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Telecommunications Strategies
by Nicholas MaynardEvent Summary
On March 22, metro Ethernet provider Yipes Communications announced that it was seeking Chapter 11 bankruptcy protection. The company failed to secure an additional funding round required to finance operations until it broke even in 2003. The data services company has secured debtor-in-possession financing and will continue to serve all of its business customers while it restructures its finances. The company is currently seeking another equity round and is renegotiating its vendor contracts to increase financing and lower its costs.
Market Impact
Despite the filing, Yipes' business model was not fundamentally flawed; in fact the company avoided many common CLEC mistakes. Yipes managed to secure three rounds of equity financing, totaling $291 million, while avoiding debt financing, which has been responsible for so many other CLEC liquidations. The company also executed well on a focused business strategy rather than follow the land grab strategies of other CLECs. While Yipes may have a sound business model, the company will still have difficultly reemerging from Chapter 11, due to its limited size, and may run out of time. If Yipes does not reemerge, Ethernet services will become the domain of the interexchange carriers (IXC) and regional bell operating companies (RBOC) and it will be three or more years, if ever, before another start-up provider attempts to build a national, next-generation network to compete directly with the established players.
Conclusions
There are three likely outcomes for Yipes now that it has filed for Chapter 11 protection:
- Best Case. Yipes manages to secure another equity round large enough to fully fund its business plan and reemerge from bankruptcy. This will verify that investors view the company's business model as sustainable and this will open the door for other new entrants. This will result in greater choice for businesses and larger markets for vendors as well as rapid innovation within the metro.
- Base Case. Yipes is acquired as a going concern by either an IXC or an RBOC. This still shows the model as viable, facilitating some innovation in the metro market, however, it will leave the IXCs and RBOCs in control of Ethernet services and limit customer choice. It will also limit funding prospects for other new entrants. Acquisition by a large carrier either during the bankruptcy or soon after is the most likely of these three scenarios.
- Worst Case. Yipes runs out of time without finding new backers and is forced to liquidate. This case results in slow metro innovation, smaller customer choice, smaller vendor opportunity, and little room for other new entrants to build a market presence.
Security Solutions & Services
by Anil PhullEvent Summary
Top Layer Networks, a network security equipment vendor, recently began shipping Attack Mitigator 1.0 as the latest in its series of focused wire-speed appliances. Attack Mitigator's design incorporates application-specific integrated circuit (ASIC) technology to detect and deter enterprise denial-of-service (DoS) attacks.
Market Impact
The growing market served by anti-DoS technology vendors—a wide range of players including Top Layer Networks, Captus Networks, Radware, Mazu Networks, and Arbor Networks—is experiencing increasing fragmentation along the lines of cost and architectural placement (in-line vs. off-line) both within and outside an enterprise.
In the past, customers have had limited options for comprehensive DoS solutions that protect their firewalls, Web servers, and networking equipment. In addition to comprehensive attack protection, viable solutions must provide advanced manageability as well as high-performance and seamless integration with existing security devices.
Top Layer's Attack Mitigator provides application-based DoS protection at the customer's premises, but network-based DoS protection is also required for the service provider's routers, as a flooding attack against a router would disrupt service for all downstream customers. Arbor Networks and Asta Networks are focusing on providing solutions for this and other network-based DoS attack scenarios. The introduction of Top Layer's Attack Mitigator, priced at half the cost of the closest competing product (from Radware), forces competing vendors to reevaluate their pricing strategies and provides single-homed small-to-medium businesses (SMBs) with an affordable option for denial-of-service protection.
Conclusions/Recommendations
- DoS protection technology will be an essential component of enterprise infrastructure. Enterprise security architects will need to design their networks for protection against not only network-based (flooding) but also application-based (Nimda, etc.) attacks. Data service providers promising high availability must also protect their downstream customers against DoS attacks.
- To respond to customer needs in this area, larger network equipment vendors such as Cisco, Nortel, and Enterasys will be challenged to incorporate DoS protection into all of their products. Price and ease-of-integration with existing infrastructure will continue to drive competition in this market. Vendors that do not incorporate DoS protection technology into their offerings will be shut out of the security market.
- The growth of the anti-DoS product market should in turn spur establishment of managed DoS protection services. This is an incredible opportunity for managed security services providers (MSSPs) to enter an underserved market. Service providers will identify opportunities to manage CPE-based appliances and network-based DoS protection services for their customers. These new services, in addition to security intelligence services (SISs) and e-risk management offerings, will be strong differentiators for MSSPs willing to enter new markets.
