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June 19, 2002
Lucent Technologies Inc. (NYSE: LU) appears to have backed down, for the moment at least, on raising prices on a significant chunk of its services.
Sources say Lucent warned carrier customers about a month ago that it planned to nearly double the cost of maintenance services on its high-end Class 5 voice circuit switches. But an outcry from Verizon Communications Inc. (NYSE: VZ) and other significant customers seems to have forced the vendor to reconsider.
"They talked about it, but they seem to want to protect their customer base," says Susan Eustis, president of WinterGreen Research Inc., a telecom consultancy. "Customers are shaky already. Lucent doesn't want to do anything to lose the relationships."
Nearly every carrier in the U.S. uses these high-end Class 5 switches in their networks, either from Lucent or a competitor such as Nortel Networks Corp. (NYSE/Toronto: NT).
Carriers invest heavily every year to keep this gear upgraded with the latest functionality (multimedia, for instance). It's not unusual, for example, to have a team of people working on voice switch maintenance. (Lucent says maintenance teams vary according to the number of lines in a switch, which ranges anywhere from 50 to 50,000.)
At press time, Lucent wouldn't comment on the alleged maintenance pricing situation, and Verizon hadn't returned calls. But sources say the news that Lucent could have threatened its customer relationships by raising rates on its Class 5 switch services is interesting for several reasons.
First off, it indicates that carriers may see the end in sight for their investment in circuit-switched voice equipment. While the jury's still out on the progress of alternatives, such as packetized voice over IP (see Where Is VOIP?), many industry pundits insist it's only a matter of time before carriers start pulling the plug on circuit-switched gear.
"[Class 5 switching] is an area that's dying," says Frank Dzubeck, president of Communications Network Architects (no Web site). "And replacements for these switches won't be more Class 5 voice switches. They're living at the edge of legacy." RBOCs and other incumbents are looking at voice over IP seriously, he says, and planning migration strategies. Lucent has its own products to offer in this regard (see Lucent Intros Universal Gateway).
So why would Lucent propose an increase in the first place? Here, sources are divided. "It's a good sign," says Dzubeck. It shows Lucent was confident of its ability to get new business -- for its packet-based products -- without using maintenance as a selling point, he suggests. And that, he says, is a sign of recovery.
But Eustis isn't sure. "From a marketing perspective, it's not a good move," she says. Rather than expressing confidence on Lucent's part, she says, the proposal to raise prices told customers Lucent was so desperate to keep them invested in what it does best -- circuit switching -- that it was willing to risk their wrath to prevent them from moving easily to alternative gear.
Without Lucent's confirmation, or input from specific carriers involved, it's tough to speculate on Lucent's motives for the rumored price increase proposal. But one thing is clear: Any attempts to squeeze life out of voice gear at this point are bound to meet resistance that wasn't there just a few months back. And as that resistance becomes an industry talking point, it's certain to clarify the need to move into voice over IP -- or the reason not to.
— Mary Jander, Senior Editor, Light Reading
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