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Small & Medium Business Technologies, Business Applications & Commerce
by Helen Chan, Lisa WilliamsEvent Summary
On May 7, Microsoft publicly confirmed its intentions to purchase Navision for approximately $1.3 billion. Navision is a Dutch software company, with US$210 million in annualized revenues, 86% of which is generated in Europe and 10% in the United States. The company targets small and midmarket companies with its business planning, ERP, and CRM applications. The deal is expected to close in August 2002.
Market Impact
To the unconvinced, Microsoft is in the applications market to stay. The company is committed to deepening its presence in the applications arena and it is determined to win in the midmarket and SMB markets. There are only a handful of vendors that have succeeded in this space. Microsoft is rare in that it has two coveted assets that successful vendors need to succeed in the midmarket: the cash to build or acquire a channel and the patience to not mind the long-term payout of its investments. Microsoft entered the applications space with its $1.1 billion purchase of Great Plains in 2000. This Navision purchase provides Microsoft with a European footprint along with 2,400 global resellers and also with applications (i.e., business planning) that will lay the groundwork for adoption of services under the .NET framework.Conclusions
- Microsoft is entering the enterprise and midmarket markets. Although Microsoft is on nearly every corporate desktop (via Windows) and the company is making headway in Microsoft Exchange and SQL server, the company trails other providers in penetrating into the server software (operating system and database) that power enterprise class applications. Because required functionality in applications drive decisions concerning the server software that support these applications, Microsoft is taking the strategic high ground by solidifying its hold on the applications space, which in turn will drive the purchase of supporting (Microsoft) server applications. In the case of midsized and SMB markets, Microsoft is seeding the market by bundling the SQL database with application (such as Small Business Manager) and shortcutting the business's backend evaluation process later on.
- Microsoft is further laying the foundation for .NET and Web services adoption by planting business processes. Without business processes, it is difficult for software vendors to make a case for adopting CRM or ERP, let alone any interconnected Web applications. Businesses do not understand the value of technology that automates processes if they do not have such a structure in place. Navision's business planning software does just that: it assists companies in establishing structure and procedure for business processes.
- Navision brings to Microsoft globalization and localization. Navision's global reseller channel is localized with local managers handling each territory. This is extremely valuable as Europe and other parts of the world are characterized by fragmentation. To succeed abroad, this foundation channel strategy is key.
Please refer to our soon-to-be-published "Giant Steps: Microsoft Rolling Up the SMB, Midmarket, and Enterprise Software Market" Report for more information. It is co-published by Yankee Group's Business Applications and Commerce (BAC) and Small and Medium Business Technologies (SMBT) Practices.
Enterprise Computing & Networking
by Zeus KerravalaEvent Summary
On Tuesday, May 7, Nortel Networks announced a new portfolio of Contivity products featuring Nortel's new Secure Routing Technology (SRT). Contivity is currently the leading customer-premises-based VPN concentrator and this announcement is the latest of many enterprise-focused announcements from Nortel Networks. The new Contivity platforms are purpose built devices designed to consolidate several pieces of network edge equipment into one platform, reducing infrastructure and management costs.
Market Impact
The current enterprise network infrastructure market is dominated by Cisco Systems as the number one vendor and a clear number two enterprise vendor has yet to emerge. With the turmoil in the market today, our recommendation to enterprises customers is continually evaluate all vendor relationships. The majority of enterprise infrastructure sales will continue to be won by Cisco, but these shaky times provide a good opportunity for other vendors to step up and become the enterprises' number two vendor for communications infrastructure. Of the non-Cisco vendors in this space, Nortel has the broadest product line and has some products that are considered at the top of their class, such as Contivity and Alteon. Advantage Nortel. For some time, Nortel has had many of the pieces in place to move themselves into the number two position, but the question had always persisted about whether they could find a way to become relevant to the business instead of merely supplying network components that happen to be cheaper than Cisco. The announcement of SRT on Contivity will provide the catalyst for Nortel to aggressively move into the number two position, as an attractive alternative to Cisco.
Recommendations
- Recommendations to Nortel Networks: There have been some doubts about Nortel's long-term commitment to the enterprise—principally as a result of Nortel's focus on their optical networking business during the optical boom. Nortel must continue to demonstrate ongoing commitment to the enterprise through forward-looking solutions to enterprise business requirements. Nortel must show enterprises that they have vision into the future of the enterprise to complement their line of infrastructure. Consider an edge architecture where SRT on the industry leading Contivity is the centerpiece of that strategy. Nortel has the pieces, now is the time to execute. Transitioning from a service provider–focused company to one that can cater to both enterprises and carriers is a very difficult undertaking and will require a commitment from Nortel that starts at CEO Frank Dunn.
