Chain reaction: Data and the Internet are forcing IXCs to change with the times

Darwin's theory of evolution correlates directly to businesses of all kinds. As the Internet and data continue to reshape the appearance of the public network, the ability of service providers to adapt to change is just as critical.

Although many service providers have been around long enough to remember a time when complacency was the rule, those days are gone. As a result, those providers often accustomed to delivering the same service to the same customer base must look beyond their easy days of the past, courtesy of the Internet.

For interexchange carriers (IXCs) comfortable with services such as long-distance, the story is no different. While past successes may have been built on interexchange business, most IXCs have realized their future success is strongly linked to changing with the times. And for many IXCs, their survival rate not only depends on their ability to expand service offerings, but it also hinges on how quickly they can bring services to market and provision them.

Although the data generation has breathed life into telecommunications providers that never would have been more than a name on a bill to the mainstream population, it has also ushered in the growing frenzy of mergers and acquisitions. Just as offering a service such as long-distance is no longer enough to sustain a healthy business, providers face increased pressures to deliver a myriad of services to far more locations and customers than ever before. In turn, providers are eyeing each other's networks as the next chance to stay alive and meet the needs of bandwidth-hungry customers.

And with the threat or hopes of mergers and acquisitions looming, IXCs as a whole are augmenting their portfolios to embrace the data and Internet generation. To expand their identities to be more than just bandwidth providers and enablers, IXCs are homing in on meeting e-business and e-commerce needs.

"The Internet will change more dramatically in the next five years than it ever has before," said Bill Gates, chairman of Microsoft, during his keynote address at Networld + Interop in Las Vegas this year. "We have just seen the beginning" (Figure 1).

With that in mind, the real questions will be: What providers will survive and just how many will be left standing as the data and Internet tornado clears its path through telecommunications? And better yet, how will they react to future changes?

Distancing from long-distance

A big step to ensuring future success and survival ironically comes in the form of IXCs distancing themselves from past successes. Unfortunately for many IXCs, the moves to create the illusion of separation from the past stem from the general dislike of long-distance services that has crept through Wall Street.

Consequently, the public and many stockholders have the same opinion, causing stock prices to plummet on companies associated with long-distance services. Some IXCs apparently dread the association with their past success so much that they are willing to change their names.

"Being referred to as a telco is an insult," says Bernard Ebbers, chairman and CEO of WorldCom, which now has officially dropped the MCI from its name.

Instead, most IXCs are working hard to remove the past from the history books and have people think of next generation when their name is mentioned (see sidebar on page 102).

"IXCs are looking to get bandwidth turned up as quickly as possible because they are seeing so much pressure on the pricing plans [for long-distance]," says Ken Wirth, vice president of global emerging markets for Lucent Technologies' optical networking group. "They have trouble making money that way so that has brought on a strong focus on data."

"It's all about meeting future needs, and we see data, Internet and e-business as a huge part of that," says Hossein Eslambolchi, vice president of AT&T's data and Internet network services unit.

In January, AT&T revealed its strategy to tap into more e-business dollars. As part of that plan, the company relies heavily on partnerships with companies such as IBM and Hewlett-Packard for "e-business enablement." And on the network side of the e-business strategy, AT&T is turning to technologies such as dense wave division multiplexing and moving away from the old standby of Sonet rings in favor of a mesh architecture, Eslambolchi says. "We have to ensure that our network is as robust as it can be, and by designing our network in the best way possible, we can do that," he says.

"IXCs most certainly don't want to become roadblocks to the growth of the Internet or e-commerce; they want to make it possible," says Vivian Hudson, vice president of high-capacity optical networks for Nortel Networks. "They have to bring scalability."

But as more long-standing providers such as AT&T and WorldCom try to change their image, newer providers such as Qwest Communications, Enron Communications and Level 3 Communications are riding on their more youthful and energetic reputations. A lot of the newer entrants have attracted attention with their equipment rollouts.

Qwest recently revealed its plans to deploy ultra long-haul equipment from Qtera (now a subsidiary of Nortel) and long-haul and metropolitan gear from Ciena. The Qtera equipment extends the transmission's reach, according to Augie Cruciotti, senior vice president of QwestLink. "It helps us as we continue to push further and further out to reach more customers."

Despite the fact that much of the talk about e-business and e-commerce enablement seems like hype, providers are extending themselves and their networks to meet those growing needs (Figure 2).

"Data and Internet have driven demand through the roof," says Chris Rothlis, vice president of engineering for Broadwing. "We have to be in constant build mode to be able to serve our customers because the demand is growing so quickly."