Wireless/Mobile Services
by Roger EntnerEvent Summary
On March 27, the FCC announced that it will refund 85% of the $3.3 billion deposits from Auction #35 to the license "winners." Verizon Wireless and the other winners had lobbied to have all of their deposits returned to them due to the uncertainty surrounding the NextWave licenses since the eleventh-hour deal between NextWave, the FCC, and the license winners fell apart in the Senate. A few weeks ago, the Supreme Court accepted an appeal by the FCC to review the status of the licenses.
Market Impact
The impact of the FCC's decision to return most of the deposits to the license winners highlights the legal uncertainty surrounding the ownership of the licenses. The wireless carriers had several billion dollars tied up in interest-free escrow accounts losing millions of dollars a day in interest costs. The Supreme Court's decision to hear the case means that the issue will be settled at the earliest by the first half of 2003. The FCC maintains that it is the legal owner of the licenses and that the license winners will have to honor the result of Auction #35. To address the grievances of the carriers due to the long delay, the FCC decided to reduce the deposit by 85%.
Analysis
- The FCC has admitted that a resolution of the NextWave issue is almost one year away, and that it is unreasonable to hold the industry hostage for $3.3 billion until the Supreme Court decides. The wireless carriers will save hundreds of millions of dollars in interest, while preserving the validity of Auction #35. The FCC made it clear that if it prevails in the Supreme Court, the winners will be bound by the outcome of the auction.
- The Supreme Court will make a decision in early 2003 that will dramatically affect the role of the FCC as the warden of the wireless spectrum. The underlying question is what takes precedence: the bankruptcy code, or the congressional charter of the FCC to encourage the most productive use of the limited wireless spectrum?
Wireless/Mobile Asia-Pacific
by Shiv PutchaEvent Summary
On March 15, India's Telecom Dispute Settlement and Appellate Tribunal (TDSAT) rejected a motion by the country's cellular operators to ban the launch of "limited mobility" services by basic service providers. These services were designed to provide limited mobility using wireless local loop (WLL) technology.
Market Impact
This verdict will have significant ramifications for the Indian telecom industry, not just for the collective success of the cellular segment, but also for basic service providers. TDSAT rejected the petition of the cellular operators on the following grounds:
- The emerging convergence paradigm as envisaged by the New Telecom Policy 1999 (NTP99) allows for multiple operators providing competitive services.
- Despite erosion of profits due to competitive limited mobility services, cellular operators had already been compensated.
- The benefits of new technologies must be passed on to the end user.
While all of the above is true, the TDSAT ruling effectively ignores the core issue at the heart of this dispute. That is, the granting of permission to basic operators to offer limited mobility services as per the existing competitive guidelines, which amounts to nothing short of a "backdoor entry" into mobile services. Moreover, basic operators get to do this at a fraction of the cost already born by cellular operators since the market for mobile services was opened up in 1992.
The ruling represents a very disturbing long-term trend for the Indian cellular market. With the benefit of cross-subsidization with revenues from long-distance services, basic operators will be able to compete very effectively on price ($0.02 per three minute call). Without a doubt, there will be severe implications for the bottom line of all cellular operators.
Conclusions and Recommendations
- The current ruling, with its negative implications for the cellular industry is not the end of the dispute. The Cellular Operators Association of India (COAI) is already mulling petitioning the Supreme Court of India for resolution.
- While the NTP99 envisages a convergent paradigm, with end users having access to a variety of cost-effective services from a number of service providers, this vision is predicated on the very existence of a thriving cellular industry. The current TDSAT ruling has effectively ignored the implications for the long-term health of the cellular industry.
- The immediate and only viable resolution of the dispute will entail the government leveling the competitive playing field, and mandating the same license requirements for basic operators for limited mobility, as already imposed and born by the cellular service providers. The potential threat from new competitors is not nearly as detrimental to cellular prospects in the country as the crippling effect of a non-level playing field.
Technology Management Strategies
by Carrie LewisTrend Summary
Health Insurance Portability and Accountability Act (HIPAA) solutions are multiplying like rats thanks to IT service providers. The need for health-care organizations (HCOs) to meet impending HIPAA regulations has monopolized the attention of IT vendors targeting health care, but other equally important factors make health care a prime target. The convergence of multiple conditions—the increasing demand for health services, the rising cost of service delivery, shrinking revenue and profit margins, and new technology developments—are as critical as regulatory issues such as HIPAA. Controlling rising costs and optimizing business processes while increasing access to services and the quality of care have been and will continue to be top industry priorities.
Market Impact
HIPAA solutions are important to HCOs as they prepare to meet compliance deadlines that, even with extensions, will commence later this year. However, while service providers can get in the door today with HIPAA solutions, these solutions will not sustain long-term customer relationships. Remember the Y2K hype? To establish ongoing and lasting customer relationships, vendors must think beyond HIPAA and develop integrated IT solutions that are aligned with the business processes of HCOs.