- Recommendations to the enterprise: Look to consolidate equipment where possible. This will reduce capital expenses as well as lower ongoing operational costs. The new Contivity platforms are excellent examples of devices that are capable of lowering corporations IT expenses. As enterprises move to large-scale deployments of site-to-site VPNs, it's critical that they be able to leverage dynamic routing protocols to deliver and manage services over a secure infrastructure. Nortel's SRT on Contivity provides the basis for next-generation secure IP networks.
- Recommendations to other infrastructure vendors: Someone must step up and want to become the de facto number two enterprise vendor. For companies that offer a broad range of products, develop an architecture that delivers business value versus just technology. As of yet, only Cisco has developed this type of message to the enterprise. For vendors that don't have the breadth of product of a Cisco or Nortel, broaden your reach in the enterprise with strategic partnerships or possible acquisitions.
Media & Entertainment Strategies
by Adi KishoreEvent Summary
Liberty Media Corp. announced on May 8, the creation of a new subsidiary, Liberty Broadband Interactive Television Inc. (LBIT) with Peter Boylan, former president of IPG vendor Gemstar-TVGuide, at the helm. The first acquisition of this newly formed entity is OpenTV. LBIT will take 87% voting control of the middleware provider as well as 43% ownership, through a stock purchase. LBIT has also signed a letter of agreement with digital-media company ACTV Inc. for all remaining shares in ACTV not already owned by Liberty.
Market Impact
Cable operators have found it difficult to develop a sound business model for the deployment of multiple interactive television applications. This has created a tough market for interactive TV (ITV) companies, and lowered their valuations for a well-funded bargain hunter. The creation of LBIT clearly suggests that Liberty Media is now focusing on ITV and will acquire more companies in this space in the coming months. ITV is strongly synergistic with Liberty's previous investments in content, post-production/multimedia design, and distribution companies. The challenge remains, however, for Liberty to benefit from synergies across its diversified holdings, and find ways to make the whole greater than the sum of its parts.
Analysis
- LBIT appears focused on relatively simple ITV applications aimed at thin client set-top boxes, such as OpenTV's broadcast solution. LBIT offers ITV companies facing a difficult time the opportunity to cash out.
- Liberty's agreement with AT&T to provide services on its systems provides an opening into the U.S. cable market that has been a difficult battleground for OpenTV so far. And in Europe, Liberty is well positioned to gain control of the troubled United Pan-European Communications (UPC), paving the way for European deployments.
- OpenTV is deployed to 24 million subscribers, 4 million of which are EchoStar subscribers in the United States. However, Vivendi Universal's recent $1.5 billion investment in EchoStar will result in Vivendi subsidiary—and OpenTV competitor—Canal Plus Technologies becoming a key ITV platform for EchoStar. OpenTV must leverage Liberty's holdings to gain competitive advantage. Unlike in the past, Liberty must facilitate synergies across its properties to truly benefit from this new initiative.
Wireless/Mobile Europe
by Philip TaylorEvent Summary
On Monday May 6, UK mobile network operator Orange announced that customers holding accounts with the UK's sixth largest bank, Abbey National, will be able to add credit directly to its pay-as-you-go mobile phones from Abbey National automatic teller machines (ATMs).
Market Impact
The announcement is symptomatic of European operators' continued push toward increasing the proportion of prepaid replenishments that are performed electronically (EPR). KPN-Orange in Belgium, which has been operating ATM-based replenishment since 1999, claims that today around one third of its prepaid customers use a cash machine payment system to top up their accounts. Swipe card based electronic replenishment is better established still. Orange in the UK claims that around 25% of its prepaid customers are now actively recharging their accounts using swipe-based EPR after nine months of commercial operation. Part of the attraction of this has been the ability to register up to five cards to a single phone, which allows many parties to replenish credit (particularly attractive to teenagers).
Conclusions
With revenue growth no longer guaranteed by large customer base increases, operators are trimming costs wherever they can. Evidence suggests loss from fraud runs at around 10% with prepaid scratch cards. This and commissions paid to retailers can be reduced relatively easily through moving to EPR.
We estimate that EPR now accounts for 15%–30% of all prepaid replenishment in Europe. However, the extension of schemes to include ATMs and SMS-based replenishment as well as a continued push by the likes of Vodafone, among others, toward swipe cards will only cause this figure to further rise.
In the broader scheme, these strategies are indicative of a growing acceptance among Europe's network operators that they must make the best of their prepaid base rather than adopt discriminatory tactics to force migration to contracts.
This reinforces our belief that prepaid will become an indistinguishable element of the European mobile landscape, accounting for over 192 million customers by 2006 and a major payment mechanism in many of Europe's markets.
