Mega deals are reshaping the telecom landscape

It's time for a quick recap:

• Sprint to buy Nextel for $36B- December 2004
• SBC to buy AT&T for $22B - January 2005
• Verizon to buy MCI for $6.8B - February 2005
• Telefonica to buy O2 for $32B - October 2005
• AT&T to buy BellSouth for $67B - March 2006

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.

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.

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.

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...

Mobile Virtual Network Operators

MVNOs are revolutionizing the way communication or media companies market wireless services, target specific communities with personalized services, establish new partnerships, and experiment with WiFi.
I recently read about Sky Deaton and his new MVNO Helio, a partnership between Earthlink and SK Telecom. The launch in spring will include an exclusive deal with the popular social networking service MySpace and some interesting Korean handsets. One of the phones (pearly-white case) is named YT, after the female skateboarder in Neal Stephenson's Snow Crash, a good indication of the targeted audience :-)
We can expect creative outlets and partnerships since the Helio's executives looked at SK's TTL zones/lounges for inspiration. This would truly bring differentiators to the new virtual operator.

Today, Sun is helping MVNO deployments around the world by focusing on the following elements of the value chain:

Innovating on the device
The magnitude of Java services growth is remarkable as operators are expected to
increase these service revenues to $15 billion by 2008, according to industry
analysts. Java offers new business opportunities to mobile operators by
increasing network traffic, encouraging use of premium services, and allowing
revenue-sharing with content providers. Specifically, Java is breaking down
device fragmentation barriers for MVNOs:

• Virgin Mobile USA uses Kyocera's phones running Java to provide subscribers greater access to games.
• ESPN's Sanyo-made CDMA 1x EV-DO clamshell running Java offers automatic push service, the ability to personalize content delivered to the phone, one-touch access to sports news and real-time game updates.
• Four out of the six Boost Mobile phones are Java enabled to offer a wide array of application/ringtone choices that provide a little of everything to satisfy all tastes.

Building the converged IP network
An IMS-enabled network that allows seamless roaming and
terminating of IP services over fixed and mobile networks will generate an
increase in MVNO initiatives. Amp'd, Disney, and other MVNOs are looking at incorporating WiFi into their offerings.
At Sun, we have been relentlessly working at integrating Solaris 10, Java Enterprise Systems, and ATCA carrier grade servers into IMS solutions. The value of integrating Sun's identity management suite with the Home Subscriber Server (HSS) was recently highlighted in a whitepaper.
The HSS stores key subscriber information, and application information, allowing
users to locate and communicate with other subscribers. To integrate IMS
infrastructure with the existing network, operators will need connectivity
between the HSS and heterogeneous legacy systems, and this is what Sun's
identity management suite does extremely well.

Managing the back end

• Billing and CRM are fundamental business processes of MVNOs (and MVNEs).
  Order entry, device management, provisioning, and service assurance are other
  elements of the OSS/BSS infrastructure that require integration and web enablement. Sun is driving NGOSS implementations, leveraging our community efforts with the OSS/J initiative (using SOA and Java).
  
• With branded content from both inside and outside the organization, proper
  billing of services internally and externally will be extremely important to the
  MVNO business plan. Highdeal's Transactive engine provides pricing flexibility and is IMS ready to support payment convergence. Highdeal is also an OSS/J community member.
• MVNOs will also need to interface their BIDW systems with other organizations. According to the 2005 Winter Corporation TopTen program, Sun platforms run 6 of the 10 largest data warehouses.

3GSM Barcelona, Spain

The annual 3GSM conference took place last week in Barcelona. The change of venue was welcome by most of the 50,000 attendees. All the good French food in Cannes couldn't compete with the hotels, public transportation, cellular coverage, and the Fira of Barcelona. This year's participation surpassed all previous years (2005: 34,000, 2004: 29,000, 2003: 26,000, 2002:24,000).

Convergence between fixed telecom, internet and entertainment was the main theme of 3GSM. Software makers, device and network equipment manufacturers were all touting their support for convergent technologies (SIP, IMS and UMA among others):

• Nokia introduced new phones including the 6136 supporting UMA connectivity.
• Motorola received the award for the best 3G phone and presented the new A910 used by BT Fusion.
• Vodafone selected Ericsson's IMS.
• NTT DoCoMO showed their new HDSPA phones from Motorola, NEC and Fujitsu.

Fixed Mobile Convergence (FMC) represents a clear opportunity for convergent service providers to offset the loss of revenue due to Fixed Mobile Substitution (FMS) and new competition from VoIP service providers. At 3GSM, I presented a service roadmap for carriers to provide a fixed mobile convergence experience to their subscribers while transforming their network to fully support the above technologies. The key take aways were:

• Java is the de facto standard for FMC service development and deployment
  
• Identity is the common, most critical component across converged services, service delivery platform and IMS.
  
• Participation is key to address the device, services, network, data center, DRM and OSS/BSS challenges created by FMC.

Content was king at 3GSM again this year. A complete hall was dedicated to all forms of content for the mobile industry. I really wonder when Google, AOL, Yahoo and other traditional internet outlets will be actively participating to the annual wireless fest. In their absence, the world’s largest operators, China Mobile, Orange, Telefonica, TeliaSonera, TIM, T-Mobile, Turkcell, Vodafone and a few others announced their intention to launch Instant Messaging interoperability using the "calling party pays" principle.
This is certainly going to increase traffic (and revenue) between the participating carriers but what about the interoperability with Yahoo, AOL, and Microsoft IM services who were clearly not invited to participate?

Industry analysts and the convergent network

The annual Sun Analyst Summit took place this past week at the St Regis hotel in San Francisco. This is
another great opportunity to share our vision, strategy and most recent successes with the analysts from Gartner, IDC, Yankee, Forrester, Tower, and other firms covering the telecommunications and media industries. One comment I've heard a few times during the 1-on-1's was: "Sun, you have a great story, you need to tell it more!". So here's the 30 seconds message.

As we are entering this new age of participation, Sun is innovating to enable service providers to acquire, retain, and monetize subscribers in the converged network world in three different ways:Sun's innovation with Java on the client side is increasing the consumption of IP based services and content (>700M Java phones in 2005, OCAP's recent announcements, HANA, OMC, OSDP).

• Sun's products are building the IP convergent network with our partners (Solaris 10 for carrier grade OS, ATCA for NGN, OSS/J for NG-OSS, Java Enterprise Systems middleware for NG-Services).
• Sun is transforming the business of managing and delivering digital content (ILM, Media Asset Management) with Java end-to-end.

And now for something completely different and for those who missed them: all the Superbowl Sunday commercials will be re-broadcasted on Sprint's mobile network.