Apple Quietly Builds New Networks; stitching together a network of Internet infrastructure capable of delivering large amounts of content to customers, giving the company more control over the distribution of its online offerings

Apple Quietly Builds New Networks

Company Boosts Internet Infrastructure, Lays Groundwork for More Traffic Amid Broader Ambitions

DREW FITZGERALD and DAISUKE WAKABAYASHI

Feb. 3, 2014 7:40 p.m. ET

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Apple IncAAPL +0.19% is stitching together a network of Internet infrastructure capable of delivering large amounts of content to customers, giving the company more control over the distribution of its online offerings while laying the groundwork for more traffic if it decides to move deeper into television.

Apple’s online delivery needs have grown in the last few years, driven by its iCloud service for storing users’ data and rising sales of music, videos and games from iTunes and the App Store. But the iPhone maker is reported to have broader ambitions for television that could involve expanding its Apple TV product or building its own television set.

Snapping up Internet infrastructure supports all those pursuits at once. Apple is signing long-term deals to lock up bandwidth and hiring more networking experts, steps that companies like Google Inc. GOOG -4.03% and Facebook Inc. have already taken to gain more control over the vast content they distribute.

Bill Norton, chief strategy officer for International Internet Exchange, which helps companies line up Internet traffic agreements, estimates that Apple has in a short time bought enough bandwidth from Web carriers to move hundreds of gigabits of data each second.

Apple is stitching together a network of Internet infrastructure capable of delivering large amounts of content to customers. Pictured, the Apple logo is seen in the window of a store in New York. Bloomberg

“That’s the starting point for a very, very big network,” Mr. Norton said.

Apple’s hardware business is increasingly tied into services delivered over the Internet. In 2011, it rolled out the iCloud service, which stores and syncs emails, documents, photos, music and video so users can access them from various Apple devices. In addition, it is delivering more content from its iTunes and App Store—which brought in $16 billion in revenue in the year that ended in September—while pushing out regular, data-laden updates of its mobile and PC operating systems.

The company‘s need for bandwidth and supporting infrastructure will grow if it moves further into television. Apple Chief Executive Tim Cook has said improving the TV viewing experience is an area of interest for the company and that it has a “great vision” for television. On a conference call last week to discuss its latest earnings with analysts, Mr. Cook said Apple is on track to break into new product categories this year, fueling speculation about a new television or revamped video service.

Apple ramped up its infrastructure expertise in September when it hired Lauren Provo, a well-known executive who at Comcast Corp. was responsible for hooking up the cable company’s Internet service with othernetworks.

It also hired Jean-François Mulé, former vice president of technology development at a TV research and development consortium called CableLabs, according to his LinkedIn profile. Mr. Mulé wrote on his profile that his title at Apple is engineering director.

An Apple spokesman declined to make Ms. Provo or Mr. Mulé available for an interview.

The hires signal Apple’s desire to bolster its ability to link its data centers with the large networks that can carry its content to users around the world. Ms. Provo was in charge of relationships with companies that shared Internet traffic with Comcast. She gained extensive experience managing disputes with large Web companies when she worked for the cable company, which is the biggest supplier of Internet service to U.S. subscribers, according to Leichtman Research Group, a media consultancy.

Direct connections between Apple’s data centers and the networks that connect to customers would give the company more control over quality. An iPhone user who subscribes to Sprint Corp., for instance, might download a song more quickly if Sprint’s network links directly to the Apple data center storing that song, rather than channeling the file through a series of middlemen.

Apple is also hiring experts with years of experience building so-called content delivery networks. The idea is to store frequently accessed content like streamed movies or music closer to their users, cutting down wait times.

The company’s first steps in the networking sector look familiar to network engineers who have watched other big Internet companies wean themselves off third-party providers.Netflix Inc. NFLX -1.21% used to outsource practically all of its video delivery work toAkamai Technologies Inc. AKAM -3.50% In 2012, the streaming-video company cut its costs by creating its own delivery network, called Open Connect, and sprinkling the computers that store its video library around the world. Netflix’s own data caches now deliver about 70% of that kind of distributed content in the U.S., according to network researcher DeepField Inc.

A Netflix spokesman declined to comment.

DeepField says Apple distributes most of its Internet content through Akamai’s network of servers. Akamai executives recently said they are renegotiating a multiyear contract with their top customer, a process that typically results in lower fees for the company.

A spokesman for Akamai, which is expected to report financial results on Wednesday, declined to comment.

Several analysts, however, doubted that Apple could bring all that business in-house overnight.

“It’s a natural progression for a company like Apple,” said Aaron Blazar, vice president at telecom consultancy Atlantic-ACM. “It can take several years.”

 

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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