Showing posts with label OND Commentary. Show all posts
Showing posts with label OND Commentary. Show all posts

Friday, June 23, 2017

Profile of Orange, a global operation with big ambitions - part 5

Preamble

Orange SA is perhaps the global carrier with operations in the most diverse geographies and cultures. From its headquarters in Paris, Orange (formerly France Telecom) now serves 265.162,000 subscribers worldwide with mobile, broadband, fixed telephony, TV and a range of advanced enterprise services. Part 1 covered the company's recent performance indicators, Part 2 discussed two growth segments for Orange: Africa and mobile money, Part 3 discussed the spirit of innovation and its growth in Spain, Part 4 covered Orange Business Services and the company's efforts in SDN and NFV. Part 5 of the series will look at the mobile operations, especially as Orange readies for 5G.

Part 1
Part 2
Part 3
Part 4
Part 5

Quarterly and annual financial reports from Orange S.A. paint the picture of a mature mobile market, where ARPU remains flat despite increases in data traffic and continual capital expenditures. While this article has focused on areas of new investment, there has also been a very significant divestiture - the sale of its 50% stake in Everything Everywhere (EE) in the UK. In 2015, BT acquired EE from Orange and Deutsche Telekom for GBP 12.5 billion, giving it the leading mobile network in the UK with 31 million customers (including 24.5m direct mobile customers and 834,000 are fixed broadband customers). EE had previously operated the Orange and T-Mobile networks in the UK. At the time of the deal, EE was regarded by many as the UK's most advanced 4G network.

The joint venture was established in 2009 as a cost-sharing project of France Telecom (now Orange) and Deutsche Telekom. The operation also scored several notable MVNOs, including Virgin Mobile UK, The Co-operative Mobile and Asda Mobile. The sale its 50% stake in EE provided Orange with GBP 4.5 billion in cash and a 4% equity stake in BT. There has been speculation that Orange will use these proceeds to consolidate its position in Europe. Last year, Orange negotiated to buy Bouygues Telecom, the number three mobile operator in France, but these plans were scuttled.

The 5G rollout may be slower than in the U.S., Nordics, Japan and Korea

Unlike some other mobile network operators who are rushing to claim bragging rights as the first carrier to deploy 5G, Orange appears to be holding fast to previously published timelines to commercialise the next generation of mobile technology in 2020. This news emerged at Mobile World Congress earlier this year when major mobile operators and leading equipment vendors issued a call to accelerate the 5G New Radio (NR) standardisation schedule to enable commercial deployments based on the standard in 2019, one year ahead of schedule. The list of supporters notably did not include Orange.

Currently, Orange is conducting 5G demos and is planning large-scale field trials during 2018 and 2019. However, Orange was not an early mover for 4G, and here again the carrier has stated that it will no rush ahead with a pre-standard implementation that has not been fully vetted. In a press event following publication of its Q1 2017 results, company officials stated that capex plans for a 5G rollouts have not yet been budgeted as the standards are still evolving. 3GPP Release 15 is tentatively scheduled for phase 1 release in mid-2018; Release 16 specs should be out by the end of 2019. So far, Orange has announced 5G partnerships with Ericsson, Nokia and Huawei.

Related items

In January 2017, Ericsson and Orange exceeded 10 Gbit/s peak rates in 5G lab testing using beam tracking in France. In November 2015, Orange obtained two 5 MHz frequency blocks (10 MHz in total) in France at the end of an auction process for 700 MHz frequencies for a total sum of Euro 954 million. This will enable Orange to offer better quality of service, particularly inside buildings and in rural areas, and to prepare for the introduction of 5G technology, making Orange the only French operator to own 30 MHz in low frequencies.

In Poland, Orange Polska has also won auctions to acquire two frequency blocks on the 800 MHz band and three others on the 2,600 MHz band for the total amount of around Euro 700 million. In addition, the deployment of 4G+, which provides speeds which are twice as fast as 4G, is continuing in Europe.

Orange continues to deploy the 4G/4G+ networks in the European countries where it operates. For example, in Autumn 2015, Orange Spain commercially launched LTE-Advanced, which supports speeds of up to 336 Mbit/s. In Romania, where Orange is rolling out 4G+, the agreement signed with Telekom Romania in late 2015 for use of its fibre network in urban areas provides access to 20 million connectible homes, enabling the launch of convergent offers.

Thursday, June 22, 2017

SK Telecom – setting the pace in the 5G race

SK Telecom, South Korea's leading mobile operator by market share, is one of the big players to watch on the global stage for early 5G commercialisation. In fact, a race is on with local rivals KT and LG Uplus to have the first 5G service running in time for the 2018 Winter Olympics, which will be hosted in Pyeongchang, South Korea in February 2018 - only seven months away. Of course, 5G standards are not complete and won't be in time for the Winter Olympics, which means that network planners will be rushing to show off systems that have barely been tested. Sceptics will say that 5G demos at Pyeongchang are likely to be very limited in their footprint and perhaps only 4.5G rather than truly next gen. However, SK Telecom has a track record of being first with many networking technologies, extending back to its earliest days in CDMA.

Background

South Korea's mobile market is one of the most mature in the world. There are three dominant mobile operators: SK Telecom (approximately 49% share), KT and LG Uplus. Mobile penetration has exceeded 110% for years. The majority of users are on subscription-based plans, rather than prepaid, and churn is relatively light compared to other countries.

SK Telecom, part of the SK Group conglomerate (chaebol), was founded in 1984 and has a CDMA network architecture heritage. For its most recently reported fiscal quarter, SK Telecom posted revenue of KRW 4.234 trillion, operating income of KRW 410.5 billion, basically flat from a year earlier, and net income of KRW 583.5 billion, up 2.1 %YoY. As of the end of March 2017, SK Telecom had 21.65 million LTE subscribers, representing a 10.9% YoY growth, and taking up 72.6% of the company's total mobile subscriber base of 29.83 million. ARPU was KRW 34,927 ($31.04), down 2.9% YoY. SK Telecom also operates the Cyworld social network and virtual reality service as well as the Nate-on messaging application.

First in Carrier Aggregation

This week, SK Telecom announced the launch of LTE-A Pro service, which it described as the last stage of LTE evolution. The service footprint covers the main areas of six major cities: Seoul, Busan, Daegu, Gwangju, Daejeon and Ulsan. The initial LTE-A Pro service uses three-band/four-band carrier aggregation (CA) to deliver rates of up to 700 Mbit/s. When 4 x 4 MIMO is added, the service accelerates to 900 Mbit/s. SK Telecom plans to scale up LTE-A Pro further using five-band CA with 4 x 4 MIMO to achieve 1.2 Gbit/s peak rates. The first mobile device to support the LTE-A Pro service is Samsung’s Galaxy S8. An over-the-air firmware update will be needed to support the additional CA bands.

SK Telecom's spectrum resources include 10 MHz bandwidth in the 800 MHz band, 20 MHz bandwidth in the 1.8 GHz band, 10 MHz bandwidth in the 2.1 GHz band, 10 MHz + 20 MHz bandwidths in the 2.6 Ghz band.

Peak speeds of 700 Mbit/s and up on a mobile phone are certainly impressive. Actually, SK Telecom has been delivering a 500 Mbit/s mobile service since June 2016 using 256QAM combined with tri-band CA. Four years ago, in June 2013, SK Telecom launched the  first LTE-A service, which boasted download speeds of up to 150 Mbit/s, which is two times faster than its regular LTE service and 10 times faster than its 3G network. This was achieved using CA across two 10 MHz channels, along with the first Coordinated Multi Point (CoMP) implementation. Samsung's Galaxy S4 handset, which was the latest and greatest model in the summer of 2013, was the starring device for this milestone service launch as well.

Many world capitals today have yet to attain the 150 Mbit/s performance peaks offered in Seoul four years ago. But surprisingly, SK Telecom's LTE adoption rate amongst is 29.8 million mobile subscribers was only 72%, or 21.6 million users, as of March 2017. This means that even for a mobile operator with the most advanced network in the world, a significant percentage of users are laggards when it comes to updating to the latest service.

