FEATURE: CEOs Tell How They Survived 'Nuclear Winter,' at Least So Far

The dramatic downturn in the telecom industry, unprecedented in its history, has taken more than a few casualties, particularly among the many packet-voice startups that burst on the scene three years ago.
With most still waiting for markets to develop, there may be even more that are lost.
In tough times, it falls to a company's chief executives officer to carry the firm, not just through the challenges, but on to the opportunities that hopefully lie beyond. This week New Telephony begins a series of conversations with CEOs whose companies are typical of the innovative startups that are now searching for their markets in a very tough telecom economy.

Hassan Ahmed, CEO, Sonus Networks Inc.
Sonus Networks has been an industry touchstone, financially speaking, because it is one of the few companies in IP voice, and the only startup softswitch company, that is public. Founder and CEO Hassan Ahmed has led the company since its inception.
Originally positioned to be the vendor for a new telecom world of competitive carriers providing innovative services based on packet-voice switching, Sonus has had to retrench and find new markets, such as Internet offload. Like many equipment makers, Sonus has felt the sting of greatly lowered revenues in the most recent quarter (see Financial News), in part because a major customer, Global Crossing Ltd., has declared bankruptcy. Ahmed talks about the company's past and current strategies, and how it is using them to weather the storm.

New Telephony: How was your company affected by the downturn in the telecom industry?
Hassan Ahmed: In some ways Sonus has actually fared pretty well through the downturn in the sense that we were probably one of the last companies to be affected by it. In the first half of last year Sonus was able to maintain pretty significant growth and navigate around it. But one of the things we saw happen through the second half of last year and the first quarter of this year was continued deterioration of the market. The way it affected us was in reduced revenues and delayed revenues, though not lost customers or partners.
I think our competitive position in terms of being leaders remains intact. That is important and a big part of the focus for our company. I am fond of saying that nuclear winter won't last forever. The good news is we haven't been affected the way some companies have in lost customers or partners and have, in fact, added customers,
But what has happened is the rate at which customers have been spending has gone down. That is reflected in decreased top-line revenues ... from, one, the general slowdown in spending. Also, ... a number of carriers have experienced disconnects from smaller companies going out of business, and that has freed ports, so they have delayed the expansion of their infrastructure with IP.
Some of our customers, most prominently Global Crossing went into ... reorganization under Chapter 11. Expansion of their network has essentially slowed to a trickle. However, the operation of their network and the delivery of services to customers has continued. So there is a certain level of maintenance spending that they continue to do but expansion spending is not there.

NT: How will the Global Crossing bankruptcy affect you?
HA: [With Global Crossing] one of two or three things will happen.
One possibility is that they will be successful with the reorganization and emerge as a separate company in the third or fourth quarter. That would be good for us because expansion would start again and they won't have the debt load they had before.
The other possibility is that they would get acquired by someone else, presumably a large carrier, and that would be good for us.
The third possibility is that the company will be liquidated, and that is not a good outcome for anyone, including us.
So we focus on continuing to expand our customer base, outside the United States in particular. We are busy executing on this strategy and winning customers is going to allow Sonus to exit this year as growing company and positioned for stronger growth in the third quarter when see spending loosen up and get back to normal mode.

NT: What plans, in terms of products and marketing, had to be changed?
HA: One thing we did was head-count reduction. That did affect engineering, but really did not lead us to reduce our R&D. How did we do that? At the beginning of last year we acquired telecom technologies inc. They had grown in a bootstrap fashion and had number of business lines, including a professional services business. We were going to maintain our obligations for those businesses but tail them off over a period of three to four quarters. So part of head count reductions were in a sense planned. So we took cost out of our structure without impacting our core R&D.
We have not altered any of our customer development commitments or support commitments and have been able to continue to invest in projects that I view as being strategic to us in maintaining leadership on a long-term basis, meaning new product development that is critical to our future success.

NT: Any loss of sales offices?
HA: We didn't cut back sales offices and in some ways expanded. We added an office in China. What we did reduce or reassess was sales staff. Smaller emerging carriers in the United States essentially went away. So we reassigned staff and focused on incumbents.

NT: What was your greatest personal challenge during this time?
HA: It is an interesting time to go through because no one has been through as deep a downturn in our industry. It can be a scary time for people. The biggest challenge in times like this is being able to communicate effectively in the company. You want everyone to be able to see things the way you see it. You have to say, "This is our strategy to deal with issues in the market. We have developed one and are executing on it and confident that leads to success."
Part one is just figuring that out and part two is being able to communicate effectively inside to everyone so everyone sees it the same way and understands the path out of the jungle, as it were.

NT: It is important to know there is a path
HA: It is important for me to figure out a path. So it is important for everyone to know.

NT: What was your most successful strategy?
HA: As I look back at the things we did even before the downturn, I think we did a couple of things really correctly.
First we made bets on how the market will develop, and sometimes it looked like we were swimming against the stream. We were doing core trunking services when everyone thought they should do access services, and it turned out to be a really good bet.
Also, we always did a full-service solution with a softswitch and gateway when others said no. We said that's the way carriers buy, and that turned out to be a good bet.
And we did a good job of just figuring out how carriers would buy and used that to get into the largest of early adopters.
As we go forward here we are applying a lot of that same logic to the next phase of adoption in trunking and an early adopter phase in access, because we think that market is now entering the early-adopter stage.
There is a strong focus inside Sonus to be the technology innovator. At the end of the day we enjoy a lead over competitors, and it is a lead that we are maniacally focused on trying to widen. That is important because, when the carrier business turns around, being in a leadership position will be critical.
We feel the only path to success in large carrier networks is to have a very close partnership for design of the primary network, particularly the voice network. This is a technology transition for customers. They are moving from TDM to VoIP, and new things have to happen. For example, for the guys who run the 4Es and 5Es and now have to provision IP addresses, this is something they have never seen before. So, what is important is our ability to be tied closely to the customer. We have to do a good job supporting customers and helping with the design of the network, not just selling equipment.

NT: What do you wish you had done differently?
HA: In retrospect, if I had to do it over again, I suppose I would raise more money in the public market. You can't have too much of that. Sonus is one of the companies that did not do a large secondary offering. I don't think this is a problem, and we do have a lot of cash, and we run the business responsibly. But we don't have the half billion or $1 billion cash cushion that a number of companies raised in their secondary offerings. My personal feeling is that we don't need it, but it would be good to have.
NT: How do you see your company positioned now, and what are your expectations for the next year? HA: We are fortunate to be still positioned for the future and a leader in market share for next-generation voice. If you look at our trials, we are positioned across all carriers in a number of different geographies. That is really important because I think 2002 will be a year of decisions and design wins. When you win a network, it takes a while to pull revenue from that. When they sign us, they do a limited deployment and get operational things out of the way, then go into scaled deployment. Every network in the world works that way. A design win gives visibility, though. We are the only packet infrastructure deployed in large networks and are carrying more than 2 billion minutes per month. We have learned a lot about what it takes to deploy and build these networks. We have taken that and used it in our products. So we think we have an edge because of that, one that will position us well to continue in this vein. If you look at where the productivity gains and growth have come from traditionally in the U.S. economy, it has been technology. Technology is not a growth industry right now, but obviously to me that will be the industry that provides growth in the economy going forward, and I am pretty bullish on that.