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Media & Entertainment Strategies
by Mike GoodmanNews Event
On Tuesday, February 19, the U.S. Court of Appeals for the District of Columbia struck down a rule that preventing a company from owning a cable system and a broadcast television station in the same market. At the same time, ownership limits on television broadcasters narrowly survived a court challenge as the Appellate Court ordered regulators to strengthen their arguments for retaining the restrictions.
Market Impact
The FCC had argued that a company that owned both a cable system and a broadcast station in the same market could discriminate against other broadcasters. The Appellate Court, however, disagreed saying that the FCC had not shown a "substantial enough probability of discrimination to deem reasonable a cross-ownership ban."
With regard to station ownership caps, the FCC, in a split decision in May 2000, agreed to retain the cap to preserve competition as well as diversity in local media markets. This in turn prompted the nation's television networks to challenge the rules in court. The Appellate Court concluded that, "although the [National Television Station Ownership] rule is not unconstitutional, the Commission's decision to retain it was arbitrary and capricious and contrary to law because the commission failed to give an adequate reason for its decision." The court, however, refused to go as far as wiping the cap off the books because it could not say with any degree of certainty that the FCC could not justify retaining the rule.
Outlook/Recommendations
- Look for a spate of mergers and acquisitions. Cable operators, station ownership groups, and broadcast networks will all look to get into each other's businesses. In particular, this ruling opens the door for Disney (which owns ABC) and Viacom (which owns CBS) to acquire cable systems.
- Consumer groups will rage against this ruling. While consumer groups will bemoan a lack of media diversity, this is more a knee jerk reaction than a reality. These rules were written when consumers had two or three channels to choose from. Today consumers have over two hundred cable channels and an average of a dozen independent and broadcast channels to choose from, on top of radio stations and newspapers, in any given market.
- The media-ownership rulebooks are being rewritten. These rulings, coupled with a previous ruling throwing out the cable ownership caps are creating a landmark period during which the media ownership rules that have governed this country's airwaves for the past 50 years are being rewritten.
Security Solutions & Services
by Matthew KovarEvent Summary
At the RSA Security Conference the week of February 18, in San Jose, Calif., Triple-A (authentication, authorization, and accountability), token, and biometric technologies dominated the proceedings. The RSA Security Conference boasts the largest number of attendees with 10,000 registered visitors, and over 200 vendors exhibiting and 50 to 100 others that were not officially on display. Meanwhile in Washington, D.C., several congressional subcommittees are holding hearings on identity theft, homeland security, and better use of private sector security technologies and solutions.
Market Impact
The dominant themes of the RSA Security Conference were identity including, strong authentication, standard frameworks and interoperability, federated solutions, national identity, legislation, homeland defense, collaboration between government and the private sector, and biometrics and smart cards as mobile and universal identifiers.
Authentication and authorization schemes, based on public key infrastructure (PKI) but not requiring, are moving beyond the initial closed user workgroup silos used by human resources or Web applications such as e-mail or signing of T&Es, and past single-source controlled company partnerships to a federated system where one identity will be created, issued, and strongly bound to a particular user.
Universal authentication schemes for new data describing technology XML, will be driven by standards group OASIS, which is developing SOAP and SAML, and tasked to provide a framework for single sign-on, authorization, and back-office transactions.
Biometrics and tokens, mostly smart cards, will be deployed to help shore-up access to physical infrastructure; provide for strong user authentication to applications and resources; reduce help desk password reset costs; provide the foundation for an national identity system that will replace drivers licenses, bank cards, passports, and will provide a strong foundation for broader homeland security initiatives. As with all forms of authentication, the challenge is to create a digital or physical identity and then bind that identity to an individual. This binding that is the omni-critical process that will make the identity an acceptable form of authentication and will enable access to services (applications, databases, the world wide Web, and ATM machines), or physical access to plants, offices, and airports. Employers continue to hire illegal aliens with false documents.
