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As foreboding as a dark funnel filling the sky, Wall Street rose over
technology stocks and touched down with a vengeance, tearing through
sector after sector, meting out corrections and punishments, leaving more
than a few companies bruised and battered in its wake. Shivering inside
the Red Cross blankets, dot-coms were left to stare blankly at wrecked
dreams of quick, easy riches. And carriers wandered about, hoping to round
up their thinning cash cows, which the financial storm carried away with
almost dismissive ease. But as devastating as the storm has been, thoughts
will eventually turn to rebuilding. And the rebuilding phase should prove
stimulating to equipment and solutions providers, which have, to date,
sustained no little damage themselves.
ASSESSING THE DAMAGE
Close on the heels of the spring dot-com shakeout, the Nasdaq index fell
40 percent between March and October. Also, the Nasdaq Telecommunications
index, which chronicles the fortunes of equipment manufacturers and some
of the newer telecom companies, fell more than 50 percent from 52-week
highs.
Narrowing our focus yet further to look at the leading DSL companies,
we find companies such as Covad, Northpoint, and Rhythms Net Connections
trading at around 30 percent lower than their previous year's highs. And,
as mentioned earlier, technology providers also got caught in the bearish,
telcom-averse trend. Lucent Technologies, after lackluster results in the
circuit-switched and optical equipment segments, fell more than 75 percent
from 52-week highs. It was hardly coincidental that the company soon fired
its CEO.
Even Nortel, which had fared better in the optical segment, was
punished after it announced lower-than-expected earnings. The company lost
a quarter of its value in a day. Finally, some analysts speculated that
Cisco could also face difficulties, and that a prolonged stock slide could
complicate the company's course of aggressive acquisition, the means by
which Cisco prefers to enter new markets.
SHORING UP WEAKNESSES
While analysts may argue endlessly over the causes for the downturn, and
whether the downturn was indiscriminately destructive, it appears that the
unease which started it was justified. This unease, which focused on the
high-flying dot-coms, eventually encompassed the volatile consumer
technology segments, already in turmoil over Microsoft's legal battles, as
well as the uncertain telco space, where the consequences of deregulation
and competition are anything but clear.
By now, the dot-com malaise is old news. Spending freely to gain
marketshare is out of style, and all anyone cares about now is the dreaded
R word -- revenues. Accordingly, the dot-coms are rethinking their place
in the world. The result, by most accounts, is exactly that: the dot-coms
seem more willing to be a part of the world, as opposed to floating
virtually above it.
More and more, e-commerce emphasizes immediacy, interactivity, and
satisfying customer preferences, including preferences for communications
mediums. And if that means e-commerce must now encompass voice and fax as
well as mouse clicks, so be it. Basically, e-commerce intends to
strengthen itself by building bridges to the old, reliable (and reliably
profitable) call center. Nowadays, the buzz is about the Web-enabled call
center, or voice-enabled e-commerce, or eCRM. This focus is also
influencing developments in wireless, where location-dependent services
and Web-style "push" techniques are all the rage.
The R word also rears its ugly head in the carrier space. Here, the
question is, where will new revenue come from, if dial tone and
long-distance are to be given away for free? And how will telcos meet
growing demand for bandwidth if their revenues fail to support the
necessary network upgrades?
For better or worse, the hoped-for answer to these questions is
services, meaning interesting bundles of familiar services, or the
introduction of novel, value-added services. Proposed services range from
the dynamic allocation of bandwidth to the hosting of business
applications. However, it is unclear which services might attract paying
customers. And, in the case of hosted applications, it is unclear exactly
where those applications might be hosted.
Will applications be hosted by a proliferating collection of
application service providers (ASPs) in a horizontally organized market,
in which larger service providers would be willing to rely on these
entities as outsourcing partners? Or might the larger service providers
buy up the smaller ASPs in an attempt to create vertically integrated
structures? Both trends may proceed simultaneously, creating a
telecommunications market resembling a shopping mall which would include
both small boutiques (that is, independent ASPs) and large department
stores (that is, large telcos and carriers).
But no matter how the market shapes up, it will have to be supported by
a revamped public infrastructure. This new infrastructure, often called
the next-generation network, is characterized by a shift from
circuit-switched technologies to packet-based technologies, as well as a
shift from highly centralized to highly distributed means of service
creation and delivery. This new infrastructure presents a lucrative
challenge, inspiring feverish efforts by a host of technology and
communications solutions companies. Proposed solutions supported by the
new infrastructure range from voice portals -- the merger of Web and phone
-- to IP media servers supporting myriad messaging services, prepaid
plans, and business applications, including IP versions of Centrex.
FUNDAMENTAL STRENGTHS
Just as the nation's heartland accommodates thriving communities and
profitable enterprises -- despite the certainty of the occasional tornado
-- so does telecommunications accommodate thriving market segments and
profitable technology, solutions, and services providers -- despite the
certainty of the occasional whacking from Wall Street. Settlers didn't
abandon portions of the midwest when they learned how destructive
tornadoes can be, and investors won't abandon telecommunications after one
downturn, or even many downturns.
Telecommunications remains sound simply because the fundamentals, the
underlying technologies, demonstrate continuous gains across the board,
from memory to processing to fiber to radio bandwidth. Moreover, much new
ground remains to be broken. In North America, we're just beginning to
build the new public network. Abroad, much infrastructure needs to be
created from scratch. Just think: Enormous numbers of people in the world
have yet to make their first phone call.
It is true that telecommunications presents many uncertainties.
