 

Benefits for the end user

One obvious benefit for the end user is the ability to carry just one device rather than two, without having to cram two SIM cards into one phone. The two-line mobile concept is not yet fully developed, but offers the promise of a simple solution that has benefits for operators and both enterprise and individual end users.

Separate billing and the opportunity to stop carrying two phones will be attractive to customers. Using two different numbers allows increased flexibility, and lets the end user control and manage usage, applications, and service plans.

Newly created position will provide focus

In his new role as chief strategy officer, John Stankey will be responsible for proactively managing (or selling off) AT&T’s non-strategic and non-performing assets. This will provide some focus to the issue of spectrum acquisition, and could also help drive creative alliances to service the increasing demand for more complex business and mobile services.

The creation of the position of chief strategy officer was largely a result of the fallout from the unsuccessful T-Mobile acquisition attempt, but is nevertheless an important move. It should increase AT&T’s focus on spectrum management, and will remove the distraction of non-strategic or non-performing assets. The role’s capital allocation responsibility means that it also has a corporate “program office” element, as this funding responsibility will dictate where AT&T will be making its big bets.

The business solutions group has another new leader

AT&T’s business solutions group has had many different leaders in the past few years, and the company will hope that the appointment of Andy Geisse provides some stability. Ovum expects to see an increase in the pace of the rollout beyond the US market of strategic offerings such as SIP trunking, business VoIP, and cloud-based services. Although AT&T does not have any major gaps in its global enterprise services portfolio, there are few application-oriented services where it is recognized as a global leader. It will aim to improve this record, as well as maintain the quality of its global managed mobility and M2M services.

There is, however, one particular area for concern: Geisse will also be responsible for US domestic home solutions. It is not at all clear that having responsibility for both US consumer services and global business services makes sense. These are two very different markets, and unless a strong management structure is put in place to run the two sides as distinct businesses there is a risk that neither will get the attention they need.     

These moves are just the beginning

Ovum expects to see further management reshuffles at AT&T as the operator refines its new structure. As with any re-organization, the new executives will need time to restructure their management team, confirm their objectives, and make further refinements as required. AT&T will continue to make changes; this is par for the course in any dynamic industry.

Serving the emerging and global enterprise

Enterprises can expect a lot more from BT and its partners in the Middle East and Africa, including:

• Extended infrastructure based on subsea cables in the region, new fiber connections into South Africa, and greater domestic connectivity. New MPLS nodes in Oman will extend the global reach of MPLS, while new NNIs will take services out of South Africa into 12 other countries. Ethernet managed services will be offered in four countries and a center of excellence for satellite established in Turkey. MPLS-based IP VPN and IPsec VPNs will be standard, accelerating Ethernet into 20 cities.
• Portfolio expansion, with 10 launches in each center combining regional and global products with some local integration. A key example of this is global inbound services. BT Assure managed security services will be available in all countries.
• People capabilities, as the operator will hire 170 new people at high skills levels, and implement BT Advise professional services in-region through 50 new specialists. Other new staff will include increased numbers at a service center in Durban.

The latest regional target is not the least important

BT Global Services’ latest regional outlay scoops up countries as far apart as South Africa, Turkey, and Oman. This is the third emerging regional opportunity after Asia-Pacific and Latin America to get the attention of chief executive Jeff Kelly (see BT Global Services: enterprise strategy review 2010), but that does not make it any less of an opportunity for the service provider.

For a start, Ovum estimates that the combined government and enterprise spend on IP VPN services across the Middle East is already greater than the equivalent spend across Latin America. We expect that spend to stay ahead, and to reach $3.0bn in 2016 compared to $2.3bn in Latin America. BT estimates the addressable market across the countries it is targeting to be £5.4bn ($8.6bn) for the range of wholesale and network IT services it will be offering.

Second, established US and European multinational corporations are extending their supply chains into the Middle East in particular, while financial services companies and retailers are tapping into the trading and spending power of local businesses. BT believes that new infrastructures will need to uprate to new service demands as enterprises come online in economic zones such as East Africa and the Gulf States. Although connectivity is the first priority, BT is thinking ahead, and both contact center solutions and virtual data centers are among the elements of the business services package that will accompany network investment.

Service providers diversify their regional offers

On the face of it, the Middle East and Africa is a sprawling super-region, with as diverse a range of markets as could be found on the rest of the planet. The startups and traders of the narrow streets of Nairobi are a world away from the huge family-owned conglomerates of Turkey or the state-owned petrochemical giants of Saudi Arabia. Yet these enterprises have important things in common: they are part of the same global supply chains in manufacturing, transport, and logistics, and they need high-security broadband access and hosted applications. That makes the MEA a perfect target for network operators with the capability to combine their own UC platforms with those of vendors, and to provide both remote access and IT support.

BT has identified the ability to establish and manage hubs in-region as a key factor in differentiating the most capable operators. South Africa is a clear hub for sub-Saharan Africa, while Turkey is a nexus between the Middle East and North Africa. These hubs will have to develop as more than points of interconnection; they must also be points of industrial and technical-scientific collaboration. Turkey is especially important and well-placed in this respect: it is an emerging industrial manufacturing country, it has significant satellite-based networks in place, and most of all it has a huge ecosystem of mobile services and applications software developers to support ICT innovation in the region.

Good news for enterprise buyers

BT Global Services is not the first global operator to notice that enterprise customers want access and interconnect in the emerging economies. In January 2012 Verizon Business said it would extend its Private IP services across 21 countries in Africa, as well as Israel, Jordan, Kuwait, Pakistan, Saudi Arabia, Turkey, and the United Arab Emirates. Orange Business Services, meanwhile, announced in August 2011 that it would expand its network capacity in Latin America by a factor of ten.

