BT Moves Ahead With Mega Project

Launches tendering process for 21st Century project with the goal of replacing UK telephone network with VOIP

June 9, 2004

6 Min Read
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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, andPeter Heywood, Founding Editor, Light Reading

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