On November 8, Frisco, Texas-based, privately-held IP infrastructure solutions market leader GENBAND hosted its second annual meeting with industry and financial analysts and members of the press. I covered the news from the company in an item yesterday. Today the focus is on their perspective on the state of the telecom industry. It was illuminating.
For those of us with a passion for the service provider (SP) part of the telecom industry, the number one question on everyone’s minds has been “How can SPs sustain profitability in a rapidly changing world where margins are falling just as the demand for rich media services is exploding and OTTs and others have disrupted historic value creation capabilities and called into question SP criticality and vitality?” In short, can the SPs be more than “bit” players and prosper?
We have all seen the charts probably way too often. SPs are under pressure to modernize existing facilities (transition from the voice-centric TDM legacy world to a data-centric integrated packet and optical one) and build new facilities to accommodate the explosion in the number of devices being attached to networks of all types and the bandwidth hunger for enriched media services like streamed and interactive video along with the growth of social media. The seemingly omnipresent signs in the London subway system says it all, “Mind the Gap!”
In a challenging global business environment, GENBAND is focusing on network transformation overall and the two critical areas of network convergence and network optimization. The goal is to help SPs not just close the gap, but also enable them to maintain a central position in evolving ecosystems by leveraging SPs unique relationships with customers
As GENBAND CEO Charlie Vogt (News - Alert) says, “Ultimately success is going to be on owning the customer.”
And who better than traditional wired and wireless SPs to own the customer? Who is in a better position to intimately interact with all of the touch points in the explosive growth of “smart” devices, social media and apps, and provide carrier grade experiences to every member of service ecosystems —including OTTs, applications developers, enterprises and mass market customers? The answer is nobody is better positioned than facilities-based service providers.
The real challenge is, do they have the tools to be adaptive to changing circumstances and can they move fast enough to ward off competitive alternatives? It will all be in the execution. GENBAND has positioned itself in key areas to help what can must be a major SP transformation (networks as well as business models) happen to mind the gap.
Leading position in key areas
For those unfamiliar with GENBAND, a little background is in order. Built on the philosophy of “Build, Buy and Partner,” the company under Vogt’s leadership has grown from being a niche player in the IP infrastructure space through a series of strategic acquisitions, including its 2009 purchase of the Carrier VoIP and Applications Solutions(CVAS) Business of Nortel to having a leadership position in the following areas:
- Fixed Switching (FS) – 31 percent share and number one market position
- Media Gateway (MG) – 19 percent share and number one market position
- Multimedia Apps Server (MAS) – 15 percent share and number three market position
- Session Boarder Control (SBC) – five percent share and number four market position
- IP Switching in Cable TV —50 percent share and number one market position
It has also transformed itself from a hardware company to a software provider, and increasingly has augmented the inorganic growth through what is currently a $130 million per year investment in R&D as a result of its acquisition of research talent around the world that has led to 166 patents granted in just the past few years in core IP infrastructure technologies.
Vogt and his executive team of Fred Kemmerer, CTO and Mark Pugerude (News - Alert), CSO outlined industry technical and market trends, highlighting the company’s focus on network transformation and what SPs are seeking support from trusted vendors to do — enable differentiated services quickly and efficiently, retain customers, simplify network architecture, reduce OpEx , de-risk their networks.
The team pointed out that cutting CapEx costs, by transitioning to a flatter more flexible and future-ready packet and optical integrated network, would also reduce OpEx as well. The trick is to facilitate the transition while at the same time using standards-based open architectures to expose network resources to third-parties and facilitate not just new services but new business models that can sustain profitability and thus fund the need for network growth as well as speed the transformation.
The opportunity is there for the taking according to GENBAND for a variety of reasons:
- In North America, roughly 10 percent of lines are now SIP trunking ones, meaning extensive growth across the portfolio especially in SBCs where a next generation will be more tightly integrated with other network functionality as IP dominates in fixed and wireless networks.
- While people have talked about TDM replacement and the switch to end-to-end IP, the reality is that globally, we are just getting started with roughly 20 percent of the infrastructure transitioned, and such transitions are going to take place on telecom infrastructure time and not immediately. This also speaks to growth in the SBC space as well as throughout the portfolio so that SPs can stay state-of-the-art even as they retire legacy systems.
- As a corollary to the previous point, grooming legacy TDM environments for the transition and then assisting in optimizing their performance is a significant growth area for companies like GENBAND. The company’s professional services people have years of experience around the world and whose knowledge can be invaluable as SPs have been outsourcing much of such activities that they used to perform internally as a way for them to cut OpEx.
