Multiservice switching

Jul 3, 2002 12:00 PM, Goli Ameri

All of us in the telecom industry should care deeply about the success of the start-ups especially those in the multiservice switching space. They are, after all, the ones providing the state-of-the-art technologies, which will provide novel services at cost-effective prices after the thawing of the current industry freeze. True, during the boom years, some start-ups' publicity campaigns were so noisy that it came back to haunt them later. Now most understand that hype and overhang are not rewarding. Start-ups like Vivace and Oresis have been developing their intriguing products since 1999, but we have just started hearing from them since their products have been developed and shipped.

The situation of the start-ups however is precarious, and the industry as a whole is trapped between a desire for new technology and an understandable need for stability. In addition, the RBOCs have the additional misgiving that maybe, just maybe, their most trusted vendors like Lucent may not be around to support their networks in the future, and hence they need to be given a helping hand today.

So the million-dollar question is: Where is the industry headed, and how will be the future shape of the triangle of the RBOCs, the start-ups and the incumbents emerge?

State of the market and the technology

Tables 1 and 2 summarize the major incumbent and start-up players in the multiservice switching space. If there is one topic that all multiservice switch vendors agree with, it is that carriers are deriving most of their revenues from ATM and frame relay services and as a result, their investment in this type of infrastructure has to be protected. The revolutionary zeal toward all-IP networks is virtually over, and everyone is talking up the concept of evolution these days. Even for the incumbent vendors like Cisco, the fact that IP services (especially IP VPNs) have not taken off as expected and have generated insufficient revenues for service providers has led them to focus more on their bread-and-butter ATM products.

Is MPLS the Emperor's Clothes?

There is little doubt that eventually MPLS will converge service provider networks, but in today's diminished capex environments, the RBOCs have become increasingly pragmatic in spending money on their networks. This mentality has severely affected the advancement of MPLS.

MPLS currently resembles a ghost that is mechanically chased by both vendors and service providers alike. Vendors need to have an MPLS "story," not only to satisfy the analyst community, but also to be able to respond to service provider RFPs. Service providers that have no intention of implementing a non-standardized technology with no QoS and no interworking with ATM, and an absence of a working operations support system to manage those services, nevertheless require it in their proposals as a guarantee against future investments. 

MPLS is increasingly resembling the "Emperor's Clothes," where no one can really envision its implementation but everyone feels obligated to acknowledge its existence. Real implementations of MPLS will not occur before 2005 and possibly 2006. Tenor, which focused mainly on the MPLS core, recently laid off half its work force. eTinium believes there is usually a seven-year time frame for the true adoption of a new technology. Wireless and optical technologies took no less time.

Rare RBOCs like Bellsouth are very progressive with MPLS deployment. At Supercomm, BellSouth revealed that it would launch a network-based MPLS IP VPN service by the end of the year in its nine-state region before going after national accounts. 

When MPLS does get implemented, it will become the unifying technology for the core of the network. The edge will still be supported by multiservice boxes handling ATM/frame and IP, mainly because of the popularity of frame relay and increased demand in DSL based on ATM. 

Some vendors say they already have the architecture for the interworking between PNNI with MPLS, but the implementation is not there, since it will not be needed for at least two more years. This architecture partially involves whether the two control planes are separate, proprietary or open, and if the services are tied inextricably to the control plane. Any other information on the vendors' migration strategies to MPLS resemble back-of-the-envelope or cocktail-napkin plans. They are put on paper to publicize a story, but actual delivery and implementation details are sketchy and unclear.

Advantages of integrated products

Some of the start-ups and even incumbents are offering (but not necessarily shipping) integrated multifunction products in one shape or other, and each has their own strength and niche space. Lucent, Vivace, Gotham and Tenor have products targeting both Layer 2 and Layer 3 services and support both an ATM and an IP switch, although targeting different areas of the network.

Others like Cisco, Equipe and Wavesmith are focusing on providing technologically superior ATM functionality for the core and the edge respectively with a migration path towards IP/MPLS, although Equipe also has an integrated cross-connect for protection and redundancy. Oresis is the only company providing both voice and data through an omniservice switch integrating both multiservice and media gateway/softswitch capabilities, giving carriers a packet voice (VoATM/VoIP) migration strategy. AFC's Telliant integrates a multiservice switch with DSLAM and subscriber management system (SMS) functionality. 

