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Optical/IP

Report From NGN: An Industry Adrift?

BOSTON -- Concerns about the financial climate in the telecom industry dominated the discussions here at the Next Generation Networks (NGN) conference, as networking industry experts assessed the new post-bubble realities of networking technology.

One primary theme cropped up repeatedly throughout the conference: Incumbent carriers now have more power, and they are slowing the pace of startup technology development.

"The momentum is definitely swinging back toward the incumbent carriers," said John Fryer, vice president of marketing for NetPlane Systems Inc., a developer of telecom management and provisioning software.

So what's it mean? Well, for startups, unfortunately, it means they must readjust themselves for the longer development cycles called for by the carriers, including RBOCs (regional Bell operating companies), IXCs (inter-exchange carriers), or -- a new term introduced at the conference -- MXCs (money exchange carriers, or any carrier that still has money). The carriers themselves, which are slashing expenditures in their efforts to return to profitability, are in no hurry to install cutting-edge startup technology.

"The bar for startups is now much higher, and it will be that way for a long time," said Roger McNamee, an investment partner with Integral Capital Partners and buyout firm Silver Lake Partners, during a panel discussion. "The cash they need is enormous. This isn't about time to market anymore, it's about last man standing."

The humility was widespread. Dan Smith, CEO of the once high-flying Sycamore Networks Inc. (Nasdaq: SCMR), spoke somberly of the post-bubble environment and the new need to focus on the short-term economic benefits of new optical products.

"This is the worst business climate we've seen in 50 years," said Smith. "The financial bubble appeared and then disappeared. We're moving away from things that are speculative to things we can really analyze in a quantitative way. We need to show carriers how they can take incremental steps to decrease costs and increase revenue."

So, how is that to be done? According to Smith, it will mean installing optical DWDM technology to reduce costs in existing network links, rather than building new networks from scratch.

Discussions tended to center on the precarious health of the telecommunications carriers, which lies at the heart of the current slowdown. In addition to the need for more efficient network operations, questions about the restoration of growth focused on the pace of growth in network demand and the need for new capacity, as well as on new pricing models for data services.

Answers were scarce and not very heartening. For example, despite the steady growth of IP traffic, carriers do not seem to be making any money from it. Paul Roche, a principal at the management consulting firm McKinsey & Company, told the audience that U.S. IP traffic grew 177 percent from 1999 to 2000, while carrier revenues grew only 3 percent, from $109 billion to $112 billion.

"Despite robust traffic growth, backbone revenue is expected to be flat," noted Roche.

A panel on the pricing of Internet services and telecommunications produced an even grimmer picture. As bandwidth moves toward wholesale commoditization, carriers are scrambling to come up with new pricing models for communications services -- and don't appear to agree on how to do it.

"Basic bandwidth is a commodity service," said Andrew Odlyzko, professor and assistant vice president for research at the University of Minnesota's Digital Technology Center. "You can fight it, but you're not going to win." Odlyzko believes the money lies in providing "edge services" that hook consumers up to new applications using that bandwidth.

*****


What about the technology? The hottest topic: RPR vs. metropolitan Ethernet. During a panel on reslient packet ring technology, its proponents tried to assuage the controversy that has followed Cisco's heavy involvement in RPR (see RPR: RIP?).

"I think because we are the new kids on the block, people just wanted to kick the tires a little bit and see if we hold up," says Mike Takefman, chairman of the Institute of Electrical and Electronics Engineers Inc. (IEEE) 802.17 RPR working group and manager of engineering for Cisco Systems Inc. (Nasdaq: CSCO). "It's healthy for there to be some skepticism at this point."

*****


While the CEOs and the financial people talked about the new realities of the financial markets, rank-and-file employees buzzed about the lack of jobs. "I'm just happy that my security badge works every morning," said one Nortel Networks Corp. employee at a cocktail party.

— R. Scott Raynovich, Executive Editor, and Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com
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vapa 12/4/2012 | 7:36:33 PM
re: Report From NGN: An Industry Adrift? Those damn money-grabbing bastards! You think Microsoft should be sued by government? These RBOCs are worse, if not same as, than Microsoft.
lu-alum 12/4/2012 | 7:36:32 PM
re: Report From NGN: An Industry Adrift? Windows crashes, but the phones stay up. :-)
Cubby 12/4/2012 | 7:36:31 PM
re: Report From NGN: An Industry Adrift? The remaining RBOCs are good long-term investments. They have won the broadband access war. 30 million new subscribers over the next 4 years.
flanker 12/4/2012 | 7:36:30 PM
re: Report From NGN: An Industry Adrift? ...Paul Roche, a principal at the management consulting firm McKinsey & Company, said IP traffic grew 177 percent from 1999 to 2000, while carrier revenues grew only 3 percent, from $109 billion to $112 billion...