Recently, SK Telecom gained recognition for two other technology innovations: 5G mmWave Handover and a Green Scheduler with Lean Carrier algorithm. Both advances won Global Telecoms Business (GTB) Innovation Awards last month. The 5G mmWave handover technology, developed with Samsung, supports Gbit/s-level performance using multiple mmWave 5G base stations. The companies used the Ray Tracing method to calculate the optimal location of mmWave base stations. SK Telecom and Samsung also cited their work in 3D beamforming to resolve attenuation of radio signals in mmWave frequencies. The Green Scheduler with Lean Carrier technology, which was developed in partnership with Ericsson, enhances network energy efficiency while reducing signal interference.

With Ericsson, SK Telecom is also known to be working on a 5G connected car program. Earlier this year, SK Telecom, Ericsson and BMW Korea achieved a peak rate of 3.6 Gbit/s for a connected vehicle travelling at a speed of 170 km per hour. To pull this off, the three companies deployed the world largest mmWave 5G trial network using the 28 GHz band. Beamforming and beam tracking technologies were used to optimise the connection to the speeding car.

Leaping ahead in quantum technologies

To further illustrate its interest in pushing technological boundaries, SK Telecom signed separate research partnerships earlier this year with Nokia and Deutsche Telecom focused on quantum cryptography. The first partnership will match SK Telecom's Quantum Key Distribution System (QKD) with Nokia’s next-generation optical transport system. The first prototype was shown at Mobile World Congress in February.

Nokia and SK Telecom are also collaborating on a Quantum Random Number Generator (QRNG), which is seen a key technology for applying quantum cryptography technologies to IoT devices. SK Telecom has developed what it claims to be the world’s smallest 5 x 5 mm CMOS Image Sensor (CIS) based all-in-one, single silicon (ASIC) for providing non-deterministic true random numbers on demand from quantum-shot noise. The plan is to commercialise the technology to enable secure IoT.

SK Telecom's Quantum Alliance with Deutsche Telekom is more open. At this stage, the agreement aims to the channels of communications open between carriers and vendors when it comes to quantum technologies. The official statement from the company, by, Cha In-hyok, EVP and head of IoT business division, states:

    “Committed to building a quantum-safe future, SK Telecom has been actively developing quantum cryptography technologies since 2011. SK Telecom believes that the co-establishment of the Quantum Alliance with Deutsche Telekom will bring us closer to realizing this goal, while also creating new valuable business opportunities in areas including quantum-safe communications, the Internet of Things and big data. It will work together to accelerate the growth of quantum-based cybersecurity technologies and its ecosystem".


Wednesday, June 21, 2017

Switch enters rapid growth phase for its SuperNAP data centres

Switch is the operation behind the massive SuperNAP in Las Vegas, also known by superlatives such as 'world’s densest data centre' or the first 'elite' data centre capable of exceeding Tier IV classification by the Uptime Institute. Switch currently has about 1.8 million sq feet of colocation data centre space powered up in Las Vegas, with plans to add a further 854,000 sq feet of space in this same market. Switch has also kicked off construction of a multi-billion dollar data centre campus in Reno, Nevada, as well as another marquee data centre in Grand Rapids, Michigan. An international expansion is also underway with its first data centre in Europe (Siziano, Italy) and Asia (Chonburi, Thailand). Last week, Switch unveiled its latest ambition - a data centre campus spanning more than one million sq feet in Atlanta.

Switch is privately-held company founded in 2000 by Rob Roy, a young entrepreneur who seized upon the idea that the world's leading corporations and telecom operators would benefit from highly-secure, scalable and energy-efficient colocation space where their systems could be in close physical proximity to many other like-minded carriers and corporations. Many others had this same idea at the turn of the millennium and thus we had the birth of top data centre operators whose names are still recognised today (Equinix CoreSite, Telecity), along with others that have since disappeared.

The company really got started by acquiring an Enron Broadband Services building located on Las Vegas' east Sahara Boulevard that provided access to long-haul fibre routes from the national network operators. This facility was originally intended to be the operational centre of Enron's bandwidth arbitrage business. Following Enron's spectacular collapse, the property was acquired in a bankruptcy auction by Rob Roy, reportedly only for $930,000.

Rob Roy, who remains CEO and chairman of the business, had the counter-intuitive insight to build the world’s largest data centre in the desert city of Las Vegas. There are several reasons why Las Vegas could have been a bad choice. First, the geographic location is far away from the financial centres of North America - there are relatively few Fortune 500 headquarters in Las Vegas. Second, Las Vegas is unmistakably situated in a desert. During July, the average daytime high temperature is 40.1C (104F). It is commonly understood that air conditioning is one of the greatest costs in running a data centre, and for this reason hyperscale data centres have been built near the Arctic Circle. Why build one in the desert? Third, Las Vegas is known for gambling and entertainment, but not particularly for high-tech.  If you are looking for hotspots for tech talent, you might think of Silicon Valley, Seattle, Boston, Austin, Ann Arbor or many other locations before picking Las Vegas.

However, each of these objections turned out to be an advantage for Switch thanks to the persistence or innovation of its founder. Regarding its location, the Nevada desert is geographically isolated from other potential geographic disasters.  It is spared from the earthquakes of California, Oregon or Washington. It is not in tornado alley nor is it in the path of any potential hurricane.  The location has no possibility of suffering through a debilitating blizzard, flood or tsunami. The biggest enterprises with the tightest requirements will want to have at least one major data facility out of any potential danger zone. By scaling its data centre campus to an enormous size, the Switch SuperNAP becomes its own gravity centre for attracting clients to the campus. According to the company's website, there are over 1,000 clients now, including big names such as Boeing, eBay, Dell EMC, Intel, JP Morgan Chase and many others.

As for the desert heat, Switch innovations enabling it to nail the energy efficiency challenge. The company's proprietary Thermal Separate Compartment in Facility (T-SCIF) design, which enables an unusually high-density of power load per rack, does not use water cooling. Nor does it use conventional computer room air conditioning units. Key ingredients include a slab concrete floor, hot air containment chambers, high ceilings and a heat exchange system mounted above. HVAC cooling units are outside the building. The company cites a PUE of 1.18 for its data centres in Las Vegas and an estimated 1.20 for its new facility in Reno, Nevada.

Regarding technology innovation, Rob Roy now has 256 patents and patent-pending claims with many focused on his Wattage Density Modular Design (WDMW) data centre design. Talent attracts talent. Whereas some data centre operators describe themselves primarily as real estate investments trusts, Switch positions itself as a technology leader.  One example is its proprietary building management system, which uses more than 10,000 sensors to gather millions of daily data points for dynamically optimising operations.

The Nevada desert enjoys abundant sunshine and since January 2016 all its data centres have operated on 100% renewal energy thanks to two nearby solar power stations operated by the company. These solar farms use PV panels to generate 180 MW of capacity. The focus on renewable power has earned the company an “A” listing on Greenpeace's Clean Company Scorecard, ahead of Apple, Facebook, Google, Salesforce, Microsoft, Equinix and all the others with large-scale data centre operations.

Below is an overview of major facilities and developments (data from the company website and other public sources):


In March 2017, Switch officially opened the first phase of the 1.8 million-square-foot data centre campus in Grand Rapids, Michigan. The iconic building, which is an adaptive reuse of the Steelcase Pyramid, is the centre piece of what is intended to become the largest, most advanced data centre campus in the eastern U.S. The entire campus is powered by green energy.

In February 2017, Switch inaugurated its Citadel Campus in Reno, Nevada (near Tesla’s Gigafactory). The Citadel Campus, located on 2,000 acres of land, aims to be the largest colocation facility in the world when it is fully built. The first building has 1.3 million sq feet of space. It is connected to the Switch SUPERLOOP, a 500-mile fibre backbone built by the company to provide low-latency connectivity to its campus in Las Vegas as well as to the San Francisco Bay Area and Los Angeles.

In December 2016, SUPERNAP International officially opened the 'largest, most advanced' data centre in southern Europe. The new facility is built to the specifications of the company's flagship, Tier IV Gold-rated Switch Las Vegas multi-tenant/colocation data centre. The new facility is located near Milan and includes 42,000 sq meters of data centre space with four data halls.

In January 2016, construction began on a new $300 million SUPERNAP data centre in Thailand’s eastern province of Chonburi. The new SUPERNAP Thailand data centre, which is in the Hemmaraj Industrial Estate, will cover an area of nearly 12 hectares and will be strategically built outside the flood zone, 110-metres above sea level and only 27 km away from an international submarine cable landing station.