Wireless/Mobile Asia-Pacific
by Shiv PutchaEvent Summary
Samsung Electronics has announced that it will invest US$6 million in India through its local subsidiary, which started producing mobile handsets there in 2000. Samsung, which claimed 22% market share in 2001, behind market leader Nokia, aims to leverage the investment to gain 30% market share this year and lead the market in 2003.
Market Impact
The announcement comes as a good and timely endorsement for the potential of the Indian cellular market. With regulatory reform having slowed down to a crawl due to the prevailing political climate in India, and controversies raging over the introduction of "limited mobility" wireless local loop (WLL) services, this announcement will definitely help assuage shaky investor confidence in India.
Asia's premier destination for foreign direct investment (FDI) flows has been in China, and with China's accession to the WTO, this is certain to pick up in the telecom sector as well. That said, handset vendors are increasingly looking to diversify their regional channels, and India is the logical and even natural complement to a frontline China strategy for Asia. Despite laughably small 1Q02 subscriber figures of 6.43 million (China has pushed nearly 160 million), India is experiencing among the highest growth rates in the region, and is likely to continue growing at nearly 60% CAGR in the foreseeable suture. The Yankee Group forecasts 57.11 million subscribers in 2006, and this is where Samsung has seen opportunity.
Of course, this endorsement should be tempered with the reality that the gray market in India is still very much a factor in any assessment of the potential of the Indian market. The gray market accounts for nearly 75% of the estimated 4.4 million handsets to be sold in India this year. The Indian government has attempted to address this issue, clarifying the cumbersome tariff structure for handset imports, abolishing a 16% countervailing duty on imported handsets but doubled a basic duty on them to 10%.
Conclusions and Recommendations
- Despite the consistent pattern of incremental change in Indian policy, the government must continue to rationalize and simplify the import tariff structures for mobile handsets and other electronics products.
- Samsung will be hard pressed to overtake Nokia in what is today predominantly GSM market in India. Opportunity, however, will open up for Samsung as soon as CDMA-based limited mobility WLL networks are deployed, and once GPRS and cdma2000 1x upgrades are implemented.
Technology Management Strategies
by Andy EfstathiouEvent Summary
On May 1, Lante and Grand Central Communications announced a joint agreement to co-develop solutions that enable companies to integrate business processes with their partners using Grand Central Communications Web Services Network. Lante and Grand Central will focus on building real-time interactive Web solutions that monitor business processes which are characterized by the: 1) collection of complex data from multiple (often external) feeds, and 2) time sensitivity of data utilization.
Market Impact
Web services has been a great vision that has yet to be realized to any significant extent. The concept of easily pulling together heterogeneous components—at will—to create usable solutions is appealing, but unrealized. The first steps toward realizing the vision are for vendors to blaze the difficult path to first implementations so that everyday users will have both the benefit of lessons learned and usable components from which to assemble customized solutions.
The Lante and Grand Central announcement demonstrates that:
- Creating an effective solution requires both an infrastructure provider and a development partner to build the solution.
- The Web services vision is beginning to get underway in a tangible and deliberate fashion.
Recommendations
Vendors:
- The prevailing wisdom in the dot-com era was that one could not afford to wait on investing in new solution development. This wisdom was wrong. Today, the prevailing wisdom is that one can wait. Again the wisdom is wrong. Partnerships such as the one between Lante and Grand Central will develop the few offerings that will succeed in the future in a marketplace that will be characterized by a handful competing offerings.
Users:
- The strength of Web services offerings will be real-time monitoring and greater value chain integration outside the enterprise. These have been areas left largely untapped in previous computing waves. The efficiency and productivity gains from these areas will be significant when successfully implemented due to the largely untouched nature of this field.
Security Solutions & Services
by Anil PhullEvent Summary
On May 2, Network Associates (NETA) and Internet Security Systems (ISS) announced a strategic alliance to deliver integrated security products and services. ISS will incorporate NETA's Sniffer network performance and McAfee anti-virus (AV) technologies into ISS's RealSecure intrusion detection systems (IDS). ISS will also develop managed security service offerings leveraging this relationship.
Market Impact
This announcement highlights two important market trends: the marriage of network performance management with enterprise security management, and the increasing requirement for vendors to address hybrid security threats. ISS's partnership with NETA allows it to offer customers the network performance management strengths of Sniffer in conjunction with its own security event management solution. ISS will also be able to offer its customers added protection against hybrid threats by including NETA anti-virus (AV) technology in its RealSecure IDS products. Hybrid security threats include worms and viruses such as Nimda, which spread through multiple means, including Web, e-mail, file sharing, and instant messaging applications.
