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January 2, 2003
Even in this apocalyptic climate, it isn’t hard coming up with ten service providers to watch – and we mean, in the good sense. One would think the easy answer would be “incumbents,” as they are the ones with the deep pockets and the ability to move markets and make or break vendors. But they’re generally boring and take forever to make decisions, so while they’re important, they’re not necessarily tops. We’ve got a few incumbents in our list, but we made room for the risk takers, the oddballs, and (reluctantly) the U.S. Federal Government, which will not let anyone ignore it this year.
No. 10: FastWeb SpA
We had to include one of the European city carriers. There are a bunch, and they are doing a good job competing with the big PTTs in the major metros of Western Europe. There has been plenty of roadkill along the way, but the few left standing look strong and are methodically going about building viable networks to both residential and business customers in the major metros of Europe.
Take FastWeb. It has networks in six Italian cities, including those with the most enterprises, Milan, Rome, and Turin, with an inter-city network connecting them.
Each network is built the same, using Internet Protocol (IP) over fiber or IP over WDM; there are no SDH or Asynchronous Transfer Mode (ATM) layers in the network. FastWeb is using Siemens AG’s (NYSE: SI; Frankfurt: SIE) WDM systems for the intercity network and for the Milan and Rome MANs. In each city, at least five or six POPs are connected together via a mesh fiber network, running at 2.5 Gbit/s; Milan has 15 POPs.
For large enterprises, FastWeb installs a Cisco Systems Inc. (Nasdaq: CSCO) router in the premises, as an IP gateway to support LAN and PBX traffic. This is the point of access to the network, and Multiprotocol Label Switching (MPLS) is used at this point to designate video or voice traffic. To interconnect with the Telecom Italia SpA (NYSE: TI) circuit-switched network, FastWeb uses a softswitch.
For residential customers, FastWeb has a high capacity, 1-Gbit/s ring network that is connected to several buildings in a daisy-chain configuration. All MTUs on that ring share the capacity of the ring, with, on average, 10 Cisco switches per ring. Each MTU has 12 to 14 residences, with a Cisco switch in the basement of each MTU. The Cisco switch is connected to each residence using 2mm vertical riser cable.
In each residence, FastWeb deploys a Home Access Gateway (HAG), a FastWeb-designed box. The HAG can interface on one side with the fiber backbone while on other side there are three 10BaseT outputs for a PC, a set-top box for video services, and two traditional POTS lines; customers can use existing telephone equipment with the HAG. From the HAG, the telephony circuits are tagged as POTS using MPLS.FastWeb also does video, and video on demand. They’ve got agreements with Universal Studios, DreamWorks, 20th Century Fox, the Discovery Channel, MTV/Nickelodeon, and others. There are currently more than 3,000 titles available. FastWeb charges €6 for the latest movies and €2 to €3 for older movies and other content.
FastWeb has also launched FastWeb TV, allowing users to access content from all the main content providers in Italy. Customers connect their TVs to the FastWeb network via special set-top boxes and can access pay-TV, pay-per-view, VOD, and all the main free-to-air and free-to-satellite channels. This service is also integrated with VideoREC, a personal video recorder (PVR) for residential customers with fiber access.
Additional residential services that have been launched include WiFi and video telephony. With video telephony, a customer can hook up a set-top box with a camera to the television and the telephone, for a video telephone call.
Seems worth watching, right? A full-service operator growing as organically as possible in its native turf, nurturing a diverse customer base with traditional and next-gen solutions.
Cisco's Broadband Deployed in Italy
No. 9: Alltel Communications Products Inc. (NYSE: AT)
Alltel, oft overlooked, but greedily courted by a handful of vendors that see something big happening there, makes our list as a representative of the independent LEC opportunity. Alltel has been busily buying up rural access lines from the RBOCs and, in the process, has built itself a handsome local network, nationwide. In some ways it’s starting to look like one of the big Bells, but it has the benefit of being able to roll out out services more quickly, in little test markets, and it will not burden vendors with lots of talk of Osmine and legacy integration. In addition, Alltel, like many independent operating companies in North America, is looking at “Triple Play” solutions, putting every networking service imaginable over a single pipe to the home. We’ve all been burnt by RBOC claims of video delivery, but these independents mean business, and in many cases are in a position to take on cable multiple system operators (MSOs).
No. 8: Global Crossing Holdings Ltd.