Choice is improving, and enterprises can expect to receive special attention from the best of the global telcos, as well as regional providers such as Tata Communications and Etisalat. BT is targeting two types of company: global MNCs that are investing in emerging regions and have localized requirements, and companies in those regions that are becoming global, such as Sasol in South Africa.

This is the right approach from the point of view of buyers. Ovum survey work in the past year has shown that there is a significant requirement for international managed services from both emerging enterprises (the aspirant MNCs of the future), and established MNCs in the US and Europe that want their global service providers to take them into new markets. See Ovum’s Service Provider Opportunities with Multinationals in Emerging Markets for more information.

BelAir Networks announces timely enhancements to GigXone

BelAir Networks originally announced GigXone, a small-cell Wi-Fi system, in November 2011. GigXone also functions as a marketing tool where BelAir can bring together and highlight its different Wi-Fi infrastructure assets. The vendor’s announcement on February 14 is a timely update to the earlier GigXone announcement from November. It shows continued work on BelAir’s part to create better integration between the Wi-Fi and the macro cellular network. It also touches on a serious mobile operator concern, the delivery of video content. There will be plenty of discussions at MWC about the impact of video on mobile networks, so it is important for BelAir to get out in front of those discussions and communicate how it can help. The announcement also serves as a market reminder of BelAir’s overall work with Wi-Fi offload solutions. Given current expectations of multiple vendor announcements in this area, reminding operators of one’s long history in this area is always a good thing.

Alcatel-Lucent fully puts Wi-Fi on its product roadmap

Alcatel-Lucent has a long history in wireless when it comes to macro base-station solutions. The vendor has also been aggressive in developing small-cell base stations for mobile operators. While never an opponent of Wi-Fi, Alcatel-Lucent has never been an active proponent of it either. Its LightRadio Wi-Fi announcement changed that. Several different components make up LightRadio Wi-Fi. These include putting Wi-Fi gateway functionality on its 7750 Service Router, plans to add Automatic Network Discovery and Selection Function (ANDSF) to the vendor’s policy controller, and a future LightRadio cube that will include Wi-Fi. As the vendor does not currently offer its own Wi-Fi access point, the company also announced it will be working with selected third-party access point vendors to ensure network interoperability. The vendor’s work integrating Wi-Fi with the packet core and policy controller will create a tight linkage between the cellular and Wi-Fi networks. Benefits of this include improved movement between the two networks along with giving operators more control over where and when the end user connects to Wi-Fi. For Alcatel-Lucent this announcement shows that it has fully embraced Wi-Fi as an important tool in the building of future mobile networks.

More carrier Wi-Fi movement to come in 2012

Infrastructure vendors, in particular established companies, tend not to make technology investments unless they think a market exists for that technology. If BelAir and Alcatel-Lucent are being led by operator demands to invest in Wi-Fi, we will very likely see other network equipment companies make their own announcements. A day before BelAir and Alcatel-Lucent made their announcements, Stoke announced a new carrier-grade Wi-Fi gateway. There have even been rumors of Ericsson making a major investment in a Wi-Fi vendor.

Not that long ago, Wi-Fi was merely tolerated by the mobile industry. Now Wi-Fi appears poised to be one of the biggest topics at this year’s MWC. Wi-Fi should leave the conference firmly accepted as an integral part of mobile operators’ networks.

Worklight adds mobile application lifecycle management to IBM offerings  

The Worklight solution comprises Eclipse-based Worklight Studio for development using open web standards. It leverages open source HTML5 libraries such as PhoneGap (which was recently acquired by Adobe); a client-side device runtime for cross-platform compatibility, server integration, encrypted storage, runtime mobile device skinning, and reporting on statistics and diagnostics; Worklight Server for server-side app logic, authentication, encryption of back-end systems, cloud services, and servicing clients with resources, updates, and unified push notifications; and Worklight Console for version management, push management, and reporting and analytics. Developers create one code base to deploy to multiple devices running iOS, Android, Windows, and others, and can exploit native device features. This approach brings down the cost of mobile development, not least in that it uses existing developer skills in open web standards rather than difficult-to-source native mobile OS-skilled developers.

IBM’s enterprise mobile strategy

This acquisition strengthens IBM’s strategy for enterprise mobility. Its recent CIO survey indicated that privacy and security were the biggest concerns in mobile adoption (53%), followed by the cost of developing for multiple mobile platforms (52%), and integrating cloud services to mobile devices (51%). Worklight covers the first two, and one expects to hear more regarding cloud services as Worklight has back-end functionality there as well, connecting with the IBM Cast Iron solution. The issue of security is high, given how easy it is to lose a small device. Locking down data, users, or devices remotely and fully encrypting information stored locally are among Worklight’s strengths.

Enterprisemobility was muted at IBM’s user conference in June 2011, but there has been a surge of activity since then. At its annual analyst meeting in December 2011, IBM Connect, which showcased its go-to-market strategy for 2012, the topic was headlined as a major initiative. Today IBM acquires small innovators to glue together its existing portfolio in newly connected ways, offering new solutions in market areas where change is taking place and opportunities exist. This adaptability ensures that it can use its portfolio optimally and remain a leader in IT. This puts enormous pressure on its teams to bring these integrations into play, but architectures and standards such as Open Services for Lifecycle Collaboration support these initiatives. For example, the Rational Collaborative Lifecycle Management solution can support Worklight development, and in March 2012 IBM Endpoint Manager for Mobile Devices will be available.

The Worklight acquisition provides the missing link between the many solutions IBM has to offer in mobile, and meets “Big Blue’s” need for an HTML5 mobile development and lifecycle management environment.

