telecom service providers

Lack of monetization strategy hangs over telcos/vendors

Huawei’s quarter put it on track as a big gainer in the ranks of major equipment vendors, with fourth place in the bag and second place within its grasp if it can meet its targets. As we said in our Huawei analysis (part of our three-part telecom vendor SWOT series in Netwatcher), Huawei is the winner in the market by default.

Price commoditization of legacy services and lack of credible monetization strategies overall force telecoms to reduce their costs, which moves them to lower-priced suppliers. We believe Cisco’s emphasis on service/outsource models, consumer electronics, blade servers and new market sectors are all reflections of the fact that even Cisco no longer believes telcos will continue to spend on premium vendors.

Certainly the time available to create alternative monetization models for telcos is coming to a close; a big negative step will be taken in May if no credible strategies are available by the spring planning reprise, and the nail in the coffin could come in October with the fall planning cycles.

EU telcos weigh economics of network management outsourcing

The EU says telcos there are weathering the economic storm so far, better in fact than most industry sectors. This contrasts with other stories that telcos are outsourcing network management to reduce costs.

We think that the truth of the situation is closer to the EU version. We’ve found no indication in our surveys that telcos see network management outsourcing as a major path to cost reduction, and if one thinks about the issue, it is clear that unless the outsourcer has better economy of scale than a telco, it’s doubtful that such a move could be a win-win.

What we think is happening is that telcos are realigning their business models based on their current conception of monetization opportunities and risks. In some cases, this demands focus on new areas, and in others it suggests that there are activities better outsourced to professionals. We think some of the big players making deals with Alcatel-Lucent and NSN fit this model. There simply is not enough money on the table to make an outsource-for-cost-reduction decision prudent. For Tier 2/3 providers, however, labor availability issues may make an outsource decision mandatory.

Cisco’s generalized data center solution — risky business

Cisco made its long-awaited “California” announcement, but the event didn’t fully address the critical questions of just how the new products will be positioned. At one level, Cisco announced itself as a general-purpose blade-center-based IT competitor to IBM, HP and other computer vendors. At another level, Cisco appeared to be putting forward positioning that makes a distinction between a new Unified Computing System and a classic data center.

UCS is heavily linked to network virtualization, strongly linked to storage networking and somewhat linked to cloud computing. Most will recognize much of the UCS positioning from prior Cisco presentations on network support for virtualization, and Cisco trotted out a bunch of partners from Accenture to EMC to try to defuse concern that it might be trying to be a one-stop data center solution provider.

Our view of California from the first has been that anything that presented a generalized data center solution would be incredibly ambitious and risky for Cisco, and we believe that Cisco’s efforts to avoid the risks have not been sufficient, at least in terms of positioning. Counter-pressure from a tightening of the IBM/Juniper relationship seems inevitable if Cisco really goes after the data center market. Juniper’s Project Stratus fabric approach to switching appears more directly responsive to the data center opportunity and less likely to create IT vendor angst.

But will Cisco really do what the product material suggests? The early sales targets and beta tests, according to our sources, are primarily like service delivery platform (SDP) applications, content servers and other special missions.

DPI: Use it, but don’t use it

Deep Packet Inspection (DPI) continues to be a contentious topic, and service providers are so leery of regulatory intervention that they avoid words with any of those letters in them.

They’ve told us to ask vendors not to use the term—they prefer “application-specific routing” or something similar. There are in fact a lot of valid applications of DPI, such as the XO model where it is used to monitor application performance.

But DPI is like firearms or interrogation or a lot of other stuff that has valid uses and egregious misuses, and it is typecast by the latter. We’ve not seen much interest in rehabbing the concept by renaming it, but operators have made their positions very clear, and we think there’s some indication that vendors are catching on. If that’s the case, then “xxx” might be a really hot concept in 2009.