Tuesday, March 28, 2006

Mega deals are reshaping the telecom landscape

It's time for a quick recap:

The telecom industry is responding to price decline, revenue loss and intensified competition by consolidating itself like there's no tomorrow.
The strategy reminds me of Barbara Tuchman's Guns of August. A Pulitzer prize winner, the book provides a detailed account of the first month of World War I during which the generals made battle plans and decisions based on previous conflicts ignoring the technology changes which resulted in mass slaughter.

The industry is in the middle of a massive technological transition, going from old-fashioned circuit-switched networks to more advanced IP-based networks to offer services including video, voice, high-speed Internet access, and wireless. The trend is also putting price pressure on equipment makers, because open standards, IP-based gear is generally cheaper than the specialized equipment it replaces. As the number of service providers continue to shrink, they are regaining buying power and are squeezing out deep discounts from their suppliers.

The carriers' consolidation is now starting a Network Equipment Providers (NEP) consolidation as illustrated by Cisco acquiring Scientific Atlanta and the merger talks between Alcatel and Lucent. The last combination could create the world’s biggest telecom equipment maker with customers and operations around the world and with strengths in voice, video and data across wireless and broadband networks. The potential new company would bring strong wireless, broadband and IMS assets to address Fixed Mobile Convergence opportunities, but the merger would also create the world's largest network system integrator to better compete against IBM. Because of overcapitalization and the high cost of raising capital, the carriers are looking at outsourcing as a solution to manage their infrastructure. Alcatel, Lucent, Ericsson, Nortel, and others have dramatically increased their services capabilities to a point where it represents 30% or more of their total revenues.

There's room for more consolidation especially to build global players with Ericsson, Juniper, Ciena, Tellabs, and Motorola (test: who is acquiring whom?). What Huawei and ZTE could do is everyone's guess, but let's not forget that prices are driving this market and the Chinese equipment makers are not to be underestimated. In this environment, Sun is the partner of choice for the NEPs and already provides carrier grade equipment and integrated software to reduce cost and complexity of the next generation network infrastructure.

Monday, March 20, 2006

DNS servers in web 2.0

Domain Name System (DNS) is the Internet directory: it points people and applications to resources on public and private networks, for example allowing you to type “www.sun.com” instead of //209.249.116.195 in your browser. DNS is like virtual “electricity” for the Internet. Without DNS, mail could not be delivered, ATMs and cash registers would go offline, and few networked applications would function.

There are an estimated 7.5 million external DNS servers on the public Internet only. Communication service providers are heavily relying on DNS to point users to their favorite web site, video streaming server, ecommerce portal, or VoIP buddy on the other side of the planet. An overloaded DNS slows down the overall response time and affects the user experience. And this is the best case scenario: in 2004, a widespread Akamai DNS issue prevented popular website addresses like Yahoo, Google, Microsoft, Fedex, Xerox, and Apple to be resolved. In April of last year, Comcast suffered a DNS outage. In May, Google was out of commission for 15 minutes (that's pretty big compared to telco standards). Four out of five of the DNS servers in the world are vulnerable to hacking attacks.

How is this going to evolve ?
If today's 80 million registered domain names seem to represent a daunting task to manage, ENUM will dramatically increase this by providing a single number that can be translated
into the DNS system so there will be a single point of contact for an individual, be it telephone, mobile, instant messaging, or email. So how about managing 2 billions of these now ? Telecom carriers seek a simple addressing mechanism to help them deploy IP-based services such as multimedia messaging service (MMS), push-to-talk, and session initiation protocol (SIP)-based voice service. They also need to be able to implement these services across different technology environments such as global system for mobile communications (GSM), code division multiple access (CDMA), and fixed-line. ENUM makes all of this possible. To put it simply, DNS will be even more critical for all our future networked interactions.

What does it mean from a business standpoint ?
When DNS is under attack or just slow to respond due to increased traffic, the network service provider is the first one to be blamed. The user perception is "the network is slow" even though the connection is probably humming at 5 or 10Mbps or more. Next, "the web site is slow" while the web and application servers are running just fine but the DNS servers are collapsing under the load during the shopping season (and the cash register is not ringing up). As we are
increasing our reliance on the network, customers' frustration can only worsen unless service providers are tackling this issue rapidly.

How to address it ?
Today, Nominum and Sun announced an agreement to deliver record breaking industry-leading DNS and DHCP software to wireline, wireless and cable operators around the world. Sun Fire servers powered by AMD offer the choice to run Solaris 10 or Linux, and our most recent
innovation with CMT based servers will provide unrivaled performances.