Identity theft and fraud has more than 750,000 victims and costs consumers and enterprises tens of millions of dollars annually through bank and credit card fraud. However, the investigation of the World Trade Center disaster placed the problems of identity theft in a whole new light, in the context of homeland security. One approach receiving much scrutiny at the state and federal levels focuses on enhancements to the existing driver's license as a "national identification card" by standardize the application process and integrating "biometric" identifiers. The state of Tennessee currently does not even require a birth certificate or social security card to acquire a driver's license, a fact that the airlines are now considering a grave weakness and limitation such that they are considering requiring Tennessee drivers license holders to provide a stronger (passport for example) form of identification before allowed on airplanes.
A detailed record or history is required to create a strong binding identity. There are systems used by organizations such as GeoTrust, that can issue digital certificates within a few minutes, compared to days for VeriSign, based on financial records from its Equifax database. The IRS and banks have relationships consisting of data records that users of which can obtain strong identity. Putting all of this information together to get a single snapshot view of an individual will be critical to test the identity and authentication of the presenter's credentials. The challenge will be to make sure that all of the data is presented and stored in a secure system and that this data cannot be misappropriated. There will also need to be further development of intelligent tools that are able to check—in real time—that a user is who they say that they are; there are no outstanding alerts (e.g., FBI, IRS, INS, city parking, etc.) on the identity; and that there is a fraud service application, which can intelligently analyze the data and alert to inconsistencies in the presented materials or documents.
Conclusions/Recommendations
- Authentication VPNs (Aut-VPNs) will be required to provide next-generation identity services via authentication networks and service providers.
- Federated solutions with strong binding are the key and the U.S. government, or an organization that is acting with the full faith and confidence of the government, will be required to insure the process against negative repercussions.
- The OASIS group is where authentication, authorization, and identity will be standardized for both XML-based communications and will be applied to all non-XML systems.
- Liberty Alliance and Microsoft's Passport systems manage online identity but do not provide strong process for binding.
- Challenge with biometrics: If the digital identity of a fingerprint (which can also be called a signature) is acquired from a Web site that has been hacked, it can no longer be used by the person whose digital identity it is.
- Legislation for health care under HIPAA and financial services under the Gramm-Leach-Bliley Act.
Application Infrastructure & Software Platforms
by Neal GoldmanEvent Summary
A recent Yankee Group survey indicates that XML remote procedure calls and other Web services initiatives will see adoption between applications inside an enterprise, rather than between enterprises. Early adoption of Web services is likely to be based on cost and efficiency benefits rather than as a radical new way to assemble applications from services components supplied by a variety of outside vendors.
Market Impact
While the hype surrounding Web services promises seamless integration across enterprises, the reality is that today's enterprises are pragmatically looking at the huge benefits Web services bring in streamlining their internal infrastructures. According to a Yankee Group survey, only 6% of enterprises polled used their Web infrastructure for extranet partnerships and of those, 50% were manufacturing organizations. Considering that manufacturers have been early adopters of automated supply chain management, this is hardly surprising.
The lack of skilled XML developers will limit growth in the short term, but other factors will accelerate growth in the longer term. Of the companies that are currently using XML, in 75% of cases, fewer than 50% of their developers are currently XML-proficient. Larger companies lead in XML skill sets and 69% of all enterprises expected XML to be essential in the next 6–12 months. This focus on training and the emergence of new tools designed to limit the required XML and WSDL knowledge needed to program Web services will increase adoption rates in 12 months.
Conclusions
- XML training will be essential to maintaining IT competitiveness. Web services provide tremendous benefits to those developing complex, distributed applications in heterogeneous environments. Because XML underpins all the initiatives in Web services and enterprise application integration, driving XML proficiency is more important to enterprises than other decisions, such as whether to standardize on Java or .NET.
- Vendors must focus on providing "behind-the-firewall" ROI in their products. The big ideas of Web services, such as federated identity management and "corporate APIs," are great for the long run; however, the budget-strapped IT organization today is looking for practical solutions to putting out today's fires. Tools that help organizations create Web services for simple, pragmatic integration will fare well in the market.
Japan Market Strategies, Convergent Communications Asia-Pacific
by Koji OkiEvent Summary
On February 15, Japan's regulator, the Ministry of Public Management, Home Affairs, Posts and Telecommunications, has made its first progress report on the telecommunications dispute settlement commission since the commission was established on last November.