- Infrastructure is converging, driven by technical innovation and practical necessity. Operators who want to reduce the number of network elements and pain points have simplified network and policy management capabilities, etc. The GENBAND acquisition of Nortel’s CVAS business, gave the company the ability to produce a consolidated new platform GENiUS in less than 18 months. As a result, they now have a deep portfolio that spans fixed, mobile, enterprise and cable networks, and that covers platforms, applications, call control, media gateways, SBC and security management solutions and traffic and policy management.
- The move to Voice over 4G LTE (News - Alert) is going to accelerate as mobile operators seek not only to rationalize their network infrastructures and ride those cost curves, but also rush to accommodate the impending traffic tsunami from smartphone and tablet adoption and the intense interest in streamed and real-time video for conferencing and entertainment. Legacy CDMA and 2G and 3G providers are going to be forced to VoIP over LTE
Vogt and his team, and a panel of industry experts that closed the session, were in violent agreement on one point: “The role of the service provider is not going to be about providing quality of service (QoS) but about providing quality of experience (QoE),” Vogt stated. This is what owning the customer is going to ultimately all about and QoS is table stakes as part of a holistic approach that will involve transformation in a host of internal IT systems, billing systems, contact center integrations and the overhaul of a variety of business processes. All of these are areas where GENBAND has a role.
However, the core of the business opportunity is what Pugerude stated as the major indisputable trend for the industry going forward where, “communications is an application.”
In the world where communications need to be run in a carrier-class way, i.e., to provide a superior quality experience, getting from here to there will not be easy, and SPs need help from companies that know the way. GENBAND says that it knows the way and has the know-how, and has transformed its internal IT capabilities so as to be proactive with changing requirements and not reactive.
The SP wish list is straight forward:
- Leverage on CapEx
- Standards-based open arch.
- Low TOC
- Interoperability With Multiple Platforms
- Investment protection
They also increasingly are becoming aware, as GENBAND’s Pugerude said, that “You can’t predict the future, but you can get ahead of it.” This means looking at not just having everything on one platform but also being open to blended services with OTTs and application developers on the business side and to a facilitate frictionless interoperability on the technical side.
What’s the SP motivation to transform faster rather than slower?
In a word, relevancy. If they do not move fast they could become like the airline business, i.e., heavily used transport whose business model is not profitable.
As GENBAND sees it, the carrier opportunity to remain not just relevant but central needs to leverage the following:
- Unified blended experience
- Simplification and control
- 3rd parties create value
- Harmonization across devices
Extended Internet Reach
- Services beyond access networks
- Fuller analytics, advertising
- Broadened revenue base
Pungerude says the goal should be that, “Everybody needs to recognize the importance of developers, and carriers have the opportunity to be viewed as value-added players much as Google (News - Alert) does with search.” Tools engage developers and OTTs include:
- API exposure
- Use of sophisticated analytics and next generation billing
- Blending enablers and content and context mediation
- Using standardized network interfaces
The analytics point is a good one since many of today’s services will likely be free (think what Microsoft will do with Skype) and thus monetization will have to be done differently and very flexibly to keep subscriber loyalty.
The lyrics to an old Bob Dylan song resonate, “The Times They are a- Changin.” That is good news for GENBAND in terms of opportunity.
It is clear from speaking to their managers that Charlie Vogt and his team, especially as reflected in the way in which they have swiftly and effectively integrated the Nortel assets, have a culture that is focused on growth and has a long-term as well as short-tem roadmap for success. Whether SPs can change their culture and accept the help being offered in a timely manner remains an open question. It, at least, is their choice as to whether they will transform their networks and business practices to accommodate market changes driven at Internet and not telecom speed.
What is clear from coming away from a session that includes so many industry observers with so many perspectives is that merely cutting costs is not a path to growth, investing wisely with a long-term view that allows for a graceful transition to mitigate risks from fast changing markets is the only way to go. It is not just the way to mind the gap; it is the way mine the gap and to close it.
Peter Bernstein is a technology industry veteran, having worked in multiple capacities with several of the industry's biggest brands, including Avaya, Alcatel-Lucent, Telcordia, HP, Siemens, Nortel, France Telecom (News - Alert), and others, and having served on the Advisory Boards of 15 technology startups. To read more of Peter's work, please visit his columnist page.
Edited by Rich Steeves