The debate over aggregated vs. best-of-breed products is not new. Integrated products are meant to reduce the complexities and capex requirements of service provider networks by reducing provisioning, network management and equipment costs both in terms of upfront and operational expenses. Critics of this approach maintain that it is not a realistic engineering story for a start-up company to be able to deliver a combination frame and ATM switch and a core router capable of supporting BGP4, OSPF and MPLS simultaneously. They maintain that customers have heard the god box story since 1997, and although these look great on paper, they perform sub-standard in a test environment. Vendors like Cisco that do not have aggregated boxes maintain that platforms are all best optimized around some kind of central technology.

Integrated products certainly incorporate more long-term vision rather than be limited to solving an immediate problem. However, the disconcerting issue these days is that vision and ingenuity have taken a back seat to the mundane matters of running and maintaining existing networks.

Where will growth come from?

Although consumer confidence has picked up and GDP has grown more in the first quarter than in the past two years, 1Q performance by most RBOCs and IXCs were pretty sluggish, and telecom recovery is not expected to occur before the latter part of 2003. That is a long time for start-up vendors to hang around without trying the patience of their VCs. The recent debacle with WorldCom will further shake industry confidence.

The only glimmer of hope in the growth of the telecom industry is section 271 relief, which will allow the RBOCs to enter the long-distance market and to offer high-margin data services such as frame relay and ATM. Since the IXCs currently dominate these offerings, the RBOCs' entry could propel their spending as well to further lower the cost of their technology. There is no indication and no economic or technological reason for the RBOCs to opt to acquire the IXCs, and in reality it will serve the industry better if each build and developed their own network. With 271 relief, there is also some discussion of voice migration toward packet-based networks. 

Partner or perish: Who will survive and why?

The difficult question these days in the telecom industry in general is who will survive, and the question picks up additional urgency in the multiservice switching space since so many start-ups are vying for a limited arena. However it seems as if the Darwinian rules of survival have joined hands with the closed-door maneuverings of the political conventions of the '40s to define the rules for start-up survival. 

Some of the incumbents are only in slightly better shape than the start-ups. Marconi's future is in serious doubt as the vendor recently announced that it is in serious discussions with its banks and bondholders to recapitalize the company. Lucent has lost a great deal of credibility in the data space, especially after pulling the MSC 25000. Although in better shape than Lucent, Nortel is also hemorrhaging cash and human resources, and although it has introduced the Passport 20000, some of the important attributes of the product will not be shipping until later this year. Cisco is financially more sound but somehow lost contact with the RBOCs in the last few years, and its products are not fully trusted inside RBOC organizations. AFC might potentially be in a better position since it has a billion dollars in cash and it is one of the only telecom companies that has had revenue increases of 7% to 13% in the past two years. 

Because of all the prevalent instability, some incumbents and start-ups are busily involved in ingenuous backdoor partnership and dealings to survive, and make it to the short-list of RBOC trials and acquisitions. Some of the start-ups, including Wavesmith and possibly Vivace, who have been short-listed or landed a Tier 1 customer (although still unannounced), have done it through partnerships with either the incumbent switch vendors or another stable third-party company in an adjacent telecom space. 

The scenario is actually quite simple. The RBOCs do not want their trusted long-time vendors to fail, but they also require state-of-the-art technology. So if the incumbents do not make the short list, they partner with one of the start-ups (at the initiative of either party), resell the products and offer service, support and stability. These deals, however, are played down to the wire since neither the incumbents want to admit the lack of a technologically advanced product, nor do the start-ups want to approach this from a position of weakness.

Start-ups like Gotham and Equipe have managed to receive investment and enter into strategic partnerships with a stable vendor like Ciena who targets Layer 1 services. Although the trend in the late '90s was outright acquisition and then finding out if real synergies existed, today companies find it safer to invest a few million in a company, participate on the board, form a strategic relationship and resell the box in certain strategic accounts before committing to an all-out acquisition.

This trend will no doubt continue, and more companies focused on the optical space may enter the fray, including possibly Sycamore, Tellium and Corvis, which would be interested in targeting Layer 2 and Layer 3 switching and diversifying from their current non-revenue generating optical products.

For start-ups to survive, the RBOCs (and the PTTs) and, to a lesser extent, the IXCs have to be willing to allocate some of their valuable capex to these new boxes. The reality of the matter is that the RBOCs are more focused on gaining greater efficiencies out of existing infrastructure, but with these new partnerships, the industry might have found a panacea to its current ailments. 

Goli Ameri is the President of eTinium, Inc. (www.etinium.net), a consulting and market research company specializing in the convergence of the telecom and Internet markets.  She can be reached at gameri@etinium.net.