Market Impact
Since its launch, six cases requiring arbitration have been brought to the commission by telecom carriers. Of these two have been resolved so far. Five of the cases, raised by resellers, relate to collocation at former state-owned incumbent NTT group companies; and the other on interconnection to NTT East's and NTT West's dark fiber.
The newly established dispute settlement system aims to ensure prompt and effective resolutions among carriers, on disputes ranging from right-of-way issues to interconnection and collocation. At this stage it is too early to assess the commission's effectiveness or efficiency, but its smooth reception by carriers and foreign governments seems to indicate that the new settlement body is well on its way toward reinforcing market liberalization.
Recommendations
- The dispute settlement body should play a critical role in promoting further competition among incumbents and new entrants under a more deregulated telecom market. In order to maximize the benefits of the new commission, it must be genuinely independent of politics and other government organizations.
- Under the current scheme, there is no system or organization to objectively assess the performance of the commission. In order to increase transparency, the commission should be assessed by an independent third party, and the results should be made public.
- Given the current explosive growth in Japan's broadband market, we expect more disputes on collocation and interconnection to arise. In order to expedite the arbitration and settlement process, and to prevent the incumbents from resorting to delay tactics such as delaying service provisioning to competing carriers, the commission should regularly review the system to make prompt recommendations.
Wireless/Mobile Europe
by Farid YunusEvent Summary
Orange announced on February 19 that its various mobile operations across Europe would be launching GPRS services for business customers by the end of the month. Varying by market, a range of enterprise-targeted tariffs and applications will be made available at launch, with consumer services to follow in the second quarter of the year.
Market Impact
Ostensibly due to the lack of appropriate handsets and sufficient capacity, it has taken Orange over a year since the first European operators began trials, to launch its own GPRS offering. It has been under little pressure in France, as its domestic competitors have also delayed introducing GPRS until now, but in other markets, especially the UK, it has fallen behind in the war for corporate custom. Orange, nevertheless, publicly believes it has benefited from waiting and observing pitfalls, and expects data revenues in France to double in 2002 and make up 25% of the entire Orange group's revenues by 2005.
Conclusions/Recommendations
- While there is something to be said for caution, intentionally delaying the introduction of a service that will boost revenues and double the contribution made by mobile data within a year, is somewhat contradictory. Waiting for improved handsets is largely irrelevant in the context of business users with PDAs, laptops, and wireless cards. It is hard to shake the impression that slow deployment in France, coupled with the desire for a concerted regional approach, has been to the detriment of Orange's other national operations.
- There is also little to show for the delay, for nothing in its announced service portfolio is, as stated by Orange's CEO, of "unrivalled quality of service and innovation." Volume-based pricing, GPRS Internet and business LAN access, along with Microsoft Outlook and mobile PIM, are all somewhat passé. While they are undeniably essential applications, the innovation and differentiation that Orange used to be known for is not evident.
- On a more positive note, Orange will be able to leverage France Telecom's fixed and global managed services infrastructure to provide businesses with seamless and integrated IP solutions. In challenging Vodafone for high-value enterprise customers, it is this ownership, rather than unreliable partnerships, that will grant it a competitive advantage.
Internet Business Strategies
by Robert LancasterTrend Summary
Recent announcements from top Web search companies Google and AltaVista emphasize a growing trend of search vendors looking to the enterprise market for revenues. On February 11, Google finally spread its wings and entered the enterprise with the launch of the Google Search Appliance, an integrated hardware/software search solution for corporate intranets and Web servers. Then, on February 23, AltaVista Software extended its existing enterprise search product with the introduction of AltaVista Desktop Search.
Market Impact
Google's entry into the growing enterprise search market has been anticipated since the company surged out of obscurity in 2000 to become one of the most popular and reliable search technologies on the Web. Google is poised to take advantage of its success in the Web search market and to focus its attention on the revenue-rich, but tight-fisted corporate space. Though the corporate search market is crammed with competitors including Verity, Autonomy, Jeeves Solutions, Inktomi, and AltaVista, there is certainly room for Google behind the firewall, as the bulk of businesses have yet to Web-enable their corporate data and subsequently, have no current need for an HTML search solution.
AltaVista Desktop Search is a Windows-based application that retrieves information from a workstation hard drive. While this type of application is useful toward improving efficiency, the goal of corporate search applications is to provide a complete view of content across multiple platforms and applications throughout the enterprise.