HCOs once viewed IT as a back-office "function" that was not core to their business, but this is no longer the case. Rapid technology advancements such as e-business and the development of online communication tools have accelerated the need for IT and business strategy alignment. HCOs—ranging from large hospitals and insurers as well as multispecialty physician practices to smaller community hospitals and physician offices—need integrated IT solutions that map to specific business processes (such as clinical service delivery, billing, and resource utilization), standardize operations, enable best-practice replication, facilitate the adoption of new technologies, and ensure regulatory compliance such as HIPAA.
Recommendations
Vendors:
Focus on selling business solutions and services, not technology solutions.
- Focus on services, not products: Products alone are not solutions; the combination of products and services is a solution. Products are viewed as complex and difficult to implement and leverage. Services provide an insurance policy against these difficulties.
- Offer flexible solutions. An offering of both packaged (standard) and customizable products and services can be adapted to meet various business needs.
- Align SLAs with customer needs. Place a premium on customer satisfaction and continuing relationship management.
HCOs:
- IT and business strategy alignment is paramount—both are core to your business. IT investments must optimize business processes.
- Integrated solutions that offer a comprehensive and integrated view of your business exceed the value of any point or stand-alone solution.
- ROI and success metrics should be detailed in SLAs or outsourcing contracts.
Consumer Technologies & Services
by Imran KhanTrend Summary
Driven by the cable operators' push toward expanding broadband availability, the residential high-speed access subscriber base will continue to grow. Despite the scaling back of broadband deployment by the service providers—specifically the regional Bell operating companies (RBOCs)—and the decline in the number of competitive broadband Internet service providers (ISPs), overall demand for broadband access will remain strong. Online consumers' frustration with dial-up access remains the primary driver behind the growth of the broadband subscriber base.
Market Impact
While the RBOCs remain tangled in regulatory battles in order to eliminate or alleviate regulation requiring them to provide competitive access to their networks, cable operators continue to capitalize on greater availability and faster provisioning of cable modem service to widen their lead in the residential broadband race. From a growth perspective, whereas the cable operators are gaining subscribers in both current and new markets, the DSL carriers are limited to expanding customer penetration within existing markets. In overlapping markets where consumers have a choice between DSL and cable, faster provisioning by cable operators continues to pull a greater number of consumers toward cable modem service. Apart from these two leading access platforms, satellite, fixed wireless, and fiber-based technologies also will promote additional broadband availability in the consumer market. In the rural markets, satellite and fixed wireless will be the only connectivity platforms available to the majority of consumers.
Conclusion
- Overall, the growth of broadband will increasingly cannibalize the market for dial-up Internet access. Widespread availability and tiered pricing plans offered by broadband providers will fuel this migration and more firmly push high-speed access into the mainstream consumer market.
- ISPs such as America Online (AOL), MSN, EarthLink, and AT&T WorldNet will become more active in the broadband space, spurring increased competition between cable modem and DSL.
- In an upcoming Report, the Yankee Group will provide an update on residential broadband subscriber growth and will evaluate the success and future outlook of various access platforms. The Report will further assess the impact of current regulatory initiatives on expanding broadband availability beyond the existing markets and into the non-metro areas.
Convergent Communications Europe
by Amy RodgerEvent Summary
Sweden's Telia and Finnish counterpart Sonera announced serious merger talks in the week of March 25, hoping to bring to bed a Nordic incumbent merger that the market has expected for years. An exchange of shares and not cash is the proposed method, but as ever, the devil is in the details: both incumbents are majority owned by their governments (Telia is 70% state-owned, while Sonera's state shareholding is 53%), and consequently the decision will be politically influenced and also subject to European Union approval.
Market Impact
Spring is in the air in Europe: for incumbents this seems to mean that the urge to merge waxes strong—and is potentially a consequence of lackluster year-end 2001 financials and the prospect of poor first quarter results. This time last year it was the turn of Telenor and Teledanmark, followed later in 2001 by the bid of KPN and Belgacom to merge. Various incumbent combinations have been mooted in the past but all have failed due to disputes over ownership and management structure, the placement of major headquarters, and not least, cultural and political tensions.
So, what's the appeal of this latest effort? Economies of scale are eminently possible in staffing, network management, equipment procurement, and research and development, in addition to cross-pollination in marketing skills.
Both Telia and Sonera face highly liberalized and competitive home markets, in which their market share continues to erode. But if they implement a tighter cost structure, these operators could fight more efficiently against the erosion of their home customer base. Losers could be Telenor and Teledanmark with such a regional rival next door. At the same time, the success of a Telia Sonera merger may encourage discussion of a true pan-Nordic operator which could also include these two companies. Then, the rest of Europe would really pay attention.
From an infrastructure perspective, Sonera has been cautious not to invest too heavily in pan-European networking, compared to Telia whose pan-European network is vast. Instead, Sonera has focused on niche areas: the Baltics and European Russia, areas also of interest to Telia. Indeed, the merger would create a dominant player into this fast-developing region.
