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The TeleChoice Take
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We’re often asked if we see "the light at the end of the
tunnel." However, the reality is that, instead of one bright spot, we
see a "thousand points of light." (OK, maybe not a thousand, but
we’re pretty happy with a dozen or so...)
Bottom line -- we don’t expect the industry to make a broad
recovery anytime soon. This week's news out of Jackson, MS
certainly underscored the continued "darkness" at even the
largest companies in the industry. In fact, with the possible exception
of Cisco, all of the industry’s major players still have significant pain
in front of them. Some (probably not WorldCom) may see stock
price recovery, but only because they have been over-discounted.
No major players are on the verge of tremendous performance.
However, this industry has never been "led" by the huge
players. Instead, it is the small, innovative, nimble players who will
set the direction and the pace of the industry. It was the rapid failure
of many smaller players that "led" the industry into its current
downturn, and we are very encouraged by the emerging points of
light in the smaller corners of the industry, which we hope will lead
to broad industry recovery. But keep in mind that this industry is a
big fleet dominated by big ships, and big ships and big fleets
turn slowly...
Current Situation
Obviously, the industry is in tremendous pain. A quick review of
news since the beginning of the year uncovers Chairman-, CEO-,
or President-level turnover at WorldCom, Verizon, Qwest, Lucent,
AOL, Microsoft, Sun, Tyco, MFN, Yipes, Adelphia, McLeod, and
many others. The list of bankruptcies is too depressing to repeat.
We could discuss the underlying drivers for this pain, but we’d
rather focus on the positive factors that will (eventually) drag
the industry into recovery.
The Good News
Some undeniable truths create a positive future for the
industry:
- People and companies are more dependent than ever
on communications and technology.
- The amount of traffic sent over networks continues to
increase dramatically -- anywhere from around 40% to
200% (tripling) growth every year.
- This means carriers need to dramatically increase the amount
of capacity in their networks. Even if you are in the camp that
believes there’s an overcapacity situation today, a doubling or tripling
of traffic will rapidly consume any overcapacity.
The fundamental challenge for the industry is how to handle
this increasing demand -- specifically how to translate this
increasing demand into increasing revenues or to handle this
increasing demand without increasing the cost of carrying that
traffic.
In the last TeleSparks, we dealt with the financial challenges this
creates for service providers and the actions the industry needs to
take to deal with these challenges. However, this also points to the
near-term opportunities for the technology companies that
serve carriers:
- Carriers and service providers need to increase the capacity of
their networks. This translates into purchase orders for
transport equipment and data networking equipment (switches,
routers, etc.).
- As carriers and service providers make these purchase decisions,
they must find ways to meet this increased demand at a decreasing
cost per bit. This translates into opportunity for vendors to displace
the incumbent technology vendor.
- This need to drive efficiency also creates opportunities for
vendors that can squeeze efficiency out of the network (e.g.,
traffic engineering and network optimization vendors) or
drive incremental revenue from the same amount of network
capacity (e.g., vendors that enable new, higher-margin
services).
These are real opportunities with real dollars. Unfortunately for the
large technology players, these opportunities are either cannibalistic
to existing business with current customers or a relatively
small percentage of a really big financial problem, so we don’t
expect these opportunities to result in rapid recovery for the
industry’s largest players. However, these opportunities represent
huge wins that can quickly establish younger, smaller
technology players. We eagerly anticipate watching these bright
points of light as they emerge over the next six-to-twelve
months.
Furthermore, we see new opportunities developing from
emerging enterprise needs:
- Enterprise customers are driving as much cost out of their
network infrastructures as possible. This translates into opportunities
for both service providers and technology companies in the areas
of managed services, integrated access/convergence,
traffic compression, and network optimization.
- Obviously, there’s also tremendous new interest and
concern surrounding network security and disaster recovery.
Vendors and service providers have a unique opportunity to
participate in the education of enterprise decision-makers as they
face these issues for the first time, even as they have to rapidly
deploy security and disaster recovery solutions.
- Increasing reliance on networks has created tremendous
concern among enterprise customers over the re-monopolizing of
the local loop. This concern is countered by emerging competitive
local service options including optical Ethernet, wireless
Ethernet (802.11), and broadband wireless solutions. This
also translates into tremendous opportunities for technology vendors
in these areas, as well as other access technologies including
Passive Optical Networking (PON).