Analysis
- Google's use of an integrated approach to corporate Web search is unproven. The hardware, service, and support components will appeal to organizations that don't want the headaches often associated with maintenance, but Google's inability to search descriptive properties of Microsoft Office file types may limit specific search types, for example, by author or date.
- AltaVista's desktop search product will complement its existing enterprise search solution and move the company a step closer to providing a universal view of enterprise information. While privacy advocates will raise concerns about this integrated approach to corporate server and desktop search, enterprises will ultimately see the value of the service and look to consolidate access to enterprise content.
- Further departing from the consumer Web, AltaVista's moves from the business model that gained the company so much notoriety in the 1990s has been solidified by the growth of its search software unit, while the decline of its Web business is emphasized by the announced termination of its free e-mail service in March 2002.
Internet Strategies Asia-Pacific, Japan Market Strategies
by James WalshEvent Summary
On February 14 Japanese broadband software developer, AlphaOmega Soft Co., Ltd. (AOS) and major ISP NIFTY Corp., announced plans to launch a video streaming service for Korean movies and content in Japan. Commercial services will begin March 13 and will be available on NIFTY's Web site Cineplex@nifty. In the month before that date, a free trial service is being offered exclusively to employees of Japanese ADSL operator, eAccess. AOS has entered a strategic alliance with iCONMedia, a Korean multimedia content provider, which owns the copyrights to Korean movies.
Market Impact
Japan's broadband market has been on a course of rapid growth since the beginning of 2001. While operators continue to pour investment into building out infrastructure and acquiring market share, a number of companies have started to run trial content streaming services, and are experimenting with business models to generate revenue from broadband content. Users of AOS's new service will pay US$2.30–US$3.80 (¥300–¥500) per title, which they will be able to access for a week.
The movies will be viewable using RealPlayer, and will require an Internet connection of 2.5 Mbps or more. The reason AOS selected Korean content is that, compared with the United States, the handling of copyrights in Korea is simpler. Content provider iCONMedia also has the rights to other Asian movies, and AOS plans to offer these in Japan in the future.
Recommendations/Conclusions
- This year will see the growth of Japan's broadband content market. Broadband operators, ISPs, and content and software providers must continue to build alliances to develop viable business models for paid content services.
- With 7.8 million high-speed Internet subscribers at the end of 2001, the broadband market in Korea is at a much more advanced stage of development than in Japan. Korea is already being seen a test-bed for a host of new media services, including streaming video. More Japanese broadband players should recognize this trend and pursue partnerships with Korean companies.
E-Sourcing Strategies
by Andy EfstathiouTrend Summary
Enterprises are grappling with the need to control costs in a recession environment, while upgrading their IT environments. Staple methods of addressing those challenges have been exhausted, so new approaches are necessary. One theme aggressive enterprises are gravitating toward is outsourcing various parts of the environment to different outsourcers. While this flies in the face of the traditional wisdom of creating "one throat to choke," if parceled out correctly users create higher cost savings and higher value than sourcing from only one firm.
Analysis
An example of this trend is the recently announced outsourcing by PacifiCare Health Systems, Inc. to both IBM for infrastructure and Keane, Inc. for application management. IBM's deal is a 10-year $761 million contract to manage data center operations—including network, help desk, and 380 servers. The Keane deal is a 10-year $500 million contract to manage and enhance the applications environment (including a requirement to raise their assessment to SEI CMM Level 3). By splitting up the contracts for these very different segments of the environment PacifiCare expects to increase operating effectiveness and save $400 million over the ten-year period. Notice that this deal puts two firms on-site, each capable of taking over the other's segment if one of the relationships should not work out.
Conclusions and Recommendations
- Enterprises should consider separating outsourcing arrangements (along lines that minimize the possibility of finger pointing) in order to:
—Maintain healthy on-going competition for the life of the contract,
—Identify and capture cost savings for individual components of the environment, and
—Aggressively drive increased functionality into each part of the environment.
- Application management outsourcing is cyclical due to its tight integration with business processes. When an industry is undergoing change (such as HIPAA in health care) the outsourcer needs both experience with the industry and a roadmap for where the technology must go in order to succeed in the changing environment.
