XCHANGE recently surveyed a variety of industry executives about their expectations for The Year Ahead. Here is our interview with Corey Geiger, vice president of marketing at Advanced Fibre Communications Inc. (AFC), which sells edge access equipment and multiservice broadband solutions and was recently chosen as Verizon's only active PON equipment supplier.
X: What do you see as the most significant potential developments in our industry in 2004?
Geiger: In our area of expertise, the access network, clearly the activity around fiber to the premises and the publicly announced commitment by some of the nation's RBOCs to actually embark on an FTTP infrastructure rollout is going to be a very significant development in 2004. We believe 2004 will be an investing year for the industry, in the area of FTTP, as operators try to get their basic FTTP infrastructure deployed. We probably will not see broad momentum through initial deployments in this area during 2004, but groundwork will be laid for FTTP-based services. One RBOC has already disclosed publicly its aggressive plans to deploy fiber-based access to its residential and small business customers. This is a significant commitment on their part, and I wouldn't want to minimize the importance of what they're going to do in 2004, or the potential impact it's going to have on future spending choices that traditional telecom companies and, potentially, other industries make in the area of wireline access.
X: What do you expect in the year ahead in the way of industry recovery?
Geiger: We'll probably never see a return to the level of capital spending we saw in the late '90s and in 2000. We are, however, starting to see the capital expenditures picture beginning to stabilize somewhat, and what that means is now there is less uncertainty in terms of the way money is going to be spent and where the investment decisions are going to be made by service providers in 2004 and beyond.
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?
Geiger: Telecom companies are making decisions to stop spending capex dollars on certain technologies, such as Class 5 switches. So, we are not going to see any resurgence in circuit switches, particularly Class 5 switches. Operators, large and small, are actually trying to consolidate the number of hosts they are using for Class 5 switching. Instead of raising capital expenditures, service providers are now looking at how they can change the profile of their current capex spending patterns.
What we've seen over the past couple of years is a significant ramp down in certain investments, including long-haul transport systems and Class 5 switching. Money that used to be allocated in these areas has either diminished significantly or has gone completely away as part of a general capex reduction. However, some of those dollars may have been diverted into other initiatives, such as the fiberization and packetization of the network. In sum, we believe business will be up for some sectors, notably the access space.
We also believe there will be increased opportunities for professional services. In fact, some large operators have made some significant decisions about reducing their work force, increasing the level of automation and outsourcing. AFC is well positioned, with its professional services group, to take advantage of opportunities that will emerge as a result.
X: How do you expect service providers' margins to be affected in the year ahead, considering the new wireless number portability rules that go into effect this month and the increasing move of RBOCs and cablecos into one another's businesses?
Geiger: With regards to the RBOCs moving into the cable business, there still is room for more aggressive pricing and packaging, particularly as DSL coverage rates increase, and as FTTP is used as a marketing tool against the cable companies. Will it put pressure on margins? Yes, that's probably inevitable; but in 2004, it won't be broad, but rather very targeted regions where DSL coverage is being improved or where FTTP-based access is deployed. Also, the RBOCs view FTTP as a technological edge, as an infrastructure for delivering bundled services over a wireline network, compared to what the cable companies currently offer. That's really significant because this will up everybody's game; it will be interesting to see how the cable companies react to FTTP.
X: In what areas of the industry do you expect to see significant consolidation in 2004?
Geiger: We're going to see a flurry of activity going on in some new areas, including the technology disruptors I've already mentioned: fiberization and packetization. By the end of 2004, from a vendor standpoint, it will be clearer who the leaders are in the industry, and we consider AFC to be well on track to be the industry's access leader.
Today, there remain too many companies, start-ups included, trying to sell too many products to carriers whose capex budgets have shrunk.
X: What new marketing efforts do you expect to see from service providers or vendors in the year ahead?
Geiger: Where FTTP is deployed, telecom companies will use it as a marketing tool. From a vendor standpoint, we believe there will be less interest in DSL - which has become table stakes - as a marketing splash. A good example was the fall USTA show in Las Vegas, where we saw a major shift from DSL to telco video.
X: What customer or service-type areas do you expect service providers to see the most demand from in 2004?
Geiger: We expect that, if the economy starts to improve and there is an increase in employment, there will be an uptick in demand for both residential and business services. From a residential standpoint, as people start to have more discretionary income, residential services and the generation of additional service bundles are going to be interesting.
X: What software or equipment do you expect to see gain significant adoption in 2004?
Geiger: As some operators reduce staff, they're going to be looking at providing a higher level of automation of routine network operations activities. So the role of network management and element management system software, as well as applications software in the operations environment, is going to become even more important, not less important.
X: What services, software or equipment do you expect to fall off the map in 2004?
Geiger: I would not characterize it as 'falling off the map,' but we are not going to see any resurgence in circuit switches, particularly Class 5 switches.
X: Any other predictions for 2004?
Geiger: Assuming the economy gets better, we're going to see a rising tide lifting many boats, which in general is going to help the overall health of our industry.