Monday, June 19, 2017

Digital Realty pays a premium for DuPont Fabros

Late last week came news of the latest consolidation in the rapidly-evolving market of colocation data centres. Digital Realty agreed to acquire DuPont Fabros Technology (DFT) in an all-stock transaction valued at approximately $7.6 billion. DFT owns and operates a fleet of 12 purpose-built data centres concentrated in Northern Virginia, Chicago and Silicon Valley - three markets red hot for data centre activity. The DFT properties offer a combined total 3.5 million gross sq feet and 302 megawatts of available critical load. Digital Realty is the premier name in data centres, as it operates 156 key colocation facilities in 11 countries on four continents. The merger especially boosts Digital Realty's presence in hyperscale data centres in top U.S. markets.

DuPont Fabros hits a home run with hyperscale data centres

The quick summary for DFT is that all of the space in its 12 massive data centres is fully leased. The company is enjoying double digit growth in both revenue and earnings. A significant expansion programme is underway, including its first venture into Canada. The stock price has been soaring and now there is a takeover offer valued at $7.6 billion from the industry's leading player.

DFT was founded in 1997 and is based in Washington DC. Its co-founder and ongoing chairman of the board is Lammot J. du Pont and its second co-founder was Hossein Fateh. Together they pursued the concept of managing data centres as real estate, helping their enterprise customers to consolidate the rent, taxes and maintenance costs all under one lease. In 2007, the company went public as a real estate investment trust (REIT).

For the quarter ended March 31, 2017, earnings were 45c per share compared to 36c per share in the first quarter of 2016. Earnings increased 9c per share, or 25%, year over year, which was primarily due to new leases that commenced in 2016 and the first quarter of 2017 and lower preferred stock dividends, partially offset by the impact of the issuance of common stock that occurred late in the first quarter of 2016. For the year ended December 31, 2016, earnings were $1.67 per share compared to loss of 40c per share in 2015. The company proudly notes the credit worthiness of its leases, saying that investment grade or equivalent customers will represent more than 50% of total revenue.

DFT flagship location is its Ashburn, Virginia campus, which comprises of 2.138 million gross sq feet, built on 159.7 acres with a total critical load of 207.9 megawatts. Ashburn, commonly referred to as Data Center Alley, benefits from dense fibre connections to all major U.S. carriers, the presence of many federal agency customers and low-energy costs from Dominion Virginia Power. On this point, it should also be noted the Commonwealth of Virginia, along with Dominion Virginia Power (the leading electric utility in the state), have been laggards in regard to renewable energy. Dominion's website still lists coal generation as constituting 26.5% of its energy mix, while renewables (including hydro) account for only 5.6%. Another data centre in nearby Reston, Virginia adds another 256,000 sq feet of colocation capacity. For the central U.S., DFT owns and operates a campus in Elk Grove Village, Illinois (just outside Chicago) with a total 820,000 sq feet of space in two building. For the West Coast, DFT owns and operates a data centre in Santa Clara, California offering 360,000-sq feet of space and 36.6 megawatts of critical load capacity.

In 2016, DFT acquired the former Toronto Star printing plant in Vaughan, Ontario for $55 million CAD. Construction is underway to convert the former printing plant into a state-of-the-art data centre with 23 computer rooms spread across 21,016 M2 with a critical data power capacity of up to 46 MW.

As mentioned above, DFT also has a very busy expansion program under way.  It has six data centre development projects currently under construction in Ashburn, Chicago, Santa Clara and Toronto for a total expected investment of approximately $750 million. These new facilities represent roughly a 26% expansion of its standalone critical load capacity. All are expected to be online within the next 12 months, and remarkably the company has already pre-leased 48% of the new capacity. DuPont Fabros also boasts strategic land holdings in Ashburn and Oregon, which will support the future delivery of up to 163 megawatts of incremental capacity, along with 56 acres of land recently acquired in Phoenix.

In May, DFT confirmed its largest wholesale lease to date. A customer pre-leased 28.8 megawatts of electrical loads across two markets: its new CH2 data centre in Elk Grove Village and the first two phases of a new building being constructed on its Ashburn campus. In short, DFT is firing on all cylinders. The company has been the enviable position of signing customers even faster than it can build its hyperscale data centres. No wonder Digital Realty was willing to pay $7.6 billion to acquire them.

DLR gets interconnected metro data centre campuses

With 156 data centres to its name, Digital Realty (DLR) was already a competitive provider in all the DFT markets mentioned above. The merger with DFT gives its added capacity in Northern Virginia, Chicago and Silicon Valley. More importantly, it expands Digital Realty’s presence in the hyperscale segment, where top-tier cloud and content companies are eager to sign long term leases in major markets rather than going through the trouble of acquiring land, gaining permits and then building data centres on their own. DLR estimates that capex investments for hyperscale cloud infrastructure amounted to $26.3 billion in 2016, up from $21.1 billion in 2015.

In Northern Virginia's Data Center Alley, DLR already operated 17 data centres with a combined 2.2 million sq feet of space. DFT adds nine prime buildings. So now, the combined DLR will have a total of 26 data centres and 4.4 million sq feet of space within a 20-mile radius. With today's data centre interconnect (DCI) DWDM technology, the company will have the opportunity to tie these metro facilities together like never before. In Chicago, the merger will give DLR a combined 7 data centres and 2.5 million sq feet of space in a 25-mile radius. And in Silicon Valley, DLR will have 16 data centres and 2.1 million sq feet of space in a 7-mile radius.

Digital Realty's CEO A. William Stein commented, "This strategic and complementary transaction significantly enhances Digital Realty's ability to support the growth of hyper-scale users in the top U.S. data centre metro areas, while providing meaningful customer and geographic diversification for DuPont Fabros".

As for combined customers, an investor presentation following the merger announcement listed IBM, Facebook, CenturyLink, Rackspace, Equinix, LinkedIn, AT&T, JP Morgan Chase, Verizon, Dropbox and other marquee names.

Continuing the consolidation

The DFT-DLR deal is certainly notable for its rich valuation. It adds momentum to a sector that we already knew was red hot. In May, Equinix completed its acquisition of 29 data centres and their operations from Verizon Communications. This deal was valued at $3.6 billion in cash. Combined, the acquired properties cover approximately three million gross sq feet of data centre space. Also in May, private equity funds including Medina Capital Advisors and Longview Asset Management acquired CenturyLink's data centres and colocation for $1.86 billion. This deal consisted of CenturyLink's portfolio of 57 data centres which includes approximately 195 megawatts of power across 2.6 million sq feet of raised floor capacity. From the numbers we can see that there is no clear correlation between acquisition price and sq footage. As with all real estate, location is the prime factor, which brings the top tier customers in search of hyperscale space.

Friday, June 16, 2017

Profile of Orange, a global operation with big ambitions – Part 3

Preamble

Orange SA is perhaps the global carrier with operations in the most diverse geographies and cultures. From its headquarters in Paris, Orange (formerly France Telecom) now serves 265.162,000 subscribers worldwide with mobile, broadband, fixed telephony, TV and a range of advanced enterprise services. In Part 1 of this series, the company's recent performance indicators were covered; in Part 2 the two growth segments, Africa and mobile money, were profiled. Part 3 will cover Orange's innovation activities and growth opportunity in Spain.

The inertia of incumbency

By any measure, Orange is enormous. With 155,000 employees supporting 265 million customers in 29 countries, the management challenge of guiding such a large enterprise must be considerable. Like many formerly fully-state owned, incumbent, fixed line operators, the former France Telecom has a certain inertia due to its heritage and ongoing regulatory and social obligations. Earlier this year, Orange reached a labour agreement with the main trade union representing it workers in France. The contract provides an average wage increase of 2.3% and offers some special incentives to support young employees who have joined the company in recent years. Orange has about 95,000 employees in France.

Given the large employee base, it may seem incongruous to think of Orange as an innovation leader, but this has clearly been the ambition of the company's management for many years. Of course some of the company's history coincides with pioneering telecommunication technologies that were developed in France. The Minitel comes to mind - the iconic online videotext service that scaled to millions of terminals across France in the years before the Web. France Telecom officially retired the Minitel service in June 2012. Today, Orange has approximately 650 employees directly in the R&D programmes and the company is involved in 100 research partnerships with universities and public laboratories in France and abroad.

Looking for start-ups

Orange Fab is the company's international accelerator or start-ups. The program, launched in 2013 and now active in 14 countries, creates commercial partnerships between chosen start-ups and business units inside of Orange. It functions as a launch pad by providing business advice as well as local and international visibility. The latest location for an Orange Fab is Belgium/Luxembourg, where the company hopes to cultivate specialists in Big Data, AI, IoT and all the hot topics of the industry. To date, Orange Fab has contributed to the development of nearly 250 start-ups worldwide.