Small and Medium Business Technologies
by Helen ChanTrend Summary
Broadband adoption among SMBs is rising, particularly among the low end of the SMB market. Results from the Yankee Group's 2002 SMB E-Business and Web Hosting Survey also show that SMBs that have adopted broadband Internet access are more likely to purchase additionally from their Internet service provider than their dial-up counterparts. The Yankee Group found that 47% and 33% of broadband Very Small Businesses (VSBs, 2 to 19 employees) purchase Web hosting and firewall/VPN services, respectively, from their service providers, compared to 27% and 17% of dial-up VSBs.
Market Impact
What does this all mean? Arguably, this trend of SMBs with broadband access having a greater tendency to bundle additional services onto their ISP bill is attributable to a supply-side push because service providers are more aggressively marketing and packaging broadband with other services (such as voice, Web hosting, VPN, e-commerce, etc.) but only partly.
Compared to 2000, VSBs are paying more per-month for Internet access. The top reason why SMBs churned their ISP in 2001 was to get broadband. The increased willingness to pay more and to undergo the hassle of switching providers suggest that SMBs are not only drawing in the Internet more deeply into their business but also increasingly rely on the Internet considerably to conduct day-to-day business. This translates into a need and receptivity for additional Internet-related services, beyond just Net access—a demand-side driver for SMBs' increased appetite for broadband bundles.
Recommendations
- Vendors: Broadband as an on-ramp vehicle to convince SMBs to buy more services and do more online is not just a myth. A vendor's ability to sell and up-sell broadband connectivity will be a major factor in bolstering client relationships and in creating more profitable customers. SMBs that have adopted broadband indicated that they derive greater business value from their Internet connection and are more satisfied with their service provider.
- End-users: Broadband is not just for techies and early adopters. For any company that wants to drive up business productivity, to improve its competitive ability, and to improve customer support, broadband is the enabling solution and is well worth paying more for. For example, our survey shows that 80% of SMBs with broadband agree that "Internet access has improved overall business productivity" compared with just 66% of SMBs with dial-up.
Networked Business Strategies Europe
by Scott SmithEvent Summary
Tiscali, the pan-European network and Internet service provider, has said it neared breakeven in its fourth quarter financial results, posting a pro forma loss of only €7 million (US$6.1 million), down from €45 million (US$39.1million) in third quarter. The company posted consolidated revenues of €202 million (US$176 million) for the quarter, up 6% from third quarter, indicating substantial success in lowering the company's cost structure and consolidating quickly the overlapping assets of the ISPs it has acquired in the past two years. It also pointed to success in raising prices as a means of increasing margin. Tiscali's connection minutes rose to around 4 billion, up from 3 billion minutes in December 2001, and it reported a monthly ARPU increase from €7.80 to €8.70 (US$6.79 to US$7.58).
Market Impact
As discussed in our recent Report on Tier 1 ISPs in Europe "Tier 1 ISPs: Solid Structures Emerge in Europe's Key Markets," Europe’s consumer Internet access market is tightening to a small group of increasingly powerful players, made up of three incumbents, Telefonica (TerraLycos), Deutsche Telekom (T-Online), and France Telecom (Wanadoo), and two large independents, AOL Europe and Tiscali. This announcement shows that Tiscali's risky gamble in 2001, of achieving rapid growth through acquisition of a number of Tier 2 ISPs, is showing early indications of a positive outcome, firmly placing the company at the head table with its four key competitors. The steady growth in minutes of usage goes straight to Tiscali's bottom line as it controls a key asset not available to AOL—its own network—and thus reaps the maximum benefit from this traffic.
The main caveat to these positive figures is that not enough time has passed to see whether users churn from a still obscure brand, but the counterpoint is that there are fewer places to jump to should they leave Tiscali.
Recommendations
- The way is clear for Tiscali to continue to grab market share, particularly in markets that lack a strong incumbent competitor, such as the UK and Italy. Marketing outreach will be key to competing for turf against better known, if less effective, incumbents there.
- Tiscali must step up activities in the BtoB side if it is to grow at a rate available to Wanadoo and T-Online, both of which have access to growing BtoB revenue sources in hosting and services.