Ok, isnt this the same guy projected a 60% traffic CAGR over the next five years some months back? Carrier revenue grew by 3%? Sorry, dead wrong for data revenues in 2000. Even the underperformers were booking 15% growth in 2000.

I can see 2001 being a bad year, but it's voice revenues and dial up ISP that are declining. Data may be flat this year. But last year? No. This guy Roche isn't a believer, he's a hack.









Cubby 12/4/2012 | 7:36:30 PM
re: Report From NGN: An Industry Adrift? Expect carrier spending to flaten out in 2002 , representing a more traditional(pre-1999) capex/reveune ratio.
lordcirrus 12/4/2012 | 7:36:29 PM
re: Report From NGN: An Industry Adrift? The remaining RBOCs are good long-term investments. They have won the broadband access war. 30 million new subscribers over the next 4 years.

No. I have a cable modem, and so do all of my friends. We all have firewalls (hardware or software), the speed is just fine, and we have NOT bought the neighborhood. I am happy with my cable modem, and the price point is perfect and EQUAL to what my phone company can offer. Furthermore, my friends and I are slowly moving to cellphones, and the local company here is losing that business too.

The RBOCs are NOT good investmests. Their copper networks need to be desperately and quickly upgraded, but they physically cannot do this faster than the other broadband-class types, such as cable, satelite, and wireless. They are a leaking ship in the calm before the storm. They will sink when the storm arrives.

Here's an article, admittedly right-wing, but I feel it explains the issue pretty well.

http://www.gilder.com/amspec/gilderarchives/July01/UnnatMonop.htm
PantomineHorse 12/4/2012 | 7:36:28 PM
re: Report From NGN: An Industry Adrift? Sounds like NGN not worth attending. Could pick this stuff up simply mining the web, debating here, or discussing among one's favorite inner-circle.

It is well known that RBOCs lobbyists were in full gear immediately after 911. Story picked up just a few days later (posted here if memory serves).

This industry needs a "new breed" of individuals with fresh ideas willing to take risks (yes, including personal financial). Relying on the old cast or sitting around waiting for good things to happen is too passive (esp. an hope that industry restructing will be somehow beneficial).

While the financials look gloomy for Y2002, useful innovation & bust out (new) businesses are often rooted during these periods.

Regarding personal finances, got an e-mail from someone who wanted to do a moderate size redemption of a certain (nameless) mutual fund. Was told, "can't do", but told "you can borrow against fund value at prime + 1%". Odd, don't you think, to borrow against your own money? The person wanted to cash out obviously. Pursuing.

If you a thinking of personal investing in a business and wish or need to redeem mutual funds, you may want to check now whether liquidation will be met with any kind of resistance. This is a concern in a down, volatile market. Read prospectus carefully. If you were around in 1987 (or earlier), you know what I'm talking about.

If others (on this board) meet with similar resistance, I'd be interested in knowing. Meanwhile, a few friends and I are looking into.
rs50terra 12/4/2012 | 7:36:24 PM
re: Report From NGN: An Industry Adrift? I think you didn't get the message. The traffic grows even more than predicted, but it doesn't bring any revenue with it and with no external threat (CLECs are dead) there is very little motivation to support it.
rs50terra 12/4/2012 | 7:36:23 PM
re: Report From NGN: An Industry Adrift? "Furthermore, my friends and I are slowly moving to cellphones, and the local company here is losing that business too."

And who owns Cingular?

flanker 12/4/2012 | 7:36:22 PM
re: Report From NGN: An Industry Adrift? ...I think you didn't get the message...

I understand your point, but you mistakenly accept the credibility of the data.

Show me two of the top 15 data carriers in the United States with less than 10% data traffic revenue growth. I don't think you can, so I dont know where he gets the 3% revenue growth number from.

Furthermore, if you have been reading the articles on this site on IP traffic growth, you'd know the previous estimates from outside experts were about 80% to 150% IP traffic growth. The JPM McKinsey report estimates a 60% - 70% CAGR over the next five years.

This 177% traffic growth figure bandied about is news, and the other expert quoted in the article observes (again, you have to refer to a previous LR story) historic SUB-triple digit growth for IP traffic.

Neither the 3% revenue growth figure nor the 177% IP traffic growth figure is particularly credible; the former figures you can prove to yourself by looking up a carrier's annual report.





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