IBM has plugged an important gap in its testing tools portfolio

IBM Rational’s testing tools portfolio has several offerings for test management, functional testing, performance testing, and security testing. It also offers tools for testing SOA environments, such as Rational Service Tester for SOA Quality and Rational Tester for SOA Quality. However, these products focus on testing the web services layer, and end-to-end testing of SOA applications requires a lot of manual effort. This is mainly because SOA applications are highly componentized, and designed to have many touch points with other SOA components as well as third-party enterprise applications.

The complexity of a SOA deployment results not only from the number of components and their interdependencies, but also from the principle of reuse – which requires each component to be as generic as possible so it can be reused without modifications in another service. Testing a SOA component requires each such interface to be tested when the component is used in combination with other components. This is in addition to the functional testing of the component itself. Most software testing tool vendors have developed offerings for functional and performance testing of SOA components and services, but Green Hat is a market leader in end-to-end integration and regression testing of SOA and business process management (BPM) applications. In general, Green Hat’s technology can be used to test any component or application that uses a messaging interface.

Green Hat’s tools enable organizations to perform automated code-free (scriptless) testing of applications developed for these platforms. More importantly, Green Hat tools have deep integrations with leading SOA and BPM platforms, and help automate the testing of applications developed for such proprietary platforms as well as applications developed using open standards. In addition, Green Hat’s technology can virtualize web servers, application servers, hardware platforms, and commonly used databases and enterprise applications such as those from SAP and Oracle.

Green Hat’s Virtual Integrated Environment takes the pain out of stubbing

Stubbing is a routine activity for most testers involved in testing multi-layer applications. A stub is a component that emulates the behavior of another component or service that cannot be directly used for testing. A stub could be a simple, flat file giving fixed responses, or have logic built into it; the detail and complexity of stubs vary from case to case. There could be several reasons for stubbing; perhaps the required component has not been developed yet, or the actual component cannot be used for testing as it belongs to a third party and each call to that component incurs a charge. Irrespective of the reason, testing in SOA or message-oriented middleware environments depends heavily on the availability of stubbed components. Thus, many testers spend a lot of their time creating stubs and setting up test environments, rather than on actual testing.

Green Hat’s Virtual Integrated Environment (VIE) was designed to solve the aforementioned problem. VIE, as the name suggests, is a virtualization environment that can obviate the need for manually created stubs. VIE creates a virtual environment for the system under test (SOA application or component), which the testers can control and modify to suit their needs. Essentially, it virtualizes all the missing components of the system, including third-party applications and databases, and allows the tester to concentrate on testing. This capability enables direct cost savings and accelerates testing of complex SOA applications, leading to shorter time to deployment.

 Green Hat will experience high growth under the IBM Rational umbrella

IBM has often taken the acquisition route to grow its business and strengthen its product portfolio. With the Green Hat acquisition, the vendor has not only filled a gap in its testing tools portfolio, but also made a statement that it remains committed to providing software and services that help its customers achieve and maintain business agility. Ovum expects that IBM will successfully integrate Green Hat products into the Rational Software Group. Green Hat has been an IBM partner for a long time, and its products are deeply integrated with IBM Rational products such as Rational Quality Manager and Rational Team Concert. IBM’s global delivery capabilities and worldwide operations also bode well for Green Hat, and Ovum expects a phase of high growth for Green Hat within the IBM installed base.

Applications are increasingly being developed for and in the cloud. This has led to greater demand for cloud-based testing services. Green Hat’s VIE can currently be deployed in a private cloud to help testers easily create and tear down virtual test labs as required. After IBM assimilates Green Hat technology into the Rational Software fold, Ovum expects to see Green Hat tools offered as part of a testing-as-a-service cloud offering in addition to being sold via the traditional on-premise model. Ovum believes software lifecycle management (SLM) is suited for the cloud, in terms of both solution delivery and the business model. Many SLM vendors currently offer requirements, project, test, build, and release management solutions via the cloud. However, the move to the cloud will gain further ground with cloud-based testing environments.

In February 2012, the Australian government added to Vodafone’s financial burden by setting high caps for spectrum in the 700MHz and 2.5GHz bands. In the meantime, Telstra and Optus have extended their leads over VHA in the Australian mobile market.

Spectrum caps play into Telstra’s hands

VHA has announced that it intends to bid for 700MHz spectrum in the upcoming auction as it will be crucial for a large-scale LTE deployment. The Australian regulator, the Australian Communications and Media Authority (ACMA), has announced that 700MHz spectrum will be sold in nationwide blocks of 5MHz, while 2.5GHz spectrum will be sold in 5MHz regional blocks, thereby allowing a bidder to purchase 2.5GHz spectrum in metropolitan regions only.

The spectrum caps announced by ACMA will be of significant concern to VHA and, to a lesser extent, Optus. The caps allow operators to bid for up to 2×20MHz of spectrum in the 700MHz band and 2×40MHz in the 2.5/2.6GHz band. Ovum expects that Telstra will bid for the maximum 2×20MHz of spectrum in the 700MHz band. This will cost it an estimated A$800m, and will provide it with a significant market advantage over its rivals, which we expect will emerge with much less 700MHz spectrum. As Optus has a small spectrum relicensing bill, it could also bid for 2×20MHz of spectrum in the 700MHz band, and at the very least it should acquire 2×15MHz. This would leave Vodafone with just 2×5MHz or 2×10MHz of spectrum in the 700MHz band, which would make it difficult to deliver a high-quality LTE network.

Telstra continues to dominate the market

VHA has confirmed that it will renew its current spectrum holdings in the 800MHz, 1800MHz, and 2100MHz bands, which will cost it approximately A$1.5bn over the next four years. In comparison, Optus will only need to pay an estimated A$400m for its spectrum in the 1800MHz and 2100MHz bands, while Telstra will have to pay approximately A$1.2bn.