Conclusions
- Combined assets in European Russia and Eastern Europe could pay dividends in years to come when countries like Poland and the Czech Republic join the European Union, as discussed in a new Convergent Communications Europe (CCE) Report on the region.
- Like all potential mergers, this one faces a 50:50 chance of success, but here the final decision lies not with the market, but with the governments whose decisions are often based on emotion and not financial imperatives.
- In other words, let's not hold our breath for this one, whatever its intrinsic financial logic.
Convergent Communications Asia-Pacific, Japan Market Strategies
by James WalshEvent Summary
On March 26, local incumbent NTT East Corp. announced that it had started a technical verification test for next-generation Internet Protocol version (IPv6) applications. The experiment, to run though August 30, will be carried out jointly with 15 other organizations, including universities and private enterprises, and will test applications developed by these members. The joint test will be conducted over the IPv6 network built by NTT East, which covers Tokyo and Kanagawa prefectures. The local IPv6 networks in each of these areas will be linked by a backbone network, which will be provided by the Keio University WIDE Project.
Market Impact
An abundance of IPv4 addresses in the United States has left the country somewhat indifferent about the need to adopt IPv6. On the other hand, countries such as Japan and Korea, which were later adopters of the Internet are showing much stronger commitment, and will be the early adopters of IPv6.
Looking at the companies taking part in this experiment gives a clear indication of the importance attached to IPv6 by players across the telecommunications value chain in Japan. Among others, major vendors such as Hitachi Ltd., NEC Corp., and Fujitsu Ltd. will be testing the performance of IPv6 compatible devices, from mobile terminals to video servers and home gateways; printing company, Toppan Printing Co., Ltd., will test content delivery in IPv6 environment; and Microsoft Co., Ltd. will test IPv6-based peer-to-peer multimedia communication software.
Recommendations/Conclusions
- The transition to IPv6 is still at a very early stage. Nevertheless, as the Internet will be required to support an ever-growing number of devices, the switch is inevitable.
- Hardware vendors must not only fully understand the technology, but also must also start actively building marketing campaigns, and support service providers to drive user demand for IPv6 compatible products.
- Service providers should see IPv6 as a great opportunity to capitalize on end users' demands for value-added services. If end-user corporations approach IPv6 with caution, service providers can use this as a chance to offer integration, managed network, and consulting services.
Wholesale Communications Services
by Nancy BedardSummary
On March 22, two utility subsidiary carriers’ carriers—Dominion Telecom and Con Edison Communications—agreed to purchase network assets from Telergy, a bankrupt carriers' carrier and competitive local exchange carrier headquartered in Rochester, N.Y. Dominion Telecom has agreed to pay $7.4 million for the upstate New York portion of Telergy's network, which runs from Montreal to New York City and from Albany to Buffalo. Con Edison Communications agreed to pay $1.4 million for Telergy's New York City network. The acquisitions, expected to be finalized in April, still leave Telergy assets on the table, and the combined purchase price of $8.8 million doesn't begin to cover the $568 million debt Telergy owes its creditors.
Market Impact
The acquisition expands Dominion Telecom's existing New York state network and extends its network into Canada. The purchase fits with Dominion Telecom's strategy to serve Tier 2 and Tier 3 markets, and its network buildout plans to increase its fiber route miles from 6,500 to 16,000 by the end of 2003. Con Edison Communications was a late arrival to the highly competitive New York City market due to regulatory delays. The purchase of an operating network saves significant building time for Con Edison Communications. The Telergy network in Manhattan uses both Con Edison and Empire City Subway rights-of-way, providing diverse routing capabilities. Con Edison Communications will be better positioned to offer competitive bandwidth services to providers in New York City.
Conclusions/Recommendations
- The Telergy assets move Dominion Telecom and Con Edison Communications forward in executing their business plans. Other carriers' carriers expanding their networks should consider buying distressed assets when those assets fit into their business plans.
- Both companies are using the acquisitions to go deeper into territories they already serve. In the current economic environment of constrained capital, we recommend extending coverage in existing markets to capture greater market share before moving into new markets.
- Service providers looking for financially stable carriers' carriers should investigate utility subsidiaries. They are well positioned to offer competition to ILEC and IXC wholesale offerings at a time when buyers are shying away from debt-laden carriers.
Brazil Market Strategies, Convergent Communications Latin America
by Raphael DuailibiMarket Trend
During the last week of February, Brasil Telecom announced the purchase of 19.9% of the voting capital of Vant, a corporate service provider owned by AES. In addition to its presence in Brasil Telecom's region (2,100 ports), Vant is also present in important cities in Regions I and III, such as São Paulo, Rio de Janeiro, Belo Horizonte, Salvador, Recife, Fortaleza, and Vitória. Although Vant has little infrastructure, especially outside Brasil Telecom's region, the company expects to invest heavily to expand coverage and its sales team, thus accelerating Brasil Telecom's entrance in other regions.