As a result of this alliance, ISS gets access to NETA's global sales and distribution channels, and NETA can leverage ISS's leadership in the managed security services space. The alliance will help drive sales for both companies. However, the ISS-NETA partnership presents challenges to both parties, especially with regard to sales account control and research collaboration, as well as issues surrounding ISS's existing relationship with Trend Micro.
Conclusions/Recommendations
- By partnering with NETA, ISS is following the lead of OpenService, which offers both network performance and security event management through its NerveCenter and SystemWatch products. Network performance management vendors, including Concord, BMC, and NetScout will also need to follow suit, and will be required to partner with SEM vendors including the likes of NetForensics, ArcSight, Aprisma, and Cyberwolf. The accelerated convergence of network performance and security event management products confirms the Yankee Group's previously reported predictions for these markets.
- Expect similar partnerships between IDS and AV product vendors. The inclusion of AV functionality in IDS systems will drive development of next-generation products that will protect against hybrid threats, as well as integrate tightly with security event management (SEM) systems. Challenged IDS market players include Cisco, Enterasys, and NFR, and AV market players include Trend Micro, Symantec, and Sophos.
- Managed security service providers will begin to offer their customers hybrid threat protection services leveraging the integration of IDS, AV, and complementary security technologies. This will encourage more enterprises to consider managed security services as well as simplify management and operational costs.
Wireless/Mobile Latin America, Mexico Market Strategies
by Felipe GonzalezEvent Summary
On Monday, May 6, Spain's Telefónica Móviles officially confirmed its acquisition of a majority stake in Pegaso PCS, a Mexican mobile operator that holds a license with national coverage.
The transaction was valued at $884 million: $87 million in cash, and the rest in assumed debt. Telefónica and the Mexican Grupo Burillo will stay as the only owners, with 65% and 35% stakes, respectively. They will jointly provide $488 million in the form of capital expansion.
Market Impact
With this acquisition, Telefónica will reach 2 million users, practically same as Verizon-Vodafone's subsidiary Iusacell, which has always been the second largest cellular carrier in Mexico. The incumbent Telcel will continue as the market share leader, with 17.9 million subscribers.
The Mexican cellular industry has reached its highest level of market consolidation. Apart from the three mentioned groups, there is only one operator that remains as an independent player: Unefon, with a subscriber base of about 1 million.
Telefónica's intention is to have between 6 and 7 million users by year 2005, a highly aggressive goal that would involve a CAGR around 36%, much above the 13.7% forecasted by the Yankee Group for the Mexican mobile sector during the same term.
A main beneficiary of this acquisition is QUALCOMM, whose financial position has been seriously damaged by Pegaso's debt in recent quarters. Now that debt will not only be reduced by $200 million, but will also be less risky, since it will be guaranteed by the strong financial muscle of Telefónica.
Recommendations
- A major strength of Telefónica Móviles is its backing by Grupo Telefónica, one of the largest and wealthiest telecommunications companies in the world. Nevertheless, all the group's subsidiaries in Mexico act as independent companies, and they don't maintain any joint activities at all. Grupo Telefónica should take steps to integrate its subsidiaries' efforts, in order to be more efficient and competitive, mainly against Telmex group, which leads the way in practically all the market segments that Telefónica covers in Mexico.
- Though it has plans for an accelerated expansion of its subscriber base, it is clear that Telefónica's main chance to compete against Telcel will be in the corporate services arena. In that sense, the Spanish company will have to carefully design and launch a corporate portfolio that really fulfills the end-user companies' actual expectations.
- Telefónica still must build a network in many areas along the country, in a process that will take many months to end. The other mobile carriers should take advantage from this situation and create a larger subscriber base before Telefónica does so.
Convergent Communications Latin America, Brazil Market Strategies
by Raphael Duailibi, Daniel MonteiroEvent Summary
On May 7, Anatel gave Telefonica permission to offer international long distance (ILD) in the Brazilian market. In spite of meeting Anatel's 2003 goals ahead of time, for the time being Telefonica is forbidden to offer inter-regional domestic long-distance services (DLD) due to a legal dispute started by Embratel. Telefonica is the first incumbent to receive Anatel's permission to expand to new services and regions in the country. We expect that Telemar, CTBC Telecom, and Sercomtel will also receive this permission during the next months, while Brasil Telecom should receive it only by the end of 2002 or the beginning of 2003. Telefonica announced that it would start offering the new services to clients inside its current area, and would expand it to clients in the rest of the country by the third quarter of 2002.
Market Impact
Telefonica and other local incumbents have considerable competitive advantages in this market when compared to competitors Embratel and Intelig. The advantages include lower interconnection costs, closer relationship with clients, regional focus, and a more solid financial position, with strong and protected cash flow generation. Incumbents' advantages can be seen in the intra-regional long-distance market, where their market share ranges from 45% up to 85%. Although incumbents' market share in the inter-regional segment will probably reach lower levels, we believe that most incumbents will become the leaders in this market. Embratel and Intelig will certainly be the great losers in the process.