The final price for the renewal of spectrum in the 800MHz band was significantly lower than the initial price, with ACMA reducing it from A$1.46 per MHz per person to A$1.23. However, this is still significantly higher than the price of renewing comparable spectrum in similar markets around the world. The high spectrum caps per operator and expensive 800MHz relicensing costs are partly politically motivated, with the Australian government looking to maximize revenues so that it can meet its promise of returning the national budget to surplus.

The biggest winner out of these decisions is Telstra, which stands to increase its dominance over the Australian mobile market. Telstra won’t be particularly concerned with its final spectrum bill, especially if it acquires 2×20MHz at 700MHz and its rivals do not. Preliminary figures show that Telstra widened its mobile connection lead over Optus in 2H11, and it continues to be the undisputed leader in the Australian mobile market due to its superior network reach and depth, good quality of service, and improved price offers.

Optus is a distant second to Telstra, and needs to continue investing in its network if it is to close the gap on the market leader. Optus’s initial LTE rollouts will be insignificant compared to Telstra’s service that launched in September 2010. Optus’s LTE rollouts in Sydney and Melbourne will only use 5MHz channels when it launches in mid-2012, due to spectrum limitations. In comparison, Telstra is already offering LTE to 40% of its subscriber base using a 10MHz channel. As spectrum in the 700MHz band won’t be available until 2015, Optus may have to wait until it has enough spectrum to launch a first-class LTE offer.

While its ongoing network upgrades and spectrum renewal costs are increasing VHA’s debt burden, the operator has little choice but to bid for spectrum in the 700MHz and 2.5GHz bands if it wants to remain competitive in the Australian mobile market. It will do whatever is necessary to obtain new spectrum and retain its existing spectrum holdings, but that will come at a cost that will affect its pricing flexibility and investment capacity.

Weightless is a long shot, but one worth watching carefully

Neul is a small, venture capital-funded start-up based in Cambridge, England. It is not the only player looking to utilize white space frequencies, nor is it the only one to offer an alternative bearer for M2M applications. Nevertheless, its strategic vision is clear and its technology is clever enough that it deserves to be monitored carefully.

Neul hopes to see one or more Weightless-based networks per country, and hopes to attract a community of chipset manufacturers to which it will license the intellectual property without charging a royalty. It hopes to make its money from licensing to network equipment manufacturers. The company has a design for a lightweight core network optimized for the low data throughput and relatively high latency that many M2M applications tolerate. It hopes to sell this either as a managed service or to license the software. Currently, it is providing an end-to-end proposition, including manufacturing chipsets, modules, and a small number of base stations, which can then be used in pilot deployments. It has a trial license in Cambridge, and claims to be talking to governments “in countries such as Singapore” about using its network for smart-city applications.

Weightless still lacks gravity, but may yet make a successful landing

Neul and its Weightless standard lack large and significant backers. It has recruited BT and Cable & Wireless to its special interest group, which is not surprising given that both companies often show interest in unlicensed spectrum ventures, where they seek innovative and inexpensive redress for their lack of licensed mobile spectrum. However, precedents such as BT’s UMA-based Fusion venture and both operators’ acquisition of “guard band” spectrum are not encouraging. Neul also has a number of smaller vendors on board, mainly from the test industry, and is said to be talking to chipset vendors and over-the-top players.

Another possible target market for Neul is mobile operators with an interest in M2M but no current presence in the market. Neul says that it would take just £50m to build a Weightless-based network in a country the size of the UK, and obvious synergies exist for network operators including the re-use of sites and backhaul. Established M2M players and challengers would do well to monitor Neul’s progress, and should consider whether this is an opportunity they would rather embrace or extinguish.

OpenText needs a clear strategy

There are two main reasons for a company to refinance its debt. The first is because it is struggling to repay its existing debt and needs to negotiate more favorable terms, and the second is because it needs extra capital to make acquisitions. A consequence of the first reason is often that the company is looking to be acquired and attempting to put itself into a stronger position, and Ovum believes 2012 could be the year OpenText is finally acquired. The long-term goal of John Shackleton was for OpenText to be acquired by an enterprise resource planning (ERP) company, but it remains to be seen whether Mark Barrenechea has the same objective. If he intends to lead OpenText into being acquired, he needs to ensure that any acquisitions the company makes in the meantime complement its existing products and do not duplicate too many of the existing capabilities.

OpenText has a reputation for acquiring products similar to those it already has. It acquired a small ECM vendor, Gauss, in the early 2000s, followed a few years later by Gauss’s fellow ECM vendor Hummingbird, which had itself made some acquisitions, including WCM company RedDot and EDRM vendor Valid Information Systems. This left OpenText with a lot of duplication in its portfolio, and its attempt to kill off the Hummingbird products failed after a backlash from Hummingbird customers. Its duplication increased when it acquired another content management vendor, Vignette. In addition to these, OpenText has made numerous smaller acquisitions in complementary areas. The many acquisitions have given the company an almost permanent program of integration work.

Companies considering acquiring OpenText need to move now

With each acquisition that OpenText makes, it increases the value of its organization and reduces the number of vendors that can afford to buy it. Many of its acquisitions have enhanced the capabilities of its portfolio and put it at the forefront of ECM platforms in terms of capabilities and the breadth of the technologies it offers. However, concerns about the amount of duplication may deter potential suitors. Vendors considering bidding for OpenText should move now, before the company becomes unaffordable. One option for OpenText may be to offload some of the duplicated products, as there may still be vendors that would like to move into the ECM space but are put off by the lack of suitable companies and products to acquire. Another may be to try and combine products, but this may upset customers of the individual products and reduce revenues.

The most obvious potential acquirer for OpenText is (and has always been) SAP, as there is already tight integration between the two companies’ products and many SAP users also use OpenText. However, SAP already has some ECM capabilities of its own. Another possible acquirer is Oracle, but Oracle has an ECM platform, having made several acquisitions in this area, and OpenText would not add a great deal of differentiation to its portfolio. There are also large vendors such as Symantec that play in the information management space but do not have ECM capabilities.

