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BT Moves Ahead With Mega Project

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News Analysis
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BT Group plc (NYSE: BTY; London: BTA) today announced that it was moving to the implementation phase of its 21st Century Network (21CN) program (see BT Trials IP Network).

The program envisions wholesale replacement of the U.K.’s traditional telephone network by IP services provided over broadband access networks and a converged MPLS backbone. It's expected to generate hardware and software contracts worth $1 billion or more a year, for the next five years.

At a press and analyst briefing this morning, BT revealed details of trials that will start in October. This afternoon, it launched the tendering process for contracts by handing out technical and business specifications to a gathering of the 50 vendors that are still in the running to win some of the business.

The first contract awards are expected by the end of the year, according to Matt Bross, BT Group's CTO.

Bross and other BT executives claim they're leading the world with what they're planning. Within a couple of years, BT expects to start mass migration of telephony customers to IP-based infrastructure, with the goal of having more than half of them moved over by 2008. By then, BT expects to have cut its operating costs by £1 billion (US$1.8 billion) a year, largely by radically simplifying its network infrastructure.

The 21CN project is being run by BT’s wholesale division, which provides services sold by, not only BT’s retail division, but also by about 500 other operators in the U.K. In other words, BT’s 21CN project is likely to underpin a large proportion of all U.K. telecom, if it goes ahead as planned.

The signs are that it is going ahead as planned. "Replacing the PSTN [public switched telephone network] is a critical and decisive step that we need to move to," Paul Reynolds, CEO of BT Wholesale, said this morning. "If you look at when we're going to do this, it's now," Bross added.

Vendors have already been selected for the two trials announced today, both of which are scheduled to start in October.

In one trial, the PSTN will be replaced with voice-over-IP technology in two areas so that 1,000 customers -- mainly BT employees -- can experiment with services.

Bross points out that users can still have a conventional telephone handset if they want it. "We're changing out everything behind it." The service quality will be the same as, or better than, the PSTN, he claims, because "we're not running things over the Internet. We're running them over a high-quality, dedicated core." In the trial, the equipment is being provided by:

In the other trial, BT is deploying fiber-to-the-home (FTTH) equipment from ECI Telecom Ltd. (Nasdaq/NM: ECIL), to 1,500 trial customers (see BT Selects ECI for FTTP Trial).

BT is anxious to point out that this doesn’t signify that it’s planning a big FTTH deployment program any time soon. The trial is to collect “empirical data” to help BT work out what it should be doing, according to Bross.

"We have a lot to learn" from both trials, Bross says, notably about the processes involved in rolling out 21CN technology and migrating customers to it. However, the trials aren’t, he adds, about whether the technology itself is ready for use. “We already know that the machines exist to make this work.”

BT says that vendors participating in the trials won’t have an inside track on winning the mainstream 21CN contracts. Paul Reynolds, CEO of BT Wholesale told Light Reading this morning that no vendors were guaranteed contracts; but he went on to say that he would be “stunned” if Hewlett-Packard Co. (NYSE: HPQ) and Microsoft Corp. (Nasdaq: MSFT) failed to win some of the business.

Speaking exclusively to Light Reading Reynolds noted that competitive pressure has already allowed BT to get some great deals from Marconi.

Some of that competitive pressure might have come from China’s ZTE Corp. BT Wholesale’s CFO, Hanif Lalani, told Light Reading that ZTE’s inclusion in the bidding process “brought the price down dramatically from the big players.”

Marconi has previously announced that it was in line for some 21CN business (see Marconi Set for BT Project). Others that also appear to have thought they were home safe include Ciena Corp. (Nasdaq: CIEN) (see Ciena's BT Coup: How Big?), and OSS firms Amdocs Ltd. (NYSE: DOX), BEA Systems Inc. (Nasdaq: BEAS), Convergys Corp. (NYSE: CVG), and Cramer Systems Ltd. Indeed, the last seems to be too entrenched as part of BT's core OSS platform (the Bearer Management System) to be left out now (see LogicaCMG Integrates OSS at BT).

Those companies were named as suppliers before, or around the time of, BT's 21CN Symposium, held last December. At that gathering more than 300 vendors were given the lowdown on what BT expected from its 21CN suppliers, but now that number has been whittled down to 50 (see BT Gets Tough With Suppliers).

And that 50 will be reduced further, says Bross: "From that 50 we'll arrive at our set of long-term strategic suppliers."

And the contracts they're awarded will not be "deliver the box and we'll take it from there" type deals, says Lalani. "We're moving away from just buying equipment to buying a contract lifetime service. We want vendors to move up the value chain and provide services to us as well during the course of a contract."

Lalani says BT Group’s capex budget last year totaled about £2.7 billion ($4.9 billion), and about two thirds of that was spent by its wholesale division. This level of spending will continue, and between 20 and 30 percent of it will go on 21CN projects, according to C. Dale Register, managing director of network design and implementation at BT Wholesale. By that reckoning, the overall program will cost between $700 million and $1 billion a year to start with. This figure may grow as the 21CN project evolves, notes Register.