Conclusions and Recommendations
- Telefonica and other local incumbents will probably start offering lower prices than Embratel and Intelig in some routes, but we don’t expect this to trigger an aggressive price war. When the prices drop, Embratel and Intelig will feel the pain much more than the local incumbents, since a great majority of their revenues come from this specific market.
- Telefonica is especially well positioned to enter the new long-distance segment. Its region concentrates 35% of total international traffic in Brazil and a considerable portion of the DLD traffic in the country begins or ends in São Paulo. In addition, Grupo Telefonica has other assets that may help the operator, the undersea cable Emergia being the most obvious one.
- Embratel and Intelig will not only lose market share, but also experience decreasing revenues when local incumbents effectively enter the new markets. Both operators should maintain efforts to reduce interconnection costs and to develop loyalty plans for their clients, especially in the corporate market. Entering the local service market would only partially alleviate their losses in the voice long-distance segment.
Telecom Software Strategies
by Sharon BallardEvent Summary
At the TMF conference in Nice, France this week (May 13–16), several catalyst projects including the NGOSS Infrastructure Based Mobile E-Service or "WiFi" catalyst project will be featured. HP is the sponsor for the "WiFi" catalyst project; vendors involved in this project include Telegea, Taral Networks, Redrock Communications, and TIBCO Software.
Market Impact
This TMF catalyst project provides software vendors with an opportunity to gain experience managing the delivery of advanced content services (location-based/multimedia) over a wireless infrastructure as well as capitalize on the wireless LAN technology phenomena. These OSS/BSS vendors' value proposition to wireless operators lies in managing the real time ordering and coordinated delivery of services provided by WiFi operators and content providers. Self-service capabilities, synchronization of product catalogs between content providers and WiFi operators, policy management issues, and service activation are all necessary components to make the delivery of services over this technology a reality. However, OSS/BSS vendor opportunities in the WiFi market will be limited to high volume urban "hot spots" with service order volumes to warrant the investment in OSS infrastructure.
Conclusions/Recommendations
- An actual wireless operator's OSS infrastructure will be a mix of legacy and new investments—and thus the service delivery experience in an actual operator's environment will differ from the ideal OSS infrastructure in a catalyst environment.
- XML APIs, thin client applications that don't require a Java applet download on a wireless handset/device are important considerations for wireless operator's evaluating self-service solutions—which will become a crucial part of a wireless operator's 2.5/3G OSS infrastructure.
- This WiFi project does present a near-term opportunity for OSS/BSS vendors to gain experience with the real-time delivery of advanced content services in an ideal infrastructure setting. However, it is a prelude to the larger OSS opportunities in the 2.5/3G wireless world—investments which we expect is at least 12 months out in some major markets. Additional analysis on the OSS opportunities and challenges for wireless operators' 2.5/3G networks will be presented in an upcoming Telecom Software Strategies Report on OSS adoption by wireless operators.
Networked Business Strategies Asia-Pacific
by Christopher SlaughterEvent Summary
Chinese authorities have begun another campaign to exert government control over how its citizens access the Internet, and what they do once online. Municipal police in China's largest city, Shanghai, have closed some 200 underground Internet cafés, while newspaper reports indicate that eight separate government ministries have endorsed a crackdown on "harmful" Internet content.
Market Impact
The crackdown on Shanghai's Internet cafés targeted only those operating without licenses, which require them to comply with a range of restrictive terms and conditions, including gathering registration details for all users and blocking Web sites blacklisted by the government. Sites can be banned for reasons of political content, such as that found on CNN.com, the BBC, and Reuters (the Yankee Group's parent company), all of which are banned; for subversive content, such as the Web sites of overseas dissident groups or the banned Falun Gong sect; or for pornographic content.
Those site bans have been in place for several years now, although they have been lifted during major international events (see our October 2001 Research Notes, "China Eases Internet Censorship . . . for Now," and "China Reinstates Internet Bans"); nor are concerns over Internet cafés a new phenomenon. As early as 1999, Internet cafés were required to collect registrations from users before they could permit them to access the Internet, and last year the official People's Daily trumpeted the banning of 2,300 unlicensed establishments and "punishment" of 14,400 others after a sweep of some 78,000 nationwide.
