Posted: 08/1999
No More Paint by the Numbers
Vendors Must Broaden Palettes To Meet Carrier Needs
By Mike Smith
There are competitive local exchange carriers (CLECs), such as Allegiance Telecom Inc., Dallas; e.spire Communications Inc., Annapolis Junction, Md.; ICG Communications Inc., Englewood, Colo.; and WinStar Communications Inc., New York. Data LECs include Covad Communications Co., Santa Clara, Calif.; NorthPoint Communications, San Francisco; and Rhythms NetConnections Inc., Englewood, Colo. And then there are the competitive long-haul operators, including IXC Communications Inc., Austin, Texas; Qwest Communications International Inc., Denver; and Williams Communications Group Inc., Tulsa, Okla. Even within the CLEC group, however, the business plans being pursued vary significantly (see "Competitive Operators: Current and Future Business Strategies" chart, below).
Competitive Operators: Current and Future Business Strategies |
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COMPETITIVE OPERATOR |
CURRENT STRATEGY |
FUTURE STRATEGY |
| Allegiance Telecom Inc. | * Offers local and long distance services in the top nine tier 1 markets | * Offering local, long distance, frame relay, Internet access and web-server hosting in top 24 tier 1 markets |
| Electric Lightwave Inc. | * Offers voice, Internet access, leased lines, frame relay, asynchronous transfer mode (ATM), integrated services digital network (ISDN) and web hosting in Western United States and data services in some national tier 1 cities | * Aggressively expanding data footprint nationally * Establishing high-security, managed data centers for applications hosting * Focusing on deployment of higher-margin data and Internet services on a national basis as opposed to traditional voice services |
| e.spire Communications Inc. | * Offers local and long distance voice, data and Internet services in tier 2 cities in the Southern United States and some other national tier 1 cities | * Optimizing current network as opposed to penetrating a number of new markets * Provisioning integrated service packages (e.g. Platinum service offering) * Establishing managed data centers * Bringing stability to executive management team |
| GST Telecommunications | * Provides local, long distance, Internet and enhanced data services in Western United States and Hawaii | * Optimizing current converged network infrastructure (Nortel-based) * Expanding footprint and customer base |
| ICG Communications Inc. | * Offers local, long distance, Internet protocol (IP) telephony and enhanced data services (frame relay and a variety of digital subscriber line [xDSL] services) in California, Colorado, the Ohio Valley and parts of the Southeastern United States | * Provides satellite transmission services to major cruise lines and off-shore
facilities * Taking advantage of the rapid growth of the Internet * Developing wholesale service offerings particularly targeted at Internet service providers (ISPs) * Focusing on overall development of wholesale, as opposed to retail, customer base |
| Metromedia Fiber Network | * Supplies raw fiber optic capacity to other service providers, mainly in the Eastern United States, the San Francisco Bay area, Chicago and the United Kingdom | * Continuing its aggressive deployment of fiber capacity in tier 1 markets * Expanding the capacity on its intercity networks |
| NEXTLINK Communications Inc. | * Provides local and long distance services in 36 markets and 14 states | * Deploying data and advanced Internet services in an aggressive manner
beginning in 2000 * Providing last-mile links via fixed wireless extensions to its local network * Continuing aggressive penetration of tier 1 markets * Linking local networks via InterNext alliance with Level 3 |
| AT&T Local Services (formerly Teleport Communications Group Inc.) |
* Provides local and long distance services as well as frame relay, ATM, and IP services | * Expanding the capacity on its intercity and intracity networks * Expanding ATM and frame relay services * Providing voice over IP (VoIP) services |
| WinStar Communications Inc. | * Provides fixed wireless local access and switched voice, Internet, frame relay and information services in 30 markets | * Expanding the footprint of its network to the top 60 U.S. and top 50
international markets * Deploying point-to-multipoint wireless technology * Linking local networks via long-haul backbone through strategic alliance with Williams |
As a result of their divergent business plans, the equipment purchasing plans of the competitive operators, and the CLECs in particular, also vary.
| ... the vast majority of competitive operators are not seeking one-stop shopping solutions. |
Although the first generation of CLECs built business plans and networks predicated on deploying synchronous optical network (SONET) rings, Class 5 switches and digital cross-connects, that era is quickly coming to a close. For one thing, the economics (or lack thereof) associated with the Class 5 switching platforms makes it exceedingly difficult for emerging service providers to cost-justify deploying them in every new market to be penetrated. Similarly, in existing markets, having the Class 5 switch ports tied up with Internet calls is a painful proposition. This is precisely the market opportunity targeted by the likes of Castle Networks Inc., Chelmsford, Mass., and TransMedia Communications Inc., San Jose, Calif. Clearly, the largest equipment manufacturers are paying attention, as Boca Raton, Fla.-based Siemens Information and Communication Networks Inc. already has acquired Castle (which is operating under Unisphere Solutions Inc., Burlington, Mass.), and in mid-June, Cisco Systems Inc., San Jose, Calif., announced plans to acquire TransMedia.
