Survival of equipment providers depends on six key factors, American CEO states

The upheaval in the telecom market has people questioning how equipment manufacturers can survive. Last month, Charles Kenmore, president/CEO of ANDA Networks of San Jose CA, spoke to the Next Generation Networks 2001 conference in Boston. An edited version of his remarks follows. We believe that at least four trends are shaping our industry today: technology substitution; conversion; extension—making better utilization of switching and transmission networks; and finally, cost reduction. But the greatest of these right now is cost reduction. While we are seeing some deployments toward softswitch and new access technology, the key focus is on getting more out of legacy class 5 switches and making the existing plant more cost effective. The business model has changed. Previously, development was the highest cost, and highest added value, for a startup. Intellectual property equaled value creation. Companies went public or were acquired with few, or any, customers or revenue. Today in the ILEC space, customer acquisition and support are the highest costs. ILEC customers and revenue equal value creation. Scale is essential. Successful entrants will likely merge with other firms with synergistic products to broaden their product portfolios and amortize the high cost of ILEC customer acquisition and support.How have next-generation access equipment providers responded to this changing business model? Many who developed a CLEC-centric platform are under severe financial stress, or have gone out of business. Those who developed a CLEC platform had to go through a total restart mode, from a product and sales perspective, to address the ILEC market. For them, the key factor was did they raise enough money to make the transition. Finally there are firms like ANDA, and several others that intended from day one to address ILECs as their eventual, primary customers. If CLECs are no longer the key target market, we believe that the ILECs—itcos, rural telcos and RBOCs—certainly are. This begs the question: what would ILECs like to do for access products? In our view, left to their own choices, North American ILECs would retreat to working with Lucent, Nortel and Alcatel, their three traditional access suppliers, plus one middle tier supplier. For access products, ILECs have been traditionally committed to a multiple source strategy. Is this a realistic option? What are their choices? Nortel has sold off its access division, including Promatory, UE9000, and Access Node. Lucent has determined that access products are no longer among their top priorities. Of the top three, only Alcatel, at this time, is fully committed to its access products. From ANDA’s perspective, the middle tier "want-to-bes" are Siemens, Marconi and Advanced Fiber Communications (AFC). The new multi-services group also includes candidates for one or two of these slots. But who they will be is anyone’s guess. This group includes ANDA Networks, ASC, CopperCom, General Bandwidth, Jetstream, Tollbridge, Zhone and others. Considering the new players from the previous discussion, what are the characteristics of those who are likely to be selected by ILECs? Folks, I can’t tell you who the winners will be but I can tell you about six characteristics the winners are likely to have. They will have products that save money today on existing legacy networks in addition to enabling new services in the future. They have carrier-class products that are fully compliant with existing ILEC back office OSS and network management systems, e.g. OSMINE, TIRKS, NMA. They have financial stability. ILECs will buy products, not underwrite balance sheets. Their sales organizations are familiar with ILEC procedures, policies, organizational structures and network topologies. They have an installed base carrying live revenue generating traffic. ILECs are reluctant to be the beta test sites for unproven technology from new equipment vendors. And finally, they are fully capable of providing support for EF&I during the pre-sale period, and 24/7 support post sale.

Survival of equipment providers depends on six key factors, American CEO states

News | December 5, 2001

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