Lalani says most of the 21CN investment will have a two- to four-year payback period. As already noted, BT is expecting to save $1.8 billion a year in operating costs in the long run. A lot of this will come from continued reductions in headcount, by about 4,000 to 5,000 each year, according to Reynolds.

— Ray Le Maistre, International Editor, Boardwatch, and Peter Heywood, Founding Editor, Light Reading

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User Rank: Light Beer
12/5/2012 | 3:26:47 AM
re: BT Moves Ahead With Mega Project
The future is here, right in front of you!
Nowadays the rapidly developing telecommunications technologies are booming. European manufactures are no longer monopolists in the field. Asia is right after. The advantages of eurobrands are being eliminated.
China is tending to be #1!
ZTE is tending to be #1!
Yes! ZTE IS # 1.
User Rank: Light Beer
12/5/2012 | 1:37:10 AM
re: BT Moves Ahead With Mega Project
forgive me if i appear like a dum a*s but can someone tell me why sonus networks are not involved in this.
User Rank: Light Beer
12/5/2012 | 1:37:01 AM
re: BT Moves Ahead With Mega Project
Sonus is a small company with a history of accounting problems. Accounting problems often imply deficits in the quality of management [examples are: Worldcom and Nortel]. A lack of confidence in the long-term viability of Sonus could have been a factor in a decision to have excluded this provider, regardless of the quality of its productline.
User Rank: Light Beer
12/5/2012 | 1:37:01 AM
re: BT Moves Ahead With Mega Project
The trial utilizing the ECI PON equipment is a nice feather in the cap and should give them some good exposure.
User Rank: Light Beer
12/5/2012 | 1:37:00 AM
re: BT Moves Ahead With Mega Project
Ah, bad form to shill for one's company so openly.....
User Rank: Light Beer
12/5/2012 | 1:36:57 AM
re: BT Moves Ahead With Mega Project
Besides SONS, CSCO is a notable in its absence. What about Hauwei? I thought BT loved them. With this thing have an optical backbone, or gigantic routers?
User Rank: Light Beer
12/5/2012 | 1:36:38 AM
re: BT Moves Ahead With Mega Project
This Announcement is a victory for the Incumbents. As you would expect Marconi and Alcatel have a head start. I think Geoff Bennett (also an ex Marconi employee) will confirm that Marconi Softswitch technology has been in the labs at BT for over 4 years and because it emulates all the functions of the existing System X / Y switches it is a plug in replacement for the old generation switch. This is the reason why it was chosen by Kingston Telecom and I think by Energis.

With regards to the optical Backhaul this contract was let to Marconi 2 years ago as a PAYG contract i.e Marconi provide the Bandwidth needed on a just in time basis this contract has 10 year to run. The solution is based on the Marconi PMA 32 which can provision up to 64 x 64 GBit pipes on any Route. Should be enough for the next 10 years.

It is in my view a fallacy that the pipes in the core are going to grow rapidly (who needs Corvis / Cienna .....) Most broadband traffic will be generated locally and it is the local access loop which needs to grow. The early years of the Internet saw massive growth in International traffic but this was because local infrastructure did not support the routing of Internet traffic that has now changed and the bottlenecks are all in the local loop. This is where the Analyst got it so wrong in the late 90's in their forecasts which were seized by many startups they based their figures on a false premiseto raise capital for products which in reality would not be needed until we get Hollographic Video on Demand.

The PON trial with ECI is probably the most intersting bit to come out of this. The existing BT PON networks use APON these systems effect customers in about 100K homes in the UK most in Milton Keynes and the Isles of Scilly. These were supplied during the late 80's and through the 90's. The system used was designed by BT Fulcrum which was then sold to Fujitsu who became the supplier. unfortunately these systems were bizzarely unable to support Broadband only POTS and ISDN.

Consequently BT has had to find a quick solution to this problem in areas where this equipment was deployed. Just think of the frustration that as a customer you have fiber to the Curb but cant get anything more than 128K / s!!

Don't expect FTTH to grow significantly above this 100K before 2010 at the earliest the life of DSL systems dictates that they will be the engine of growth in the medium term particularly as half the UK can get VOD and Broadband from the Modern Cable TV networks already out there.
User Rank: Light Beer
12/5/2012 | 1:34:49 AM
re: BT Moves Ahead With Mega Project
SONUS is not a real sofswitch
User Rank: Light Beer
12/5/2012 | 1:21:04 AM
re: BT Moves Ahead With Mega Project
Thanks Telspec - an interesting and informative post.

I share your view that the core network is not stifling growth compared to the
challenge of growth in the local loop.

Do you have any feel of how much of a bottleneck the local loop is ? Is the local network creaking at the seams or do you forsee problems further downstream unless there is improvement in current technology or network management techniques in the mid term?
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