At the beginning of October, AT&T had its Analyst Event in Dallas. They talked extensively how the business market is undergoing significant change. Challenging the status quo and disrupting yourself when you are the market leader is extremely hard. The forces of inertia are strong because the old ways have worked well, there is a lot of revenue to defend, and it is always easier to play defense rather than offense. AT&T, the world’s largest MPLS provider, has just shown us that it is possible for the market leader to play offense and disrupt itself by being adopting a new technology that will revolutionize the market before the market forces are overwhelming.
AT&T’s first SD-WAN offer is smart. Combining the flexibility, power and agility of SD-WAN with the security and reliability of its Hybrid-WAN, which has MPLS at its core. SD-WAN is also the logical extensive of SDN to the WAN – with AT&T being the global leader in SDN, it was only a matter of time for this to happen.
By offering SD-WAN, AT&T can help guide its business customer base – the largest in the US – to pick the right solution for them as their needs change and as more and more traffic goes over the internet. The vast majority of large businesses today rely on MPLS to get their connectivity done. It’s a trusted but slow and pricy solution. SD-WAN offers – at face value – lower connectivity prices, but actually represents the shift from a CAPEX-centric model focused on router upgrade cycles to a OPEX-centric model with software licensing fees as the main expenditures. As the flexibility and control increase substantially, the total cost of ownership does not always follow as the increase in licensing fees can eat up a lot of the savings on the connectivity and hardware side. One of the key advantages of SD-WAN is the ability to segment data traffic. With AT&T’s solution customers can chose to direct sensitive information over the secure Hybrid WAN, while Facebook, YouTube, and other non-sensitive traffic goes directly to the internet. This provides the optimal solution: best possible security, control and lower cost. SD-WAN also complements AT&T’s international strategy and allows them to connect offices and branches globally with greater ease.
The AT&T announcement is particularly important for the SD-WAN community. While other operators, such as Verizon, CenturyLink, Sprint, TelePacific, and MetTel have launched their own SD-WAN offerings, these operators are challengers in the business connectivity market and are looking to make inroads. It is something completely different when the market leader in MPLS – AT&T – is now offering SD-WAN. It’s the equivalent of the King of the “Ancien Régime” becoming the leader of the revolution.
For SD-WAN vendors and providers AT&T’s entry it’s both a blessing and a curse. It is a blessing because there is no bigger endorsement for SD-WAN than for AT&T to adopt it – it’s the ultimate endorsement. If the largest provider of connectivity for businesses is using your product solution, your hard work and vison has been validated. The curse for SD-WAN vendors and providers is that AT&T has become a competitor and is fighting back with a service on equal footing. This means SD-WAN vendors and providers can no longer selectively raid AT&T’s customer base. For customers thinking about adopting SD-WAN, it is much easier and less risky to choose AT&T than a start-up that may or may not be around in a year or five. Right now, there are around thirty SD-WAN vendors in a nascent but rapidly growing market, but AT&T’s entry signals the beginning maturity of the SD-WAN market.
As an interesting side note, just as AT&T announced it launching an SD-WAN service – which often relies on best efforts internet access – the FCC issued its fact sheet on Business Data Services (BDS) that incorporate a service level guarantee. The BDS proceeding explicitly exempts best effort internet access from the agency’s Title II regime because in the FCC’s wisdom, best efforts internet access does not compete with BDS. It is as if the FCC really wants to prove its critics right that the agency’s regulatory regime is entirely based on its version of historic events and ignores what is going on at the present or even near future. While the FCC proclaims its new rate regulation regime for TDM services will promote competition among BDS providers and spur innovation, we know the exact opposite will happen. Companies looking to switch to SD-WAN are not only doing so because of the increase in agility and control, but also because SD-WAN is often a lower cost option for access. Also by compressing the price differential between BDS and best efforts internet, it is making the life of SD-WAN vendor harder.
With the FCC mandating an 11% price decrease for TDM based services over the next three years, in addition to mandating an annual price decrease of 3% adjusted for inflation going forward, however, the FCC is eviscerating the incentive for companies to switch from MPLS to SD-WAN. If SD-WAN providers want to stay in business post-BDS rules, they are going to have to drop their prices in order to capture more of the market currently being served by TDM based services. Whether that is possible or whether the SD-WAN market was just gutted remains to be seen. It sure feels like a great disturbance in the force has just happened, with hundreds of inventors, entrepreneurs and investors in new technology cried out in terror and were reduced to groans and whimpers. I feel something terrible has happened, SD-WAN being told by the FCC that their technology and business prospects are now ephemeral. This isn’t right, but unfortunately we are getting used to that kind of result from DC these days.
Roger Entner is the Founder and Analyst at Recon Analytics. He received an Honorary Doctor of Science from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner.