Telecom vendors look to turn tide

It won’t be flash over substance as the telecom industry descends on Atlanta for next week’s SuperComm 2002. Having new customers to brag about might prove more valuable to vendors than any breakthrough product on the show floor.

The bad economy that has slammed the telecom sector has vendors desperate to prove they have the products that service providers want and that will ultimately let them offer more advanced services such as voice over IP (VoIP) or more efficient DSL offerings. No fewer than a dozen vendors are using the show to announce customer contract wins. Others such as 3Com Corp. and VocalTec Communications Ltd. will be rolling out products, including a spate of softswitch, DSL and ATM gear that could translate into new customer services.

Among those announcing customers are Adtran, Aravox, Catena Networks, CommWorks, Gamma Projects, Integral Access, LightPointe and VocalData, giving them bragging rights for selling their products to penny-pinching service providers.

“Everyone is scrambling to say, ‘I have something carriers want. This is something they’re willing to spend money on,'” says Christopher Nicoll, vice president of telecom infrastructure at Current Analysis. On the carrier side, the goal seems to be finding a way to boost profits by delivering traditional services to business users less expensively now rather than spending money on gear that might create new services and revenue down the road, he says.

Start-up SnowShore Networks, which makes media servers that process service applications in phone networks, will announce that it has signed up competitive local exchange carrier Z-Tel as a customer. In this case Z-Tel, a $276 million provider in south Florida, is doing more than just offering traditional services using less-expensive infrastructure. It is embracing SnowShore’s gear and IP voice technology to offer services such as Web-enabled voice conferencing and voice portals that allow access to e-mail.

That is a key announcement for SnowShore, says Christin Flynn, an analyst with The Yankee Group, because it demonstrates a service provider’s belief in new technologies and new services. “A lot of service providers are focused on improving their operational efficiency, cost cutting and workforce reduction, but the bottom line is their customers haven’t gone away. These providers are struggling to see how to make money off new services,” Flynn says.

David Penny, vice president of marketing and business development at SnowShore, says that for a start-up like his, announcing a customer can be as important as announcing a new product. “It’s critical proof that people need what you are building,” he says.

And that is the kind of news that investors hope to hear at SuperComm. “The main buzz is on getting those early customers,” says Mike Feinstein, a venture capitalist with Atlas Ventures. Even during these tough times, venture firms have kept the faith by ponying up billions of dollars for start-ups that make service provider gear. During the first quarter of 2002, the top 10 venture networking investments went to carrier equipment start-ups – a total of $649 million, according to a quarterly survey by PricewaterhouseCoopers and Venture One.

Change is necessary

Outside the show, there are other signs that changes necessary for a financial turnaround are starting to happen. For instance, Juniper Networks last week bought Unisphere Networks, an indication that consolidation is taking place in the carrier edge router arena (see related story, page 71).

That segment of the market is so bleak that one analyst regards it as a good sign that carrier edge router sales dipped only 8 percent between the fourth quarter of last year and the first quarter of this year. “Edge aggregation is pretty hot in a pretty cold area,” says Kevin Mitchell, an analyst with Infonetics Research. Core router sales dropped 24 percent for that same time period, he says.

There are other signs that telecom vendors are scrambling. For example, spending this year among the top seven U.S. carriers is projected to be $43.9 billion, which is about 17 percent of their projected revenue, slightly higher than their historical annual spending range of 10 percent to 15 percent of revenue, says financial firm C.E. Unterberg, Towbin. But that is still “well below the 30 percent peak frenzy in 1999/2000,” for the four regional Bell operating companies plus AT&T, Sprint and WorldCom, says an Unterberg report. This number includes recent cuts that reduced spending projections by 25 percent, Unterberg says.

Genuity this year will spend half of what it did last year on network equipment, said Steve Blumenthal, the company’s CTO, who spoke at a telecom conference in Boston last week. Genuity’s buying will focus on equipment that can support better service features such as service-level agreements, usage reports and faster provisioning.

