Attached are Summit Ridge Group’s unofficial notes (41 pages) from last week’s PTC’17 conference in Honolulu, HI. Don’t hesitate to contact us with any questions.
PTC17 highlighted interesting parallels between technologies, particularly undersea cable and satellite. Both face new projects coming online that dwarf existing capacity due to new technology that is more efficient, often by orders of magnitude. This is resulting in continued price decline. High volume customers are negotiating up-front contracts that often leave marginal profit for operators and due to pricing uncertainly. And lenders are requiring such take-or-pay contracts as a condition of financing in the face of uncertain future pricing. Declining prices also means operators typically need to recover their investment in the first few years of operation or take unpleasant write-offs. 5G technology promises a similar capacity explosion on the wireless side. Interestingly, despite the increasing importance of the hyper-scalers, and their increasing investment in the sector, few were at the conference (although they were all rumored to be at the Metropolitan Hotel where they were buying massive amounts of network capacity, but had little interest in participating in the conference).
Not surprisingly, operators across the telecom ecosystem are adamant that demand is increasing, cloud adoption is accelerating (with the increase from legacy enterprises and the hundred or so unicorns) and more edge facility deployment is needed to reduce network congestion and lower latency and enable new services. But is increased organic demand driving the new supply? Or is technology-lead overcapacity and lower pricing is causing users to find new ways to take advantage of lower priced data? The difference may determine the lag-time for new projects to fill-up. But no doubt lower prices are driving new volume growth and cannibalizing other segments of the economy (paid TV? Computer hardware? Hotels? Taxi Drivers?).
While the conference attendees resisted the notion that we were in a supply bubble similar to the 2000-era, most seemed to acknowledge that the next few years would be more competitive and that the industry needed to work more creatively. Infrastructure providers, in particular acknowledge the need to be more innovative. Hardware flexibility, particularly software defined hardware was frequently cited and a way to increase flexibility and to streamline various system upgrade paths, as well as dramatically reducing costs. This network revolution has been driven by the hyper-scale providers. Participants in all parts of the sector indicted an increased focus on customer support and selling solutions as opposed to commodity service. This is likely to put pressure on 3rd party systems integrators in all areas.
Cyber-security, big data, and artificial intelligence (AI) were also major conference topics. Charles Fan, CTO of Cheetah Mobile, gave a particularly insightful talk on AI (see Day 2: Section D, on page 29). Speakers repeatedly acknowledged the pressure to better mine customer data on hand, and to protect customer privacy on the other, as well as the surrounding legal, political and market issues related to customer data. Virtually every legacy industry structure is set to be disrupted. As usual the regulatory construct will lag. Summaries of the sessions I attended follow. As many were in parallel, I couldn’t attend all of them.