In April, Orange and Facebook kicked off a program designed to support start-ups focused on network infrastructure development. Orange, a member of the Telecom Infra Project (TIP) initiated by Facebook, said this new partnership would identify and support start-ups focused on network infrastructure technology. The Orange Fab, France Telecom Track accelerator, will support and guidance from experts at Orange, TIP and Facebook, as well as facilitate collaboration and investment opportunities. The project is managed through Orange Fab France, Orange's established accelerator program for start-ups located at the Orange Gardens campus in Paris.

Expansion on its southern border

Outside its home market, Spain is perhaps the most important region of focus for Orange, where the company has the ambition to reach 14 million connected homes by the end of 2019 - a major incursion into Telefonica’s home market. Already, Orange has more fibre-connections in Spain than it does in France. Currently, a total of 21.5 million households had fibre connectivity across the group's footprint at the end of March 2017 (up 53% year on year), of which 10.0 million were in Spain, 7.4 million in France, 2.1 million in Romania (following the cross-network-sharing agreement with Telekom Romania), 1.7 million in Poland and 352,000 in Slovakia.

In Spain, despite heavy discounting from competitors since last December, Orange's overall Q1 2017 revenue grew by 8.5%, suppressing the 7.9% the group achieved in Q4 2016 and more broadly over the full year 2016 where Orange widely over performed its two closest competitors. Mobile revenue accelerated to more than 8%, driven by a 5.4% growth in the contract base, and 4.6% growth in mobile quarterly ARPU, supported by recent service upgrades, the latest on the Jazztel brand and on the Orange brand. The company also reported strong results for commercial sales in both fixed broadband with 196,000 net fibre sales for the quarter (1.806 million fibre customers at March 31, 2017) and mobile contracts with 119,000 net sales.

As of the first quarter of 2017, Orange Spain had a total of 8.2 million customers. The contract customer base grew 3.2% year on year to 11.297 million customers and the quarterly ARPU of contracts rose 4.0%. Growth was also significant in mobile services provided to other carriers, in particular the growth of MVNOs and network sharing. Fixed services rose 7.5% in the first quarter, led by continued strong revenue growth in fixed broadband (up 8.5%). Fixed broadband had 4.2 million customers at the end of March (up 5.4% year on year), and quarterly ARPU rose 3.0%. TV services also rose rapidly, with 537,000 customers at the end of March, led by the success of content offers and notably the broadcasts of football championships.

In 2015, Orange acquired Jazztel, a network operator offering broadband and triple play services in Spain, for approximately Euro 3.4 billion. With Jazztel, Orange's fibre network reached 9.6 million connectible homes as of December 31, 2016. A joint investment agreement with MasMovil in July 2016 established the second largest fixed high-speed network. The latest figures from Q1 2017 show the incumbent, Movistar (Telefonica), losing some 25,000 subscribers, while Orange, MasMovil and Vodafone each gained subscribers.

Part 1
Part 2
Part 3
Part 4
Part 5

Profile of Orange, a global operation with big ambitions – Part 4

Preamble

Orange SA is perhaps the global carrier with operations in the most diverse geographies and cultures. From its headquarters in Paris, Orange (formerly France Telecom) now serves 265.162,000 subscribers worldwide with mobile, broadband, fixed telephony, TV and a range of advanced enterprise services. In part 1 of this article, we looked at the company’s recent performance indicators. Part 2 discussed two growth segments for Orange: Africa and mobile money; Part 3 discussed the spirit of innovation inside Orange and its growth in Spain. Part 4 will examine forward-looking aspects of the carrier’s network architecture, especially SDN and NFV, which will be critical to building a fully-integrated, global super-carrier infrastructure. These platforms are being deployed by Orange Business Services (OBS) now, putting the carrier ahead of many industry peers.

An early mover with network virtualisation

Orange Business Services (OBS) delivers the company's enterprise portfolio over networks deployed by the group (fibre, 4G, WiFi, software defined networking). It is a truly global operation with 21,000 employees in 220 countries and territories. Orange's international IP transit network, which it calls the Open Transit Internet (OTI) network, has 24 major PoPs (12 in Europe, two in Asia, eight in North America, one in Africa and one in the Middle East); interconnects between these major PoPs run at up to 100 Gbit/s. By mid-2016, Oranges says peak traffic loads reached 4.2 Tbit/s across its OTI.

In the red-hot sector of SDN, NFV and SD-WAN, Orange has indicated on various occasions that it has been developing its own technology. Orange is a leading player in industry standards organisations and several vendor partnerships have been announced. When it comes to building the next layer of network virtualisation, the carrier has played a key role. Orange was a founding member of the network functions virtualisation (NFV) initiative that became an Industry Specification Group (ISG) within the European Telecommunications Standards Institute (ETSI) in 2013. A key research partnership was formed with France’s the National Institute of research in Computing and Automation (INRIA) in 2015, leading to the creation of <I/O Lab>, a joint research laboratory for virtualisation, network convergence and cloud computing.

In March 2015, Orange Business Services launched an early pilot deployment of virtualised network functions for small and medium enterprises (SMBs). The pilot enabled SMBs (with up to ten sites) to test an SDN-enabled system that lets users manage their Intranet and Internet service in real-time. Users could order and customize new virtualised application services of their choice: Internet content filtering, advanced security and anti-virus. Orange used its own SDN controller to managed the virtualised services.

In mid-2016, Orange and AT&T agreed to collaborate on SDN and NFV. Later, it emerged that Orange would become the first carrier to test AT&T’s Enhanced Control, Orchestration, Management and Policy (ECOMP) platform. AT&T’s ECOMP has since been merged into the Open Network Automation Platform (ONAP) project under The Linux Foundation of which Orange is a platinum member.

Orange has also been working with MEF and TM Forum to release the first set of standard application programming interfaces (APIs) for orchestrated Carrier Ethernet services later this year. This initiative uses MEF's LSO (Lifecycle Service Orchestration) framework and TM Forum's Open API framework to enable SDN architectures from different network service providers to interoperate with each other. There are plans to standardize 8 API definitions. This builds on the industry-agreed Open APIs developed by TM Forum members. Various other carriers are also part of this initiative, including AT&T Colt Technology Services, Comcast, Level 3, PCCW Global, TI Sparkle and Verizon.

In November 2016, Orange Business Services officially launched its Easy Go Network, which provides fully-virtualised network functions (VNF) using SDN, in 75 countries by the end of 2016. The Easy Go Network service, which underwent a year-long trial with customers, allows enterprises to instantly provision VNFs for branch offices with full digital self-service ordering, customer care and reporting functions. The service includes a plug-and-play router on site, eliminating truck rolls for more flexibility and rapid deployment. Orange says the key benefits of its Easy Go Network is that the service is on-demand and fully flexible with no upfront investment and no minimum revenue commitment. Billing is offered under a month to-month contract.

In March 2017, Orange Business announced plans integrate Riverbed SteelConnect technology into its hybrid network portfolio. The two companies are working together to develop a virtual network function (VNF) that customers will be able to deploy on universal customer premise equipment (uCPE) at their site. Full compatibility will be maintained with existing services as enterprises transition applications to the cloud. Riverbed said its SD-WAN offering, SteelConnect, provides an intelligent and simplified approach to designing, deploying and managing hybrid networks. Application performance is improved by real-time routing using the optimum links available between different networks. SteelConnect also enables zero-touch provisioning, allowing enterprises to set-up global networks quickly with easy management, providing a cost effective and superior end user experience. The first Orange pilot customers will be connected during the second quarter 2017 using managed SteelConnect appliances. The VNF of the service is scheduled to be available at the end of 2017. This will provide full virtualisation and orchestration managed through an easy-to-use ‘self-care’ portal to administer and prioritise applications.

Easy Go brings integration opportunities

For many years, Orange Business Services has been delivering MPLS WAN services for multinational with operations throughout the globe. Often, these have been complex WAN solutions that integrate all an organisation's voice, video conferencing and data communications with QoS provided for mission-critical applications.  For instance, OBS manages a private cloud on behalf of the European Space Agency, linking eight sites across the continent over a converged IP/MPLS infrastructure.  Another such high-profile project is the private IP/MPLS network that OBS manages on behalf of the European Commission, linking more than 250 sites across all EU member nations.