Wireless/Mobile Asia-Pacific
by Shiv PutchaEvent Summary
The Chinese Lunar New Year holidays during the week of February 11 came and went with Hong Kong citizens finding a new medium for expressing their seasonal good wishes. Coming shortly after the introduction of SMS interconnection and interoperability between the various carriers' networks, mobile users in Hong Kong sent SMS messages in record number (more than 3 million) over the festival period.
Market Impact
The immediate reaction should definitely be one of optimism, since Hong Kong's SMS traffic levels have risen significantly in the recent past. Hong Kong's mobile paradise has taken well to SMS despite concerns about the price premiums vis-à-vis regular voice traffic. However, while traffic levels of around 1 million a day represent a significant boost for Hong Kong operators, it is still nowhere near the traffic levels currently being experienced in the Philippines and Malaysia.
One of the major curiosities of SMS deployment in Hong Kong has been the relative lateness to market of cross-operator SMS. Moreover, while Hong Kong enjoys one of the lowest per-minute voice tariffs in the world, SMS has been priced almost 75% higher than per-minute voice tariffs. In this environment, SMS traffic will never reach the explosive levels of other Asian countries.
However, Hong Kong operators will be able to supplement their regular voice revenue streams with revenue from SMS data functionality. They will not be compelled to survival on a data-centric service strategy for low-end mostly prepaid subscribers.
Recommendations/Conclusions
- Hong Kong mobile operators must build on the strong start shown by the cross-carrier SMS deployment. They should either leverage existing or new applications for the specific purpose of exploiting the SMS capabilities. Instant messaging is an immediate option for rollout.
- The high voice-to-SMS price premiums have the effect of subsidizing the voice tariffs. In the near future, operators should focus on extending SMS to all user segments—especially lower end users—by adopting a segmented pricing approach and offering SMS at a low per-message tariff. This should encourage significant traffic from previously low end users.
Customer Relationship Management Strategies
by Brian JonesEvent Summary
On February 12, Avaya introduced improvements to its Proactive Contact Management Solutions, a suite of offerings for proactive outbound customer contact that are part of the broader Avaya CRM portfolio. The Proactive Contact Management Solutions use Avaya's Predictive Dialing System to enable outbound delivery of timely communications to existing customers.
The improvements include multi-dialer capability, allowing a single system to manage up to four dialers for an outbound call volume of up to 500,000 calls per hour, and integration with Avaya IVR to enable automated customer interactions on outbound calls.
Market Impact/Analysis
Predictive dialers—and outbound calling in general—have traditionally been mainstays of functions like telemarketing and collections. The use of proactive outbound contact to deliver information that existing customers will actually want to receive represents a marked departure from these traditional functions. In the current economic environment, with many companies focusing on retaining and growing wallet-share among existing customers rather than on new customer acquisition, proactive outbound contact offers a potentially valuable addition to the customer-care toolbox.
Avaya is making a push to raise the profile of its Proactive Contact Management Solutions, and is reporting that the market is quite receptive to the offering. Particularly with its IVR integration, offering the potential for low-cost "outbound self-service," Avaya has at least a temporary advantage over its direct competitors in the space. Another group of vendors—PAR3, Centerpost, and Appriss—are also proving the market potential of proactive contact. These players, engaging in strictly automated outbound notification, have had particular success selling into the airline industry.
Implications/Conclusions
- For the enterprise: Proactive customer contact offers tremendous potential as a component of CRM strategy for many types of companies. Companies in a variety of verticals, including retail banking, credit cards, communications services, and travel can leverage proactive outbound contact as a way to provide customers with timely information and cross-sell/up-sell offers, enabling the enterprise to increase both customer satisfaction and wallet-share. Integration with IVR technology enables companies to conduct proactive outbound campaigns that reach thousands of customers at very low costs.
- For vendors: Other communications technology vendors should recognize the potential of proactive outbound contact, and create offerings to meet growing enterprise demand. In many cases, vendors will be able to repackage existing technologies—such as predictive dialers or e-mail campaign management tools—for use in contacting existing customers without the need for extensive retooling. Meanwhile, new models and technologies such as PAR3's will also find a receptive audience.
