Ericsson (News - Alert)/Marconi. Alcatel (News - Alert)/Lucent. Nokia (News - Alert)/Siemens (News - Alert). Mergers are sweeping through the Network Equipment Provider (NEP) industry because of three forces at work. The first two trends are familiar to any student of mergers and international trade. The first is the ongoing consolidation among the NEPsï¿½ customers ï¿½ communication service providers. NEPs are simply responding to the fact that there are now fewer buyers with greater purchasing power for their products. Secondly, low-cost international competitors based in China have emerged and caused fierce price competition. However, it is Fixed/Mobile Convergence (FMC), which is driving the greatest transformation in the NEP sector ï¿½ a force not well understood both outside and inside the industry.
FMC marks an evolutionary step in the communication industry. To effectively compete, NEPs will need to reorganize from their traditional, vertically-integrated structure to a more horizontally focused and globally scaled business. Additionally, they will need to adapt to the emerging FMC ecosystem that relies on interoperability and partnerships with smaller start-ups that are actively forging innovative hardware, applications, and services for communications customers.
A corollary to the changes in the NEP industry is found in the series of transformations that the computing industry underwent over the last 20 years. Computing quickly moved from vertically integrated mainframe and minicomputer companies to stand-alone PCs, and finally to a networked computing architecture. Over that period, many once-proud mainframe and PC companies ended up in the ash bin of history. The new winners, such as Microsoft (News - Alert) and Intel (News - Alert), focused on select components of the computing solution, achieving global scale that supported the massive investment needed to push their products beyond capabilities of competitors, and actively establishing standards for interoperability between components and across networks.
In the past few years, these open computing standards and the Internet have impacted the NEP industry. Not only have NEPsï¿½ products started to resemble traditional computers, running on server technology, but also the NEPs themselves have started a similar horizontal industry transformation. Communications and computing are colliding, and NEPs are in the midst of reconstructive surgery that will leave them looking more like their computing cousins.
Fixed/Mobile Convergence is accelerating that transformation. It is based on Internet protocols that seamlessly enable voice and data communications across home, mobile, and work. Within this new environment, different suppliers have deployed a mixture of equipment in the legacy fixed and mobile networks. FMC requires interoperability across all this equipment ï¿½ from the handset, to a converged fixed/mobile core network, and on to the innovative applications that will change how customers think about communications. Additionally, since end users will demand access to a wide variety of different devices and applications ï¿½ provided both within the service providersï¿½ walled garden, and out in the innovative world of the open Internet ï¿½ vertical integration can no longer be the dominant business model.
Instead, the NEP industry is merging and disaggregating to achieve horizontally specific global scale. With interoperability, handset manufacturers no longer must be tied to the core network infrastructure developers. Once they have spun off their non-core assets, most NEPs will focus on and invest in the key components of the emerging next-generation network architecture: IP Multimedia Subsystem (News - Alert) (IMS). This segment is the control plane of the new core network (including HSS and CSCFs). The control plane is important because it determines which access networks, applications, and devices can be brought together to form FMC services. Achieving dominance in the control plane, combined with the pre-existing radio access strategy to capitalize on IP delivery via WiMAX and 4G broadband wireless technologies, represents the long-term product strategy of NEPs.
A focus on having sufficient scale to dominate the control plane and radio access parts of the network is driving the recent NEP mergers, and is resulting in the formation of a new horizontally layered industry model. In this model, multivendor interoperability across the layers becomes a critical success factor. Industry groups such as MobileIGNITE are actively pursuing FMC interoperability. With 45+ innovative convergence companies representing FMC applications, devices and device software, convergence elements, media path, WLAN, security gateways, and interoperability testing organizations, MobileIGNITE provides a ready-made process for NEPs to quickly achieve the necessary interoperability to make the new horizontally layered FMC industry structure successful for them. NEPs simply have to nurture these groups and fashion a solution that represents best-in-class across that ecosystem. NEPs must negotiate partnerships with smaller application developers, and effectively market FMCï¿½s new value
propositions to the communications service providers and their customers.
Transformations can be painful, but in the near future, customers will be reaping the rewards of innovations spawned by FMC. The NEPs that will survive will move quickly to react not only to fewer buyers and international competitors, but also embrace and actively advance the new industry structure that is coming with Fixed/Mobile Convergence. IT
Sanjay Jhawar is Senior vice president of marketing and business development at BridgePort Networks. For more information, please visit the company online at www.bridgeport-networks.com.
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