With SD-WAN, OBS now has the possibility of integrating access from other carriers. In May, OBS signed a four-year contract with Heraeus, a leading technology group headquartered in Hanau, Germany to centralize all services on a homogenous and stable network linking Heraeus' 110 locations around the world. Under the contract, Heraeus will unify all services currently provided by almost 100 different providers under Orange Business Services. While the announcement did not specify which WAN technologies would be put to use, it is likely that the new SD-WAN implementation will be employed in locations where an IP/MPLS node is not viable either from a local access perspective or simply for economics.

Orange remains a Layer 1 network operator with significant terrestrial fibre, subsea resources

It should be noted that while many carriers may offer virtualised network services such as Easy Go, Orange continues to operate a very significant fibre network both in Europe and internationally (18,000 km), not to mention one of the largest IP/MPLS backbones and conventional VPN services for multinational organisations.

Since the earliest days to telecom, the group has been involved in long-haul cables. Currently, Orange is involved in over 40 undersea fibre cables and consortia projects representing some 450,000 km of fibre cables. One such project is the recently commissioned SE-ME-WE5 cable linking Marseille to Singapore. Orange was one of the lead consortium members.

Thursday, June 15, 2017

Profile of Orange, a global operation with big ambitions, slow, steady growth – Part 2

Preamble

Orange is perhaps the global carrier with operations in the most diverse geographies and cultures. From its headquarters in Paris, Orange (formerly France Telecom) now serves 265.162,000 subscribers worldwide with mobile, broadband, fixed telephony, TV and a range of advanced enterprise services. Part 1 covered the company’s recent performance indicators, this part will cover two growth segments for Orange: Africa and mobile money.

Ambitions for Africa

Orange currently is the No.1 or No.2 mobile network by market share in 21 countries across Africa and the Middle East, where it has more than 120 million customers. As of last August, Orange had launched 4G in 9 of these countries, with network upgrades planned or underway in all of these markets. The stated ambition is for Orange revenue in Africa and the Middle East to grow 20% over the 2015 to 2018 time frame. For 2016, Orange reported Euro 5.2 billion in revenue from Africa and Middle East (12% of the group total). The company views this region as a strategic priority given the young and growing population, as well as the lower mobile penetration and broadband adoption rates compared with developed markets in Europe.

One obstacle to overcome in the region is the lack of financial services for large segments of the population. For the past few years, Orange is striving to develop a mobile money service that could turn this situation into a strategic differentiator for its mobile networks. Orange Money is its flagship capability for money transfers and mobile financial services, currently available in 17 countries and with more than 31 million customers. To manage risk associated with its electronic money operations, Orange has set up a dedicated organization, CECOM, based in Abidjan, Côte d’Ivoire. CECOM reports to the Orange Group and provides second-level control for the Orange Money business, which exceeded one billion Euros of transactions in June 2016.

For many subscribers, Orange Money is their first experience with an electronic bank but, over time, Orange Money is moving beyond basic banking. Earlier this year, Orange Money announced a partnership with Vivo Energy that enables customers to cash in and cash out money from their Orange Money account and pay in any of the 1,000+ Shell service stations operated by Vivo Energy. The services are already available in Mali, Cote d’Ivoire and Madagascar. Orange Money expects to have this operational across the rest of its common footprint by mid-2017.

The latest project in Africa is the expansion of the Orange brand in May 2017 to Liberia, where the former Cellcom Liberia has just become Orange Liberia. This was accomplished via acquisition of the Liberian operator Cellcom by Orange Côte d’Ivoire. Cellcom Liberia, founded in 2004, claimed over 1.6 million customers at the end of February 2017. The Republic of Liberia, which has a population of about 4.5 million, has a relatively low mobile penetration rate of 70%. Cellcom Liberia launched its 4G LTE network last year, with the construction of 29 sites. Now that it has taken over operations, Orange plans to accelerate the 4G network upgrade across the country, including in areas that are still awaiting basic telecom services. Approximately three-quarters of the population resides outside of the capital city of Monrovia.

Previously, in 2016 Orange acquired the second largest mobile operator in Burkina Faso from Airtel. Burkina Faso, with a population of approximately 18 million, has one of the strongest growth rates (5.8%) in the Economic Community of West African States, and a mobile penetration rate of about 80% as of last year. The deal with Airtel brought 4.6 million customers.

Also in 2016, the Orange brand replaced the Méditel brand in Morocco. Orange’s Moroccan subsidiary had 14.2 million customers at the end of September 2016, the second largest total within the group’s Middle East and African footprint, after Orange Egypt, and contributing close to 10% of its revenue in this region. The group's interest in Morocco goes back to 2010, when France Telecom invested Euro 640 million to acquire a 40% stake in Méditel. The Méditel network includes more than 5,400 km of optical fibre and more than 4,000 radio sites throughout the kingdom.

However, despite the many new markets and growing subscriber counts, the volatility of political and economic conditions in Africa always remains a worry. Over the past year, Orange said it was impacted by difficult conditions in Egypt and the Democratic Republic of the Congo (DRC).

Orange Brings mobile banking from Africa to Europe

Interestingly, several years after launching its Orange mobile banking service in African markets, Orange is now ready to bring it to Europe. In October 2014, Orange Finanse was introduced in Poland in partnership with mBank, the fourth largest retail bank. The company says Poland is where NFC (near field communication) has developed most fully in Europe, with 80% of payment terminals already equipped for contactless payments and more than 3 million users routinely using mobile payment services (Poland has a population of about 38 million).

Starting in July, Orange is launching a mobile bank for its home market of France. Launch materials distributed to the press state this new business is organised as Orange Bank SA, with capital of Euro 297,575,712 and a commercial relationship with Visa. In addition to standard banking services, Orange will provide money transfers via SMS, as well as a virtual assistant driven by artificial intelligence. Ultimately, Orange Bank aims to have more than 2 million customers in France, where it currently has around 30 million mobile users. Orange's ambition is to reach Euro 400 million in revenue in 2018 in the financial services field across all markets.

Stéphane Richard, chairman and CEO of Orange has commented that the commercial launch of Orange Bank for the general public in July marks an important new chapter in the group's history, with Orange also a bank that places customer experience at the heart of its business model. He added that Orange Bank will build on the professional skills of its banking experts, the disruptive capability of its partnerships with start-ups and the traditional assets of Orange: its distribution network, its expertise in digital services and financial strength. By bringing together these different sources of energy, it aims to meet the expectations of customers in a way that will enable it to adapt as their needs evolve.

Wednesday, June 14, 2017

The pieces are coming together for Dell Technologies – part 4

During its Dell EMC World conference last week in Las Vegas, the company provided a wide-ranging update on its networking activities. Dell has been a big believer in open networking. Some years ago, it took the bold step of decoupling its networking software from its hardware switching platforms, enabling customers to load an OS of their choice instead of the Dell version; last year Dell, in conjunction with Microsoft Azure and other industry leaders, made foundational contributions to the SONiC effort, which aims to open source all the components needed to build fully-functional networking software. SONiC is a collection of software packages/modules that can be installed on Linux on a network hardware switch which makes it a complete, functional router. Dell has successfully integrated its OS10 base software to serve as a foundational element for SONiC.

Open networking is a big theme, but the company does not disclose the percentage of switching customers that choose a third-party open networking OS over its own OS. There is a free version of the Dell networking OS and a new flagship OS10 Enterprise Edition option that incorporates design elements from the Open Compute Project. The OS10 Enterprise Edition package provides Layer 2 and 3 networking functionality. Open networking partners include Cumulus Networks and Big Switch, although other stacks, such as Pica8, could also be loaded using ONIE.

At the recent Dell EMC World, there were several networking hardware announcements, including:

•   A new S5100-ON series 25 Gigabit Ethernet Open Networking switch, designed to support the new Dell EMC PowerEdge 14th generation servers, which will ship with native 25 Gigabit Ethernet support and 100 Gigabit Ethernet uplinks.

•   A new S4100-ON series of top-of-rack data centre Open Networking switches optimised for high densities of 10 GBE fibre/copper or Fibre Channel 8/16/32 server and converged LAN and SAN within racks, with 100 GBE uplink ports. Included in this family is the S4148U, a new unified switch for both Ethernet and Fibre Channel traffic. It supports 32 Gbit/s Fibre Channel.