If vendors start eyeing up OpenText with a view to acquiring the company, a bidding war could result. This would lead to OpenText being sold for an inflated price, which would make its shareholders happy and justify Barrenechea’s appointment.

Tier-2 telecoms operators are bulking up in global services

The appointment last year of Vodafone’s Gavin Darby as the new chief executive at CWP should have been a clue, but, as the stock market reaction shows, the news of talks between the companies still took the industry by surprise. However, following last year’s mergers of Global Crossing with Level 3 Communications, and three-part combination of Savvis Communications, CenturyLink, and Qwest, today’s news confirms the pressures on tier-2 global operators to combine or otherwise scale-up.

Cable&Wireless Worldwide was formed by the demerger of Cable & Wireless’s global enterprise and wholesale business from the international mobile assets that now constitute Cable & Wireless Communications. In Ovum’s opinion it has been distracted by UK acquisitions and global demerger processes over the past three years, but a merger or partnership with another global operator is one way to re-establish its undoubted credentials and importance for large enterprises and multinational corporations that want international network services.

A global story, especially for Asia-Pacific services

Cable&Wireless Worldwide does have significant UK business market share, but this is not just a UK telecoms story. A merger with CWW would give Vodafone a significant global network for fixed services that would complement or could even be integrated with its mobile operations worldwide. It could give the operator a significant position in global enterprise services.

CWW has an undersold story of network service innovation and customer service studies, one that may have been overlooked by the industry. Its multiservice platform (MSP) launched IP and Ethernet services in the UK ahead even of BT, and the company has delivered powerful fixed wireless systems for major retail customers in the UK. The MSP is now available across Europe and the Middle East.

CWW’s network service reach into Asia-Pacific would particularly suit Vodafone. It has the highest penetration of the business fixed services market in Asia-Pacific of any European or US-owned telecoms service provider. Ovum analysis of global services contracts from 2011 indicates that, while new contracts in Asia-Pacific on average account for 6% of new business among the 15 global services providers, CWW gets approximately 9% of its new business in the region, the highest proportion of any non-Asian operator.

Enterprise buyers are left wondering

However, becoming a fully-integrated telco will also make life complicated for Vodafone. It has a number of major contracts with global MNCs that get their fixed services from other telcos such as BT. Customers that want more collaboration on fixed–mobile services will wonder where Vodafone’s ownership of CWW leaves them.

There is also the question of what a merger might mean for enterprise customers of Vodafone Global Enterprise that had been looking forward to greater product and service collaboration between it and Verizon Business. Vodafone’s equity stake in Verizon naturally suggested that there should be cooperation between the UK and US operators in global fixed–mobile services, and some MNCs were already testing the idea.

Adobe’s digital media (design and development) focus is on AIR and HTML5

The argument in favor of Flash has for years been based on reach across diverse platforms, presence across user machines, and richness in terms of state-of-the-art graphics, video, and overall presentation. In recent times the reach aspect has been hampered by Apple banning any mobile browser plug-in on its iOS mobile devices. With Microsoft making similar statements on its upcoming Windows 8 Metro (though this platform has still to prove itself), the prospects for Flash mobile were not looking good. While Adobe can still talk of ubiquity of Flash on desktop PCs, long-term consumer trends appear to be heading towards mobile devices rather than traditional PCs and laptops. Adobe has stated it will continue to invest in Flash as its state-of-the-art showcase as this will remain the core technology within AIR, as well as specialized applications such as video streaming (AIR is a client-side application platform running out of the browser, and for mobile devices is installed via an app store). The Flash player plug-in for traditional large machines (PCs/Macs/laptops) will thus continue.

Adobe is supporting HTML5 web design and development by providing an HTML5 compatible creative suite. Adobe also secured the independence of the popular HTML5 app development platform, PhoneGap, by acquiring it in October 2011. HTML5 is sufficiently converged on mobile devices, many of which have browsers based on HTML5-compatible WebKit, for designers to enjoy the benefits of genuine reach/richness. However, on desktop browsers HTML5 support is still fragmented, though this will improve over the next few years.

Hedging future policy for rich user interfaces: taking strategic steps

Currently, the technological ground is moving so fast that trying to make strategic decisions over rich user interfaces is a risky business. In Ovum’s opinion HTML5 is the safest long-term future choice, simply by virtue of the weight of industry support behind it, the extent of progress already achieved in its standardization, and that it is a good enough solution for most usage scenarios. Where the state of the art is desired or needed then Adobe AIR is a good alternative; currently there is little else on the market that hits the reach/richness/ubiquity checkboxes (Microsoft Silverlight is an alternative and, despite its legacy status, still has a role for example in video streaming on large machines – see Lovefilm’s switch to Silverlight for DRM reasons).

Adobe has been hedging its future by running an HTML5 tools program in parallel with Flash for some time. So although upsetting many designers and developers in its community, the move to ditch mobile Flash is an acceptance of a situation beyond the company’s control.

The murmurs that the Flash browser plug-in on the desktop is doomed may well prove right. Once the digital media community focuses on HTML5, it is unlikely to look back at an older approach that runs on what will become in the years ahead legacy machines. This leaves AIR in a precarious position, and one wonders for how long Adobe will continue to support it. This depends ultimately on consumer and enterprise device choices. However, with greater capability provided on tablets with each generation release, the trend is moving away from traditional large machines. HTML5 and subsequent versions are where the future is heading and Adobe has made a safe hedge which its user community should emulate.

