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Rotten at the Core?

Light Reading
News Analysis
Light Reading
4/29/2002

BURLINGAME, Calif. -- As massive restructurings hit the service provider world, there is a rising fear that core router upgrades could be put off indefinitely, according to discussions here last week at an NGN Ventures panel on core routing startups.

Startups are particularly worried that once bankrupt carriers have written off lost networking assets and improved their balance sheets, lower bandwidth prices will force the carriers to "sweat out" their existing networks and put off upgrades until their equipment can no longer handle the traffic load (see Report: Core Router Market Falls 22%).

David House, chairman, president, and CEO of Allegro Networks Inc. acknowledged that declining carrier asset values are not helping matters. But even if carriers are now spending less because of this, "they are still spending billions," to handle more data in their networks, he said, "and they'll keep spending where the growth is."

Startups found themselves on the defensive here, wrestling with questions from the audience that reflected a swell of doubt about the near future of the core-routing business.

One skeptical attendee tried to put the panelists on their heels, asking: If carriers can't make money off data services now, why would they want to buy your gear and scale their networks?

"Carriers have always invested up front in a business that they know will be their future," said House. "The idea that [carriers] cannot continue to invest would be death."

Others bullishly insisted that carriers will be forced to pay the price of constantly rising IP traffic.

"You can only sweat assets for so long," said Brian Barry, CEO of Hyperchip Inc. "At some point [service providers] will have to make money from packets."

"When the excess capacity in the network runs out, [Internet] users will not stop creating more traffic," said Larry Roberts, chairman and CTO of Caspian Networks. "There may be some consolidation among backbone carriers, but even with fewer carriers there will still be the same amount of Internet traffic."

"Carriers can make money on IP services, they just don't have the right tools now," added Barry.

Agreeing that carriers will someday buy next-generation routers, the panel admitted their challenge is to survive until such spending takes place. "That's why we raised the money we did," said Roberts, whose company recently recapitalized. "You have to be able to last."

Delays in the startup world raise another question: What does it mean for routing kingpin Cisco Systems Inc. (Nasdaq: CSCO)?

Several discussions about routing focused on limitations of today's core routers, Cisco's specifically. Service providers, it seems, tend to buy a pair of routers for every one needed so that they can build a redundant network.

Roland Acra, VP and general manager of Cisco's Internet Routing Group, replied that "there is a lot of mythology attached [to Cisco] because we were lazy and sloppy as an industry." He said that carriers who bought routers in pairs were focused more on quick growth than reliability.

Acra says despite his competitors' knocks against Cisco, the company's core routers have achieved so-called "five nines" reliability in service provider networks. (And, he said, it's up to Cisco's customers whether to identify themselves.)

He added that startups will have a tough time breaking into the two-horse core router race between Cisco and Juniper Networks Inc. (Nasdaq: JNPR), because they'll need to be skilled in software, hardware, and silicon, all of which can be very expensive to a young company (see Juniper Goes Terabit With the T640). "Admission to the club is a trick, because they have to hit on many cylinders at once."

However, thanks to the evolving data network, incumbent equipment providers may eventually find their installed bases disadvantageous, according to Geoffrey Yang, a general partner at Redpoint Ventures: "An installed base is a double-edged sword. Can you make [old] software do what it wasn't originally designed to do? It could be an issue and might open up an opportunity for startups."

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com

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skeptic
skeptic
12/4/2012 | 10:30:23 PM
re: Rotten at the Core?
Acra says despite his competitors' knocks against Cisco, the company's core routers have achieved so-called "five nines" reliability in service provider networks. (And, he said, it's up to Cisco's customers whether to identify themselves.)
---------------

Wonderful. It seems that router vendors
(so far cisco and avici) are deciding that they
are already "five nines" without having done
anything.

Sorry. It doesn't work that way. You can't
prove five nines based on an isolated
circumstance and declare that your done.

All cisco is doing is reducing five nines to
the point where, along with "carrier class" it
doesn't mean anything anymore.

dwdm2
dwdm2
12/4/2012 | 10:30:23 PM
re: Rotten at the Core?
"As massive restructurings hit the service provider world, there is a rising fear that core router upgrades could be put off indefinitely, according to discussions here last week at an NGN Ventures panel on core routing startups."

The above is the beginning paragraph. After reading the whole story, I think the title of the story could be more appropriate.

The dictionary lists the following meanings for "rotten": 1. Being in a state of putrefaction or decay; decomposed. 2. Having a foul odor resulting from or suggestive of decay; putrid. 3. Made weak or unsound by rot: rotten floorboards. 4. Morally corrupt or despicable: She's rotten to the core. 5. Very bad; wretched.

