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June 01, 2009

What Service Providers Can Learn From MetaSwitch

By Jon Arnold, Principal, J Arnold & Associates


This is the last of a series of articles I’ve written based on my takeaways from last month’s MetaSwitch (News - Alert) Forum. Each one has focused on learning opportunities for service providers, and this time, the teacher is the event sponsor, MetaSwitch.
I’m pretty vendor neutral in my writing, so this won’t be about their product roadmap. I’d rather talk about where MetaSwitch sees the market going and how they’re positioning the company for growth. In my mind, they’re a pretty good blueprint for how service providers need to be thinking, and I’ll illustrate that with a few examples.
First and foremost is MetaSwitch’s continued investment in R&D. They’re committing $35 million for 2009, and this spend is well above the benchmark often cited for leading companies – 10 percent of sales. For a privately-held company, MetaSwitch shares quite a bit of financial data, and one can readily see that this strategy has served them well in terms of growth and profitability. This is even more impressive considering the current economy, and they have held up very well relative to their peers, continuing to grow sales, attract new customers and add headcount.
Service providers have largely been going in the other direction, and bolstering R&D is a luxury many cannot afford. This does not bode well for their future – especially incumbents – and I’m not the first to say that the vast majority of notable innovations in telecom since the advent of PCs have come from outside the telecom space. Incumbents have struggled to update their monopolistic culture, and the pace of change is just too fast today for them to adapt organically. What follows from this is good news for MetaSwitch; when operators concede they cannot effectively innovate from within, the smart ones partner externally, leading them to companies like MetaSwitch, who have a proven R&D track record.
Not all of them are doing this, of course, and even among those who are, MetaSwitch’s view is that service providers are not being “ambitious enough”. Conventional wisdom says that major shifts in market share often happen in recessions, and by extension, this is the time to be innovating. The key driver to make this happen is for carriers to recognize that voice is no longer the centerpiece of their business. This is a huge step to take, and most are not ready to acknowledge this – partly out of hubris, but also because they may not be sure of the way forward into the world of IP and Internet-based communications.
One of the best examples cited at the conference was Verizon’s (News - Alert) commitment to rolling out fiber. Given the priority FiOS has become for Verizon recently, it’s clear that much of their future rests on tying up their subscribers with high speed services before the cablecos steal them away with their bundles. Fair enough, but this isn’t really innovation other than more efficient plumbing. The innovation that MetaSwitch is betting its future on is built around three things: new services, new partners and new applications.
Let’s start with new services, since this is what drives future revenues. With voice no longer being the money-maker, service providers need to innovate in other areas that add value to voice. We know that voice is becoming a commodity, and service providers need to accept that this is alright so long as it can support newer services that they can monetize. The challenge is that nobody really knows what new services subscribers will pay for and carriers are not alone trying to figure out how to make money off of all these wonderful new services we get for free.  
In terms of innovation, service providers certainly need to bring new, exciting offerings to market. However, there is another aspect of innovation that is just as important – having a culture of innovation. In my last column I touched on how Embarq (News - Alert) has embraced this, which helps explain why they are such a great customer for MetaSwitch. This is the innovation that service providers have to take on themselves – the willingness to keep trying new things and not being afraid to fail. Nobody predicted how successful ringtones would become, and we’ll see many more examples like this as the worlds of Telco 2.0 and Web 2.0 become one. This is a very different mentality, particularly for incumbents, but it may be the most important step they take to remain competitive.
This brings me to the second aspect of innovation – new partners. MetaSwitch recognizes the importance of this, and recently launched their Innovators Community around which they will attract third party developers for open source and social media applications. This has not been the forte of service providers, and rather than innovate internally to develop the services, they should be partnering more with the likes of MetaSwitch to create the steady stream of new services they’re going to need to build around voice.
Finally, service providers need to innovate around new applications. What I really mean here is new markets that will have their own sets of applications. In particular, I’m keying on two that were front and center at the Forum – IPTV (News - Alert) and mobile broadband. It’s hard to argue with the momentum building in these two areas, and MetaSwitch is focusing a good share of their R&D on both. In this regard, carriers need to innovate by attacking new markets with new services that speak to their needs.
This is where the first two aspects of innovation come in play – new services and new partners. IPTV and mobile broadband are new markets for most service providers, and they will typically be lacking in both areas. I would argue their innovation here is simply the decision to enter these new markets rather than relying on their established markets for growth. From that point on, their fastest route to market will lie with outside players. MetaSwitch is a prime example of the kind of partner they should using, not just for their platform, but their ability to leverage their partner ecosystem to develop the right mix of services to ride over the carrier’s network.
In sum, I’m addressing two types of innovation here – around technology as well as around thinking. Regardless of how much technological innovation service providers can deliver internally, what they really need is innovative thinking, especially in terms of opening up to outside partners to achieve their goals. MetaSwitch has done a great job in this regard as a vendor, and I think service providers would be hard pressed to find a better example to follow.

Jon Arnold, Principal at J Arnold & Associates, writes the Service Provider Views column for TMCnet. To read more of Jon’s articles, please visit his columnist page.

Edited by Jessica Kostek



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