However, these uncertainties are typically at a level that concerns
individual vendors or service providers, who consequently devote a lot of
effort (and rightly so) to how they position themselves. At this level,
the success or failure of any particular technology or any individual
company is anything but certain. But, in the aggregate, telecommunications
is poised for substantial, long-term, worldwide growth.
Sometimes it may seem that the wealth of options before us might
actually delay the inevitable success of the industry. In the wireless
arena, will WAP (wireless application protocol) popularize the wireless
Internet, or will something else? Will communications ASPs remain
independent, elaborating new value chains, or will they be absorbed by
incumbent telcos? Will broadband access be accomplished predominantly by
DSL, cable, or fiber, or some combination of all these, plus wireless?
Some might argue that questions such as these, unresolved, divert and
dilute the talent pool, as well as investment. Or, you might conclude (as
I do) that all this activity contributes to the creative ferment that
makes telecommunications so exciting, so full of possibilities.
MISGUIDED MARKETING?
While researching this article, I encountered an interesting comment
in an otherwise unexceptional news piece. The comment -- telling in the
manner of obiter dicta -- suggested that investor enthusiasm was cooled by
companies that devoted more of their marketing efforts towards combating
each other, as opposed to demonstrating the value of their offerings to
their customers.
Somehow, this observation rang true. Granted, positioning is essential.
Sooner or later, every company has to define and articulate its position
with respect to its competitors. But positioning statements vary so
frequently, and have such limited range beyond a single company's purview,
that the world quickly grows weary of them. Somewhere, sometime, someone
has to articulate a broader view, a more encompassing purpose, a greater
meaning. Then, the promise and the power of telecommunications, and
communications solutions, will arouse interest, attract talent, and win
economic support, both in terms of investment and sales.
IN IT FOR THE LONG TERM
This publication, which is interested in the long-term success of
telecommunications -- in what it can accomplish for business, for the
economy in general, and for quality of life -- endeavors to serve as a
forum in which both specific and general information can be conveyed.
Specific in the sense of what is concrete and timely and even
controversial, general in the sense of overall trends, the common pursuits
that lend coherence to what might otherwise appear chaos. Perhaps most
important, we're alert to opportunities to articulate relationships, or
potential relationships, between technologies and real human and business
needs.
Finally, when looking towards the future, we occasionally indulge a
speculative frame of mind. While that may sound frivolous, sometimes few
things are as important. After all, new technologies and applications, as
works of the mind, may benefit from an exercise of the imagination, and a
willingness to question old habits of thought. For example, we think it
would be a shame if in creating the new public infrastructure, we were to
simply replicate the old network's capabilities, without giving enough
thought to the unprecedented capabilities new design assumptions might
allow. Why burden client devices with unnecessary limits on their
intelligence, simply because we might feel comfortable with dumb phones?
Why impose artificial constraints on the subscriber's ability to meddle
with the network?
And, in the case of customer premises equipment, why think in terms of
boxes? Just because something is called an IP-PBX doesn't mean it's an IP
version of a standalone PBX. If we can avoid taking our own terminology
too seriously, we might more easily recognize that an IP-PBX is just a
piece of software for call control running on some server, working in
conjunction with an appropriately configured firewall, a router, and IP
phones. The point is, we might more easily recognize new possibilities if
we suspend old assumptions.
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Enduring Fundamentals,
Persistent Challenges
In my column this month, I'm clearly bullish on
communications solutions, being quick to cite the industry's strong,
positive fundamentals. But I would be remiss if I didn't also discuss the
challenges ahead, and how they might be overcome. The key challenge, I
think, is the tendency for any innovation to ultimately become a
commodity. This tendency, with deregulation and heightened competition,
changes the way we think about communications products and services.
In the traditional network, innovation was slow, but the
revenues were predictable and stable. Now, however, revenues for new
services are pressured ever downward, even to the point of giving them
away. So, new services are needed to replenish the shrinking revenue
streams of existing services. Merely improving existing services probably
won't suffice.
And where do new services come from? In a word, solutions.
Now, you might say a solution is just a fancy word for a product or
service. Not quite. To qualify for the label solution, a new offering must
offer something unprecedented, in some dimension. I outline a few possible
dimensions in the following:
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"Bundled" Solutions: A more or less
customized array of functions suited to a user's particular needs,
something that is (in some sense) pre-integrated -- that is, it
combines previously disparate functions, obviating certain kinds of
integration chores. (We could also suggest that an integrated solution
delivers "more than the sum of its parts.") For example,
platforms that combine broadband access with phone system
functionality.
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"End-To-End" Solutions: These
facilitate a linear or circular (or, at any rate, a continuous)
sequence of network elements or business functions. For example, the
implementation of a front-end/back-end solution, as in customer
relationship management. Or, a solution that encompasses access,
concentration, and switching/routing, as in a service provider
deployment.
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"Enabling" Solutions: Technologies
and applications that enable specific business moves, such as growth,
acquisition, centralization, decentralization, and outsourcing of
network-based operations. Also: new ways to deliver improved service,
add value, and reduce costs.
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Multivendor Solutions: The piecing together
"best of breed" components into a workable system.
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Vertical Solutions: This sort of solution
implies a focus on a particular vendor segment. We might, for example,
look at VARs that tweak general-purpose platforms to enhance
performance in areas such as healthcare, legal services, financial
services, etc. Moreover, we could say that a "full solution"
addresses all of a vertical industry's value chain needs, from demand
forecasting to back-office order processing. (We're getting back to
CRM here.) That is, we could these kinds of solutions and platforms
reduce the friction and inefficiencies of the current B2B value chain,
perhaps through greater collaboration and strategic use of the
Internet.
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