Apple said to build high-speed network for fast content delivery

SAN FRANCISCO - Apple is assembling a high-speed network and upgrading how it builds data centers, a push to be more competitive with Amazon.com, Google and Microsoft in cloud services, people familiar with the plans said.

Up to now, Apple has relied mostly on traditional network providers and technology suppliers to support consumer services such as iTunes for music and movies, iCloud for storing photos and other content and the Siri voice-activated assistant. Apple will stick with most of its existing vendors, and is mainly seeking to bolster its current infrastructure.

Apple is planning to introduce a streaming-music service at its developer conference in San Francisco on Monday, with TV possibly following later in the year. It will need more efficient, faster infrastructure to ensure glitch-free delivery, people with knowledge of the matter have said.

"User experience is very important to Apple, but delivery of its content is the one part of that experience it doesn't control," said Andrew Schmitt, an analyst at IHS Infonetics Research. "If they want to control and maximize that user experience, they're going to have to control that last piece."

Apple's push to build a stronger cloud infrastructure combines two initiatives: Building out a faster network and upgrading data centers. While Apple hasn't disclosed total costs, investments will run into the billions. Apple put $1 billion into data centers last year, according to Analysys, which pegged it as the seventh-largest cloud infrastructure spender in 2014.

Josh Rosenstock, a spokesman at Apple, declined to comment.

Apple wants to own pipes linking its four large U.S. data centers and Internet hubs in certain cities to ensure fast, reliable delivery of content and services. By adding capacity and increasing efficiency, it seeks to handle more traffic on its own, without renting as much server space from cloud providers such as Amazon and Microsoft, said people with knowledge of the plan, who asked not to be identified because Apple isn't discussing the moves publicly. They declined to name the cities involved.

The effort includes long-haul pipes connecting Apple's data centers in California, Nevada, North Carolina and Oregon, and others to get content closer to Internet hubs in some densely populated markets, said three of the people. From there, content would be delivered to consumers via broadband connections and cell towers owned by cable and phone companies. Rather than buy off-the-shelf technology, the company has been working on ways to send data via fiber lines at hundreds of gigabits per second, according to one of the people.

"Apple has slowly built out its data centers in the past five years," said Tavis McCourt, an analyst at Raymond James Financial Inc. "As they serve up more things from the cloud to more and more customers, they're going to need to scale up."

In recent years, Google, Amazon, Microsoft and Facebook Inc. have spent billions of dollars to come up with new ways to build servers and craft data centers - the warehouses full of high-powered computers that store and dish out data to personal computers and mobile devices. They have designed their own servers and other gear to squeeze out efficiency gains. Some have also leased dark fiber-optic lines that only they can use.

"All of these cloud giants want to be the platform on which you run your digital life," said Frank Frankovsky, a former Facebook executive who now runs a data-center industry group called the Open Compute Project Foundation. "If that's the case, they all need to have a similar cost structure" to be competitive, he said.

Before, Apple's data centers were filled mostly with off- the-shelf gear such as Hewlett-Packard Co. servers, Cisco Systems Inc. Ethernet switches, and NetApp Inc. storage gear. For the past couple of years, it has been in talks with companies that can help it design its own equipment, which would be produced by third-party contract manufacturers. In March, Apple joined the Open Compute Project, which has set standards that have become popular with companies using this so-called white box approach.

Cupertino, California-based Apple isn't expected to replace the hundreds of thousands of servers and other machines in its current data centers, but will use more of its own gear as it builds new facilities. Earlier this year, Apple said it would spend $3.9 billion on new data centers in Arizona, Ireland and Denmark. It's working on at least one product, called a top-of- rack switch, using open-source software from startup Cumulus Networks Inc. running on servers made by Taiwan-based Quanta Computer Inc., said two people with knowledge of the plan.

Apple got just 9.9 percent of its sales from iTunes and other services in its latest fiscal year, and it will need to rely more on this part of the business as growth and profits in the smartphone business slow in coming years, said Colin Gillis, an analyst at BGC Financial LP.

"I'm not saying iPhone margins will go to zero, but the company is going to need that services revenue," he said.

Apple is also exploring ways to meld its data centers and networks into one highly automated system, three of the people said. Facebook says it has saved $2 billion using this software- defined data-center approach, which automatically assigns servers to handle demand, and turns down their power usage if they aren't needed.

That would be helpful if Apple does offer an online TV service to compete with cable companies, said Steve Garrison, vice president of marketing at Pica8 Inc., a white-box networking company. Rather than spend days manually preparing racks of equipment to handle a major sporting event, the software could do the job in minutes, he said, and adapt to unexpected spikes or declines in viewership.

"If you're using someone else's networks and data centers, you lose some control," Garrison said. "It's hard to call Amazon at 10 o'clock on a Friday night and say 'triple my capacity right now.'"

John Choi, a spokesman for Cisco, declined to comment, as did Hewlett-Packard spokeswoman Brynn Bailey and Matthew Houser, an outside spokesperson for NetApp. Spokespeople for Cumulus and Quanta also declined to comment.