Market Impact
Brasil Telecom's acquisition shows the operator's willingness to catch up with other incumbents in their expansion race. Telemar and Telefonica have already anticipated Anatel's 2003 goals and can count several assets outside their regions, such as call centers, ISPs, corporate service providers, data centers, and banks' outsourced networks. On the other hand, Brasil Telecom has not yet anticipated its goals for 2003 and has very limited assets outside its region. In addition to Vant's, other recent acquisitions in Regions I and III include broadband ISP BrTurbo and free ISP iBest.
Recommendations/Conclusions
- Vant's acquisition will provide Brasil Telecom with a stronger position in its region, in addition to points of presence in the main Brazilian cities. Vant will need heavy additional investments to fulfill Brasil Telecom's plans, and the Yankee Group believes that as soon as legislation allows it, Brasil Telecom will purchase the majority of the company.
- In spite of not having advanced Anatel's goals, Brasil Telecom is not far behind Telefonica and Telemar. The operator has a number of acquisition possibilities in the market today, and some of them can be purchased for very attractive prices. Some of the most attractive targets are Intelig and telecom operations such as Eletronet.
- The sale of a portion of Vant reinforces AES's attitude toward the Latin American telecom market. We believe that AES will change its investment plans for Brazil and look for partners for its current operations.
Billing & Payment Application Strategies
by Lisa CebolleroEvent
On March 25, Sentori and EUR Systems announced an alliance in which Sentori's 3G wireless billing and customer care solutions would be offered as part of EUR's portfolio of outsourced products and services. This alliance was reached after a successful partnership in implementing the Sentori 3G solution to support the needs of Working Assets, an EUR long-distance reseller client.
Market Impact
When looking to grow market share in existing territories and new markets, it is advantageous for a billing solution provider to offer its solution as an outsourced model as well as a license-based solution. However, it can be an expensive investment from a billing vendor's perspective to offer both types of solutions. As part of this agreement, EUR will market Sentori's solution through its sales channels and existing client relationships; while in turn, Sentori will market to its prospective wireless clients the integrated EUR/Sentori solution along with EUR's service capabilities. Sentori brings the billing and customer care software designed to meet the needs of a wireless service provider, while EUR provides the hardware, hosting, systems management, operations, and support services including bill print/stuff/mail, payment processing, and contact center services. The combined solution will offer a wireless carrier an end-to-end outsourced solution option for its billing and customer care needs.
Conclusions/Recommendations
- The alliance is a win-win situation for both Sentori and EUR. Sentori gains an outsourced solution model to offer potential customers, and EUR gains a 3G wireless billing solution to complement its existing product and service portfolio. One of the most important keys to success in any market is being flexible to the needs of the customer, and now both sides have more capabilities to meet a greater subset of carrier needs.
- More options = expanded target market. Smaller wireless carriers and mobile virtual network operators (MVNOs) will have greater propensity to outsource billing services. An outsourced billing model allows for a quicker time-to-market and a lower up-front cost for service providers, and most smaller wireless carriers and MVNOs will not have the billing domain expertise and the capital needed to invest in a license-based solution up-front. Sentori has announced its intent to focus on the MVNO segment, and this outsourced offering with EUR Systems will provide it with the added advantage of an outsourced solution when targeting this space. The partnership expands the potential target market for both sides.
- Choosing the right ASP is key. Although it may seem like an easy solution to just outsource billing software to an ASP, it is important that a billing vendor choose wisely. An ASP must have the billing expertise and resources needed to support the application sufficiently, otherwise the relationship can do more harm than good. In this case, EUR brings years of experience, client installations, and successful relationships in the billing space as proof of its domain expertise.
Convergent Communications Asia-Pacific
by Agatha PoonEvent Summary
Shanghai Symphony Telecom, the joint venture between Shanghai Telecom and AT&T, has recently unveiled MPLS-based IP VPN service, targeting multinational corporations in China. The service is initially available in the Pudong business district of Shanghai and will be available in other major business centers of Beijing, Guangzhou, and Shenzhen by the end of this year.
Market Impact
While there has been a lot of hype about the prospects for IP VPN in Asia-Pacific, IP has yet to gain mainstream popularity in the data networking arena. Undoubtedly, reliability and security remain the biggest concern among Asian corporate managers, as they come to deliver mission-critical applications and real-time data traffic over the IP network. Since MPLS-based IP VPN is engineered to address the issues associated with reliability and security, its availability is served as a prelude to the future uptake of IP in Asia.