You just have to watch Global Crossing this year. As they’re coming out of bankruptcy, everyone’s trembling in their loafers that they’ll cut prices ridiculously low and ruin the recovery. They’re sort of like Mike Tyson – no one would want to hang out with him, but you have to respect the muscle.
We’ve seen price competition is a losing game, but weren’t all these emerging operators in a losing game a couple years ago? What’s to prevent them from doing it again? Bondholders? We’ll have to wait and see. Winnick is gone, the debt is restructured, so maybe they can recreate themselves as something more relevant than a capacity provider.
The Post-Chapter 11 Hangover
Global Crossing: What, Us Worry?
No. 7: Savvis Communications Corp. (Nasdaq: SVVS)
Savvis is cool. They are selling IP VPNs, web hosting, and managed Internet services, and actually making some money doing it. They raised over $200 million in 2002, which is a shockingly impressive feat in today’s capital markets, and have kept their debt-to-revenue ratio south of 40 percent, making them look like a true survivor in these highly leveraged times. Their customer base is a mix of mid-sized enterprises in select verticals and members of the financial industry that have been hanging in there with Savvis, willing to take the leap with them onto a converged everything-over-IP network based on a mix of ATM core switches and Nortel Networks Corp. (NYSE/Toronto: NT) Shasta BSNs at the edge – and, according to customers, the thing works.
Why watch Savvis? Why not? They’re showing the way for others to follow: a managed IP services provider with global reach and a hands-on approach to IP service creation. Network-based services over a private IP network – we’ve been hearing this is the only way anyone can make money on IP, and it looks as if Savvis may prove it.
No. 6: Neosnetworks
Neosnetworks makes the list because Ethernet access topped our list of technologies for 2003, and Neos is going about making a business out of Ethernet access in a sexier way than anyone else we’ve met. Neos is a U.K.-based service provider, a CLEC if you will, in a world hostile to that acronym. They’ve been providing alternate access to U.K. corporates for a few years but just recently moved into providing Ethernet-based VPNs to customers. In less than six months, that Ethernet business accounts for more than half their revenue. Neos extended that service by deploying Ethernet over copper technology when most others have just been talking about it, and thus far it seems to work.
We met with Neos at Lightspeed and were impressed. They have the most talkative marketing guy out there, Neil Fairbrother, who made quite a convincing case that Neos knows its Ethernet networking during a panel discussion on Ethernet over copper. And Neos is also doing what most other service providers just talk about: giving their customers the ability to change their bandwidth requests on a whim. Neos keeps building, and Nortel got a decently sized contract to build out the backbone network with DWDM. Neos deserves watching this year because of its brazen approach to getting service out to customers, any way, any how, and its belief that Ethernet works as a carrier’s solution, end to end.
Neos Launches Ethernet VPNs
Neos Intros Ethernet Over Copper
Lightspeed Gets Big Carrier Turnout
Neos, PacketExchange Partner
No. 5: IBM Global Services
Now here’s a service provider that makes money, despite the winds of the economy. IBM got this right, and has been running a successful IT services business over the past few years and is poised to continue that success. On the last day of the year IBM Global Services made big news with J.P. Morgan Chase Bank & Co., in a huge outsouring deal worth up to $5 billion.
IBM is rapidly evolving the kind of services it offers its enterprise customers; the one we are most interested in is “utility computing,” in which computing is sold as a service, leveraging developments in grid computing. In this model, IBM Global would act as an application service provider (ASP), hosting applications that reside on its own computing infrastructure, knitted together with grid computing middleware and serviceware. Utility computing should allow enterprise customers the ability to run much more complex processes than would be possible within their own internal data centers, and make that infrastructure available on a broader scale to branch offices or partners. Grid computing is cearly one of the hottest developments in IT this year, and IBM Global Services is in a position to reap the benefits if they can prove it works as advertised.
IBM/Morgan Deal Shares the Wealth
No. 4: Sprint Corp. (NYSE: FON)
Sprint got everyone talking in 2002 (especially our message boards) when it publicly gave MPLS a kick in the teeth, by choosing to use L2TPv3 instead of MPLS for its Global IP VPN service rollout. Sprint has long been a contrarian, and it’s paid off. It has cautiously but methodically moved into every next-gen development out there including DWDM, optical switching, MMDS, DSL, IP-over-DWDM architectures, and VPNs. The one technology it’s made a big commitment to -- and perhaps its biggest gamble -- is softswitching. Announced in late 2001, Sprint gave Nortel a contract that looked bigger than a billion dollars to convert its local access lines to packet over a four-year period. That period begins now, January 2003, so this is clearly one service provider to watch this year to see if the circuit-to-packet migration mantra is for real (check out this archived Webinar for details).
