XCHANGE recently surveyed a variety of industry executives about their expectations for The Year Ahead. Here is our interview with Bob Warstler, president of global sales at Lucent Technologies Inc., a long-time, leading service provider, equipment and services vendor.
X: What do you see as the most significant potential developments in our industry in 2004?
Warstler: We think service providers face a number of challenges in 2004, primarily continuing to reduce the cost of their operations, while at the same time, expanding their service offerings to increase revenues profitably. And, they need to accomplish this while maintaining and improving the security and reliability of their networks, and the networks they provide to enterprise customers. That set of circumstances creates opportunities for companies like Lucent, as well as for our customers in growth areas like VoIP, mobile high-speed data and metro optical solutions, to name a few.
The key next year will be turning these technologies and opportunities into compelling, cost-effective offers for end customers -- whether they are businesses or consumers -- that are adopted for widespread use.
X: What do you expect in the year ahead in the way of industry recovery?
Warstler: The market remains challenging, but we think it is showing some signs of stability, and we expect a return to modest growth in spending in the post-2004 time frame. In the meantime, capital expenditures are still under pressure, but capital intensity -- defined as capex-to-revenue ratios -- is beginning to show signs of increasing.
X: What are your expectations for service provider capital spending in
2004? In what areas do you expect to see the most improvement? The least
improvement?
Warstler: We are seeing some signs of stability in the overall telecom market, with pockets of opportunity in areas like services, metro optical, voice over IP, access and mobile high-speed data. Service providers will continue to work toward boosting bandwidth in the metro networks. You will see more growth at the edge of the networks, as DSL and other high-speed access vehicles gain widespread acceptance and become more of a consumer norm. We think that, until the capacity problems in the metro areas are resolved, service providers will continue to spend less on long-haul networks, as there is still some room for capacity growth in that part of the network.
X: How do you expect service providers' margins to be affected in the year ahead, considering the new wireless number portability rules that went into effect in November and the increasing move of RBOCs and cablecos into one another's businesses?
Warstler: While everyone in the communications industry is working to improve margins, there are a number of interesting new technologies -- especially mobile high-speed data and VoIP -- that offer enticing business propositions for carriers. The carriers that introduce these technologies -- and do it right -- will help their bottom lines with the higher-revenue services that can deliver profitable revenue to offset other lower margin services like voice.
As competition increases, carriers will also have to offer their customers interesting new packages of services to maintain customer loyalty and keep generating steady revenue. As always, during times of intense competition, innovation and ingenuity peak -- and we're excited to watch how things unfold in the year ahead.
X: In what areas of the industry do you expect to see significant consolidation in 2004?
Warstler: In times like these, we can always expect some consolidation among various players. For Lucent, partnerships of various kinds and alternate sales channels will become more important as part of our overall strategy. Clearly, in today's market, it's difficult for one company to do it all. That's why we are partnering with others where it makes sense and where it supports our focus on delivering solutions to our customers.
X: How do you think MCI's expected re-emergence from bankruptcy will affect the industry?
Warstler: We'll have to wait and see, but they'll be another competitor in a crowded field.
X: Do you anticipate a significant number of additional bankruptcies by communications companies in 2004?
Warstler: Although we can never really predict the future, from our view, the industry has stabilized a bit. Both equipment providers and service providers have been focused on controlling operating expenses, and as the market stabilizes, these companies are now better positioned to take advantage of the most attractive new opportunities.
X: What new marketing efforts do you expect to see from service providers or vendors in the year ahead?
Warstler: We think service providers will continue to market more bundled offerings to both consumer and business customers, in an attempt to retain customer loyalty and drive revenue. For example, there are already some attractive offers for consumers and businesses that bundle broadband access, wireline services and wireless services. We expect these kinds of packaged solutions will continue.
On the business side, we think you will see service providers expanding the roles they play with enterprise customers. In addition to managing the traditional communications aspects of their business, these carriers will use their networking skills to manage additional services for their customers, such as storage area networking, call centers, security and overall network management.
X: What, if any, significant new developments on the regulatory front do you expect for 2004?
Warstler: We've seen a lot of significant regulatory developments in the past year, with the FCC's Triennial Review and wireless number portability orders topping the list. We don't believe that 2004 will see quite the same level of regulatory activity. Rather, we think it will be a year of sorting out and continuing to examine the implications of the new regulatory environment. That being said, the regulatory treatment of VoIP will come under consideration in 2004, and that will be an extremely important discussion. It will require balancing the push toward a new technology with some very important social concerns. The VoIP debate promises to be every bit as significant as the Triennial Review for the long-term future of telecommunications. Whether the debate will be completed during 2004 remains to be seen.
X: What customer or service-type areas do you expect service providers to see the most demand from in 2004?
Warstler: Demand for broadband services on wireline and wireless networks continues to grow, driven by both businesses and consumers. And, with the technology firmly in place, the price points for these services have reached levels where true consumer adoption will begin to occur. This will mean DSL for the wireline side and mobile high-speed voice and data networks for wireless customers.
From a business's perspective, we think you will see growth in key managed service areas. As businesses look for ways to cut their costs, including IT staffing costs, they will look to outsource certain network tasks -- storage, security and network management support -- to a trusted external partner.
X: What software or equipment do you expect to see gain significant adoption in 2004?
Warstler: VoIP is gaining tremendous traction in the enterprise space, and we expect that will grow throughout the coming year into the service provider space. Any kind of equipment surrounding and supporting this technology from phones to networking equipment will experience growth.
Underpinning the VoIP growth is continued growth in broadband technology to support increased voice and data traffic. This includes equipment to support DSL as well as cable modems. Of course, this will all continue to fuel the growth in the metro networking area supporting both adoption of edge technology all the way to next-generation SONET optical equipment that can support high volumes of capacity.
X: What services, software or equipment do you expect to fall off the map in 2004?
Warstler: While we don't think any technology will 'fall off the map' per se, we do think you will see that companies opt for the most cost-effective, scalable next-generation equipment as they add capacity to meet the growing demand for new services.
X: Any other predictions for 2004?
Warstler: Markets outside the United States, especially those with low teledensity rates, represent opportunities for growth. Countries like India and China are building networks and adding customers at rates that are almost impossible to believe, and the equipment vendors will continue to work closely with these service providers to expand the telecommunications infrastructure in these areas.
We also see so many technologies that are poised to take off this year. VoIP, storage networking, high-speed mobile networks and DSL are now just maturing into mainstream technologies and revenue centers.