Among Asian countries, China is surely a potential market with untapped opportunities. On the supply side, Chinese operators are ramping up their investment in IP-based infrastructure. In addition to IP pioneer China Netcom, China Mobile is also building a nationwide IP backbone. On the demand side, Chinese network users are willing to experiment with emerging technologies such as IP since they have not been satisfied with conventional data services available in the market.
With that in mind, the availability of MPLS-based IP VPN is expected to create a new wave of IP users in the country. Although it remains unseen whether MPLS-enabled IP VPN will become the mainstay in China's data networking arena, its emergence will add a new dimension to the country's vibrant Internet marketplace.
Recommendations
- In order to deliver true end-to-end IP solutions, AT&T must work closely with local PTTs in controlling and managing data traffic flow across the networks. Not only must security measures be put in place, but the global carrier will need to ensure that its partners have adequate backup to prevent loss of data in the event that malfunctions occur locally.
- With the data communications market evolving to broadband interactive applications, IP will surely be an option for corporate managers looking for scalable networking solutions at competitive prices. In order to minimize the threat of cannibalizing the sales for a range of conventional WAN technologies, frame relay and ATM in particular, network service providers will need to have a thorough understanding of customers' networking needs and provide them with multi-tiered pricing options.
Telecom Software Strategies
by Sanjay MewadaTrend Summary
In the last six months we have seen communications service providers (CSPs) investing in service quality management (SQM) solutions and our discussions with them indicate that a new approach, focusing on a service operations center (SOC) in contrast to the traditional network operation center (NOC) appears to be taking root.
Market Impact
This new focus and emphasis on design, development, delivery, monitoring, maintenance, and reporting key service characteristics for specific customers or classes of customers as opposed to overall service or network performance is good news for a range of operations software vendors in the assurance and management space. It opens up a whole new market opportunity in both wireline and wireless carriers, which leverages some of their core strengths in performance, fault monitoring, reporting, and network management.
For the CSPs, implementing SQM provides three distinct benefits: first, it lowers cost of operations and positively impacts capex by reducing costs associated with recovery, alarms, and over-engineering of network capacity to accommodate SLAs and performance metrics. Second, SQM increases customer satisfaction ratings and mitigates churn. Eighty-four percent of all multinational enterprises identify SLA metrics as an important criterion in selecting their managed service provider. And lastly, SQM accelerates time-to-market and service adoption. All CSPs indicate that they will source SQM solutions from outside vendors and rather than build it themselves.
The requirement for SQM solutions cuts across all major service categories: frame relay, cell and packet, managed network services, and wireless and wireline networks. Our preliminary estimates indicate that SQM spending in 2002 will touch $100 million and grow to over $600 million in 2004.
Recommendations
- Assurance and network management vendors should leverage their core strengths on the network side to deliver solutions that will build the transparency between the services and the network allowing for service and customer impact analysis. They should also ensure interoperability between SQMs and OSSs since CSPs indicate this as one of the hurdles to widespread SQM implementation.
- Vendors must deliver ROIs that are focused on OPEX savings. A compelling ROI is not only an effective sales tool but it also captures the benefits of SQM in real monetary terms.
- From a short-term implementation perspective, vendors should focus on delivering SQM applications that will address IP services for wireline CSPs, and voice and value-added services for wireless carriers.
Media & Entertainment Strategies
by Ryan JonesEvent
Tweeter Home Entertainment Group announced expansion of its custom installation program on March 26. The retailer's custom installation service combines personal in-home entertainment design consultations and an enhanced Web site to assist consumers with installation design.
Market Impact
Tweeter's expansion of its custom installation program parallels new services launched by other consumer electronics retailers. For example, Gateway Country Stores have implemented a similar house call strategy, while larger electronics chains such as Circuit City and Best Buy are slowly expanding service agreements with regional broadband providers.
Three trends are driving retailers to insulate their revenues with services. First, consumer electronics continue to decline in price and adopt converged functionalities, reducing the average revenue per sale as well as eroding the number of new devices needed in the home. Second, outlet retailers are seeking ways to differentiate themselves from channel competitors like online retailers and service providers. Finally, retailers are becoming sensitive to packaged media revenue erosion as broadband content distribution gains strength. The Yankee Group estimates that 2001's recorded music industry sales were off by 10% as the result of digital music downloads.
Recommendations
- Partnerships will empower retailers. Retail services grow fastest through partnerships with leading players in the particular service vertical. Successful case studies include Best Buy’s regional partnership with AT&T Broadband for cable modem retailing, and XM Satellite Radio's partnership with several chains including Crutchfield and Good Guys. In these partnerships the retailer adds service activation revenue to revenue garnered through the device sale.
