Communications
Workers of
America

Is AT&T The Next Google As Central Office Modernizes?

AT&T’s plan to transform its massive network by 2020 — with software running on standard computing gear replacing specialized hardware — has communications equipment suppliers and much of the IT industry abuzz.

That’s partly because AT&T (NYSE:T) will lower capital spending if successful. What’s more, a large chunk of AT&T’s lowered capex could go to smaller companies and software companies, though large telecom equipment makers are scrambling to re-invent themselves as providers of cloud, or Internet, technology.

Under AT&T’s plan, by 2020 the call and data routing done for decades at central offices (switching centers in neighborhoods), would shift to data centers packed with computer servers. AT&T’s approach in many ways resembles open-source software concepts pioneered in data centers by Internet companies such as Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL) and Amazon.com (NASDAQ:AMZN). They’ve lowered data center costs by running software on so-called “white-box” servers and switches, often built by lesser-known suppliers, not brand-name equipment.

This “new” refers to the 2005 SBC merger, but the big network transformation also will create a new AT&T.
This “new” refers to the 2005 SBC merger, but the big network transformation also will create a new AT&T. View Enlarged Image

AT&T is the first phone company to undertake such a massive data center project, though Verizon Communications (NYSE:VZ), Spain’s Telefonica (NYSE:TEF) and U.K.-based Vodafone Group (NASDAQ:VOD) are heading in the same direction.

“For a normally slow-moving carrier AT&T is moving quite fast to virtualize the network,” said Dmitry Netis, an analyst at William Blair. “A lot of telcos thought about going that route — becoming more web-scale, with an (Internet)-like network. AT&T has been very vocal about the new central office becoming a redesigned data center, with white boxes running software, less special-purpose built as in the past.”

The big picture shift is called “virtualization” — using data center software to control network functions earlier done by specialized hardware.

AT&T aims to virtualize 75% of its network with software by 2020, up from 5% at the end of 2015. In the process, it’ll fold its telecom central offices into cloud data centers, a concept called CORD, which stands for Central Office Re-architected as Data Center.

“With CORD, AT&T is redefining the telecom cloud,” said Netis. “The new data center is full of virtualized boxes running software. From servers, to router, to switches, to optical transport devices, everything becomes virtualized and nimble.”

AT&T is making progress, said John Donovan, senior executive VP of technology and operations, at an analysts’ day in August.

“We’ve moved from a vision of SDN (software defined networking) that was on PowerPoint slides to real tangible execution,” Donovan said. “Today, we use about 5% open-source software. We’re expecting this to go over 50% in the coming years. From an economics perspective this means we’re virtualizing the physical equipment, we’re using less expensive commoditized hardware, and by doing this we become more flexible to quickly meet customer demand in minutes or hours, vs. what used to take days or weeks.”

By 2020, AT&T plans to control over 150 or so network functions — such as mobile packet switching, security firewalls and network load balancers — through virtualization. With SDN, AT&T plans to improve wireless network capacity to handle streaming video and provide on-demand bandwidth services to business and residential customers.

AT&T views SDN not just as a cost cutter but also as a revenue generator, analysts say, enabling it to deploy new money-making cloud-based services and network “apps.”

By moving to a cloud, software-based services delivery business model, though, AT&T is pressuring hardware suppliers to adapt.

Some telecom equipment makers are scrambling to get their hands on software expertise, says Netis, noting fiber-optic gear maker Ciena’s (NYSE:CIEN) $400 million purchase of Cyan in August.

UBS analyst Amitabh Passi told IBD: “AT&T is being fairly aggressive in its vision and the vendor implications are still unclear.”

“AT&T’s effort highlights how some large service providers, including web-scale providers like Google, Facebook and Amazon are increasingly adopting a do-it-yourself paradigm for building networks. Growing use of white-box hardware and open-source software could pack a one-two punch for many vendors in the IT supply chain,” he said.

According to a Goldman Sachs report, some longtime AT&T gear suppliers — Cisco Systems (NASDAQ:CSCO), Ciena, and Juniper (NYSE:JNPR) — could be well-positioned because they’re members of AT&T’s new “Domain 2.0” group of equipment suppliers working on SDN-related projects.

Other Domain 2.0 members include Alcatel-Lucent (NYSE:ALU), Amdocs, Ericsson and Fujitsu. Cisco acquired Domain 2.0 member Tail-F Systems in 2014.

Startups that are part of Domain 2.0 suppliers include Affirmed Networks and Metaswitch Networks. Another newcomer as a supplier is Brocade Communications (NASDAQ:BRCD). AT&T has told analysts it plans to add more smaller companies to the Domain 2.0 group.

Chipmakers PMC-Sierra (NASDAQ:PMCS) and startup Sckipio Technologies, meanwhile, are part of the CORD project, developing new devices for next-generation data centers.

On the software side, AT&T is backing On.Lab, which is developing an open-source SDN operating system called ONOS, which stands for Open Network Operating System. Other phone companies interested in the ONOS project include China Unicom, Japan’s NTT Communications and SK Telecom in South Korea, says Netis.

Roger Entner, an analyst at Recon Analytics, says there will be winners and losers in AT&T’s massive network upgrade.

“AT&T wants to do away with custom-developed solutions and buy more commercially available computers that are a lot cheaper,” Entner said. “There will be less specialized hardware and more commercial equipment.”

AT&T will be less “locked in” to equipment vendors and more able to switch suppliers.

“They are opening up their supplier list to everybody,” added Entner. “Everybody will have a shot. There will be less ‘legacy’ equipment that needs to be supported. They will still be able to pick something from an Ericsson or Alcatel but also from a startup in Silicon Valley or New Jersey.”

 

REINHARDT KRAUSE
INVESTOR’S BUSINESS DAILY

Scroll to Top
Scroll to Top