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Rich Tehrani

[February 23, 2005]

Rich Tehrani Interviews Lucent's Stef H. van Aarle


Stef H. van Aarle, Vice President of Marketing and Strategy for Lucent Technologies, is a keynote speaker at this week's Internet Telephony Conference and Expo in Miami.

Below is an interview conducted with van Aarle by Rich Tehrani in preparation for this event.

For more information about Lucent's Stef H. van Aarle, please see David Sims's profile, " Know Thy Keynoters: Stef van Aarle of Lucent."

Q1. Is industry consolidation a la SBC and AT&T good or bad for your business?

In general this consolidation provides us with significant short-term opportunity. Assets will have to be merged and optimized and that is a business we are. Since we know the networks of these players well we have a strong value proposition here. Also, in the mid to long term, we expect the consolidation to lead to a more financially stable industry. This will drive clearer investment plans.

Q2. Do service providers see the triple-play as the holy grail of service delivery?

"Triple-Play" (delivering voice, video and data services) is a bundling strategy and has been around for some time. Market data clearly shows that bundling works, especially in the consumer markets, it reduces customer churn and drives up revenue per user. So, yes, bundling will continue to be an important tool for Service providers. The integration of wireless into the bundle (quadruple-play) is a logical extension.

However, Lucent Technologies believes that bundling is only the tip of the iceberg. It is basically a marketing tool. Real value for the end users is going to be driven by converged services - the ability to combine elements of the quadruple-play in new and valuable ways. New technologies and standards like 3GPP, SIP and IMS will enable this. For the user this will mean: single sign-on, services that are access and device independent, and services that are aware of user profiles. Our market research shows that this will drive significant value for end-users going well beyond simple bundling.

Q3. How do you see the wireless market shaping up?

EvDO speeds are over a megabit per second at peak times and 3G is coming. EvDO is really the first large-scale deployment of 3 rd generation wireless. It is data centric - which is where the market demand is today. For these high speed data services to succeed the industry needs to help enterprise CIO's make these services an integrated part of their vertical applications. Lucent has done a lot of work with some of the leading mobile carriers to do just that. An example would be a vertical application for insurance carriers making claims processing from the field much faster using 3G capabilities. Significant savings can be achieved, compared to which the cost of the 3G services is minimal.

Q4. How will customers decide between WiMAX, 3G, and WiFi for wireless broadband delivery?

WiFi will likely be the preferred premise-based access technology for some time.. For enterprises this is also the likely scenario for private, enterprise-owned solutions. Obviously there are security issues that need to be addressed.

3G is the ideal solution for wide area access; it will be deployed ubiquitously, and will provide the right speeds for current common enterprise applications. Lucent Technologies has had seamless 3G-to-WiFi roaming solutions available for well over a year, and combined 3G/WiFi PCMCIA cards and phones will be available at the right price points. So the most likely future for enterprise users is WiFi on prem and 3G on the road. With seamless roaming and hand off between the two.

Public WiFi (aka hot spots) is probably going to remain a niche application for enterprises. Fragmentation of the offerings is one of the issues. On a recent three-day trip to Europe I had to subscribe to six different public WiFi services spending over 75 Euros. There are also security issues, and the limited speed of the DSL backhaul could prove to be a bottleneck for some enterprise applications. WiMAX is a standard with a lot of potential. The IEEE is currently working toward standardization initiatives that will create a fully mobile 802.16e solution intended to enable WIMAX to support mobility. WiMAX is an ideal substitute, complement or replacement for fixed cable and DSL, particularly in rural markets where they may be underserved by landline technologies. However, for WiMAX to be truly successful, proven performance and decreased costs are crucial.

Q5. As an international company you have a unique perspective on the American service provider market Vs everywhere else. Where are we behind? Ahead?

This is a very broad question. Clearly Asia and Europe are leading on mobility applications, however in terms of 3G deployments Europe lost a lot of ground and the leading US carriers are making tremendous progress. Broadband penetration varies wildly, with adoption rates much higher in the Asian markets than elsewhere. It is interesting to note that Cable leads the race in the US, and DSL leads in most of the rest of the world.

Q6. A slew of new VoIP service providers are popping up around the world. What will these companies have to do to make it into the next decade?

Today, VoIP providers are made up of cable MSO's, major carriers and alternative VoIP providers. Alternative providers like Vonage took an early lead by targeting the early-adopters. However, they are now losing share every day as major players are joining the VoIP game, due primarily to the lack of resources, telephony experience and technical skills. As VoIP moves beyond the early-adopter market to penetrate the mass market, it will begin to reach consumers that are more demanding and less knowledgeable. The smaller players simply do not have the resources to provide the same level of support that is required.

Another issue is the fact that today's VoIP business is driven by lowcost-voice. In the future it is likely to be driven more by value added converged applications, voice being only a component in the mix. Future players will need to have the breadth and depth to provide these converged applications.

Q7. It is a good thing to be a service provider again. You have seen a number of cycles in the service provider market. Do you have an estimation as to how long the VoIP service provider market can grow in double (or triple) digits?

In terms of minutes of voice carried it can grow fast for quite a number of years. In terms of revenue hopefully as well. The question is if the industry is able to turn the current trend of voice commoditization into value creation for the end-user.

Q8. As telephony costs plummet, what should service providers be focusing on to keep them relevant in the next few years?

Service providers will most certainly need to look for other sources of revenue. On the consumer front future deployments of FTTx and xDSL will enable them to create new revenue streams through converged IP-based applications and content. Enterprise clients probably present the largest opportunity for revenue growth in the near term. The challenge will be to transform from a connectivity provider to a solution provider. The battle for the enterprise client will be all about business value add. Partnerships with Systems Integrators will be an important component.

Q9. Please give perspective on open source telephony and hosted telephony.

Open source solutions are an important development in the industry. They are being embedded in many places, certainly also in the Lucent product line. However, businesses for which telecommunication is vital will not easily adopt "raw" open source solutions anytime soon. They will use open source components that are embedded in brand-name products. We believe these clients need a number to call if their infrastructure fails. Hosted telephony is happening. In the end, IP makes even telephony just another application on the network. Even if that application is vital, many businesses will opt to outsource the operations of it. We expect that hosting will actually become more attractive the more critical telephony is in an enterprise. With their larger scale and geographic diversity, hosting operators will have more extensive business continuity and disaster recovery capabilities and clear cost advantages compared to prem-based solutions. The continuing virtualization of the enterprise will also drive this. Obviously there are historical and cultural barriers to overcome, but with the hosted offerings growing ever more mature we are convinced that in the coming years we'll see a major uptake in hosted voice applications.

Rich Tehrani is TMC's president. He welcomes your comments. Participate in our forums.

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