Monday, March 13, 2006

Spring VON in San Jose

The Spring 2006 VON Conference and Expo is opening its doors this week in San Jose. Several of my team members will be speaking at the event covering topics like security, ROI,
and competition for IP Communications. Jeff Pulver managed to make VON "the" voice over IP
conference and meeting point for the industry, and this year's spring conference
will probably set another record for all the VON venues so far.
Each new year seems to be poised to become the inflection point for VoIP adoption. Today's 16
million VoIP subscribers are still a small fraction of the over 200 million broadband users and an even tinier part of all the 3 billion+ worldwide phone lines. The 16 million figure doesn't include the 74 million Skype registered users (with a record 5 million users connected at the same time),
or the over 70 million monthly users of Yahoo Messenger who can now make PC-to-phone
calls
. But what will speed up VoIP adoption moving forward ?

  • Improve and simplify customer experience. Guaranteed quality of service, (good) customer service, security, and safety are the traditional Plain Old Telephony Services (POTS) features, but today's VoIP services don't always provide that level of service. On top of that, since VoIP prices are going for the floor, service providers need to provide a unique customer experience for IP Communications including video, collaboration, unified messaging, call manager, virtual call center, web services integration, directory, and calendar to create potential for premium prices. Sun provides the Java based middleware software that powers all these applications, but we are also driving creation of innovative services through our Open Service Delivery Platform program.
  • More mobile handset supporting VoIP with WiFi capabilities. For instance,
    with RIM adding
    WLAN capabilities
    to its blackberry phones, it means one more step closer to
    fixed mobile convergence. The more recent announcement of RIM integration
    with Google talk
    is a good indication of what's to come in IP Communications
    partnerships. Carriers have to respond to these new services or risk to be
    disintermediated from their customers. Sun is part of the expert group which is
    working on JSR 180 to
    define the APIs to enable SIP-based applications for Java handsets. Stay tuned
    for more on this soon.
  • Open standards based infrastructure and services. What happened to the internet in the 90s, will happen to IP Communications which are just the next level up. I recommend reading the discussion on Jonathan's blog to draw the parallel with documents as well. This is all converging anyways. Open standards are also introducing new and aggresive competitors that require a new and different response from the telcos: buddy list, ring and ringback tones, personalized services for specific communities,integration with all digital content (music, video, TV).
  • And as far as performance, reliability, and low TCO: it's rock solid carrier
    grade servers and Solaris 10 integrated with SAF-compliant highly available software plaftorm. If you combine this with our newest CMT servers, you got yourself an eco-friendly engine to profitably deploy any IP Communications solution.

Sunday, March 5, 2006

AT&T agrees to buy BellSouth for $67 billion

Never a dull moment in this industry, really :-)
Today's AT&T's announcement to acquire BellSouth didn't come as a surprise, but a few numbers are just mind-boggling:
  • 67 as in $67B price tag for BellSouth, nearly 7 times Wall Street's 2006
    cash-flow forecasts, an 18% premium that AT&T is offering for each BellSouth
    share.
  • 1600 as in $1,600 paid for each BellSouth's subscriber: 7.2M long distance, 9.9M local, 2.9M DSL, 22M wireless (40% of Cingular's 54M users).
  • 310,000 as the number of employees who will work for the combined company if
    the deal is approved. Tough times ahead if DT's negotiations are of any indication.
  • 130 as in $130B in annual sales for the new AT&T (Verizon Communications clicks at $75B), BellSouth's profits fell over 30% last year. AT&T will now be in the Top 10 Global 500. NTT, the second telecom company in the list, barely makes the top 20.
  • 10 as in the 10th anniversary of the 1996 telecom act. 11 as the number of occurences of the word "Internet" in the actual text to compare to the 284 (broadcast) "Television"s. No mention of IP TV or VoIP.
  • 22 as in the 22nd anniversary of the AT&T break-up. The purchase of BellSouth would recombine the former "Ma Bell" with four of the seven original Baby Bells regional telephone companies. Verizon is certainly looking at Qwest and Alltel to stay in the game.
What's ahead for the new company and the industry overall ?
Some of the $2-3B/year savings will come from data center consolidation.
AT&T and BellSouth together will need to integrate and manage the identities of 70M local, 30M long-distance, 10M broadband and 54M wireless customers on a convergent IP network. "Technology changes and convergence are shaping a new competitive dynamic and creating tremendous opportunity", said Duane Ackerman, chairman and CEO of BellSouth. AT&T is now creating a serious rival to the cable operators with the 10M broadband users (and the 54M Cingular subs) who could pay for TV services. That's a lot of eyeballs for content owners and advertisers.
As the newly combined telco giant is integrating networks and services, the billing, CRM and other OSS/BSS applications are going to require some significant re-architecturing to support subscribers and services. SBC and Cingular have been participating to OSS/J projects to integrate off-the-shelf software they bought overtime. More on how OSS/J can reduce Capex and Opex for carriers.
Finally, AT&T will apply a lot of its weight to the discussion of net neutrality.
AT&T is vehemently debating over the future of the Internet, and along with Verizon, wants to create a "toll lane" on the Internet, in effect charging content providers like Google extra for guaranteed service. Ed Whitacre (AT&T CEO) drew attention last year when he told Business Week magazine that "for a Google or a Yahoo or anybody to expect to use these pipes for free is nuts". There's a lot of room for participation here...