•   New Dell EMC N1100-ON series of campus switches, which include several fanless switches in half- and full-width options, Power over Ethernet (POE/POE+) and non-POE versions, and port configurations from 10/100/1000 Mbit/s to 1/10 GBE. The N1100-ON series switches are designed to pair with Aerohive's HiveManager NG, a next-generation cloud-based management solution that simplifies end-user wired and wireless access.

Opening the door to switching silicon competition

The new 25 Gbit/s switch is powered by Cavium's Xpliant switching silicon. This represents a significant win for Cavium and an opening at Dell to a wider silicon supply chain. Like its competitors, Dell's switching portfolio previously has been entirely powered by Broadcom. This relationship continues, but there are likely to be more silicon suppliers for Dell networking products going forward.

Networking scale and speculation

While other Dell Technologies' units are typically No. 1, 2 or 3 in their respective market categories, it is interesting to note that the Dell networking group has not attained this level of industry prominence. The big networking equipment vendors have found opportunities to position their solutions at the centre of major IT deployments. One typically hears marketing slogan about how 'the business runs on the network', 'the network is the business', etc., so one would think the networking group would be fundamental to Dell Technologies' ambition to be the No.1 IT vendor. Yet at the Dell EMC World event, the networking exhibit was relegated to a relatively small section that could easily be missed – small potatoes compared to the prominent displays for storage and servers.

With the new cross-company momentum inside the Dell Technologies' group, it is possible and even likely that the networking group will grow faster than its industry peers. Its open networking strategy has been in-step with latest network architecture trends. Dell does substantial business in partnership with other networking players, including Arista, Cisco, Nutanix and others, but it must differentiate itself if it is to attain a leadership position in the industry.

One needs to ask whether a major acquisition would be a faster and better way to grow its market share to reach parity with the other Dell units. If so, what are the possibilities? Private equity investors have been willing to buy out public companies. Dell Technologies' current investors, perhaps joined by others, conceivably could raise the funding to buy out even a mid-sized player. Presumably, the purpose of the exercise would be to gain a strong networking position in Fortune 500 accounts, which is Cisco's stronghold. The networking vendor that has been cannibalising these Cisco accounts is Arista Networks. To add to this speculation, it is interesting that Andy Bechtolsheim, founder and CTO of Arista, was a speaker at Dell EMC World in Las Vegas. One would not expect to see an Arista executive appear at Cisco Live!, but now we know that Dell and Arista are on friendly terms.

As noted earlier in this series, David Goulden said that as a private company Dell Technologies now has more leeway to make strategic investments. This week brings news that VMware has acquired Apteligent, a start-up based in San Francisco, providing a mobile analytics platform. VMware plans to integrate Apteligent’s mobile performance management with its own Digital Workspace Platform for enterprises building and delivering mobile applications. This is a strategic acquisition, and one should expect more such deal making on the networking side.

Tuesday, June 13, 2017

The pieces are coming together at Dell Technologies – part 3

Wrapping up the coverage of last week's Dell EMC World, a key point to consider is how the many component companies now assembled will fit together and what strategic advantage this provides over the likely competition.

At the low end, Dell Technologies will face challenges from the 'white' competitors - vendors can supply generic PCs, servers, switches, etc. on thin margins. even single digit margins. Especially as the industry turns to open networking software and Open Compute Platform (OCP) hardware designs, Dell EMC could find itself in the same race to the bottom in margins. This is the race that drove IBM to sell off its PC and server business to Lenovo.

Looking around the exhibits and customer case studies at last week's event, it looks like there is a solid case that Fortune 500 enterprises are sticking with Dell. They simply have too much at stake to risk being out of date with their technology or going with a dodgy vendor. Just looking at the many victims for the WannaCry ransomware attacks, once again we can hear the experts reminding everyone to keep their systems up-to-date. Businesses must realise that running Windows XP on PCs that are six years old can put the whole enterprise at risk. As a top brand, Dell should have a convincing case that it is the right partner for this.

Enterprise IT shops are also looking to public clouds for a bargain. For rolling out a new enterprise application, cloud vendors such as AWS, Google or Azure, certainly seem like a bargain. No upfront costs to buy server or storage. No wasted time in ordering, testing and provisioning equipment. No complications in planning how to back-up the application or how to scale it if grows quickly. No risk of buying too much and having unused compute and storage resources. And if the new application were to fail or found to be unneeded or redundant, there is no wasted capital for servers and storage that now must be disposed.
As discussed in previous parts, Michael Dell cited a key figure in his keynote, saying he believes public cloud services are 2.5 times more expensive than on premise solutions when considering long term costs, which one would expect means applications with heavy compute, networking and storage characteristics. Over a 3-year period, it is easy to see how public cloud expenses would exceed the cost of buying a server and operating it locally.

However, making a business case centred on long term cost is not the only way that Dell Technologies is tackling the challenge of public cloud migration. One way of fighting the attrition of enterprise customers to the public cloud, is to bring the public cloud on premise. Newly released is the Dell EMC Cloud for Microsoft Azure Stack, an on-premises hybrid cloud platform for delivering infrastructure and platform-as-a-service with a consistent Azure experience on-premises or in the public cloud. Everything you need to run Azure Stack is pre-configured on Dell hardware that resides in your own data centre. The Azure Stack APIs, tools, apps and services remain behind the enterprise firewall, and yet remain consistent with the customer's Azure public cloud experience. For Dell EMC, this is an opportunity to sell more PowerEdge R730XD and S-Series switches. For Microsoft, it is an opportunity to keep the customer running Microsoft server software while perhaps luring some, but not all, of the workloads into the Microsoft data centres.

Moving IT spending to a consumption model

One of Dell Technologies' big announcements is that it will now offer a consumption based model for its IT infrastructure products.  This is its answer to the no-upfront cost lure of public cloud services. In a sense, the public cloud companies are paying to pre-deploy compute/storage/networking equipment in their data centres. They earn this money back as they fill it up with customers. At some point, the money collected exceeds the cost of purchase and from then forward until the day it is obsolete the equipment is delivering profit. With interest rates continuing to remain low, Dell can play this same game, and maybe they do not even need to borrow money and can self-finance the operation. For customers who choose the consumption model, Dell will provide the equipment, as the workloads increase and storage drives get filled, the bill increases. Customers pay only for the storage capacity needed. Importantly, the service promises instant access to additional buffer capacity during spikes driven by the business, with payments adjusting to match usage. If not needed any more, Dell can take back the equipment. Of course, the leasing contract will likely have many conditions and clauses, but certainly this model provides a direct answer for project managers comparing this quarter’s heavy capex spending for a new project with a much leaner opex alternative from Amazon Web Services. The flex pricing is initially available for all Dell EMC storage solutions, but company executives suggested that it could be expended across the IT portfolio.

This consumption model is already being used by other tech companies. There are processor cores that are activated and paid-for on-demand; similarly, Infinera offers a Bandwidth On-demand licensing model where network capacity can be activated in 100 Gbit/s chunks when demand justifies it.

Looking for start-up opportunities

Meanwhile, the new Dell Technologies Capital has just been introduced to manage the company's investment strategy. Specifically, Dell Technologies Capital will invest in start-up companies globally on behalf of all the business units, including Dell, Dell EMC, Pivotal, RSA, SecureWorks, Virtustream and VMware.

Dell Technologies figures that it has more than just capital to invest. Targeted start-up will also benefit from Dell's full resources, OEM and go-to-market relationships and global distribution challenge. While this new investment arm has just been unveiled, it has been running for several years and has already staked out equity positions in more than 70 early-stage start-ups. Targeted areas include storage, software-defined networking, management and orchestration, security, machine learning/artificial intelligence, big data/analytics, cloud, Internet of Things (IoT) and DevOps. Two Dell Technologies Capital portfolio companies were highlighted at Dell EMC World this year:

•   Edico Genome, which created the first bio-IT processor and an end-to-end platform designed to analyse the massive workloads associated with DNA sequencing. The company is delivering a pre-configured, out-of-the- box solution with Dell Technologies that enables the analysis of an entire genome in 22 minutes compared to more than 24 hours using standard software.

•   Graphcore, which developed new technology to deliver massive acceleration for Machine Learning (ML) and Artificial Intelligence (AI) applications. The company's Intelligence Processing Unit (IPU) is the first to be designed specifically for machine intelligence workloads.