- Dancing with the Devil: Cable operator partnerships present the largest rewards and risks. Cable operators hold Herculean influence over the distribution of digital content today, leading penetration for both video and broadband Internet access. Retailers can therefore find the greatest revenue opportunity through partnering with these service providers. However, cable operators have the resources to eventually compete against the retailer for distribution of digital media devices; and moreover, they have the scale to demand unsavory partnership agreements.
Communications Network Infrastructure
by Marian StasneyEvent Summary
The annual Optical Fiber Communications (OFC) Conference was held in Anaheim, Calif., during the week of March 18. Sponsored by the Optical Society of America, this conference and exhibit typically highlight components, subsystems, optical tests and measurements, and optical fiber. With more than 1,300 attendees and exhibitors, OFC is not considered a large conference by industry standards; but as one of the first each year and the most technical, it is a bellwether for the industry. Attendance was up this year but the lavish parties, giveaways, and hype were noticeably absent, reflecting the mood of the industry.
Market Impact
The Yankee Group noticed several differences this year from previous OFC conferences. The tone of the show was more somber overall and lines at the on-site employment office were longer. Component and subsystem vendors were more prevalent than in past years, and innovations in this market segment focused primarily on bringing yields and reliability up and costs down. The emphasis on long-haul core switches incorporating transport and optical bypass was surprising, while the continuing confusion surrounding metropolitan-area networking was not.
Conclusions/Observations
- Products from core long-haul switch vendors were remarkably similar, indicating that service providers are now publishing succinct product requirements and established vendors are rushing to comply. Rather than emerging vendors driving innovation, the incumbents have leapt over them to bring out solid products backed by global support organizations. This market area will prove to be a tough sell for start-ups that intended to succeed through innovation, price, or acquisition into a large incumbent organization.
- Component manufacturers for metro markets are feeling pressure from their customers to produce longer reach or higher channel densities—diametrically opposed physical challenges. There is little indication from service providers that a demand for this reach or bandwidth in the metro network exists for the near term.
- There was a definite trend toward practicality. More system vendors are incorporating fault isolation and performance monitoring technology into their systems. The majority of metro system vendors are in various stages of OSMINE certification and many start-ups are partnering with operational support systems developers to demonstrate interoperability in their first product release. Since these are requirements for incumbent service providers, the shift away from the competitive service provider market is clear.
Wireless/Mobile Technologies
by John JacksonEvent Summary
Several members of the Yankee Group's Wireless/Mobile Technologies team attended the annual Cellular Telecommunications & Internet Association (CTIA) show in Orlando during the week of March 18. While there were many significant (and not so significant) announcements, we highlight a few of the events we see as indicative of ongoing trends in the industry.
Key Findings
Convergys announced the addition of a settlement suite, available either as an integrated solution with its well-known Geneva billing application, or as a stand-alone product. The inclusion of the settlement suite, while logical, is representative of the continuing convergence between billing and other network services. Convergys's platform continues to expand further along the continuum from a core billing product to one that supports multiple OSS functions and facilitates interoperator transactions. We see settlement as a key area for future opportunities in this space, along with mediation and provisioning.
On the handset front, Sony Ericsson seems to have overcome the cacophony of skepticism following its formation last year. In looking over its product line, we saw highly competitive devices, armed with the all-important good looks and—most importantly—solid support for the various evolving network technologies. All of the other major device manufacturers demonstrated new models and trends in designs. Each is trying to gain market share through innovation and new functionality. In fact, several handset vendors announced plans to wrest market leadership from Nokia over the next few years.
For its part, Nokia showed significant momentum toward the convergence of multimedia and mobile devices. It told us that it intended to both "reinvent the gaming industry" and "be(come) the largest camera distributor."
In the WLAN space, it seems that most major OEMs and operators have now recognized that 802.11 technology represents a viable complement to the 3G technology suite. Ongoing debates between the 802.11a and -b standards and their relative merits for particular deployments remain, as do serious security concerns surrounding the vulnerability of the RC4 algorithm and WEP's inadequacy. We will write more about WLAN/wireless WAN convergence in an upcoming Report.
Predictions and Recommendations
- Each of the above events represents a different facet of convergence. We anticipate the continued trend of BSS and OSS coming together with more networked services as the traditional players in these markets seek to expand their revenue base. Further, devices will become more difficult to categorize as voice, data, and multimedia functionality converge. There will also continue to be increasing interest in WLAN as a complement to existing wide-area wireless networks.
- Operators must monitor these developments closely to ensure they are not left behind, playing catch-up to their competitors. Further, with increasing emphasis on wireless data, operators must review all of their BSSs and OSSs to ensure that they will be able to deploy and support new services. Provisioning, mediation, and settlement will become significantly more difficult in a wireless data-oriented world.
Wireless/Mobile Europe
by Farid YunusEvent Summary
On March 26, Sweden's Telia and Finland’s Sonera announced an agreement to merge, creating a single telecom provider valued at €18 billion (US$15.7 billion). The name of the new company and further details have yet to be revealed.