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Brazil Market Strategies, Wireless/Mobile Latin America
by Luis Minoru ShibataEvent Summary
On February 19, while Siemens launched its new GSM manufacturing plant in Brazil, Nokia announced the creation of the Nokia Technology Institute scheduled to open in March 2002 to develop high technology projects. Both of the Siemens and Nokia plants will be located in the city of Manaus, in the state of Amazonas where there are tax incentives in the duty-free zone and where Siemens has manufactured fixed-line equipment since the early 1990s.
Market ImpactSiemens has invested approximately US$350 million in GSM/GPRS technology in Latin America. The handset manufacturing plant required a $60 million investment; the network equipment manufacturing plant in Curitiba received US$30 million; and the remaining US$260 million will be directed toward operator financing. Given that the German manufacturer does not work with other technology besides GSM/GPRS, the vendor is looking to quickly enter the Brazilian handset market. Siemens already signed contracts with upcoming GSM operators Oi and TIM to manufacture 200,000 handsets.
Nokia Technology Institute (INT) will receive 1.8% of the handsets net sales do develop its projects. Nokia is following the global strategy to invest hard in R&D—the company invested US$2.6 billion (9.6% of global net sales) in 2001. The institute plans to secure partnerships with local universities and hire local professionals. In this way, Nokia Technology Institute will contribute to the development of local expertise and benefit from the local market experience of Brazilian professionals.
Conclusions
- During 2002, operators Oi and TIM will launch GSM services throughout Brazil. Given that there is no more pent-up demand in the market, the GSM-based operators will have to launch their services with very attractive applications and cheap handsets.
- ANATEL's choice of 1,800-MHz frequency allowed GSM-based technology a strong entrance into the Brazilian market. Siemens and Nokia are announcing these investments to solidify their market reputation among TDMA-based operators and win their confidence to migrate their TDMA networks to GSM. To date, market difficulties and the high initial investments of conversion have limited this TDMA to GSM/GPRS shift to only Telecom Italia.
E-Networks & Broadband Access
by Zeus KerravalaEvent Summary
At the January Siemens analyst summit, the Siemens Enterprise Networks Group unveiled its business plan for 2002. Siemens, which has dominant market share in Europe and Latin America announced that it would be spending 40–50 million in advertising over the next two years in the North American market to gain brand recognition. In addition, Siemens will focus on selling to the low end of the market, which despite being approximately 50% of the overall phone system market in North America has been ignored by Siemens in the past.
Market Impact
The North American phone system market has been dominated over the years by two vendors: Nortel Networks and Avaya, the Lucent spin-off, both of which have tremendous brand recognition and enterprise loyalty in the North American market. However, certain dynamics have changed the face of the current phone system market. The legacy phone system vendors have been slow to embrace the move to Voice-over-IP and have seemed content to sell their traditional PBX systems while the IP telephony sales have been won by the traditional data equipment manufacturers Cisco and 3Com. The Yankee Group predicts that the 2002 phone system market will remain flat at 11.9 million new extension shipments, with the only growth coming from hybrid or pure IP-based phone systems (1.1 million extension shipments in 2001 to 3 million extension shipments in 2002). If ever there was a time for a traditional phone system vendor to step up and gain some market share on the market leaders, the time is now. Siemens is a financially sound global conglomerate with best-of-breed network partners Enterasys, and Extreme Networks. Any time there is a transition in technology in an industry, the opportunity presents itself for a redistribution of market share. Siemens, one of the market share leaders globally in the phone system business has fluctuated between third and fifth in the U.S marketplace over the last several years.
Recommendations
- Recommendations to Siemens: Despite the grandiose plans, Siemens faces the same reality that the other traditional phone system vendors face. Sales for traditional PBXs and key systems are going down. Siemens must embrace IP telephony and begin to make serious efforts to push the only area of telephony that is growing. Siemens should not offer the IP products as a defensive reaction to Cisco or 3Com, it should offer it because it's the right thing to do for its customers.
- Recommendations to other traditional phone system vendors: Plan your own strategies and marketing efforts around convergence. If you don't have a strong line of network equipment, form a partnership with a company that does. We believe that of all the traditional phone system vendors, Mitel has the right corporate mindset, and the right strategic focus from a product development perspective, to take advantage of the transition of technology from TDM to VoIP.
