It might have taken millions of years of grinding through the evolutionary mud to produce the T. Rex, but an asteroid...
wiped him out in the geological equivalent of a moment. So it is with the telecom industry. Progress may be made through long-lived and (let's face it) boring processes, but sometimes it's a major event that really sets the stage for the future. Even flashy things sometimes have substance.
It may well be that 2007 was a pivotal year in telecom, and a few key events created the pivot. The trends these events started will whirl through the industry for the rest of this decade, and beyond. Here are the top five events that changed the industry. You may or may not like the repercussions, but better to deal with them now and take the appropriate action.
Like all market ecosystems, the telco networking ecosystem is driven by the ebb and flow of dollars, and these five events changed the course of those flows this year, which will cut new channels in the market of the future.
1. Voice services diagnosed with terminal disease. Over the last five years, hopeful operators and vendors had been telling us that maybe TDM wireline voice was dead, but something other than TDM was alive, maybe somewhere like mobile instead of wireline. Wrong. Spell after me: D-E-A-D. Vonage and Skype prove that you can't make next-gen wireline voice profitable. Alcatel-Lucent is proving that if wireless voice is profitable, somehow the service providers aren't using the profit to build more of it.
Sometimes you just have to let go, and the pivot this event creates is the pivot toward non-voice services. With revenue per bit falling by 50% per year, operators should have realized long ago that something that consumed a few crummy kilobits per second wasn't going to provide much long-term financial stability. Well, now they know, and that means starting in 2008, we'll see business planning for a non-voice future, which is good since that's exactly what we're going to have in a financial sense.
2. Apple-Google unleashes a one-two punch at mobile. All the mobile operators were sitting comfortably in their IMS-colored walled gardens expecting that future services offered on mobile devices would be theirs to exploit. Apple's iPhone, which works both on WiFi and standard wireless, showed that handset vendors could create an alternate future. A dual-mode handset empowers municipal WiFi to bypass the mobile operators and forces those operators to recognize that there were strangers in the garden after all.
If they didn't get that point, Google's Android and Open Handset Alliance sure brought it home. Google's alliance promises an open-source mobile device operating system with simply explosive future potential. The wireless operators were offered a choice—lend a hand in promoting a more open future or be rolled underneath the wheels as that future moves forward. There's can be no hiding under-featured data and content offerings under a walled garden's cover now.
Non-voice services from mobile operators will have to compete in a much more open world, and that will create a mobile service revolution beginning next year. Built on what, we might ask?
3. PBT rises to challenge the Mighty MPLS and IP convergence paradigm. Everyone thought they knew the future was "convergence" on "IP," but in 2007 without much fanfare ten of the ten top worldwide network operators decided to take a close look at Provider Backbone Transport (PBT). More of these commitments are becoming public every month, the latest being NTT. Why is PBT popular all of a sudden? Because a lot of people think that IP and MPLS are just not doing the right job at the right price.
If every household in the U.S. paid $40 a month for Internet access, the total revenue generated would be about $52 billion. If businesses paid double that, the total for businesses and consumers would amount to about half the current U.S. service provider revenues.
The Internet isn't what we're building with convergence, people! We're building infrastructure that will generate Internet services and other services that will make up the rest of the revenue pie. Either that, or provider spending will fall by 50% and we'll have industry nuclear winter. But IP supporters are ignoring the needs of the non-Internet services, and PBT supporters have been happy to step in and be relevant. As a result, we'll see some major PBT successes in 2008, as well as some spectacular retreats from IP/MPLS commitments. It won't end in 2008 either; the trend will continue for five or more years.
4. Carl Icahn's pressure on Motorola to break itself up. This industry-changer may sound totally off the wall, but service provider networking is big business supported by big players. Most of these companies have been producing relatively little appreciation in their stocks, despite the fact that some of their business units are experiencing explosive growth, Icahn wants these fast-movers to be spun out to create shareholder value. Needless to say, the companies aren't eager to see this happen. It's not just Morotola either. Cisco and Microsoft have both been mentioned by Wall Street sources as other potential break-up candidates.
Big companies tend to become cash flow machines, moving away from supporting or launching disruptive, exciting, or even interesting trends. Pressure from people like Icahn in 2008 will generate major pressure on the industry's equipment giants to do something truly innovative. That innovation pressure is likely to bring about some major changes, not only in the competitive dynamic but in the equipment market.
5. Cisco buys WebEx in its largest software acquisition to date. The last of our five events might even be a consequence of number four. In 2007, Cisco bought WebEx, a move that was the catalyst of other Cisco software-centric moves, culminating in a software love fest at Cisco's analyst event in early December. With the WebEx move, Cisco is stepping out of being a supplier to the plumbing side of networking and into becoming a direct conduit for revenue-generating services. This will certainly put pressure on competitors to do the same, but the WebEx deal may also have a major impact on how service providers support enterprise users.
WebEx Connect is the golden coin of the deal. This is a software system that lets users integrate business applications with collaboration, and the truth is that the real world works the other way around. Business applications and the ability to create custom views of them through application mashups are the key to productivity enhancement according to enterprises. Mashups are essential to validating the productivity mission for collaboration and creating the context in which collaboration occurs.
Cisco has had the pieces of the network services story—collaboration and mobility and video and so forth—for years, but has lacked the catalytic organizer of it all. With the WebEx deal, it has it, and exploiting the WebEx property will let Cisco elevate new-generation enterprise network services out of the domain of plumbing and into a critical level of senior business management visibility. Senior management controls the budgets, so that's critical. While Cisco seems to target this all at the enterprise buyer, the truth is that it creates what might be the ultimate managed service for the service providers.
About the Author: Tom Nolle is president of CIMI Corporation, a strategic consulting firm specializing in telecommunications and data communications since 1982. He is a member of the IEEE, ACM, Telemanagement Forum, and the IPsphere Forum, and the publisher of Netwatcher, a journal in advanced telecommunications strategy issues. Tom is actively involved in LAN, MAN and WAN issues for both enterprises and service providers and also provides technical consultation to equipment vendors on standards, markets and emerging technologies. Check out his SearchTelecom networking blog Uncommon Wisdom.