Conclusions/Recommendations
- Public Internet access facilities are not going to go away in China, despite efforts to bring them to heel. The Yankee Group forecasts China will have 34 million Internet subscribers (that is, unique subscriber accounts with licensed ISPs, as opposed to "users" who might share accounts) by the end of 2002, a figure that will more than double to reach 69.7 million by 2005. Low household PC penetration is still a significant constraint to growth; unaddressed demand will always seek out a public option, and Internet cafés will continue to flourish. By complying with admittedly stringent license requirements, operators will have the opportunity to build successful legitimate businesses for many years to come.
- Chinese authorities' concerns about the Internet are not going to go away, either. Censorship, crackdowns, and public campaigns will probably always be features of the Internet with Chinese characteristics. Pronouncements like "Half of Beijing's Teenage Surfers Addicted to Recreational Web sites: Officials," which appear regularly in government organs like the People's Daily, are indicative of the basic mistrust with which China's leaders view any unregulated media. This will not change any time soon, and any online venture in China must be aware of the prevailing sentiments and plan accordingly.
Consumer Technologies & Services
by Margo DeBoerTrend Summary
The year 2002 has brought a notable shift in strategy by major PC manufacturers toward home entertainment devices and services, with both HP and Gateway independently announcing their entry into this market. In April, HP announced its de100c Digital Entertainment Center, a digital music storage appliance that allows the consumer to transfer and store digital music from CDs directly or, if using a home network, from PCs and the Internet. The de100c appliance displays the stored music titles on the TV, and the consumer uses a TV remote control to select music for playing on the home stereo. Gateway recently announced a joint marketing program with EMusic.com to promote free MP3 downloads in all Gateway retail stores. This announcement highlights Gateway's plans to enter the music publishing and distribution business through EMusic.com and Gateway's existing site MusicZone.
Market Impact
In an April Consumer Technologies & Services Report titled "An Evaluation of Productivity Device Strategies for the Home Office Market," the functional convergence between the digital living room and the digital office was identified as a significant trend in the productivity device market. HP's and Gateway's entry into the home entertainment market support the Yankee Group's prediction that the PC must and will continue to converge with entertainment devices. For PC manufacturers, this convergence is an opportunity to market the multimedia functionality of the PC to enhance the consumer experience and to expand revenue streams in an already saturated market. Multimedia PCs will appeal to a broader addressable market that will use the PC for entertainment purposes, such as viewing streaming media and Internet video-on-demand. High-value segments for this product will be broadband households and premium and digital cable households.
Conclusions
- PC companies must leverage existing customer relationships to expand into the media market with new and enhanced products. Combined with an in-home network, the TV and PC can share resources and transfer content to entertainment devices within the home. The TV–PC functional convergence is an in-home networking opportunity allowing the consumer to access digital content through multiple devices.
- The TV and PC will never fully converge into one device. However, through an appliance and in-home network, there is an opportunity for shared content. A device such as HP's de100c will maximize network access and storage functionality from the PC and the viewing experience from the TV. This scenario creates an opportunity for productivity and entertainment network providers, content providers, and hardware providers.
Canadian Market Strategies
by Tosia MankaEvent Summary
Beginning in late June 2002, Bell Sympatico will offer its high-speed customers a choice of three high-speed packages: DSL basic with speeds up to 128 Kbps for C$29.95 (US$18.85); Sympatico High-Speed Standard Edition with speeds of 1 Mbps for C$44.95 (US$28.32); Sympatico High-Speed Ultra Internet, with download speeds up to 3 Mbps and upload speeds up to 640 Kbps for C$69.95 (US$44.07). This last service will be available to customers in Ontario and Quebec.
Consumers will be further allowed an allotted amount of bandwidth per month determined by their package: 10 GB downstream and 10 GB upstream for "Ultra" customers; 5 GB downstream and 5 GB upstream for "Standard" customers; and 1 GB downstream and 1 GB upstream for "Basic" customers. Coverage will be charged at a rate of C$0.79 (US$0.50) per 100 MB of traffic.
Market Impact
The introduction of tiered pricing from Bell Canada comes as no surprise. Indeed it has been anticipated in the marketplace.
The low-speed offering, available in Ontario only, is in direct response to the launch of a "Lite" (C$24.95 for 128 Kbps service) package from Rogers Cable earlier this year. Quite clearly it is designed to keep existing dial-up subscribers from jumping ship and going to Rogers—while the price is at a premium, it does enable the rather large Ontario-based Sympatico dial-up subscriber base of over 500,000 to retain their e-mail address (an important consideration) while having access to the Internet at higher throughput.
The "Ultra" tier is aimed at so-called "power users," and will initially be attractive to only a small percentage of the subscriber base. Key here is the notion that consumer use evolves over time—applications that demand more bandwidth see increased adoption the longer a user is online.
Discussion
- While usage caps are likely to generate some incremental revenue for overuse, the Yankee Group believes the more important thought here is that the small segment of users that will exceed predefined limits will investigate the "Ultra" package as a solution. The "Ultra" package at least comes with an increased bandwidth limit—something, to which the user community can more easily attach value.