Continuing conversations with executives at the competitive operators confirms these service providers are indeed migrating from more traditional networking equipment to next-generation systems. Nowhere is this more apparent than in the area of voice and data switching and Internet protocol (IP) equipment (see "Competitive Operators: Voice and Data Switching and IP Equipment Expenditures" chart, below).
Chart: Competitive Operators: Voice and Data Switching and IP Equipment
Expenditures
Network optimization efforts and a focus on reducing network life-cycle costs will compel virtually all of the competitive operators to adopt a more homogeneous converged network infrastructure over time. Much discussion in the industry today focuses on delivering "converged" services, but the reality is that much of that work will be window-dressing if the service providers do not adopt a convergent infrastructure. Most competitive operators have recognized this reality, though to varying degrees. None of them, however, miss the critical point that operating disparate voice, data and Internet networks will not be feasible. The views of the competitive operators concerning what convergence will look like differ markedly, and the pace at which they migrate to a converged infrastructure also will vary significantly. For equipment and operations support system (OSS) suppliers, however, not appreciating the changing business models and expectations of the competitive operators will prove fatal.
In terms of OSS, competitive operators today are focused on achieving more rapid service provisioning and providing true integrated billing. In the next phase of OSS development, the competitive operators will focus on web-based provisioning, billing, customer service, network management, order entry and network monitoring. Service assurance also will become a very important component of the competitive operators' OSS/BSS (business support system) strategy over time.
Looking forward, competitive operators in general, and CLECs in particular, clearly will be focusing on data networking services (transparent local area network [LAN] services, frame relay, asynchronous transfer mode [ATM]); Internet services (dial-up and dedicated Internet access, web hosting, virtual private data network [VPN], e-commerce); integrated access device (IAD)-enabled services; wavelength-division multiplexing (WDM); and next-generation convergence platforms, such as the ones being developed by Castle and TransMedia.
Start-up companies like Argon Networks Inc., Littleton, Mass.; Avici Systems Inc., Billerica, Mass.; Extreme Networks Inc., Santa Clara, Calif.; Juniper Networks Inc., Mountain View, Calif.; and NetCore Systems Inc., Wilmington, Del., are generating a great deal of interest. Almost all the CLECs currently are evaluating products from at least one of these vendors. Nortel's investment and partnership with Avici has placed Nortel in a position to take advantage of the technology, and Nortel will be placing a significant strategic bet on the success of its alliances in the terabit router space. Siemens has placed a similar technological bet, and other major switch suppliers are expected to move in the same direction.
Convergence will be occurring both within the core and at the edge of the service provider network. As far as the edge is concerned, Carrier Access Corp. (CAC), Boulder, Colo., and VINA Technologies, Fremont, Calif., have the greatest mindshare with CLECs in terms of IADs at this time. CAC expects to incorporate its IAD into its next-generation digital loop carrier (DLC) as well. CAC's customers include Allegiance; e.spire; ICG; NEXTLINK, Bellevue, Wash.; and Teleport Communications Group Inc., New York (bought by AT&T Local Services).
Supplier Positioning
In evaluating the recent moves on the part of equipment manufacturers to position themselves to better serve competitive operators, it becomes clear the suppliers may not be listening very closely to their service provider customers. Virtually all the major equipment suppliers are struggling to cobble together comprehensive product portfolios that will enable them to serve as one-stop shops. The problem with this strategy is that the vast majority of competitive operators are not seeking one-stop shopping solutions. In fact, many believe there are major disincentives associated with adopting such a supplier strategy. Most of the competitive operators are seeking unsurpassed levels of service and support from their suppliers and do not believe that a single supplier can meet all of their needs.