The downturn in the economy seems to have slowed the development of advanced services such as metro Ethernet that business users need, and that is a concern to Richard Nelson, director of computing for the Information Sciences Institute (ISI) at the University of Southern California. ISI searched for metro Ethernet services but could find none, so is forced to lease fiber to create its own MAN.

Nelson says service providers can’t delay embracing new technologies and services. “The carriers need to understand that the industry is changing, and it’s getting more competitive,” he says. “They’re just going to be sidelined . . . unless they realize that.”

Smaller turnout expected

All the cutbacks in the real world are reflected in SuperComm by the number of exhibitors and the amount of space organizers have rented. Until last year, the number of exhibitors at the show had been growing at 20 percent per year for the three previous years. But the 2001 show was just 2 percent larger than 2000’s, and this year’s is anticipated to be actually smaller than last year’s. In 2001, the show featured 853 exhibitors spread over 537,000 square feet in the World Congress Center as well as the neighboring Georgia Dome football stadium. This year 800 vendors will exhibit in 500,000 square feet without tapping space in the dome.

“A lot of these companies don’t exist anymore,” Flynn says, explaining why some exhibitors have melted away. More than a dozen service providers, including Global Crossing, McLeodUSA, PSINet and Yipes Communications, filed for bankruptcy protection since the last SuperComm.

Many companies that survived but can’t afford a booth at SuperComm will be lurking in nearby hotels and luring potential customers away from the show for private meetings and demonstrations, Flynn predicts.

SuperComm will feature a long list of educational sessions that will include a debate about the best use of various broadband access technologies to network small offices and home offices into corporate networks. Network World’s Broadband Showdown will pit representatives of cable modem, DSL, fixed wireless and satellite services against each other to demonstrate the merits of each. Ultimately, end users are less concerned with the underlying technology than with price and what other services can be added on top of the broadband link, says Amy Harris, an analyst with IDC who will help moderate the showdown.

New products will abound

Still, the show will yield a raft of new products and upgrades with a bent toward the practical:

— All Optical Networks is demonstrating its Metro Scout optical multiplexer that shifts the wavelengths of standard 1310-nm optical channels so as many as four of them can be carried on one fiber. The purpose of the box is to give enterprise customers a way to quadruple the capacity of their existing campus or metropolitan-network fiber using optical interfaces on their gear. “The idea is it works with legacy gear. You can add it to existing networks with minimal changes,” says All Optical’s CEO Ralph Bennett.

— Marconi is introducing the ASX 4000M, a smaller version of its ASX 4000 40G bit/sec ATM switch that has the same switching capacity. The company has added new cards for channelized DS-3 frame relay and DS-3 ATM circuit emulation, as well as an adapter card so it can handle cards built for Marconi’s TNX and ASX models.

— Catena, Nokia, One Access, U.S. Robotics and Xyzel all are introducing DSL gear ranging from customer site integrated access devices to service provider aggregation multiplexers. This equipment can be used to deliver broadband DSL services to users more efficiently.

— 3Com will announce an alliance with Atrica to provide customer site Ethernet switches to go along with Atrica gear as a way to let carriers provision Ethernet metropolitan-area network services.

— VocalTec is introducing new features for its Series 3000 softswitch, including call routing based on time of day or week, better interoperability with Cisco VoIP gear, and reduced delay between the time a caller punches the last digit and the time the phone rings on the other end. These capabilities can translate into services that let businesses integrate their corporate IP phones with public networks and get services with quality as good as traditional circuit-switched voice.

— Also in the area of packet voice gear, MetaSwitch will roll out VP3500, a new voice switch with local calling features. It will support traditional voice calls, voice over ATM and VoIP, letting businesses converge their voice and data services on carrier packet networks.

— Similarly, Santera will debut a packet-based voice/data switch with local switching and backbone trunking capabilities. The new gear will support up to 200,000 voice calls, the company says.

— Aplion is wheeling out a new version of its customer premises and carrier point of presence gear called Virtuoso 3.0 that supports quality of service on an application level and streamlining service provisioning via a point-and-click management software interface.

Senior Writers Phil Hochmuth and Michael Martin and News Editor Bob Brown contributed to this story.