Market Impact
Having been in intermittent talks over the last few years, the decision by the two former state-owned monopolies has not come as a total surprise. But it is highly significant as it marks the first marriage of two national flag bearers, with both boards and governments—which still have majority ownership—shoving aside the national pride that had caused previous discussions to break down. But desperate times call for desperate measures, and high debts, saturating domestics markets, delayed returns on 3G investments, relatively poor 2001 results, and limited growth prospects, meant a merger was the only available option. Telia will have to sell its Finnish mobile operations to obtain EU approval, but with operations in Norway and Denmark, the merged company will become the dominant mobile player in northern Europe.
Conclusions/Recommendations
- The combined entity, with about 6 million mobile users in their two home markets, still pales in comparison with the 20 million–plus of T-Mobil and TIM at home. Domestic scale is unfortunately necessary to effectively compete abroad and the optimum scenario, nationalism allowing, would be the inclusion of Telenor and TeleDanmark in a pan-Nordic grouping.
- The deal can still fall through. Cultural and geographical proximity does not automatically equate to shared strategies and goals. But with three out of every four western Europeans already owning at least one mobile phone, and showing little interest in anything more than voice and SMS, both parties should keep reminding themselves that markets will only get tougher and some sacrifices will have to be made.
- In a way, the Finns and Swedes think they know more about mobile communications than most, having led the way in market adoption and service development. But this is no longer enough. If the best of both can be effectively harnessed, such as Sonera's innovation and Telia's expansionist tendencies, the merged entity will have great potential to excite, agitate, and prosper.
Business Applications & Commerce
by Lisa WilliamsEvent
SAP Chairman Hasso Plattner's remarks on Wednesday, March 27, reflect a growing frustration among enterprise software vendors with incompatible technology frameworks. "The software industry needs to tear down technology differences created by giants like Microsoft, Sun Microsystems, and Oracle, and develop applications that work together regardless of whose hardware they run on or what programming language they're written in," said Plattner.
Analysis
Frameworks were supposed to make new technologies like Web services easier for developers to integrate into their applications. Technology giants like Microsoft, Oracle, and Sun took the work of standards bodies—basically just documentation—and began to build development tools and components that were intended to help programmers produce code that is compliant with the new standards. But the growing rift between the Java/J2EE camp and Microsoft's evolving .NET strategy is giving enterprise vendors a real headache. If enterprise software vendors want their applications to run on multiple operating systems and databases to take advantage of the lightweight integration, business-to-business connectivity, and reusable components promised by Web services, will they have to write different versions of their applications for different frameworks?
Recommendations
- New features still rule the day. We cannot recommend that enterprise software vendors wait and see which frameworks end up being the "Betamax" of the Web services world. Enterprise buyers are still strongly driven to buy into the promise of new features, and the potential for Web services to extend the functionality of enterprise software packages is just too good.
- For end users, the decision may not be as difficult because many have already made a high-level decision about operating systems for their enterprise applications. They will therefore take advantage of the Web services framework that is compatible with what they already have. However, problems may arise for those enterprises that have a mix of operating systems, particularly when back-office applications are on one operating system and corporate Web systems (whether intranet or externally facing Web sites) are on another. Our recommendation is to consider how you will extend enterprise applications to the Web for personalization or customer service if you have a mix of platforms.
- See the January 2002 Yankee Group BtoB Commerce & Applications Report, "Web Services and ERP: The Business Browser," for more details about how and when enterprise software vendors will support these new standards.
Web Services and Corporate Integration Strategy
bacv1n4, Report, March 2002, by Jon DeromeEnterprise Spend Management: Taking Charge of Enterprise Value
bacv1n5, Report, March 2002, by Lisa WilliamsThe Bandwidth Diet in Central Europe and Russia: Higher in Fiber, but Not Yet Saturated
ccev2n5, Report, March 2002, by Graham FinnieCable Telephony: Still Far from Threatening the ILECs?
ctsv1n6, Report, March 2002, by Imran KhanTCO of Web Self-Service Application
crmv4n4, Report, March 2002, by Brian Jones and Robert MiraniAssessing IBM's Capabilities as an IT Service Provider
tmsv1n6, Flash, March 2002, by Carrie Lewis and Andrew EfstathiouMetaSolv Buys Nortel's OSS Assets: Building the Next Telcordia for Mobility and IP?
tssv1n5, Report, March 2002, by Sanjay MewadaSMS in 2002: U.S. Carriers Establish Beachhead for Future Success
wmsv3n3, Report, March 2002, by Linda BarrabeeTelematics at a Crossroads
wmtv3n3, Report, March 2002, by Sarah KimBack to Table of Contents
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