As with carrier technologies, these are real opportunities with
real dollars being spent this year. We eagerly anticipate a number
of bright points of light emerging as smaller and younger players
in these spaces begin to see tremendous success later this year and
into 2003.
The Bad News
Unfortunately, we don’t believe these dozens of points of light
will translate into a broad industry recovery in 2002 and maybe
not even in 2003. However, we continue to be encouraged by
this building momentum. As eternal optimists, we rejoice with
each major win and join with our industry friends as you celebrate
your individual successes.
We also recognize the hard realities facing these potential bright
points of light:
- The surviving service providers, for the most part, are moving
more cautiously and operating with smaller staffs, less capable
of evaluating new technologies and new vendors. It’s as hard as
ever and slower than we would all like for a better solution to
displace the current one.
- Although enterprise customers look to reduce their costs,
they similarly have to do so with reduced network
staffing. Straightforward one-time exercises, such as grooming
no-longer needed circuits out of the network, are relatively
easy decisions. Complex technology solutions will be a much
harder sell -- especially in the face of another painful reality --
the abundance of cheap bandwidth that can be thrown at many
other problems.
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What's Next?
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What Can You Do?
We strongly encourage you to stop and consider the implications of
this situation on your business. Specifically, consider these key issues:
- If you’re a carrier or service provider, are you seriously
considering the ways to profitably carry increasing amounts of
traffic? No decision may be the easiest decision today, but failing
to uncover new technologies from new vendors that can
dramatically reduce your cost per bit carried or that can
drive incremental revenue opportunities is short-sighted at
best.
- If you’re a technology vendor focused on carriers, are you
positioning your products effectively to displace the incumbent
vendors? Have you made the compelling and clear case to your
service provider customers of the short- and medium-term
financial benefits of switching from their current network approach
to your products? From our work in the industry, we know that
virtually every vendor has developed some form of ROI tool;
however, we’ve seen many come up short in actual use. How robust
and credible is your tool? How well does it stand up to the questions
and challenges thrown at it by your potential customers? If
an overworked, overwhelmed customer can find any reason
to say, "those numbers don’t fit my operation" or "I have no reason
to believe that analysis," then you might as well move on to the
next customer -- the door has slammed shut.
- A greater challenge, if you’re in this camp, is making sure
your solution is relevant within the total context of your target
customer. Your solution may represent a 1,000-fold improvement
in how a service provider performs one part of its operations.
That’s great! But if that one part is only 1% of the total problem,
then the pain is insignificant and you won’t even get past an
initial discussion (if you’re lucky enough to even get that). Make
sure you’ve put your solution in total context -- both in your
messaging and in your impact analysis. If that doesn’t position you
well, then maybe you’re targeting the wrong customers, or maybe
you don’t really have a solution that will be a "point of light" in
the current environment.
- For both carriers and technology vendors, are you effectively
pursuing the opportunities represented by the new
enterprise requirements? Have you launched products and services
that meet their needs for network efficiency, cost reduction,
network security, and disaster recovery? Is your solution simple
enough to be evaluated and implemented by
overextended, understaffed networking groups?
- If you’re in the specific group targeting enterprise security
and disaster recovery solutions, are you leveraging today’s
unique opportunity to educate/indoctrinate a target customer
market hungry for answers in how to safely operate
mission-critical networks in the face of uncovered risks and
threats?
The ability to cut through the confusion and fear in the marketplace,
to clearly communicate the value of your solution, and to position
your products and services effectively in the minds of your
customers has never been more critical. Let us know if we can help.
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Need Some Help?
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TeleChoice helps companies everyday better position their firms
and products for success, whether re-examining fundamental
business strategy or clearly communicating unique position and value
in today’s tough marketplace. Contact us at info@telechoice.com. +=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+=+
About TeleSparks: On occasion, we share with our industry friends
our views on major events and issues in telecom. We use TeleSparks
as the primary vehicle for sharing these (usually highly
opinionated) views, and we welcome your feedback. Feel free
to forward these on to others, but please copy us on the messages
so we have a sense of the extent of distribution of our
views. TeleSparks is generally authored by Russ McGuire,
TeleChoice Chief Strategy Officer, with input from others throughout
the TeleChoice organization. You may contact Russ
(rmcguire@telechoice.com) or your favorite TeleChoice contact
to share your thoughts on these matters.
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TeleSparks (Archive)