Communications in 2007

Any look at the future of any industry would not be complete without analysis of recent events. In the case of communications, 2006 seems like the transitional year of all time for a number of reasons. January 23-26 marked this year’s first continental US communications trade show, Internet Telephony Conference & Expo (http://www.itexpo.com) in Ft. Lauderdale, Florida. This article is intended to discuss the debates and discussions that took place during this event.

Money
There is more money floating around in this and every other market than at any time during recent memory. As long as the money keeps flowing, the transformation and consolidation of the communications industry will continue to take place. The positives of this consolidation will be a smaller amount of stronger companies. The negatives will be less competition and less choice.

Incumbents: AT&T/Verizon
This is the first full year that AT&T is back together and it remains to be seen how the world will react to the competitive pressures of this massive telecom provider. In addition, Cingular (news - alert) (http://www.tmcnet.com/436.1) as a brand will disappear and AT&T will be able to sell true quadruple play services under one single unified brand. In addition this is the first full year since the FCC made it easier for phone companies to gain national franchise rights to provide video programming.

Cablecos Get Spanked
It seems the FCC has had it with the cable companies as it has forced the industry to accept the CableCARD standard in an effort to ensure more competition from the consumer electronics market. The goal is to allow consumers choice by not forcing them to lease set top boxes from cable companies.

Any way you look at this, it shows the FCC is focusing more on consumer needs. Many still believe the agency is slanted towards the ILECs but if this was the case, things have changed recently. Read below for more on this topic.

Network Neutrality
AT&T was forced by the FCC to accept net neutrality principles in exchange for the right to merge with BellSouth. AT&T says they will abide by these principles for two years — except where it applies to their IPTV (http://www.tmcnet. com/437.1) service. Some have suggested that the IPTV loophole should not have been allowed at all. This will be a pivotal year to see how AT&T (quote - news - alert) abides by its net neutrality promises. In addition it remains to be seen how AT&T and Verizon (quote - news - alert) (http://www.tmcnet.com/438.1) will compete with triple play offerings from cable companies. In addition it will be interesting to see how the phone companies leverage mobile services as a differentiator from cable. One also wonders what will happen to single play providers like satellite (who can in reality provide expensive and relatively slow broadband as well) and Vonage. (quote - news - alert)

iPhone
A few years back (December 2004 actually) I introduced (http://www.tmcnet.com/445.1) the concept of the VoiPod or a VoIP phone by Apple. Apple did release an iPhone (http://www.tmcnet.com/439.1) but it seems to be downplaying the device’s ability to use WiFi telephony. In fact I would guess Apple will downplay the device’s ability to use wireless VoIP as long as Cingular doesn’t allow wireless song downloading to compete with Apple’s iTunes service. In short, it seems Apple made a deal to preserve GSM voice minutes in exchange for Cingular preserving iTunes downloads.

The important question for the entire telecom industry is whether this device will change the telecom landscape. It is possible the iPhone could be a runaway success, stealing massive share from Nokia, Samsung, Blackberry and Microsoft. I predict it will. In a few years this may put Apple in a position where the wireless carriers will have to negotiate to get Apple devices on their networks. This idea has interesting ramifications.

The Motorola Razor (http://www.tmcnet.com/440.1) (quote - news - alert) showed us how a consumer electronics device could drive the public mad and get them to switch service providers. I have suggested the VoIP industry take advantage of these trends. On the one hand, the iPhone may have closed this opportunity — not leaving room for VoIP companies to come up with killer devices. On the other, the iPhone may not be VoIP-enabled at first. This means consumers may still want a dual mode device.

Unified Communications
This is the first full year since Microsoft, Cisco and others have declared they are serious about unified communications. Now that the announcements have been made it remains to be seen what will come of them. Will enterprise customers buy new equipment that is unified communications enabled? Some smaller PBX players have already told me their customers know what they want and it isn’t unified communications. They buy PBXs, IVRs and ACDs, according to one prominent industry source. Is more education needed before CFOs open their wallets? Let’s see what 2007 brings.

VoIP Prices Increasing
This is the first year in which Skype (news - alert) has had a price increase. This is dramatic news. It changes the landscape of telecom. It signals a shift in how this eBay company works (disclosure — I own eBay shares) and shows Skype is under pressure to generate more revenue. This is the news that companies who make money from voice calls wanted to hear. This can only be seen as a Christmas present for Vonage. It remains to be seen if Skype will be forced to continue to raise process to generate revenue. If so, this leaves much more breathing room for other players in the market. It should be noted that Skype didn’t raise prices technically — they stopped a free promotion.

IMS
This is a pivotal year in the world of IMS and vendors are going to have to figure out how to sell products to a market which evolves so rapidly. Challenges include interoperability as well as coming up with services consumers will pay for.

IPTV/WiMAX
These markets are poised for rapid growth. IPTV may face increasing pressure from Internet TV solutions and WiMAX may see challenges from congestion on unlicensed frequencies.