Buying their way in

As providers build out their networks to meet those ever-present demands, filling network or service offering gaps that potentially leaves them behind other providers is yet another critical step needed for survival. If a provider itself doesn't find that missing element, a competitor surely will. And that can lead to providers searching for acquisition targets or becoming targets themselves.

Just as the rest of the industry has seen its share of mergers and acquisitions, the IXCs also have been prime predators and prey. The time it takes to deploy and turn up a network is sometimes far too long for service providers, so mergers or acquisitions may be the only way out.

Although providers such as AT&T have so far relied on their own networks, internal builds and acquisitions such as Tele-Communications Inc. to deliver those next generation services, WorldCom more recently felt its assets weren't enough to tackle the data generation. It needed more. And if the merger with Sprint succeeds, the pool of larger IXCs will get even smaller.

In contrast to the WorldCom/Sprint merger, Qwest and its pending merger with incumbent U S West follows a different pattern. The sheer size of Qwest compared to U S West was enough to turn heads, but in the end, it too was about extending reach further than before.

"U S West is a means to an end for us," says Steve Jacobsen, executive vice president of business markets for Qwest. "Simply put, they bring us more scalability and scope."

Despite the fact that U S West brings with it the stodgy incumbent image, it will give Qwest connectivity to the infamous last mile in its 14-state region.

And as Qwest continues its initiative to reach more customers, it, like most of the other IXCs, is taking a multipronged approach to adding depth to what was once just a long-haul network. With U S West's DSL assets in tow and several partnerships in place for other regions, Qwest will be able to deliver on its strategy, Cruciotti says. For connectivity in Tier 2 and Tier 3 cities, for example, Qwest has forged a partnership with Jato Communications, which targets those markets with DSL services.

And as the IXCs continue to shake off the long-distance nomenclature and offer more encompassing services to their customer bases, that last mile is pivotal. "One of the biggest hurdles is local access," Rothlis says. "It's is an issue for any carrier."

Cincinnati Bell's merger with IXC Communications to form Broadwing followed a similar model to the U S West/Qwest deal, but this time the incumbent was doing the buying. With the benefit of having Cincinnati Bell plant already in place, Broadwing continues to look at DSL as it goes further down market, Rothlis says.

Sprint, which still is treating WorldCom as a competitor until the merger is complete, also is venturing into DSL to try to fill the last-mile void. "As we build out, we are taking a multipronged approach," says Greg Crosby, vice president of high-speed data products and project management for Sprint.

While Sprint is relying heavily on DSL for its venture into the last mile, it also is using wireless technologies and is deploying fiber to the curb in some new construction areas, Crosby says.

Other IXCs are taking similar approaches, but as they all try to find ways to stand out in the crowd, fat pipes and connectivity alone are not doing the trick.

Sustenance for the network

The IXCs' efforts to build, procure and provision networks with next gen-friendly gear and capabilities would be fruitless without layering specialized services on top. Services and value-adds such as security and backup quickly have become a service provider's easiest method to distance itself from the competition.

Customers are primarily interested in a few business-related issues, says Qwest's Jacobsen. "They want to know what we are doing from an e-business standpoint, they want to have more control, they want the applications to be secure and reliable, and they want to do it all on their own terms."

To match those desires, Qwest is offering services such as its business-class IP virtual private network (VPN) service for enterprises. Instead of only focusing on feature functionality and capabilities, Qwest is trying to bring the scalability and reliability to the table as well, Jacobsen says.

WorldCom also recently revealed a similar IP VPN service for its business customers. Using Cisco Systems equipment, the service is supposed to cost less than private VPNs yet have more capabilities, says Jim DeMerlis, vice president of data network services at WorldCom. "Businesses need more than just transport and access. This and other services are a great way to do that."

And while the lifeblood of yesterday may end up swept under the rug, services and guarantees such as quality of service agreements and the resiliency of the network are ways to stand out, says Chuck Morse, director of data engineering for Alltel Communications. "It's not so much an issue of using new fancy equipment as it is just utilizing some of the things we have today that are just good engineering."

Considering the cost of equipment, most IXCs have adopted somewhat of a recycling program to reuse older equipment. Rather than selling the older equipment in the network core, for example, providers are moving that equipment to the edge of the network to handle more services and content from there.

"What was core today becomes edge tomorrow," says Fred Briggs, chief technical officer at WorldCom. "And as new equipment becomes available, we will always take a look," he says, noting that although WorldCom has equipment from multiple providers in its network, it is getting several pieces for the core from Cisco.

But according to Broadwing's Rothlis, though the equipment may be an integral part of network and service upgrades, the real secret to success lies in how those elements are implemented.