Adobe’s digital media long-term strategy

Adobe recently gave a press conference to outline its next decade vision for business in its digital media division, which it quoted grew 10% in 2011, spanning creative and interactive solutions (Creative suite), digital media solutions (covering imaging and video), and knowledge work (Acrobat and document services). The business areas where Adobe digital media is active cover web, publishing, video, gaming, and documents. Adobe quotes typical consumers as downloading 10 mobile apps per month, and spending over an hour a day browsing the web or using apps. The company is aware that traditional media companies (print and TV) need to monetize their activity, as the move to the Web has so far reduced their revenues. Thus Adobe aims to abstract away the complexity of web and mobile device fragmentation and sees HTML5 as the catalyst to achieve that over the long term.

In media publishing Adobe quotes 20% year-on-year growth in adoption of its portfolio of creative touch tools (Collage, Revel, Photoshop Touch, Debut, Proto, and Ideas) and expects 60% of media professionals to be using tablets for creative work, hence the market driver for creative tools to run on these devices.

Adobe expects premium video over IP to grow from 5% to 50% over the next few years, and intends to capitalize on these opportunities. One way the company is doing that is pushing ahead with the Adobe Creative Cloud where tools and services are available with monthly subscriptions, which for individuals will be $49 per month and for workgroups will be $69 per month. Adobe quotes the first iteration of the Creative Cloud as seeing 38% new subscribers and 76% renewals that would not have otherwise renewed, and with the new lower pricing the company expects to see 800,000 new users.

The acquisition of Auditude helps monetize rich media content, and the Acrobat business for secure over-the-web contract signing forecasts growth from 1% to 50% by 2015. Already its EchoSign business has 1 million contracts per month.

Adobe’s vision statement was thus upbeat: the move away from Flash and the cut in staffing that was announced simultaneously (get all the bad news out at once) needs to be seen in context, with HTML5 key to Adobe’s re-alignment.

Many outsourcers have benefited from stable cost bases over the past three years, which has coincided nicely with a very pro-onshore delivery sentiment among US enterprises. But, as the US economy starts to show tepid signs of life, it is doubtful that long-term US-based service delivery will remain sustainable at current levels of demand.

Strong desire for domestic delivery among US enterprises

If there has been one constant since the outset of the global financial crisis and subsequent recession, it has been a preference for domestic contact center delivery among consumers and across many opinion leaders in the media and politics. The US has not been immune to this trend, as shown in Ovum’s most recent CRM Outsourcing Business Trends Survey, with approximately 90% of US enterprise respondents indicating that they were unsure or had no plans to move any contact center delivery to offshore locations (this was in line with the global sample of respondents). While some of this was based on concerns pertaining to interaction quality with offshore agents and stability of foreign centers, in many cases outsourcers have been in a financial position to accommodate more onshore delivery over the past three years, with commercial property prices having fallen substantially in many parts of the country coupled with levels of unemployment not seen since the early 1980s. In addition, levels of attrition in US contact centers have tapered off since 2006/2007, when agent churn plagued the CRM space. However, the question for the outsourcing community is whether this onshore business model is feasible over the long term in the US.

How long will stable delivery costs last?

The ability of CRM outsourcers to draw on stable costs in the US is likely to become a challenge over the coming years. Wachovia Bank’s most recent economic forecast shows 2012 GDP growth slated at 2.1% (with inflation at roughly the same pace), meaning that the specter of flat input costs similar to those of 2009 is a distant memory. In addition, how best to manage a labor pool, whose services will come under pressure from other verticals as the economy recovers, will also be an obstacle for contact center outsourcers to overcome in the US, putting further pressure on vendors to invest in wages, training, and other retention methods to avoid an increase in attrition.

Are home agents the long-term answer?

Vendors attempting to leverage home-based agents as a means of recouping lower-cost, higher-quality domestic labor as an offshore alternative may be in for a nasty shock. In our CRM Outsourcing Business Trends Survey, 65% of US respondents stated that they would not consider using this business model as a substitute for offshoring. Effectively, this places CRM outsourcing vendors in a corner for domestic delivery options, having limited flexibility to apply lower-cost business models to their clients. Thus, Ovum believes that contact center service vendors should be pro-active in understanding the challenges an economic recovery could pose for their existing operations and the options they have available to ensure maximum profitability.

Microsoft and Skype share the vision of bringing software innovation and products to customers, and the merger has accelerated Skype’s plans to introduce new ways for people to communicate and collaborate. Ovum believes that this shared vision is particularly good because education is becoming more and more globalized, and it is therefore imperative to give students another platform to connect to the world. “Skype in the classroom” could therefore be a game-changer for students and faculty members.

Broadening the horizon of the classroom

Because many people use Skype in a personal context, there is a already familiarity with it, and Skype is finding a real place in education. Video conferencing is becoming a popular tool for collaboration, and in education web-based meeting spaces are critical for teaching and student collaboration. Skype offers the potential for positive student interactions that may not have been previously possible. Ovum believes that Skype encourages faculty and students to experiment with new techniques to facilitate engagement. Furthermore, it opens the door to a wide range of activities that can improve student engagement and overall comprehension. For example, students could work jointly on creating and analyzing a document that could be displayed alongside a live video feed with collaborators in multiple locations. Skype could also be a valuable tool for connecting foreign-language students to native speakers, and for holding virtual field trips. For distance education, Skype offers a simple way for disparate students and instructors to engage in synchronous communication.

However, Ovum warns that the effects of technology on learning depend not only on the tools, but also on the pedagogical implementation. A successful application of technology in education always means that systematic changes in the whole activity environment will also take place. In such a transformation, and in the case of Skype, the crucial element is the faculty members’ pedagogical competence in integrating the technology into the educational practice and designing their teaching in a new way. Ovum argues that traditional instructional design models are not always useful for organizing educational settings based on emergent collaborative processes such as Skype.