- Recommendations to enterprises: Review all of your vendor relationships. What was important two years ago may not be important today. Comparative metrics such as corporate viability, global footprint, and history are much more important today than they were in the late 1990s when wire speed ASICs and port density ruled the world.
BtoB Commerce & Applications
by Jon DeromeReport Summary
Technology developments that fall under the "Web services" marketing banner are changing the economics of digital information exchange. Web services marketing concepts may flirt with the surreal, but developing technology standards (e.g., Java, .NET, XML, SOAP, WSDL, UDDI, ebXML, etc.) are very real. By creating standard means of binding application components, Web services will drive down integration costs and have a significant impact on corporate IT strategy. In an upcoming Report from the Yankee Group's BtoB Commerce & Applications group, we will explore the impact falling integration costs will have on corporate integration strategy.
Market Impact
The question the corporate world should be considering is not whether Web services marketing campaigns present reality or fantasy, or whether Sun, Microsoft, IBM, or Oracle will win Web services hegemony, but instead, companies should ask themselves: how far and how fast will information access costs fall? The Yankee Group believes the rate and extent of decline will be dramatic, releasing a deluge of electronic information. Effectively managing the increasing information flow will separate corporate Web service success stories from the failures.
Conclusions:
- Developing Web service standards have little impact on what is technically feasible; standards change what is economically feasible. As the economics of system-to-system communication change, so should corporate IT decision-making.
- As Web service compliance mounts and application environments become more open, technologies that allow companies to manage automated information exchange in an appropriate business context will become increasingly important.
- In addition to adding business logic to growing data traffic, effective integration strategy must deal with data semantic problems (understanding the meaning of the data) created by the extensible, or flexible, nature of XML.
- Software vendors need XML, Java, and .NET resources and clarity of vision if they are to succeed in moving products to a more open, standard-compliant environment. These are fair requirements for customers to request in exchange for six-, seven-, and eight-figure multi-year application projects.
- The Web services and corporate integration strategy Report will be available via electronic distribution in March.
Carrier Convergence Infrastructure
by Nancee RuzickaEvent Summary
On February 18, Ciena announced an agreement to merge with ONI Communications. Under the terms of the agreement, all outstanding shares of ONI stock will be exchanged for Ciena stock in a deal valued at $900 million. ONI markets dense wavelength division multiplexing (DWDM) transport for the metro market. Ciena has been successful selling long-haul DWDM systems as well as switching systems. The agreement upgrades the Ciena metro DWDM product line and complements existing switching platforms.
Market Impact
ONI, which claimed a market value of over $20 billion in 2000, tumbled in 2001 along with the rest of the optical market. Ciena, also devalued in the past year, has managed to tread water during the downturn. With carrier spending in 2002 and 2003 focused on the buildout of metro networks, Ciena needed a way in and ONI is the answer. Between the two, the new company has a total of 90 customers—only 10 of which overlap. That instantly creates new sales channels for both product lines. The combination also creates an organization of sufficient size to reassure incumbent carriers that the company can provide adequate support of large contracts.
Conclusions
- This is not a merger of equals—clearly Ciena will be in charge. Ciena is making a play for the big time. Growth in its specialty optical area is limited and, while successful, is not enough to sustain the company through the current down-cycle. To gain a share of the lucrative ILEC market, Ciena had to move quickly, since requests for proposals from some of the most prominent ILECs, including Verizon, Bell South, and SBC, will be released within the next nine months.
- There is still work to be done. While the ONI product is more current than the Ciena MetroWave product, it is less dense and more expensive than products being released by newcomers such as Movaz. Also, as CoreDirector moves toward the edge of the network and the CoreStream and Sentry long-haul DWDM systems become dated, Ciena must evolve those products to maintain its share of those markets. The ONI acquisition does not bring any long-haul expertise and Ciena cannot afford to focus on the metro at the expense of its core long-haul competencies.
- There is more consolidation on the way. Alcatel, Tellabs, Juniper, and Corvis have all made acquisitions within the last three months and as vendors gear up for the metro push, they will acquire rather than develop the necessary technology. With low valuations and start-ups running out of cash, there are bargains to be had.
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