The situation, as described in the story, is not as glamorous as one would like to be, however, it is not rotten either. Elsewhere the same story says: ... But even if carriers are now spending less because of this, "they are still spending billions," to handle more data in their networks, he said, "and they'll keep spending where the growth is."

The word rotten in the title only pictures a doom and gloom. A better title, IMHO, would have been something like: "Startups are on the defensive as the core-routing business struggles" or, "the core-routing business still in chaos."

Cheers
tsat
tsat
12/4/2012 | 10:30:22 PM
re: Rotten at the Core?

Change the title?
..And loose that perfect apple metaphor?

-troy
fiber_r_us
fiber_r_us
12/4/2012 | 10:30:21 PM
re: Rotten at the Core?
Was "carrier class" or "five nines" ever anything other than FUD words used by incumbent equipment providers and legacy telco employees to thwart the deployment of new technology?

If not, point me to the specifications that define exactly, in a testable way, what "carrier class" or "five nines" means.
skeptic
skeptic
12/4/2012 | 10:30:21 PM
re: Rotten at the Core?
One skeptical attendee tried to put the panelists on their heels, asking: If carriers can't make money off data services now, why would they want to buy your gear and scale their networks?
----------------

To answer his question directly, they would buy
larger systems to effect consolidation and
reduce cost of operations of the network. If
data services are a low-margin "bulk" business,
the surviving companies are going to be the ones
who can operate their network for the lowest
cost.

If carriers can't make money off data services,
they have about three choices:

1 - exit the market
2 - try to reduce operational expenses through
consolidation. (fewer devices, fewer people)
in order to increase margins in data
services.
3 - Do nothing and hope that small incremental
changes to the existing network can accomodate
any growth in data traffic.


I suspect that all three of these will be used
by different carriers. There isn't one solution
to the problem.


ehwhatsupdoc
ehwhatsupdoc
12/4/2012 | 10:30:20 PM
re: Rotten at the Core?
Hmm... Right now, bandwidth demand is doubling every 12-18 months in the backbone. And with the networks+router only 10% utilized, you need about 4-5 years before we hit 80% utilization and a necessary upgrade. A startup needs to tread water for 4-5 years... Is that right? Or am I missing something here?

The other things is - how does an ISP make money? Apparently it's not making money, or it's not making it fast enough to cover interest payments, and thus the bankrupcies.

And finally, is the cost of unit packet transport coming down? Just because we have 2x more data in mid-2003 doesn't mean ISP will generate 2x more revenue right?

Just looking as an outsider to the whole telco industry, my gut feeling is the problem is in the business model. It reeks. Startups, Cisco, Juniper will all suffer for at least 2-3 more years.
chromatic aberration
chromatic aberration
12/4/2012 | 10:30:20 PM
re: Rotten at the Core?
skeptic:
All cisco is doing is reducing five nines to
the point where, along with "carrier class" it
doesn't mean anything anymore.
__________________________________________________

Fully agree with you on that. What used to be a cherished design goal for engineers (in terms of system reliability, non-disruptive upgrade and replacement) is now no more than marketing BS.
skeptic
skeptic
12/4/2012 | 10:30:20 PM
re: Rotten at the Core?
Hmm... Right now, bandwidth demand is doubling every 12-18 months in the backbone. And with the networks+router only 10% utilized, you need about 4-5 years before we hit 80% utilization and a necessary upgrade. A startup needs to tread water for 4-5 years... Is that right? Or am I missing something here?
---------------
I very much doubt that anyone would drive their
utilization up to 80% before upgrading or that
the entire current network is at 10% utilization (maybe in terms of fiber, but not routers).
You also
have to understand that core utilization and
growth isn't necessarly uniform. There are
places that get into capacity trouble faster
than others.

I dont think that networks will be able to stand
still for the next five years.

dwdm2
dwdm2
12/4/2012 | 10:30:20 PM
re: Rotten at the Core?
But Troy, the metaphor has to agree with the story, don't you agree? All I am saying is one could find a more appropriate metaphor...

Cheers
reoptic
reoptic
12/4/2012 | 10:30:19 PM
re: Rotten at the Core?
Don't know who set up a core routing conference with a bunch of startups still in vapor phase along with Cisco and no representation from Juniper Avici Pluris Procket.

You have to love the arrogance of Cisco though on this panel. I mean, none of the startups would even exist if Cisco could execute in this space and deliver better product. But Cisco isn't worried -- not because they are addressing the issues with their products-- but instead because the carriers designed their networks wrong and because it will be hard to execute for startups!

Then they go and say that they are delivering 5 9s. Go ask Worldcomm about that -- think they got about 9 5s last week out of their Cisco network.

Cisco has succeeded brilliantly at losing share to Juniper with this approach and they seem to be intent on staying the course.
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