Through the Pipe:
Survival Strategies for Today's Carriers
from the June 4, 2001 issue of Broadband Week
Naser Partovi is a managing director at Enterprise Partners Venture Capital. Partovi has over twenty years of telecommunications and optical networking experience and joined Enterprise from Nortel Network's optical networking business unit. He can be reached at naser@ent.com.
Today's carriers are buried under a pile of debt and how they solve this debt will be key to their survival. From 1996 to 2000 there was a borrowing binge
that culminated in 2000 with carriers spending $34 billion more than their free cash flow. With capital markets frozen, carriers have only two ways to solve this problem--either raise revenues fast or significantly reduce costs.
The first is the revenue-raising conundrum. Carriers either need to figure out how to add new revenue-generating services or add new customers for the same services they offer today. The former is a lot more difficult than the latter.
While payoffs from innovative new services can be huge, creating new services is very difficult. It requires cooperation of many equipment vendors and service-creation platforms that do not already exist. Furthermore, it takes evangelists to create market demand for new services.
Alternatively, carriers can target new customers with their current offerings. There is a huge demand for reliable high bandwidth service, especially with less than 5 percent of businesses connected via fiber. It seems that the first rule of fiber is that it is not where your customers are. Many billions of dollars of backlog revenue cannot be booked because carriers cannot connect their customers in a timely fashion.
Free-space optics and second-generation Local Multipoint Distribution Service (LMDS) provide potential solutions. New optical switches that simplify bandwidth provisioning and reduce provisioning times from months to minutes also allow carriers to connect new customers and to book revenues faster.
The second solution is to reduce costs. Carriers have two elements to their cost structure--capital expenditures (CAPEX) and operative expenditures (OPEX). CAPEX is about 30 percent of the overall cost and OPEX is generally the other 70 percent.
In the case of CAPEX, networks today are just too complex with too many boxes and too many overlays. For example, in optical networks there are too many transponders constantly converting optical to electrical and back to optical signals. What are needed are disruptive technologies at the component level to significantly reduce cost and increase functionality and density. At the equipment level, carriers need help simplifying networks by reducing the amount of equipment and/or bays needed. An all-optical wavelength switch that's agnostic to bit rates and protocols can replace many frame relay, ATM, and IP switches each with many different speed line cards. Furthermore, if a carrier has deployed an ultra-long haul network there is no need to surround these Optical-Optical-Optical (OOO) switches with transponders that basically convert optical signals to electrical and back to optical, just to change the wavelength from 1500 nm to 1310 nm commonly used in such OOO switches. This is insane!
OPEX is impacted by the complexity of today's networks combined with the number of overlay networks, which force carriers to hire armies of engineers to design and operate them. Some engineers design, provision and maintain optical networks, while others do the same with ATM networks, IP networks, video networks, voice (TDM) networks, etc. With a service/bit-rate agnostic optical network at the core and service aggregation pushed to the edge of the network, overall networks can be drastically simplified, thus requiring a lot less engineering talent. With the deployment of Generalized Multi-Protocol Label Switching (GMPLS) across optical switches and edge routers, network operations will be much simpler.
Finally, there is tremendous opportunity to leverage the power of the Internet in simplifying end-to-end processes for carriers. It should not take 11 different departments to hand off and provision a simple caller-ID service on a telephone. It should be a simple Web-based customer provisioning function. No engineers or clerks required. Amazingly, for an industry driven by the growth of the Internet, carriers are the last ones to use its power to simplify their operations and their entire supply-chain-management.
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