Wednesday, April 11, 2007

Carriers Innovate Because They Have To

I wasn't the only one at the Voice Peering Forum recently who was struck by the sudden lead some European telcos have taken in their transformation efforts. BT actually is growing customer counts and revenue in its tough mass markets segment, for example. To be sure, some of the progress is born of necessity. As Carlos Dasilva, France Telecom Americas region marketing director notes, "we had to move aggressively because the regulators are killing our business." And though she didn't specifically make the same point, BT has had to strike out on some very innovative paths precisely because it was forced to do so. But a significant turn in the direction of flexibility (an internal requirement, perhaps) and openness (more important for third party application providers) is going to pay dividends for end users, who "aren’t waiting" for regulators to set rules and service providers to start giving them what they want, Anna Boukovskaia, BT head of market development, said.

Which isn't to say regulatory action is inconsequential. Quite to the contrary, regulatory ground rules always always always create the preconditions for all revenue generating activities in the public and private network spaces. Deutsche Telekom and Telstra, for example, find regulatory demands so onerous they simply have refused to build new optical networks, because they aren't sure they will earn a return on the investments. Credit aggressive wholesale requirements for the concern.

Paradoxically, hammering by regulators is largely responsible for the innovation now being shown by the likes of BT and France Telecom (Orange). But the changes come at a serious price. France Telecom is laying off 20,000 people. If you know France, you know how unusual that is, and how powerful the need for change therefore is. Keep in mind there are multiple forces at work here.

Regulators, technology and capital markets normally work in tandem to create markets. They also can work in tandem to change them. What less often occurs is that end users change the markets. But that is precisely what is happening now.

To be sure, the legacy markets were going to change, in any case, because of regulatory shifts, technology advances and capital availability. What is highly unusual is the impact actual consumer preferences now are having. Text messaging was an accidental success. Nobody really claims to have "always believed" that short message service would be such a big revenue driver. Carriers and service providers did not create this market: end users did. So Boukovskaia flatly says "we don't know what the next killer app is going to be."

Notable is BT’s commitment to take all voice and data services at the edge and deal with everything as IP and Ethernet. Every voice line is converted to VoIP right where the copper pair is terminated. All 30 million of them. DSL services are provided from the same linecard. There’s no separate DSLAM, POTS termination, SONET/SDH Add Drop Mux.

Fractional TDM based Frame Relay and IP services are packetized and bundled right at the POP. If it isn’t TDM leased line (E1 or bigger), it gets packetized and sent through the core using MPLS.

A dramatically simplified network results.

Going forward, TDM as an enterprise access technology is over in the United Kingdom, at least as far as BT is concerned. BT embeds the VoIP functionality as close to the customer as possible. This has the effect of reducing network elements.

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