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Publisher's Outlook
August 2002


Rich Tehrani

It's All About Service

BY RICH TEHRANI


The service provider market is really screwed up at the moment. 20/20 hindsight being what it is, its easy now to see that the bad decisions that were made in this industry were truly historic in proportion. Although assigning blame is not going to solve anything, it is obvious now that the focus of venture capitalists investment decisions and the goals they imposed on the companies they invested in, perhaps should have considered a focus on profitability.

But no! Profitability was the enemy. If you were profitable, then Wall Street could assign you a realistic P/E (price/earnings ratio) and subsequently value your company in a meaningful way, i.e., limiting your valuation in reality. Forgive the sarcasm dripping off the page, but its tough not to get a bit cynical when discussing this topic.

A look at the dot com fiasco reminds us that many of the dot-commers decided to spend as much money as they could on increasing eyeballs, or viewing customers, as opposed to paying customers. It was standard procedure to assign value to a company based solely on the number of reported eyeballs. Perhaps we should have known better, but then again, the mentality at the time was perverse and that is what became the norm.

Similar to the most eyeballs fiasco, was the perception that every CLEC needed to have the biggest networks, built faster than those of its competition. Similar miscalculations took place here, with VCs and Wall Street demanding ever-larger networks and miles upon miles of fiber in the ground, but never asking a carrier to provide paying customers.

These parallels came to mind while reading a recent article in the New York Times that highlights the current situation that many telecom service providers and equipment providers now find themselves in. In general, the article outlines the misfortunes of service providers such as Qwest, XO Communications, and others as well as equipment providers such as Lucent Technologies and Nortel Networks. The article posited the bottom line that we will continue to see a shakeout and the remaining few strong companies will survive and rebuild.

While I agree with much of the article, I would add a few points.

ENTERPRISE
In the enterprise space, VoIP has gained tremendous momentum and is being implemented at a faster rate than previously thought. In fact I recently came across a fairly positive article in the Washington Post about enterprise and service provider VoIP growth, which echoes my feelings on the matter. Aside from other benefits, IP telephony generally saves money and in a slow economy, that is a good thing. Equipment providers are aware of this and are doing their best to supply the needs of corporations migrating from circuit to packet. Cisco for one, has repeatedly mentioned that VoIP will be one of the fastest growing segments of its business going forward.

As I was typing this article, Alcatel sent me a news release announcing, that it holds number 3 market share by attaining 14% of the North American medium to large IP-PBX market (400+ lines), according to the first-quarter 2002 IP-PBX market share results published in InfoTechs InfoTrack for Enterprise Communications. Alcatel has maintained this number 3 position over the past three quarters, as its sales have kept pace with industry growth. According to InfoTech, the IP-PBX market includes Telephony-enabled LAN, IP-enabled PBX, and Converged Systems.

Obviously, Alcatel is taking their standing in the VoIP market seriously. Many hardware vendors, reacting to the sea change in our industry, see the enterprise as a better revenue generator than service providers.

ONE WAY OUT
Domestic service providers are in a different situation. The fact is that at this point, selling services customers want is the only way out of this mess. And while many if not most people agree, there are the usual cynics who love to rain on the nearest parade. I concede to them only that building a new business model based on services in the middle of a devastated economy is tough to pull off.

And yet, we are all accustomed to paying for enhanced services such as Caller ID, call waiting, and even the mysterious-sounding non-published service, which essentially grants you an unlisted number a service, which can cost a few dollars a month. For example, in Connecticut, I pay $3.35 each month for this service over $40 per year!

Now, wouldnt you agree that if phone companies can successfully charge for a non-service, people will pay for anything?

BOILING IT DOWN
So, once again it boils down to services. There are a great many corporate desires that need to be met more inexpensively and more easily than they are today. Companies will pay if you give them something they need!

Wi-Fi & Bluetooth Telephony
For example, many of us who spend lots of time in meetings dont want to miss phone calls, but there is no universally adopted, automated, and easy way to assure your phone calls can follow you around your office. Perhaps service providers should help corporations install Wi-Fi telephony networks (802.11A or B with managed QoS). This service should be delivered after the caller comes into a central auto attendant so that corporate greetings can be leveraged. Furthermore, selling software as a service to manage Wi-Fi telephony is a great idea.

Wi-Fi networks and even Bluetooth networks that are powered by Bluetooth access points are beginning to emerge in organizations. Coupling a PDA as a GUI with a Bluetooth or Wi-Fi phone or headset all but replaces the need for a PBX with extensions. Perhaps tying systems like this into IP Centrex will yield some revenues for those service providers intelligent enough to pull it off. To get a taste of what companies are already doing in this space, check out the online article in our sister publication, Planet PDA.

SIP
The merger of SIP devices and wireless endpoints will undoubtedly open up tremendous opportunities as well. SIP makes IP telephony easier to use than traditional telephony, and in this age of widespread instant messaging adoption, allowing endpoints that chat to offload to voice is a big plus. Again, people will pay for this sort of service if sold properly.

Outsourcing
ASPs are dead. But is the business model dead or just the name? I am positive that corporations need to buy more services to avoid the high costs of hardware and service as well as leveraging the flexibility inherent in this model. There is an opportunity here; well just have to see how this plays out over time.

CONCLUSION
So in summary, new services are critical at this point in the service provider market. There are so many corporate and consumer needs that arent being met and I believe that people will pay for new services if they can see how new services will help them communicate more efficiently. If you need an example, take a look at RIM (the parent company of Blackberry) and the success that theyve enjoyed in corporate America by providing endpoints and a service that allows us to communicate more efficiently. It may look pretty grim out there right now, but there is a way out of the darkness. Its all about services.

[ Return To The August 2002 Table Of Contents ]


Good News On The ITSP Front

According to a recent announcement, Internet telephony service provider (ITSP) ITXC has now routed more than one billion minutes of phone traffic originated by carriers outside the U.S. making ITXC the largest U.S.-based pure wholesale carrier of international phone calls.

So far, in 2002, 34 percent of ITXCs 658 million minutes of traffic originated outside of the U.S. reflecting growth of 163 percent from Q101 to Q102.
Another ITSP enjoying some measure of international success is iBasis, who recently announced a relationship with OTEnet, a leading ISP in Greece. Basically, OTE interconnects with iBasis for global Internet telephony. The relationship with iBasis has supported OTEs nearly ten-fold growth of its daily international call volumes since its launch in 2001.

Through its carrier relationships, iBasis is able to provide service to several countries in the region including Bulgaria, Romania, and Slovenia, growing its traffic to and from Southeastern Europe by 173 percent from 2000 to 2001.



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