Sprint PCS has also been quietly working on its technology behind the scenes. Not content with rolling out the most comprehensive CDMA2000 1xRTT network in the U.S., Sprint has also been looking beyond third-generation cellular networks with its "XG" trials in Houston and Montreal. The operator has been testing kit from Navini Networks Inc. and IPWireless Inc. in a bid to develop a future system that can deliver "an Ethernet user experience in a wide-area wireless network" over its 2.5GHz MMDS channels.
Sprint Spurns MPLS for Global VPNs
Spr*nt Goes Co*st to Coa*t
Sprint Targets New G Spot
No. 3: China Telecommunications Corp. (NYSE: CHA)
Personally, I’m not a big believer in China being the savior of our telecom vendors, but China Telecom generates a lot of news, handed out generous contracts to Cisco, Nortel, Alcatel SA (NYSE: ALA; Paris: CGEP:PA), and Juniper Networks Inc. (Nasdaq: JNPR), for everything ranging from optical transmission to softswitches, IP-DSLAMs, and edge routers. More contracts are coming, the provinces are still building out networks, and much of these are from scratch, representing fertile ground for next-gen gear.
China Telecom had its IPO this year, which didn’t make such a big splash, and started making plans to enter the U.S. market with a variety of data services and, eventually, voice services to China. It’s an interesting strategy, and one that has worked in other industries: When things get rough in the U.S. the big suppliers tend to hunker down and merge, but that often limits their ability to innovate, leaving the market open to foreign entrants. Maybe China Telecom is that entrant?
China Telecom IPO Lacks Sizzle
China Telecom's Big Plans
No. 2: The U.S. Federal Government
Well, not really a service provider per se, but the U.S. Government has to be the most important customer of carriers this year. It is poised to spend hundreds of millions on networking gear, from enterprise IT to core optical, in order to shore up aging networking systems, increase security of key government agency networks, and provide the infrastructure for much of what will be accomplished electronically at the behest of the new Homeland Security Department. Carriers are hungrily bidding for this business, and vendors are right there behind them.
A few interesting tidbits are already leaking out: The government may be the one place where a fully transparent, end-to-end, optical network makes sense. The government is asking for speed, connectivity, and security. The way to accomplish this with the utmost certainty is to never perform an electronic conversion of a signal anywhere within a carrier network. The carrier is managing lambdas, and nothing more. The government gets some cool CPE that it can plug any of its gear into, and out the other end comes a wavelength -- the carrier never even sees how its formatted. It’s untappable, scaleable, and extremely secure.
For the data heads, the government is looking for the Holy Grail of traffic filtering, it seems. They’d like to look at emails and all other forms of IP traffic, in real time all the time, scanning for nefarious words and signs of imminent ugliness. This is a tall order, as it’s really about content processing, not just packet processing. Not many chip designers have pulled this off, particularly at gigabit-plus speeds. But what a great opportunity for a vendor that can make the cut: You get to be the inaugural Big Brother IP Service Switch. Hooray.
Is Uncle Sam an Optical Sugar Daddy?
WorldCom Wins With Feds
Report: Security Spending Soars
No. 1: Cometa Networks Inc.
Wireless LAN technology as a solution for last-mile broadband is such a big deal that AT&T Corp. (NYSE: T), IBM Corp. (NYSE: IBM), and Intel Corp. (Nasdaq: INTC) created a service provider, with funding from Apax Partners and 3i Group plc, to bring WiFi to the masses. T-Mobile is well ensconced in Starbucks around the country, but the ambitions of Cometa are much greater, providing wireless broadband infrastructure wholesale to hot spots, enterprise customers, ISPs, and other service providers. The combination of AT&T for infrastructure and IBM for the installation and back-office support is a powerful one. And you can’t say the CEO’s name without saying “Brilliant” (his name is Lawrence B. Brilliant), which must give investors confidence in these troubled times.
What’s interesting to watch this year is how this Goliath will fare against the millions of Davids that are setting up their own personal WiFi networks and sharing broadband connections or selling services on the cheap to neighbors and friends. A WiFi revolution is certainly afoot, but how it takes shape, and who makes any money off of it, is an open question.
Cometa Plans Nationwide WLAN
Hot Spots: Part Deux
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