CARRIER NETWORKS: Changing the Landscape

Between

the technology providers and the users, it is difficult to say

who is influencing whom. Till not so long back, the carriers

boasted more about the size and complexity of their networks

rather than about the convenience of the users of those

networks. The speed at which the telecom network managers–considered

one of the most conservative ones–are adopting the new,

yet-to-mature technologies implies that the new generation

datacom equipment makers have done an excellent marketing job.

But wait a while. What makes the datacom companies change so

fast–adjusting, restructuring, acquiring, merging–all in the

name of addressing the needs of the carrier market better?

It is the "chicken and egg" story, you know.

Without trying to pass our

own judgement, let us look at things from both the angles.

The Carrier

Network

Till

recently, telecom was a government owned monopoly in most

countries. Transition to a competitive environment has resulted

in all the changes that we see today.

Two major limitations of

the legacy networks are worth detailed discussion.

One, the proprietary

nature of the TDM switches of today have made the operators

completely dependent on the equipment providers for new

features. The new generic set of features are decided by the

vendors and not by the service providers as and when they want,

not allowing him (the provider) to introduce services that are

more relevant for his subscriber needs.

Two, the Internet has led

to drastic decline in the cost of telecom services. But the cost

of the traditional telecom equipment, though reduced

considerably, has not really kept pace. Hence, the traditional

carriers are finding that the game is becoming more and more

unfavourable to them. Also, with Competitive Local Exchange

Carriers (CLECs) entering the game, telecom is no more a

high-entry barrier business. But for these small operators, a

legacy TDM-based switch-based network could require an initial

investment of not less than $3 million on network. A new

generation, packet-based network can be set up at a fraction of

that cost–about $1,00,000 or so.

Hence, many operators are

looking beyond the current technology. IP, riding piggyback on

the popularity that it has gained through the Internet, has

clearly emerged as the hot favourite. Some carriers have already

deployed it over ATM backbones in some places and over the SONET/SDH

networks directly in others. There is a consensus that the

gradual shift will be towards IP at the core, over the physical

fibre (DWDM-based) networks. Then, the whole network will be a

converged IP network with multiple applications–voice, data,

and video–running on it.

However, few are willing

to predict the death of the traditional PSTN. According to

Dataquest, the sale of analog modems will cross 46 million by

this year-end. Also, IP has so far managed to take only a minute

share of the total communication traffic. According to market

reports, in 1999, out of the $400 billion global minutes'

marketplace, IP telephony accounts for less than $150 million.

Long way to go.

The Networking

Scene

In

next three-four years, the analysts say, the carrier data market

is likely to be about six to eight times bigger than the

enterprise market. Established carriers are upgrading themselves

to accommodate data communication demands. Newer, smaller

players are entering the fray. These greenfield operators are

going for packet-based networks right from day one. Suddenly,

the carrier market looks more attractive than ever before.

Whether it is a high-end networking player like Cisco, a mass

market networking player like 3Com or new start-ups like Juniper

and Empowertel, carriers are where the action is.

Most of the restructuring

of the networking product vendors is aimed at better tapping the

carrier market. Though these companies have access to the new

generation packet technologies, they have a long way to go

before they can actually think of providing an end-to-end

solution to a multi-service incumbent network operator with

considerable subscriber base and also to fairly large new

carriers.

They do not have access to

certain carrier-only technologies like access technologies. And

their understanding of the complex, rugged carrier networks in

limited. They have primarily been box sellers and have never

done networking themselves.

Merger and Acquisitions

(M&A) is the route that most of them have taken to fill

these gaps. If one closely observed the acquisitions that

companies like Cisco have done recently, one would find them

targeting not only the optical networking companies, but also

companies in broadband access (both DSL and cable) and wireless.

However, no

"enterprise" vendor, as their competitors in the

carrier space call them, has been able to build the strength in

network design and solutions, which is a must for operating in

the carrier space. Cisco, for example, talks of a model that is

exported from the enterprise market–working with independent

integration companies as partners. This, feel analysts, will

work in the small service provider space like ISPs, but not with

larger operators. This is a hurdle that networking vendors have

to overcome.

Also, the established

telco equipment suppliers who have ruled the carrier market

for decades, are not the ones to give up so easily. They have

used the same strategy–M&A–to attain datacom

advantage. While Lucent and Nortel have made big acquisitions,

Siemens, Alcatel, and Ericsson have made smaller ones and

created focused business units to meet the new multi-services

data-centric network needs.

These changes have

impacted not only the carrier data market, but also the broad

networking market as well.

The carrier market

requires an approach different from that of the enterprise

market. While the vendor's role ends with the sale of the

product in the enterprise market, it is not so with carrier

market. Here the work of the vendor begins after the deal is

closed. It involves managing a smaller number of big accounts

and taking care of all their needs. It needs focus. Most

networking vendors are pushing their low-end products (for the

enterprise market) through the distributors and are focusing

on the carrier market.

A major challenge–in

both the carrier and enterprise market–is coming from the

new start-up companies. These small companies react fast. The

only known way to counter them so far has been to buy them

out.

However, the most important development

is the challenge that datacom companies are facing at their

home turf–the enterprise market–from the newly empowered

telco equipment makers. These companies, enabled by the

technological capability and the client base of the datacom

companies acquired by them, are eager to have a slice of this

market as well. Though some of them have gone for big

campaigns and brand building, not many have succeeded. It is

the same old story. They really do not understand the fast

changing enterprise, as in the carrier market you live from

deal to deal–not from product to product. The carrier data

business is for a big growth. Even in a country like India,

where the carrier revolution has been slow to take off, most

datacom companies like Cisco, Nortel Networks (its voice

network business is virtually non-existent in India), and 3Com

have done more than thirty percent of their business in the

carrier (read ISP) segment. And last year was just the

beginning of the ISP network rollouts. The figure is likely to

be much more this year. It will only get more exciting.