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
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plight_reading 12/4/2012 | 7:36:16 PM
re: Report From NGN: An Industry Adrift? My personal observation at NGN is that most of the attendees were vendors and industry hang-on types. I saw very few attendees representing network service providers. NGN appears to be appealing to an audience that's too far ahead of the economic and market realities facing service providers.
plight_reading 12/4/2012 | 7:36:16 PM
re: Report From NGN: An Industry Adrift? Flanker, you are absolutely correct. Revenue growth of the the major ISPs is certainly growing greater than 3% per year. In fact WorldCom recently announced 22% annual growth.
flanker 12/4/2012 | 7:36:15 PM
re: Report From NGN: An Industry Adrift? ...Flanker, you are absolutely correct. Revenue growth of the the major ISPs is certainly growing greater than 3% per year. In fact WorldCom recently announced 22% annual growth...

thanks. I think looking back at 2000, or the period the quoted consultants were referring to, it's certain that data revenue growth was double digit.

I am hearing that this year will not be as good, but the third quarter was affected as much by 9/11 as an anything else.
rjmcmahon 12/4/2012 | 7:36:12 PM
re: Report From NGN: An Industry Adrift? 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).


Those waiting on the RBOCs or Cable Cos seem to be waiting for Godot, while those feeling helpless and angry may do better by using their energy in solving the next gen problems, most of which seem business and service related. It may be nice if the access wars of today were put to rest and the daemon wars could begin.


PS. The problems seem more about payments than about individual risks.

l8tereader 12/4/2012 | 7:36:05 PM
re: Report From NGN: An Industry Adrift? This is an excerpt (far below) from an introduction to an interview w/ Jaron Lanier.

It pretty much sums up the 'phone network' never crashes issue... the fact is, it doesn't very often... but when it does... oh, boy!

Cable modems & wireless phones (for voice; forget about 3G for a while... but when it comes...!) vs. RBOC legacy mindsight, protectionist whining... they are pathetic. Very un-American (the spirit, that is...)


>I live five blocks north of the site of the >attack. I was only allowed home, past military
>checkpoints, yesterday. The building I lived in >suffered some damage. Oddly my apartment is
>in better shape than the apartments all around, >above and below it. We won t have telephone
>service again for three months, and there is a >lot of water damage, but we now have electricity
>and water. And believe it or not, the cable >modems are working.



toll booth willy 12/4/2012 | 7:36:03 PM
re: Report From NGN: An Industry Adrift? Well I'm gonna to go then! And I don't need any of this! I don't need this stuff, and I don't need you. I don't need anything except this fiber and that's it and that's the only thing I need, is this. I don't need this or this. Just this fiber. And this God Box, the fiber and the God Box and that's all I need. And this OSS integration. The fiber, the God Box and OSS integration, and that's all I need. And this billion gate ASIC. The fiber, and this God Box, and OSS integration and this billion gate ASIC. And OSMINE compliance. The fiber, this God Box and OSS integration and this billion gate ASIC and OSMINE complance and that's all I need. And that's all I need too. I don't need one other thing, not one - I need this! The fiber, and the God Box, and OSS integration, and this billion gate ASIC and OSMINE compliance, for sure. Well what are you looking at? What do you think I am, some kind of a jerk or something? And this Series E financing! And that's all I need. The fiber, the God Box, OSS integration, this billion gate ASIC, OSMINE compliance and Series E financing.
lightcreeping 12/4/2012 | 7:35:55 PM
re: Report From NGN: An Industry Adrift? God box? Does anyone still believe in god? What people want is a box that generates cash --- now! Gone are the days of a god box that will sell years down the road. Get it?
HarveyMudd 12/4/2012 | 7:23:28 PM
re: Report From NGN: An Industry Adrift? The next generation of networks is just a fad and it had the impact introducing useless products and also lessening of the life cycle of products. Harly a day passes by when one does not hear of useless products coming out of the VC backed community that is simply trash and can not be adoped either by RBOCsor other service providers.

Some VC backed community even wanted to dismantle Claas 5 and Class 4 switches. This

the simply would not succeed.

Another group of companies wanted to introduce VoIP and change the infrastructure of the vast and wonderful network. This dream on the part certain companies, most notably, would not succeed.

The business climte is not worst as claimed by Smith of SYCAMORE.

There is no slow down as has been claimed by the equipment. The apparent slow down is due to the presence of large number of me too type of products introduced by the US companies.

There is a desire on the part of some US companies to sell to the entire world. This simply would not happen because of the competition from the European and Pacific Asian Countries.

The era of exponential internet traffic growth is over. As a consequence, there would be much sale of routers and other related devices.

The NGN concept would disappear if mature products were introduced and there was not pressure to produce products based on time to market.

TGHe typical buying cycle in the RBOCs used to be 6-7 years. Many vendors are attempting to disturb the buying cycle and luring RBOCs to adopt their products, althogh the products were not carrier grade products.

Introduction of nearly similar dozens of products confused many RBOCs. Many carriers and other carriers do not have scients/technologist to corectly evaluate their products.

One of the RBOCs. QWEST, spend lot of its energy and resources in conducting trials on many useless products. This partially accounts the failure of QWEST in the market place.

The capital expendure in RBOCs was based on the life cycle of deployable carrier grade products mostly produced by Bell Labs/Lucent. As a result of introduction of the so called next generation of products appeared to be reduced. In fact because of the false promised of the value promised by the NGN, the overall CAPEX has increased much to the grief of RBOCS and other carriers.
Packet Steve 12/4/2012 | 7:23:24 PM
re: Report From NGN: An Industry Adrift? Yeah, but most conferences would be ahead of what the RBOC's are deploying.

That shouldn't be a slam on the conference.

Although I find that one of the more useless conferences hanging around these days.
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