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Optical/IP

Russo's VOIP Spin Confounds

On this morning's quarterly conference call, Lucent Technologies Inc. (NYSE: LU) CEO Pat Russo boasted of newfound prospects in the voice-over-IP (VOIP) market (see China, Wireless Save Lucent ).

“Voice over IP is getting a lot of attention. It is a major long term opportunity… The category covers a broad area… The migration has definitely begun,” Russo went on (and on) “There’s a lot in the works, some successes I can’t talk about yet -- stay tuned."

So what's the catch? Lucent has sent mixed messages about VOIP in recent years. And analysts aren't quite sure what to make of the shifting VOIP winds, but they say Lucent has a lot to prove in the market area.

“We are looking forward to them demonstrating proof of Pat’s statements. So far, Lucent has not distinguished itself in this market," says Steve Levy, managing director of wireline equipment equity research at Lehman Brothers.

Another analyst, who requested anonymity, said Russo’s comments were “all hot air." He said the company has failed to execute in this market and is lagging behind its competitors.

Jon Arnold, VOIP equipment analyst for Frost & Sullivan, says Lucent’s “off-again, on-again softswitch strategy” has confused its customers and has forced them to go elsewhere. “Now, Lucent is doing anything and everything it can to keep pace with Nortel,” he says (see Lucent Performs Softswitch U-Turn).

The most recent setback for the company occurred earlier this month when Nortel Networks Corp. (NYSE/Toronto: NT) announced a huge softswitch win with Verizon Communications Inc. (NYSE: VZ), right in Lucent's own back yard (see Nortel Soars on Verizon VOIP Deal). Lucent was quick to point out that it has not been totally excluded from the deal. It has 18 months to come up with a softswitch strategy to replace its own Class 5 switches in Verizon’s network.

Lehman Brothers’ Levy notes, “They better have something within a year -- it would be a pretty bad thing if Lucent’s switches get displaced by one of these next-generation suppliers.”

Russo did her best to allay this concern on the conference call: “We are working with them [Verizon] to make sure they understand our capabilities and the time frames in which we can do it."

Meanwhile, next-gen players like Sonus Networks Inc. (Nasdaq: SONS) (which already has media gateways installed with Verizon), Telica Inc., Taqua Inc., and Tekelec Inc. (Nasdaq: TKLC) are devoted to the softswitch market and are sure to come banging on Verizon's door.

— Jo Maitland, Senior Editor, Boardwatch

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morye 12/5/2012 | 2:38:50 AM
re: Russo's VOIP Spin Confounds The install base of 5E switches is too huge for RBOCs to just pull them out, especially when most of the population is not willing to do away with familiar ring tone. The RBOCs prefer a solution that works with the 5E. Lucent is a natural choice if they can produce a solution that is an upgrade to 5E and not a forklift replacement.
hyperunner 12/5/2012 | 2:38:42 AM
re: Russo's VOIP Spin Confounds I agree. So Lucent has had years to come up with just such a migration story.

Care to tell us what this months version is?

hR.
lighten up!! 12/5/2012 | 2:38:35 AM
re: Russo's VOIP Spin Confounds Let's be real when it comes to VOIP and not get caught up in the hype. VOIP is today's mantra just like Optical Network was 3 years ago. It will meet the same fate, if the frenzy continues. Low cost and reliable service are the key driver for voice service. So far there is no compelling reason for carriers to migrate to VOIP and introduce another level of complexity to the network. Once again, people forget that network and service management are more important than how the service is carried. As far as I am concerned, there is no urgency for VOIP in the public network and hence Lucent and other switch vendors can take their sweet time coming out with a solution that works right. No Telco is fork lifting their existing switches now or 10 years from now...
materialgirl 12/5/2012 | 2:38:16 AM
re: Russo's VOIP Spin Confounds I beg to disagree on the timescale of VoIP. A lot can happen in even one year. These service providers have hordes of workers they cannot support. Look at LU's balance sheet : over $4B in debt and some $7B in pension obligations. This needs to be supported by a company that can barely break even. They stand ahead of share holders. Something will give.

Similarly, the phone companies cannot support their headcount either, as voice revenues fall. It is not the cost of the gear that matters, but opex. These guys have bills to pay. What will suffer is quality of service. Everything will migrate to "cell phone quality". Anyone hazard to guess what percent of cell phone backhaul is V0IP today is the U.S.? In India or China? What about LD? It grows from there.
flam 12/5/2012 | 2:38:10 AM
re: Russo's VOIP Spin Confounds Everything will migrate to "cell phone quality". Anyone hazard to guess what percent of cell phone backhaul is V0IP today is the U.S.? In India or China? What about LD? It grows from there.

And there's a precedent for lowering the standards. It used to be DOS, now it's called Windows.

As for VOIP in the backhaul, most (low-cost) calling card services run VOIP.

The next few drivers will be 802.11 VOIP players like Meru or IP Centrex players like Cylantro.

technonerd 12/5/2012 | 2:38:08 AM
re: Russo's VOIP Spin Confounds As far as I am concerned, there is no urgency for VOIP in the public network and hence Lucent and other switch vendors can take their sweet time coming out with a solution that works right. No Telco is fork lifting their existing switches now or 10 years from now
At a rational technical level this is impossible to argue with. However, I could understand it if the carriers started specifying VoIP just as they have specified ATM in the past even though they wound up not using it. If the FCC allows the RBOCs to claim that VoIP is an "information service," they will have every incentive to at least fake it, which will mean that the vendors will have to include VoIP in their products even if it won't be used.

Trust me, things like this have been done many times in the past.
technonerd 12/5/2012 | 2:38:08 AM
re: Russo's VOIP Spin Confounds Anyone hazard to guess what percent of cell phone backhaul is V0IP today is the U.S.?
I would guess under 1%. There's no rational reason for this to be a significant force, because long-haul transport is essentially free. There are always anomalies, so I'm sure there's some VoIP backhaul going on, but not on a big scale.
IP Observer 12/5/2012 | 2:38:06 AM
re: Russo's VOIP Spin Confounds I think in the VoIP discussions that everyone seems to be focused on cost and missing the other important piece. yes, carriers want to cut costs and if they can carry an existing service over another network cheaper that is great, but certainly not the only driver.

voice over the IP network gets interesting when you offer more than the voice service and you add hooks for video, collaboration, multimedia,etc.: that's adding value to an existing service.

In terms of Lucent's VoIP solution, they wouldn't know VoIP if it hit them over head as evidenced by Pat's babble.
IP Observer 12/5/2012 | 2:38:05 AM
re: Russo's VOIP Spin Confounds Sonus is also out at Verizon. They have some limited sales from gear they will as part of existing contract, but's that it. I would argue Nortel win more damaging to Sonus than even to Lucent, since Verizon win was what turned it around for Sonus in terms of market momentum and Lucent has other customers (maybe not significant in VoIP, but customers nevertheless).

Sonus can be working on enhancements to softswitch, but it won't matter.
BobbyMax 12/5/2012 | 2:38:02 AM
re: Russo's VOIP Spin Confounds It should be noted that in the last two and half years. Lucent has not produced any product. There is no effective management within Lucent It has no effective marketing.

Pat Russo is unable to court the RBOCs and other carriers. The management team is too drunk to think and execute any strategy. Lucent's employees are idling. There is not much activity in any segment of Lucent's business.

Russo is actively working with the Lucent Board so that the shareholders do not take control of the company.

Lucent is doing nothing in the area of Digital Loop Carrier as it relates to Broadband. #5 Ess switches are in danger of being extinct.What a sad story!
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