A healthier business plan

The painstaking process of evolution that IXCs have been forced to catalyze will not likely disappear. While the business models of the past simply won't apply to today's fast-paced and demanding business environment, IXCs will have to remain cognizant of the ever-changing and evolving communications needs to make sure they are poised to spring on the next new service or technology customers desire.

As those providers search for new ways to stay afloat, new obstacles will surely stand in the way. The IXCs must ensure a way to prevent or at least postpone the commoditization of their newest service suites so they don't face the same predicament brought on by long-distance service any time soon.

By doing so, they will secure themselves a healthier business or, in some cases, a much healthier acquisition. And despite the fact that most of the smaller players likely will be engulfed by larger ones, a lot of even larger predators linger overseas, longing for that coveted U.S. footprint. None of them are untouchable.

Moreover, tactics such as heading into metropolitan or even international markets might be a way to distinguish IXCs from each other today, but the carriers must look further than today and tomorrow, addressing new, simmering demands before they come to a boil. That will be their only hope for long-term survival.

Interexchange carriers are attempting to grab as much of the data and Internet business possible, but WorldCom's generation d initiative is not only an attempt to attract e-business and e-commerce customers, but a remaking of the company to become something completely different - at least in the public's eye.

"We just aren't satisfied with providing services such as frame relay and private line," says Bernie Ebbers, chairman and CEO of WorldCom. "We want to add a wide variety of value-added services, so we can empower companies like AOL, Netscape and Rhythms. We are developing and delivering the building blocks for the digital economy."

When WorldCom revealed its generation d initiative, few changes were made to its infrastructure to support the focus shift. However, the company more recently unveiled equipment rollouts supportive of the initiative.

For its business-class IP VPN service, WorldCom plans to use Cisco Systems' MGX routers. And although the company has not publicly disclosed the information, WorldCom also will be adding Cisco's Cerent 454s to its network.

As with many other providers, WorldCom also is including hosting as a large portion of its generation d initiative. The carrier is taking several of its current call centers and converting those into Web centers, says Fred Briggs, chief technical officer of WorldCom. "Customers want to communicate in a variety of ways such as over the phone or the Web, and we can enable any one or combination ways."

Although some providers still are focused on beefing up connectivity just in the U.S., WorldCom is trying to expand its hosting capabilities in other areas of the world, too.

"We are working to expand the breadth of the offering," Briggs says. "We want to host globally, in a carrier-class way."

For 1400 years, the Ptolemaic system held that the earth was the center of the universe. The theory's endurance owed much to the absence of a viable alternative. Then came Copernicus. And Ptolemy was obsolete.

A similar fate awaits telecommunications. The standards-based public network is being challenged by Internet-based technologies that are anything but standards-based.

"The [public network] and the Internet are worlds apart," says Doug Tait, network architect at Sun Microsystems. "The intelligent network world has been focused on networks being the center of their universe where computers are used as slaves to the network. The Internet space is really generated from the IP community where computing is the center of the universe."

One effort to bring the best of both worlds together is the Java in Advanced Intelligent Networks, or JAIN, initiative led by Sun and supported by more than 50 industry-leading members. JAIN was launched at the IN Forum in 1997. Sun demonstrated its first prototypes at last year's Supercomm. The company will demonstrate multiple examples of JAIN-compliant Java call control elements at this year's Supercomm in Atlanta.

"The Internet has to become more reliable, and telephony has to start opening its platforms and start offering the services the Internet has offered," Tait says.

JAIN addresses three areas in the telecom space that bring it more in line with the capabilities of the Internet/IP world: service portability, network convergence and open access. JAIN manages service portability by staying consistent with Java's "write once, run anywhere" model. It allows intelligent network services to run across all vendor platforms.

JAIN application interfaces deal with network convergence by enabling services to work across wireline, wireless and Internet networks. Finally, the drive toward open access and standards across the industry is key to opening the telecom network. It is gaining support from Parlay, an industry group composed primarily of network and telecom equipment manufacturers and large carriers.

"Combining these three [areas], you get a very powerful Java paradigm for doing any number of services in the communications space," Tait says.

Parlay developed an industry specification for writing secure and network-independent application programming interface (API). The JAIN community and Parlay - often the same people - have co-developed a JAIN Parlay API specification that ensures that the work JAIN already has done in the area of call control and service creation will conform to Parlay specifications.

To bring the Internet world more in line with telecom standards, Sun has the Java Community Process. The process includes a compatibility test suite to ensure the implementation of a specification - in this case JAIN implementations of Java APIs - meets the interoperability, performance and reliability requirements of the public network.