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.


Identifiable Trends in Carrier Networks 

  • There is a move towards a low-cost, more rugged packet-switching architecture
  • Intelligence in networks is shifting more towards the user
  • Number of elements in the network is reducing
  • The shift is towards standard-based programmable soft switches with open application programming interfaces

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.

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