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