Conclusion
But I introduce these concepts as a framework for discussion only. During our Expo and Conference in Florida there was much more discussion (http://www.tmcnet.com/441.1) about these and other topics. 2007 promises to be a year filled with excitement in telecom and I am more enthused than ever at the prospects for customers, vendors and the industry as a whole.

Microsoft and Nortel Stop the Messaging Madness
The average employee gets more than 50 messages every day on up to seven devices. Not so coincidentally, Microsoft (http://www.tmcnet.com/442.1) and the telecom giant Nortel (http://www.tmcnet.com/443.1) recently came together under the banner of the Innovative Communications Alliance to announce to the world that new software will help us manage the deluge of messages across devices, media modes and technologies. According to both companies, the goal is to use a single identity across phones, PCs and other devices.

The announcement took place with an energetic Steve Ballmer, the CEO of Microsoft, and Mike Zafirovsky, CEO of Nortel. After an hour spent waiting in line and going through rigorous security, customers, analysts and the press were ushered into studio 8H in New York’s Rockefeller Plaza. While waiting, the energetic crowd was treated to breakfast accompanied by a range of new wave classics from Depeche Mode to the Smiths.

Steve Ballmer explained that Microsoft and Nortel have both been in the communications business. Nortel was playing in the voice and video space and Microsoft was in the business of authoring documents, emails, etc.

Ballmer stated that it was inevitable that the two areas would eventually converge. He continued by saying they are trying to accelerate this convergence. “We are trying to simplify, enhance and extend VoIP,” Ballmer said. Ballmer mentioned the need for smart unified clients with separate PBXs. What needs to happen is enough integration to pull together these smart unified clients.

Ballmer sees a transformed world of unified communications where the PBX becomes an easier platform for the development of unified communications. This means Microsoft developer tools will integrate with Nortel and potentially other PBXs. Ballmer emphatically exclaimed, “We will move to a single notion of a user, their name and their presence.”

Three new solutions were introduced at the meeting, including UC Integrated Branch, a product alliance between the two companies which is a single piece of hardware allowing VoIP and unified communications in the branch office. Unified Messaging was the second introduction and although the technology is 10 years old the adoption of unified messaging has been underwhelming over the past decade. This may change now as the announcement calls for Nortel’s Communication Server 1000 and Microsoft Exchange Server 2007 Unified Messaging to interoperate via SIP or Session Initiation Protocol.

Conferencing was the last introduction and consisted of allowing the features of Nortel’s Multimedia Conferencing to be available to users of Microsoft Office Communicator 2007. There will be an on-premise solution available in the fourth quarter of 2007. according to Zafirovsky.

Why is this move logical for both companies? Well, Nortel is looking to get back in the limelight of communications after a financial scandal a few years back. Since Zafirovsky has become the CEO, Nortel seems to have delivered in a meaningful way by selling off underperforming divisions and focusing on areas of strength.

For Microsoft this move is about 10 years late. They dabbled in this space back in 1996 but never took the full plunge. What they did do is launch a telephony interface called TAPI or telephony services application interface, allowing open control of PBXs through Microsoft servers.

The company then launched NetMeeting which at one point was the world’s most popular VoIP software package. Microsoft lost interest in telephony when the Internet became more strategic and the company never fully decided to come back into the space until their recent unified communications initiative.

The logic in this alliance is undeniable as both companies need each other. Microsoft needs to find more ways to lock itself into the infrastructure of organizations so they cannot be replaced by Linux or hosted solutions. Nortel needs the added shot in the arm of being on center stage with Microsoft. This exposure is invaluable and levels the playing field between Avaya (http://www.tmcnet.com/444.1) and Cisco almost instantaneously.

The question is how the relationship with Avaya, Cisco and Microsoft might sour as a result of this initiative. It is probably good to have Microsoft more involved in the communications market as Microsoft holds a great deal of weight in corporations. If the company says you need Unified Communications, many CXOs won’t need much more convincing.

The challenge for the communications industry is to partner with the software leader while not developing an environment where the PBX vendor becomes unnecessary. In other words, will this initiative be looked back on in a few years as the first step in turning the PBX into a very cheap commodity with zero margins?

After all, with HMP, SIP and VoIP you can build a PBX on Linux with limited hardware costs. Will an Asterisk server be the equivalent of a Nortel PBX as they both interoperate with the Microsoft front-end?

Of course, Microsoft has been focusing on Nortel as of late so it is unclear whether other vendors will be able to interoperate so closely with the Redmond Giant. I would imagine Microsoft will eventually allow other PBX vendors to interoperate more closely as well but today it’s Nortel’s day.

So while the meeting was educational and the two CEOs put on a great performance and were very convincing, it is up to the enterprise customer to decide whether these solutions are what they need. Certainly this entire meeting is in line with the concept of just-in-time communications and should hopefully get all the players in the communications space to focus more on adding value to communications.

There is more, much more to discuss, but a lack of time and space keeps me from delving deeper. You see, while the average person might get 50 messages a day, I get far north of 1,000. And until we get all this technology working, I still have to go and answer each of them one by one.