- The Yankee Group expects that the rest of the residential high-speed service provider community will soon follow suit with the introduction of further tiers based upon bandwidth. The exploration of usage caps will be carefully watched, and may be avoided in order to retain perceived competitive advantage by offering service that presents itself as "all you can eat" for a fixed price.
Convergent Communications Latin America, Wireless/Mobile Latin America
by Erica EppingerMarket Event
Despite the numerous debt rating decreases, payment defaults, and non-paying customer cuts reported recently from major Latin American telecommunications markets, the Caribbean markets continue to offer opportunity to ambitious players, and operators are taking notice. The first quarter of 2002 has witnessed a flurry of announcements from Caribbean telecom markets. ARCOS, the Caribbean's new undersea cable ring, announced in April that it had already sold roughly 30% of its capacity, recording sales of over $28.5 million through the end of the first quarter. Centennial in Puerto Rico announced the deployment of its Foundry-provided Gigabit Ethernet metropolitan area network for corporate clients on the island. Jamaican mobile operator Digicel reported tripling its subscriber base in 2001, and announced its plans to expand into the Eastern Caribbean. Transworld Telecom Caribbean (TWTC), a newcomer to the region, is aggressively bidding for operating licenses in the Eastern Caribbean and the Cayman Islands to compete with Cable & Wireless. Additionally, several island nations have ongoing or upcoming PCS auctions, and competition is taking root in many countries previously served by European monopolies.
Market ImpactAlthough a handful of companies invested in the Caribbean during the telecom and Internet boom of the late 1990s, the majority of investments flowed into the then powerhouse economies of Latin America: Brazil, Mexico, Argentina, Chile, and so forth. The Caribbean markets were too small to garner much attention, and the lack of connectivity to the region kept prices too high for most competitors. With the arrival of the new ARCOS cable, the upgrade of Eastern Caribbean Fibre System (ECFS), and additional submarine projects in the works, bandwidth is more readily available at lower prices. In addition, regulatory changes are starting to open up markets to new entrants. The on-average higher purchasing power of the population, the stability of the economies and currencies, the increasing interest in off-shore activities (e.g., banking, gambling, hosting, call-centers, etc.), and the lack of real competition has caught the eye of investors who have grown weary of the risky Latin American markets. We expect to continue to see new and renewed interest in the Caribbean telecommunications markets, especially as the region's government's increasingly look to diversify their economies and broaden their revenue base from agriculture and tourism to high-tech outsourcing.
Conclusions
- Global service providers and vendors cannot overlook the Caribbean, or assume that their Latin American operations will suffice. The Caribbean markets differ dramatically from mainland Latin America, and one strategy will not fit all. Operators and vendors that can understand the local market dynamics will win out over "one size fits all" strategies.
- Most regional or global services providers cater to end users trying to get traffic or services into the Caribbean, rather than servicing local demand flowing out. We expect that as local and metro networks develop in the short term, those carriers positioned to get traffic off the islands will capture the majority of the business in the region.
- Increased undersea capacity has the potential to radically alter the telecommunications environments in many of these islands. That is, if the capacity can get off the beach and into the metro regions. Island governments must pay careful attention to the regulations regarding cable landing stations, carriers' carrier operations, and competitive access provisioning. These are issues that most have never dealt with. The regulators must be extremely careful to design regulation that encourages competition but also protects and justifies the carrier investment necessary to bring new services to market.
Communications Network Infrastructure
by Mark BieberichEvent Summary
On May 2, Unisphere Networks announced that it will spin off its next-generation voice products to Siemens Information and Communications Networks, a new unit slated for establishment in the second quarter of calendar year 2002. The realigned Unisphere will focus squarely on its service provider edge routing and switching products, and the new Siemens unit will concentrate on convergence infrastructure. Both companies will continue its joint marketing and distribution agreements, which began when Siemens provided the original funding for Unisphere three years ago.
Market Impact
With more than 95% of its revenues attributed to its ERX line of edge routers, Unisphere has clearly indicated that it intends to build upon its core competency: edge routing and switching. Such a strategy reinforces the market dynamic of increased attention at the service provider edge, where carriers plan to add service intelligence and traffic engineering to take advantage of excess core capacity. The IP edge, where Unisphere has succeeded in taking market share from Cisco, is also one of the few network segments that will grow in terms of carrier expenditures this year. On the competitive front, Unisphere is now more closely aligned with the likes of Juniper, Redback, and WaveSmith in the market segments of edge routing, subscriber management, and multiservice WAN switching, respectively.
