System Startups 'Face Tough Year'
Though new system-building startups in the optical arena seem to be announced on a daily basis, service providers at a Monday panel discussion here said that many systems vendors, especially those selling to the service-provider market, aren't paying attention to their potential customers' needs. That miscalculation, coupled with a tight cash market for service providers, may lead to a tough 2001 for many of the companies with systems to sell.
"There's going to be a shakeout," predicts William Heilenbach, director of broadband network engineering for broadband services provider Focal Communications Corp. (Nasdaq: FCOM) of Chicago. "There are too many similar products, with similar visions. It's going to be a dog-eat-dog world for them this year."
Last year, the financial markets took service providers to task, beating up stock prices and tightening up cash resources when service providers' grand infrastructure plans failed to bear much profitable fruit. Now properly chastened, service providers talk more about expanding margins and increasing revenues from existing installations, rather than future network capacities.
When the panel was asked where they might devote their capital-expenditure dollars this year, they mostly agreed with Xiaolin Lu, AT&T Broadband's vice president for strategic engineering and IP networks, who says he's mainly interested in buying software that can help with provisioning services, as well as better training for equipment he's already got.
Fred Harris, vice president for design, applications, and services with Sprint Corp. (NYSE: FON), says many systems companies aren't listening to their potential customers' needs and are building boxes nobody wants.
"They [systems vendors] should listen to what service providers want to do, rather than develop new products and try to create a market for them," says Harris, who says that Sprint will be spending more money this year on back-office support software, to better support products it already has in place.
"We [systems producers] must reduce the operating expenses a carrier has," says Amber Networks Inc. CEO Sam Mathan, whose company builds edge routers that are meant to connect multiple types of services (including TDM, ATM, frame relay, and IP) with optical backbones at a single point (see Amber Illuminates Edge Product).
Systems vendors, Mathan says, need to be sensitive to the service providers' installed base when building new products.
"You don't take these [existing] networks and replace them overnight," he says.
Sprint's Harris, who at the conclusion of the panel was badgered by a startup systems salesman even before he could get out of his chair, says it's clear that "some companies won't make it," for several reasons.
Beyond the niche appeal of some products, Harris says, is the extra hurdle of trust facing systems startups.
"Top [systems] providers will continue to do well with us," because of the trust their products have earned over time, Harris said. And even if a new technology comes along that could help, the issue of trust will keep larger providers like Sprint from writing a check, he says.
"Say I've got an area where we have $10 billion in revenue at stake," Harris says. "Am I just going to trust that some new piece of equipment will scale? I don't think so."
So expect more tire-kicking from service providers, Focal's Heilenbach says, as they transfer last year's pain to the people looking for their business this year.
"The way it was for service providers in 2000, that's what it's going to be like for systems vendors in 2001," Heilenbach warns.
-- Paul Kapustka, Editor at Large, Light Reading http://www.lightreading.com