"How much will you save?" I asked Lee Hicks at Adtran's Huntsville event. "About half the first year and more after that," he replied. Put another way, Verizon believes almost all large telcos are spending ~twice what they would with a single, unified, modern network. This is part of Verizon's program to cut cost per bit by 40% each year, a goal it has met the last several years.
Lee Hicks is tearing out most of Verizon network, replacing ~200,000 network elements. He expects "to have about 10% of what I have today." They will all run standard IP.
Hicks had to do something. His boss, Hans Vestberg, is demanding a $10 billion cut in expenses. Carrier revenues have been roughly flat for several years and there's little chance of changing that. The only way to grow earnings is to cut spending.
My guess is Lee is underestimating the savings. Reliance Jio and Iliad/Free were built all IP from the start and designed to keep operating costs low. In two years, Jio has connected Indians 225 million to LTE. Rates average under US$5. They added nine million customers in June. Even more amazing is that Jio is already reporting profits.
Startup and customer acquisition costs usually delay profits for years in wireless. The much lower costs of today's all-IP networks, the not quite zero marginal cost of LTE, and a low depreciation figure are.
Xavier Niel proved the power of a simple network in France. When he came to market with the thirty euro triple play, the industry thought him mad. More recently, he offered a genuine 100-gigabyte wireless offering for 20 euro, about US$23. He had about three million customers when I last visited. He was running everything on two Cisco CRS-1s. The second was mostly for redundancy.
Xavi is now a multi-billionaire. The low prices saved marketing costs, very high in wireless especially. He is the most efficient manager I've met in 20 years in telecom. The French regulator took some bold steps to protect competition. (ARCEP is one of the best in the business.)
Xavi's real advantage is that he understands technology. He was running an ISP and knew what his costs were. Moore's Law was sure to bring costs down rapidly, as it still does. He simply estimated what his cost would be in three or four years and priced to the forward costs.
Moving more than 200 million customers worldwide to the new system is a formidable task. The current system supports hundreds of different services, built up over decades. Deutsche Telecom and AT&T have similar goals but they have moved slowly.
Verizon believes it has no choice. Hicks says they must cut costs by 40% per year to keep up with traffic demand and competition. Verizon has been cutting cost per bit at about that rate for the last few years. Traffic has grown at 40% or more the last few years, but Verizon has found efficiencies to match. Prices have been flat and maybe slightly down, but profits have remained strong. That's only possible if they have found efficiencies.
There's no simple way to measure the impact of the network change. You have to factor in real estate savings and fewer managers for fewer engineers. Hicks made a point of saying his estimate is necessarily rough.
He expects the savings to go up significantly over time.
I missed part of Lee's speech where he described Verizon's One Fiber initiative. Fortunately, Mike Robuck was there and did an excellent job at Fierce Telecom. The reporters at Fierce do an excellent job given they have to file so many stories for a daily pub. Mike Dano is one of the best and Monica Alleven keeps finding stories I would have missed. From Mike:
"As we built different services, we would often build cores for them," Hicks said. "I had a voice core. I had a video core. I had a private IP core. I had my public IP core, and I had all kinds of interactions and connections going on between those. At times, it was hard for us to figure out what happened and where things went."
"What we're doing is we have a project that we call the 'converged core.' Underlying this core is great long-haul transport technology that we recently did lab tests on. We've got that to 4000-Gig and we'll probably be introducing that next year. It's running at 200-Gig now, 100 or 200 -Gig connections. There's lots of underlying capacity and then a MPLS switching infrastructure on top of that that forms the core," Hicks added.
Jio is the most remarkable story in telecom. It built a completely modern network and are running it well. They usually come first in the monthly government report. Ambani's company claims coverage of 96% of India, better than giant Europeans. It is going to 99% in a year. (Everyone lies on coverage, using computer models tuned to the desired results rather than actual testing.)
India now has more Internet users than the U.S. has people. Asia now has more than twice the total connections of the U.S. and Western Europe combined. Everything about the Internet will have to respond to the new reality.