Nevertheless, most of the major equipment suppliers are attempting to assemble comprehensive product portfolios, with varying degrees of success. The table "Are Vendors Prepared To Serve Competitive Carriers?" below ranks the top equipment manufacturers in terms of their success in developing product lines and overall strategies enabling them to satisfy a variety of needs on the part of competitive operators.
As the top equipment manufacturers continue to attract best-of-breed suppliers, no one will feel the impact of these moves more than the competitive operators.
Are Vendors Prepared To Serve Competitive
Carriers? |
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VENDOR |
RANKING |
COMMENTS |
| Lucent Technologies Inc. | 2 | Recent acquisitions of Ascend and Kenan give Lucent significantly more ammunition to provide competitive local exchange carriers (CLECs) with a more comprehensive suite of products and services. Lucent's financing program for CLECs and its ability to sell at the executive level are second to none. The company has yet to develop a scaled-down alternative to the Class 5 switch, and risks losing business to the likes of Castle Networks (now part of Siemens) in the near-term. |
| Nortel Networks | 2.5 | The company has failed in selling frame and asynchronous transfer mode (ATM) switching platforms to the competitive operators, relinquishing this business to Ascend. Acquisition of Shasta Networks and investment in Avici may help the company better serve competitive operators' data and Internet needs. Strong in synchronous optical network (SONET)/ dense wavelength-division multiplexing (DWDM) and equipped with fixed wireless capabilities, but, like Lucent, risks losing business to companies providing scaled-down versions of Class 5 switches in the near-term. |
| Cisco Systems Inc. | 3 | Clearly owns the routing market, but has enjoyed little success in selling frame relay and ATM gear to CLECs, has not yet developed a competitive integrated access device (IAD) and clearly lacks the voice expertise that is critical to meeting CLEC needs. The company is going the acquisition route to address these areas (e.g. TransMedia). |
| Siemens | 3.5 | Little visibility to date with CLEC customers. Recent acquisitions of companies including Castle Networks and Accelerated Networks could significantly improve the vendor's ability to meet CLEC needs going forward. Challenges for Siemens will include integrating its now-diverse product lines and research and development operations, selling at the executive level in CLEC accounts and providing aggressive financing packages. |
| OSS vendors | 3.5 | Does not win high points in terms of product development and time-to-market cycles with CLECs. Reality, however, is that CLECs are as much to blame as OSS suppliers based on CLECs' inability to clearly define requirements. Confusion on the part of CLECs has produced a ready market for OSS solution integrators. |
| Ericsson Inc. | 4 | With one or two exceptions, Ericsson has yet to win any significant mindshare with U.S. CLECs. The company has not yet made any major forays into the data networking or Internet sectors, and time is running out. |
| Alcatel USA | 4 | Recent acquisitions of Xylan and Assured Access have strengthened the company's product line, but not necessarily its competitive position in serving CLECs. Alcatel lacks mindshare with the competitive operators at this time and cannot offer the same range of products as some of its competitors. In addition, the company's U.S. sales operations simply are not as well developed as those of its competitors. |
| Tellabs Inc. | 4.5 | Owns the lion's share (up to 85 percent) of the digital cross-connect market. Unfortunately, it is a market fast on its way to maturity and ultimate obsolescence. To emerge as a leading supplier to competitive operators, Tellabs will be required to add data and Internet products and expertise and will need to achieve much more strategic penetration into the accounts it is serving. |
| FORE Systems | 4.5 | FORE provides ATM switches to a small group of CLECs but has been essentially relegated to this limited role. The company has not succeeded in integrating voice technology into its platforms and cannot compete with larger vendors in terms of selling at the executive level, offering financing plans or delivering comprehensive product suites. GEC/Marconi acquisition of FORE clearly will strengthen FORE's product portfolio. |
| Newbridge Networks Corp. | 5 | Very few major competitive operator accounts in the United States at this time. The company lost its early leadership position as an ATM switch supplier and cannot match Lucent's or Nortel's ability to sell at the executive level or provide aggressive financing packages to CLECs. Perhaps more importantly, Newbridge simply does not have the product line at this time to meet competitive operator needs. |
| Fujitsu | 5 | High marks from CLECs for its SONET multiplexing technology, but has been unable to expand its sphere of influence with U.S. CLECs. Not considered a major player by U.S. CLECs at this time. |
Source: Stratecast Partners, a division of Frost & Sullivan, Mountain View, Calif. |
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Mike Smith is managing director of the Telecom Strategy Practice at Stratecast Partners. He can be reached at msmith@stratecast.com
