Overheard in Dallas

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digits 12/5/2012 | 3:01:32 PM

re: Overheard in Dallas It's very encouraging that Verizon wants to see more startup innovation in the optical space, but isn't VZON one of the carriers that's consolidating its procurement around a smaller and smaller group of large vendor suppliers?

Isn't that the sort of thing that discourages startup creation?

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paolo.franzoi 12/5/2012 | 3:01:31 PM

re: Overheard in Dallas
What is the point of an optical startup? To get another commodity product out the door? Haven't the RBOCs figured out that they have basically killed all thoughts of innovation for them by their purchasing behavior?

seven

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rjmcmahon 12/5/2012 | 3:01:30 PM

re: Overheard in Dallas Haven't the RBOCs figured out that they have basically killed all thoughts of innovation for them by their purchasing behavior?

Along similar lines, the FCC and ILEC propaganda has been that competition is the rationale for economic deregulation and removal of common carriage regulation. Unfortunately, few really delve any deeper other than to put up a straw man that facilities based competition allows for lower consumer prices. On the surface this seems valid but take the follow on course to leave no child behind's economics 101 and one can find that price competition is not an indicator of capitalism at work so much as the following from Schumpeter (1942):

The first thing to go is the traditional conception of the modus operandi of competition. Economists are at long last emerging from the stage in which price competition was all they saw. As soon as quality competition and sales effort are admitted into the sacred precincts of theory, the price variable is ousted from its dominant position. However, it is still competition within a rigid pattern of invariant conditions, methods of production and forms of industrial organization in particular, that practically monopolizes attention. But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition [price competition] which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance)GÇôcompetition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. This kind of competition is as much more effective than the other as a bombardment is in comparison with forcing a door, and so much more important that it becomes a matter of comparative indifference whether competition in the ordinary sense functions more or less promptly; the powerful lever that in the long run expands output and brings down prices is in any case made of other stuff.

The FCC by it's very design seems incapable of instituting polices which enable capitalism and true competition. Rather the FCC has been providing protection, under the guise of price competition, and trading off real progress and real standard of living increases to the masses for political hand outs to a bloated bureaucracy that nobody needs.

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rahat.hussain 12/5/2012 | 3:01:13 PM

re: Overheard in Dallas Usually, the technology folks at all large carriers (including VTO at VZ) would love to get more startups into their networks because they understand innovation and its impact on their networks. The procurement, planning and senior execs (who are already being shmoozed by the Pat's of the world) don't care a whit about new products or innovation that can create next-gen (cost-effective) networks.

That's why they hide behind network support and balance sheet stablity to choose their predetermined vendors. Of course, they can push on pricing to prove that they are adding value.

What a game - startups beware!

odo

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bollocks187 12/5/2012 | 3:01:12 PM

re: Overheard in Dallas RBOCS are the worst type of customer for any startup.

They want to see more startups then pershaps they should invest in them with their own funds.

In the early OIF interop days there where at Verizon labs 10 startups and 4 incumbents. They dwindled down to 4 incumbents and 1 startup - with all the work and effort completed by the 10 startups. The simple drowned the startups.

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Peteflex 12/5/2012 | 3:01:12 PM

re: Overheard in Dallas How soon we forget....

http://www.lightreading.com/bo...

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zwixard 12/5/2012 | 3:01:11 PM

re: Overheard in Dallas "
because the RBOCs just go to their incumbents and tell them to build something just like what the startups designed
"
Or, the incumbents offer their old stuff at or below startups' price. Either way, unless the technology is totally protected by patents, no starups can survive.

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Pete Baldwin 12/5/2012 | 3:01:11 PM

re: Overheard in Dallas Just now got off the phone with someone making this kind of point.

They were saying they don't bother chasing RBOC business, because the RBOCs just go to their incumbents and tell them to build something just like what the startups designed.

Part of the reason: The extremely high cost of integrating a new vendor into the network.

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rahat.hussain 12/5/2012 | 3:01:10 PM

re: Overheard in Dallas Wow - just saw the photonic phrenzy post from 9/2006. He/She has nailed it and it is worth repeating here - this is uncanny and I know of at least three startups who have gone through this wringer.

Here it is, in all its glory, the photonic phrenzy post that I will frame and show to every system level startup that comes for funding!

Author: photonic phrenzy
Subject: Re: Thanks, But No Thanks
Date: 09/21/06 09:57 AM

In my opinion, many large carriers (especially the RBOCs & IXCs in North America) just use start-ups as leverage to get the large incumbents to develop what they want.