All start-ups tend to look for an exit for their early investors, usually in the form of acquisition or an IPO. With Dell Technologies now having many companies under its umbrella, one can expect some of the portfolio investments to become acquisition targets. This is the well-known model of Silicon Valley, with some R&D essentially outsourced and the risk/reward is shared.

Monday, June 12, 2017

The pieces are coming together at Dell Technologies - part 2

The 13,500 people gathered at the Dell EMC World conference in Las Vegas this week came from 122 countries, basically reflecting the global reach of the tech industry. About 50% of Dell Technologies' annual revenue of $62 billion came from outside the U.S. Whereas Hewlett-Packard famously split its PC and printing operations (now HP Inc.) from its enterprise solutions business (now HPE) in November 2015, Dell has kept the family together while massively adding new market segments to its portfolio.

The company has a stated mission of becoming its customers' essential infrastructure provider and insists that the 'death of the PC' has been greatly exaggerated. While consumers now rely mostly on smartphones, tablets and laptops, enterprise customers are still buying PCs in significant numbers because they know that PCs are the primary tool for accomplishing most office tasks. Dell sees the PC as an essential link in its overall value chain. Dell supplies nearly all the Fortune 500 companies in the U.S. to some extent, and its brand is especially strong with retail companies, the hospitality industry, transportation and others. As described in Part 1, Dell Technologies is emerging as an IT superpower. Its nearest competitors are HPE, Huawei, IBM and Lenovo, but the comparisons are rough. Unlike the American rivals, Dell remains in the low margin consumer PC business, and unlike the Chinese vendors it has stayed out of the massive mobile handset business.

The integration of two major corporations - Dell Inc. and EMC - is admittedly an enormous project that will take years to fully accomplish and not everything has found a place under the big umbrella. There have been three divestitures amounting to $7 billion. The most notable of these was the decision in March 2016 to sell Dell IT Services (the old Perot Systems) to Japan's NTT Data for $3.05 billion. In June 2016, Dell agreed to sell its software division to Francisco Partners and Elliott Management for a reported $2 billion. The deal involved Dell’s Quest Software and SonicWALL division. Dell paid $2.4 billion for Quest in 2012. Despite the paper loss, these divestures enabled Dell to pay down its significant debt before completing the acquisition of EMC.

Quick update on Dell’s financial picture

For its most recently completed fiscal 2017, Dell Technologies posted consolidated revenue $61.6 billion and non-GAAP revenue from continuing operations of $62.8 billion. The company generated an operating loss of $3.3 billion, with a non-GAAP operating income of $5.1 billion. The company ended the year with a cash and investments balance of $15.3 billion, an increase of $287 million from the third quarter.

Dell Technologies' overall sales mix is approximately:

•   60% from Dell Client Solutions Group (desktop PCs, virtual desktops, notebooks, tablets, and peripherals, such as monitors, printers, and projectors under the Dell brand name).

•   35% from Dell EMC (storage solutions, servers, converged infrastructure, switching, security, cloud services).

•   5% from VMware.

Highlight from Q4 2017 results:

•   Gross margin for the quarter of 32.0%.

•   Since closing the EMC transaction, Dell Technologies paid down approximately $7 billion in debt and repurchased $824 million of Class V common stock.

•   The Client Solutions Group generated revenue of $9.8 billion, up 11% versus the fourth quarter of last year; revenue for the full year was $36.8 billion, up 2% year over fiscal year 2016.

•   PC shipments reached 11 million, representing the largest volume of products shipped since the fourth quarter of 2011.

•   16 consecutive quarters of gaining yr/yr PC share and grew fastest of the top 5 in yr/yr unit shipment growth in Q4 and for full year.

•   Dell attained the No.1 share position worldwide for displays, gaining unit share yr/yr for the 16th consecutive quarter.

•   The Infrastructure Solutions Group generated $8.4 billion of revenue, including $3.6 billion in servers and networking and $4.8 billion in storage, and an operating income of $1 billion.

•   Dell regained the No.1 worldwide server unit share position driven by strength in the mainstream PowerEdge business.

•   Attained the No.1 market share position in all-flash arrays4, which exited 2016 at a more than $4 billion demand run rate.

•   No.1 in Converged Infrastructure, accelerating in Hyper-converged.

•   No.1 in x86 server unit share.

•   VMware revenue for the quarter of $1.9 billion, with operating income of $565 million, or 29.2% of revenue.

The essential argument

Applications increasingly run on clouds. Private clouds are more secure, have better performance characteristics, and are less expensive that public clouds. Clouds run on data centre infrastructure (servers, storage and switches). Dell is the leading supplier of IT infrastructure, therefore Dell benefits from cloud migration. For the past decade, CIOs have sought to optimise IT for their businesses. With the digital transformation underway, CIOs now know that IT is their business. The corporate vision sees: (1) cloud-native apps driving the public clouds; (2) traditional apps moving to hybrid clouds; and (3) hybrid clouds being built on converged infrastructure. If Dell can capture these app migrations with software frameworks, then sales at the hardware layer could follow.

For mission-critical apps, Dell now has Virtustream, a hot start-up based in Bethesda, Maryland, that EMC acquired in 2015. Virtustream’s cloud management software provides the ability to run SAP, Oracle and other complex enterprise software in a cloud environment using micro VMs. The system measures and allocates the precise amount of compute, networking and storage resources needed for a given task. Virtustream also provides cloud archiving and restoration services.

For traditional apps, VMware is the king of virtualisation. Its vSphere is widely used in enterprise data centres. The NSX software defined networking (SDN) delivers virtualisation and programmability for network resources. The hottest application for NSX to date has been micro-segmentation of the network for security purposes. VMware is run as an independent business unit. While it is early to say if the VMware franchise will provide a long term competitive to Dell EMC over other networking and storage vendors, it is a prized asset that is good to have in house.

For cloud-native applications, Dell Technologies has Pivotal Software, a San Francisco-based cloud foundry company that was formed in 2012 after spinning out of EMC and VMware (investors in Pivotal include Dell EMC, Ford, GE, Microsoft and VMware). The Pivotal framework for software gives developers the ability to build micro-services-based dynamic data pipelines. By deep understanding the app development process, the infrastructure can be optimised and ready to respond to cloud native requirements.

Dell’s strategy acknowledges that we live in multi-cloud world. The company is also a big advocate of open software and disaggregated networking hardware. It further sees software developers building cloud native apps. Yet it knows that its revenues depend heavily on the sale of x86 laptops, desktops, servers and flash storage. It now has a vision as well as business teams in place to differentiate from commodity hardware suppliers. The race is on to see if management can execute on this vision by integrating these component companies.


(Parts 3 and 4 will look at Dell's networking business and Dell Financial Services.)

Sunday, June 11, 2017

The pieces are coming together at Dell Technologies - part 1

Dell Technologies is somewhat of a contrarian when it comes to business trends. While other major technology providers have been busy downsizing and pulling their organisation apart, for example Ericsson and HP, Dell Technologies went in the opposite direction, pulling together a mega-merger and bringing together satellite companies in adjoining spaces.

Led by its iconic founder, chairman and CEO Michael Dell, the company has set its sights on becoming the No.1 IT super-power with strengths in computing, storage and networking. It retains its crown as leading supplier of laptops and desktops while pushing ahead in new areas through marquee brands, such as RSA for cybersecurity and VMware for network virtualisation.

Dell’s $67 billion acquisition of EMC, first announced in October 2015 and completed 11 months later, ranks as the largest tech merger of all time. For comparison, HP's acquisition of Compaq was valued at $33 billion, Microsoft’s acquisition of LinkedIn is valued at $26.2 billion, Facebook's acquisition of WhatsApp was valued at $19.1 billion, and Google’s acquisition of Motorola at $13.2 billion.

Dell Technologies, is a public company with a class V tracking stock that trades on NYSE under the symbol DVMT. It is the successor to Dell and EMC, which merged in September 2016. Dell Technologies reported 2016 revenue of $61.642 billion with a net loss of $3.737 billion. The company has some 138,000 employees and is based outside of Austin, Texas.

This week, the company attracted an estimated 13,500 of its customers and partners to its first integrated Dell EMC World conference at the Venetian in Las Vegas. The event served as the debutante ball for the newly integrated Dell Technologies empire and the launch pad for several critical products: its 14th generation of Dell PowerEdge servers, due out this summer, new all-Flash storage solutions, more Hyperconverged platforms, its first 25 Gbit/s networking solutions and a new consumption model for its IT products.