Be aware of the small costs

Microsoft has kept the downloading of Skype free because Skype’s large installed user base is actually more valuable than its technology. Using Skype in education is therefore more appealing because it does not present the higher costs associated with some other technologies.

However, Ovum warns that a higher bandwidth connection, which costs more for an institution to provide, is required to use Skype. Furthermore, it could also be problematic for institutions in some rural areas where bandwidth is low because there would be delays in the download speeds of the video. Ovum also suggests that institutions should be mindful of other costs associated with using Skype, such as interactive white boards or data projectors if videoconferencing with an entire class. If Skype is used often, then new skills are required to be taught and developed to use the virtual classroom. This is applicable to both students and faculty members. Students cannot effectively interact unless they are able to easily use Skype, and faculty members must ensure to make it a positive learning experience for the students.

For institutions that use Blackboard’s learning management system (LMS) and want students to use videoconferencing, Blackboard Collaborate can be integrated into the LMS. Even though this tool is not free, institutions may have greater familiarity with Blackboard overall and so may want to use it instead of Skype.

Issues with using Skype in K-12

Collaboration, connectivity, and interactivity are important themes in both higher education and K-12, and Skype, if used correctly, certainly creates a path for institutions to tick off the inclusion of these themes in lesson plans. However, Ovum warns that there are various concerns about privacy and behavior when using Skype in K-12 that would not be relevant in higher education.

Facilitators need to pay close attention to federal laws, such as the Children’s Internet Protection Act (CIPA) that requires schools to provide Internet filtering to prevent access by students to offensive content. When using Skype or social media sites for collaboration, connectivity, or interactivity, facilitators would also need to be familiar with The Family Education Rights and Privacy Act (FERPA) that protects the privacy of student information, and the Children’s Online Privacy Protection Act of 1998 (COPPA).

Ovum stresses that K-12 should not jump on the bandwagon of using Skype in the classroom, but should instead evaluate the costs and only use Skype to target specific learning goals.

Overall, a great many teachers and faculty members are signing on to Skype in the classroom, and with its relatively low costs it will continue to be a useful connection tool in the education space.

Microsoft has the technology and the installed user base to justify investing in Skype, but Ovum believes it would be good for higher education if the virtual meeting space had more players to choose from.

Sports rights-holders have responded via the Coalition of Major Professional and Participation Sports (COMPPS), which has launched an intensive press and political lobbying campaign to alter the Copyright Act to prohibit this type of service, on the basis that it erodes the value of rights in a way that is particularly detrimental to sporting bodies. This week COMPPS met with senior members of the federal government and opposition to air its grievances.

The panicked response, and some hyperbolic commentary about TV Now destroying the value of current and future digital distribution agreements, presents an interesting case study of rights-holders failing to adapt their commercial models to meet the challenges of technological innovation. The government should resist the pressure to change the law to protect sports administrators at the expense of fans and innovation.

The TV Now service allows viewers to replay unmodified broadcast feeds, complete with advertising. Clearly, rights-holders in the Optus case have already monetized this content via their existing FTA broadcast agreements. If anything, Optus is likely to slightly expand the FTA broadcast audience. These services should be treated merely as an extension of the FTA channel, and should be valued and managed as such. The challenge is that they fall outside of the current ratings system and cannot be easily measured.

Network PVR services are really just modern VCRs

The Optus TV Now product is essentially a subscription network PVR service accessible via iOS, Android, and PC devices. The user can record FTA DTT programs and play them back on compatible devices on demand, with a delay as short as two minutes for iOS users. Multiple copies of each recording are stored in Optus data centers in formats suitable for each terminal type. Separate recordings are made for each user. The Federal Court ruled that the service does not breach copyright as the recordings are limited to personal use, which is allowed under current legislation.

There are many ways to view FTA TV on mobile devices by time- and place-shifting content. Some involve cloud services and some do not. It is difficult to see how to alter legislation in a way that would not discriminate arbitrarily between different technological approaches.

COMPPS, which is made up of representatives of Cricket Australia (CA), the Australian Football League (AFL), the National Rugby League (NRL), Australian Rugby Union (ARU), Football Federation Australia (FFA), Tennis Australia, and Netball Australia, is leading the campaign to alter copyright legislation to protect their rights as they see them.

However, we think that such lobbying is unlikely to succeed. The court’s decision is not an anomaly; it is a consequence of a considered commitment to technology neutrality in the copyright regime. In other words, the legislation has worked just as intended and the commitment to technology neutrality is unlikely to be reversed.

Ovum requested clarification from COMPPS on the specifics of its proposed “quick fix” amendments, but has not received a response.

Network PVR services do not destroy the value of online rights

COMPPS has complained that network PVR services like TV Now prevent its members from monetizing their content on digital platforms and “destroy” digital rights deals, like the AUD$153m (USD$165m) five-year exclusive online rights agreement that the AFL signed with Optus’ major competitor, Telstra, in 2011.

This statement requires closer examination: the Telstra agreement is predominantly designed to deliver content to the TV screen via Telstra’s T-Box IPTV service, and Telstra also bought the rights to show matches (live and replays) that will not be broadcast FTA and are therefore beyond the reach of Optus. Furthermore, Telstra primarily uses exclusive content to attract broadband customers and upsell them higher-ARPU triple- and quad-play service bundles, not to generate incremental content revenue.

This makes sense because there is little evidence from Australia, or internationally, that consumers are willing to pay for standalone mobile TV services. This is especially true when the content is available for free on other platforms. Mobile TV is more likely to be one component of a more complete multi-screen subscription than a revenue-generator in its own right.

In Ovum’s view, Optus’ PVR service will not threaten Telstra’s bundled value proposition in any significant way. That being the case, it is difficult to see TV Now as the existential threat to future rights revenues it is made out to be.