Live the optical equipment startup experience:
1. Carriers will ask you to come present the cool new ideas, participate in studies, showcases, and help them write the business case. You will do this for countless visits -- with no commitment.
2. Carriers will ask you to provide millions of dollars of lab equipment for free for at least a year to "test" the new technology--with no commitment.
3. Carriers will ask you to respond to countless RFIs and RFPs with more than a 1000 questions (I'm not kidding) -- Requiring teams of people to work night and day for a couple of months -- for free, with no commitment. This will help them educate the incumbents.
4. They will tell the startup you need to support their OSS such as OSMINE -- paying millions of dollars upfront with NO commitment from the customer.
5. Carriers will tell the startup you need to find a large incumbent partner. You realize this will be bad for both you and the partner because you will have to split the margins. Many of the incumbent partners will visit you anyway to do "due diligence". In fact, they really are there to educate themselves on what great things you have so that they can copy them. In the end, they will stall the customer until they can deliver the technology themselves.
6. Meanwhile, they will ask you to continue to develop countless custom features and commit to roadmaps that will require 200 people to support -- with no purchase commitment.
7. They will force you to agree to oppressive terms and conditions in which you take all the risks and they take none -- again with no volume commitment.
8. They will beat you down on price to the point where you are losing money -- in reality to use this new price point as leverage for their incumbents to match.
9. Carriers will in the end choose the incumbent (when they are finally ready) because:
a) Procurement folks have a "special" relationship with the incumbents
b) They have so much existing equipment with the incumbent that they can't afford to not keep them healthy.
c) No one ever got fired for buying "IBM" (NT/ALA/LU/TLABs)

It takes more than $100M to develop and support an optical startup to sell into a large Carrier. Carriers are not willing to share any of the risk. I am convinced that having the best technology and an innovative solution is not enough to get "healthy" business from large NA carrier. The investment is so high, the risk is so high and the probability of success is so low -- you have much better odds at winning the lottery.

Over the last few years, I have seen countless startups live the dream of selling to an RBOC/IXC -- only to see personal investors wiped out, massive layoffs, bankruptcies and families destroyed. All the while, the Carriers are continually wined and dined and treated like kings.

I'm sorry, I've had enough.
Innovate for a large NA Telecom Carrier again . . . I'd rather be hit by a brick. Fool me once shame on you; fool me twice and I deserve to be committed . . .

Drew, you are right -- Thanks, but no thanks.

Phrenzy

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paolo.franzoi 12/5/2012 | 3:01:10 PM

re: Overheard in Dallas
odo,

I don't disagree with your assertions or the post. On the other hand, why should a large carrier deploy a half baked product with little to no support structure that is not integrated into the OSS environment.

If you are not clear how this responds to the points of the post:

1. Yep, they expect you to understand how your technology is not only "cool" but actually provides some economic benefit to their company. They are HELPING you market this idea within their company to build a consensus.

2. Yep, Ever wonder if they actually find these things called "bugs" that prevent volume deployment of the product? Why, yes they do. You want them to pay to debug your equipment?

3. Yep, Not only does it educate the Carrier on what the vendor community has - but what they are planning to make. Have you ever done that with chipmakers?

4. Yep, Now why would they pay for you to finish your product? This is no longer necessary as they are moving past OSMINE, but still expect them to want you to do OSS integration. They can not automate the network and use your "cool new features" without it.

5. Yep, those 3 guys in TAC are great. So, are those 5 guys in OPS. How are you scaling this to a $100M/year product to them again?

6. Yep, your cool technology is cool to you - those custom features make the product usable in their architecture. You didn't expect them to change their entire network for your great box did you?

7. Yep, Welcome to the show - they pressure you as hard as they can. Why should they take a risk on a product that has never been deployed in volume before?

8. Yep, you need to know your walk away in ANY business. It is not their job to make your business plan. It is YOUR JOB. If you have listed Cisco as a competitor as a startup, you have already lost.

9. Yep, your only value is the value of that one box. Seriously, are you THAT much better? Are you 1000% or 110% better? Given that you are not integrated, with no scale, and no track record you better be great.

So, I hope that puts a large carrier looking outward view on it. I agree with your conclusion that building an infrastructure startup targeted at the RBOCs (or any set of FT, DT, BT, and NTT) makes no sense.

seven

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