The theme at Dell EMC World was transformation, not just for the newly-merged company but for its customers as they become cloud-enabled businesses. The event was the opportunity to showcase how marquee customers such as Boeing, Citibank, Nike and Jaguar Land Rover are not just updating their IT hardware but fully-transforming themselves into 'digital' companies. The goal was to get customers talking about how IT does not just run the business, it is the business. For its own business, the Las Vegas event was the opportunity to show how the pieces of its empire are coming together to ensure bigger sales and better feedback.

David Goulden, president of Dell's Infrastructure Solutions Group, said the private business structure enables the company to make strategic investments and operational changes that would have been difficult as a public entity, where every move is judged by the impact on its quarterly financial statements. Goulden cited two areas: moving the IT industry toward a pay-on-consumption model (more on this below), and longer-term R&D investments that put a strain on current financials but set the stage for future growth.

Dell Technologies is essentially a holding company with seven brands under a single umbrella, as follows:

  • Dell - supplies PCs, laptops, printers and monitors, and currently ranks as the third largest PC company in the world with a market share of about 16%.
  • Dell EMC - IT solutions, including servers, all-flash storage solutions, hyper-converged appliances, cloud and data centre products.
  • Pivotal - the San Francisco-based cloud foundry that helps mission-critical applications run better in the cloud.
  • RSA - the iconic cybersecurity company and operator of the annual RSA Conference on network security.
  • Virtustream - cloud computing management software.
  • VMware - the network virtualisation company based in San Francisco.

Competition in the public cloud

It is well known that in the networking business, the pendulum swings back and forth from public to private. Sometimes it is better to use resources on a shared infrastructure and at other times economics will dictate that it is better to build your own network. In various presentations throughout the week, Dell executives made it clear that the big public cloud companies are not the perfect solution for every app and every customer. Both Michael Dell and Tom Sweet, the company's CFO, said the public cloud can be 2.5 times more expensive for some applications compared to an on-premise hardware solution. This 2.5x cost saving factor could be a huge competitive advantage for Dell EMC, although it appears to be a 'soft' number based on anecdotal evidence rather than a formal study that could be analysed in depth.

Nevertheless, one can see where this discussion is headed. One after another, Fortune 500 companies have been consolidating their data centres and moving many of their most innovative workloads into AWS, Microsoft Azure, IBM Softlayer or Google Cloud Engine. Some big players, such as Netflix, have even boldly stated that they are all in for public cloud services. The IT budgets that are now paying for cloud services were previously being spent equipment from the likes of Dell or its competitors. But in his keynote address, Michael Dell said that he is not worried, the current public cloud enthusiasm just reflects the exuberance of an early market. The Dell view is that: (1) it will be a multi-cloud world rather than an industry dominated by just one or two players; (2) hybrid clouds are logical outcome; (3) Dell EMC is already the leading supplier of hyperconverged platform and any organisation moving to a hybrid data centre will needs solutions that can tie together the multi-cloud strategy.

(Part 2 will cover the key announcements from Dell EMC World.)


Thursday, June 8, 2017

Big ambitions for next gen satellite networks – part 2

While SpaceX is planning to encircle the planet with thousands of satellites for delivering broadband Internet access, another venture, known as Ligado Networks, has come up with a plan to salvage the power of the largest commercial satellite ever launched to deliver connectivity over North America for the growing Internet of Things (IoT) sector, and possibly as a boost for 5G networks.

Ligado Networks is a privately-backed company based in Reston, Virginia, with investors including Centerbridge Partners, Fortress Investment Group and JPMorgan Chase & Co. From the big hitting industry execs on the leadership team it is clear the company is serious. Ivan Seidenberg, a former chairman of Verizon Communications, serves as chairman. Also on the board of directors is Timothy Donahue, former executive chairman of Sprint Nextel and former president and CEO of Nextel Communications, and Reed Hundt, the former Federal Communications Commission. Doug Smith serves as Ligado's president and CEO; he is known for his work in engineering and launching nationwide networks for GTE, Nextel, Sprint Nextel and Clearwire.

Picking up the pieces from LightSquared, SkyTerra and Mobile Satellite Ventures

Ligado Networks, previously known as LightSquared, emerged from bankruptcy reorganisation in 2016 with a new plan, or rather a new version of an old plan. The company controls 40 MHz of nationwide spectrum licenses in the L-Band (1500 to 1700 MHz), which it acquired in 2010 through its purchase of SkyTerra, another bold start-up that envisioned transforming the U.S. mobile scene with satellite communications.

Prior to 2008, SkyTerra was known as Mobile Satellite Ventures and had successfully operated the MSAT-1 and MSAT-2 satellites for over a decade. As 4G LTE technologies neared, the company set its sights and going big. The business plan evolved from pure mobile satellite to a hybrid design where the satellite connectivity would be used to augment terrestrial mobile communications. This would mean using the same spectrum bands from ground based base station as well as from the satellite. The company changed its name to SkyTerra and was acquired by Philip Falcone's Harbinger Capital Partners acquired SkyTerra in March 2010. Harbinger invested about $2.9 billion in assets and soon raised more than $2.3 billion in debt and equity financing.

SkyTerra soon became known for its massive SkyTerra 1 satellite, which weighed a record 6,910 kg. The satellite was built at Space Systems/Loral's Palo Alto, California facility. It operates in two 10 MHz blocks of contiguous MSS spectrum in the 2 GHz band throughout the U.S. and Canada. Notably, the satellite uniquely features an 18-metre reflector and an S-band feed array with 500 spot beams. In November 2010, SkyTerra 1 was successfully launched from the Baikonur Cosmodrome in Kazakhstan.

SkyTerra changed its name to LightSquared and in January 2011 was granted a conditional waiver by the FCC to test its network if it could be shown that the service would not interfere with GPS signals. This alarmed many GPS advocates, who argued that the L-band spectrum was simply too close to its own and that even a little interference could have serious consequences for the military, aviation, agriculture and other vertical sectors that rely on precise navigation.

In February 2012, the company received its greatest setback when the FCC withdrew its conditional approval for LightSquared network due to the potential interference concerns with GPS receivers. In June 2012, the U.S. Securities and Exchange Commission filed securities fraud charges against Philip Falcone and Harbinger Capital Partners; the case was settled in June 2013. For LightSquared, the game was over and it was soon forced into the bankruptcy courts. In addition to the technical, legal and financial challenges, LighSquared also faced allegations of political favouritism. Nevertheless, it still had the spectrum licenses and a fully functional Skyterra1 satellite parked in geostationary orbit.

Ligado Network is the new entity that in December 2015 emerged from this decade-long mess. Significantly, the company reached a settlement with the GPS industry on a technical plan to avoid interference issues by reducing the transmission power. It is not clear why a similar compromise could not have been reached in 2012. Ligado is now awaiting clearance from the FCC.

Ligado looks for its market

So back to square one, and Ligado Networks is now moving ahead with the plan to combine Skyterra1 satellite coverage with a ground-based network should FCC approval come. The goal is a ubiquitous national network whose footprint requires far fewer ground-based towers than would otherwise be required for universal coverage. The company says its mid-band spectrum is well suited for things that move, such as planes, trains and automobiles.

In its original iteration, LightSquared aimed to either compete with or partner with 4G LTE mobile services. At least one mobile handset model was developed that incorporated specialised silicon for tuning in the L-band frequency in addition to standard cellular bands. It seemed that a distribution partnership with AT&T was also in the works. For consumers, this would have meant being able to use the AT&T LTE network where available and then seamlessly roam onto the SkyTerra1 satellite service when that signal was stronger. Unfortunately, this handset was based on an old Nokia design and was not an iPhone or Android device. Even without the legal and financial issues, this business plan was not going to work.

Meanwhile, as the number of autonomous vehicles on the road rises, the strain on the mobile infrastructure will rise. Mobile operators are working to 'densify' their networks in preparation for 5G. This might mean more of the capex is focused on the cities and less on rural places. Satellite coverage could really help here, although the issue of latency may prove problematic for fast moving vehicles needing to connect to a geostationary bird. In addition, there is the issue of creating end-point devices tuned for the L-band spectrum. Perhaps Ligado will introduce specialised solutions for the types of vehicles it is targeting. A further issue to consider is the aging Skyterra1 satellite. It has now been in orbit for six and a half years, and most satellites are designed for a 15-year life. By the time the Ligado Network is up and running it may be approaching mid-life status and time to start planning a new one.

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