Recommendation for Vendors
- Integrate more service intelligence in your platforms. Unisphere's products, in particular the ERX line of routers, combine edge-optimized IP routing, subscriber management, and IP service creation in a single device. This model obviously has traction among service providers and the announcement suggests Unisphere will continue its development in these areas. Established router vendors, therefore, have an opportunity to enhance their products, which are traditionally strong in routing but lack integrated subscriber management and IP service creation.
Recommendation for Service Providers
- Take a hard look at your edge routing and switching options. This announcement clearly signals that Unisphere, among several other vendors focused on edge solutions, is driving innovation to help service providers reduce costs and generate revenues. As difficult as it is to replace entrenched equipment at the edge, many of the emerging solutions present an excellent business case for doing so.
Recommendation for Enterprises
- Demand more service flexibility from your service providers. As the Unisphere announcement shows, vendors are directing innovation toward the service provider edge. If innovation is to translate into more granular service offerings, with better guarantees and prices, enterprises must demand faster technology adoption from service providers, many of which are notoriously slow in new service introduction.
Wholesale Communications Services
by Seth LibbyEvent Summary
On May 3, OnFiber Communications (OFC) announced that it had acquired the network assets, facilities, and customer contracts of Sphera Optical Networks in five U.S cities: Atlanta, Chicago, Los Angeles, New York City, and Washington, D.C. OFC, a metro carrier that constructs and operates fiber-optic local access networks, paid $2.3 million for the assets. With the exception of Washington, D.C., each of these cities is a new market for OFC.
Market Impact
OFC's acquisition of Sphera bodes well for renewed growth in the beleaguered metro carrier market. Having acquired Sphera's assets for pennies on the dollar (Sphera reportedly spent $35–$40 million to construct its network), OFC enjoys a low cost structure that will enable it to offer and sustain aggressive wholesale pricing. This will heighten competition among rival metro carriers' carriers, possibly contributing to the demise of a few. But it will also stimulate demand for metro capacity and support improved profitability among retail service providers and carriers that depend on wholesale metro connectivity. High debt loads, weakening demand, and falling capacity prices contributed to the recent demise of several promising wholesale and retail metro carriers. But so too did metro-specific structural impediments, most notably the lack of access networks needed to connect bandwidth hungry customers to the core networks serving carrier hotels, data centers, and central offices. OFC will leverage its strength in building access networks to easily increase the building count of the networks it acquired, creating new potential sources of revenue for itself and broadening the base of high-bandwidth customers readily addressable by all service provider in these markets.
Conclusions and Recommendations
- The acquisition is a win–win for OFC with seemingly limited downside potential. The customer contracts acquired from Sphera provide $400,000 per month in recurring revenue, while the core orientation of the acquired network assets meshes tightly with OFC's access network focus.
- OFC has operated successfully for some time. Despite this, until now it has failed to establish itself as prominently as other metro carriers. With the acquisition of Sphera's assets, OFC must build brand recognition comparable to its suddenly much expanded market presence.
- With billions of dollars of telecom assets lying idle, there are certain to be more deals like OFC's acquisition of Sphera in the months ahead. Firms in all market segments are fair game, but metro assets will attract the strongest interest from buyers.
Wireless/Mobile Services
by Knox BrickenEvent
The Yankee Group just received results back from its 2002 Mobile User Survey of 2,500 wireless households across the United States. Preliminary data indicates that approximately 3% of all wireless users use their wireless phone as their only phone. This number represents a very small percentage of the overall population and is up only slightly from 2000, when 2.5% of users claimed their wireless phone as their only phone.
Analysis
The low number of actual "landline displacers" at first appears discouraging, leading many to reason that users will always maintain their wireline phone because it is so reliable. However, a closer look at the data confirms that even though customers are not replacing their landline phones, they are using their wireless phones for a drastically increased percentage of their total call volume. Consumers claim that wireless has displaced 26% of their wireline calls, up from only 16% in 2000. In addition, customers expect to displace 35% of their wireline calls by the year 2004.
Conclusions
- Many wireline customers increasingly using their wireless phones to supplement wireline voice conversations, but are maintaining a wireless phone to use for dial-up communications, a family phone number, and as an emergency phone line.
- Wireless networks are only 95% reliable, whereas the wireline network is 99.999% reliable. In order to convince customers to completely replace their wireline service with wireless, wireless carriers must continue filling existing holes in networks, increase coverage and reliability, and strengthen their customer service efforts.
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Downtime Debacle: UK Business Wasting E-Business Investment
nbsev1n6, Report, May 2002, by Scott SmithWeb Collaboration Tools for the Enterprise: Part 1, Analyzing the Market and Examining the Competitive Landscape
ibs, Web Content, May 2002, by Paul RitterBack to Table of Contents
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