Hyperbole masks a fear of innovation

The onus should be on local sports rights-holders and their online distribution partners to meet the challenge presented by Optus (and, certainly, others) with solutions that compete in the market. If a rights-holder’s digital strategy is not good enough to compete with a basic PVR service, then there are deeper issues to be addressed.

Attempting to protect the status quo through legal action has failed in other content verticals (such as digital music, movies, and publishing) and there is no reason to suppose that sports rights are immune to the transformative effects of digital distribution. New workarounds will emerge as long as there is unmet consumer demand, and digital recording services that enable format shifting can be deployed at any point in the distribution chain. Identifying one loophole does not close the others.

Rights-holders in other markets have shown a willingness to innovate with distribution: this week in the US the National Football League (NFL), with broadcast partner NBC, streamed the Super Bowl live online, for free, with features including the ability to pause, rewind, and choose multiple camera angles, and personalized advertising. The online stream drew 2.1 million unique viewers, making it the most watched sports event online.

Extra value comes from creating a truly integrated digital experience through extra (exclusive) content, more flexible availability, companion applications, and higher-quality streaming. Rights-holders are in a unique position to provide a better experience and better value to their fans, whether directly or as part of a partnership.

Australian sporting organizations would likewise be better served by focusing on improving their own digital distribution platforms and services rather than drawing attention to their competitors’. It may be the case that online rights are not worth as much as rights-holders had hoped, but that is not necessarily a reason to alter legislation.

Whole-of-government strategies struggle in the government pigeon coop

Disappointment with the ability to realize and sustain the promised benefits of whole-of-government ICT strategies is a common theme. The root of the issue is government’s predilection for boundaries and bureaucracy. National, jurisdictional, and legislative boundaries are reinforced by devolved organizations and management regimes to cut and dice the government world into pigeonholes. Each agency is a pigeon. The pigeonholes create order in the coop.

We can’t change this organizational reality, but it is wasteful for each agency to have its own dedicated, duplicative, and sub-scale ICT infrastructure and applications. Whole-of-government ICT strategies aim to drive consolidation, rationalization, and standardization of ICT resources across agencies to cut costs and promote service integration. Surely the pigeons can share?

Unfortunately this agenda is hard work and has delivered mixed success because the pigeons, at the end of the day, prefer the comfort of their own pigeonholes. Agency autonomy tends to win out in the end.

Multi-pigeon sharing requires new building blocks

When we look at this issue in 2012, with the benefit of having seen how cloud computing models work, we can see that a major cause of the failure of shared ICT services is that they started with the wrong building blocks. The services weren’t architected as efficient, secure, multi-tenant environments. Shared services strategies promised better, faster, cheaper ICT services, but seldom fully delivered these benefits to agencies. This was because it was too difficult and expensive to transform the building blocks of agency-specific infrastructure and applications, as well as processes and people, into those required to create a modern multi-tenant shared service.

Cloud computing can succeed where whole-of-government strategies have failed

The cloud computing model potentially offers a better way forward. Cloud services are designed to accommodate many customers within an efficient and secure multi-tenant infrastructure and applications environment. A service designed for hundreds or tens of thousands of customers and delivered by a trusted enterprise-grade provider can efficiently accommodate numerous different agencies with diverse requirements. Services are configurable and iteratively evolve to take advantage of the latest developments in web services, mobility, and social networking.

Cloud computing can succeed where previous whole-of-government ICT strategies have failed because “cloudy is as cloudy does”. Cloud services already exist as proven operational services with transparent pricing and service performance. This is a very simple, and low risk, proposition compared to agency experiences with whole-of-government ICT strategies that over-promised and under-delivered.

Back in the pigeon coop, cloud enables individual pigeons to access the economies of scale of shared resources without challenging their preference to remain autonomous in their own pigeonholes. Multi-tenant cloud services are designed to comfortably accommodate much bigger flocks of pigeons than only those in one coop.

Whole-of-government ICT strategies need to avoid becoming a bottleneck for agency cloud adoption

One of the barriers to cloud adoption, however, is outdated ICT strategy thinking that regards cloud as yet another whole-of-government strategy, to be controlled and rationed to agencies through a bottleneck of hyper-conservative and process-bound whole-of-government strategy and procurement arrangements. 

The value of cloud computing to government will be maximized when agencies are directly empowered to choose and deploy cloud services within “light touch” risk-management arrangements. Cloud is a devolved ecosystem that is perfectly aligned to the devolved structures and management preferences of agencies. The cloud will inevitably be, and should be, a transformational enabler of ICT cost savings and ICT-enabled innovation at individual agency-level. The goal should be to accelerate the pursuit of cost savings and innovation in agencies rather than choking it with traditional command-and-control whole-of-government thinking.  

CIOs need to provide visionary leadership and facilitation

The new agency-empowering dynamics of cloud computing will have a big impact on the whole-of-government CIO role. Until now a government CIO function has been able to defend its operating budget to the treasurer because it was seen as essential to the achievement of economies-of-scale-driven cost savings. If economies of scale can better be achieved by agencies individually choosing cloud services, what economic value can be added by the office of the CIO?

Smart CIOs will see this challenge coming, like the proverbial freight train, and either jump on board or get out of the way. Either way the goal must be to accelerate safe adoption of cloud services by agencies, rather than acting as a cloud gatekeeper, or even worse as a cloud bouncer.

What agencies need from whole-of-government CIOs in the cloud era is leadership and facilitation. The CIO needs to create an empowering vision of how cloud services will drive productivity and innovation, enabling procurement arrangements, as well as good-enough-to-be-getting-on-with solutions to “old school” legal, regulatory/compliance barriers, and a practical problem-solving approach to the standards necessary to promote integration.

CIOs that still see themselves as adding value by forcing pigeons to share resources against their wishes in the whole-of-government coop will soon find that their pigeons have flown to more accommodating coops elsewhere.