Creating technology, respecting economics

Our focus is on providing highly reliable networks," says David Orr, president and CEO of Alcatel Network Systems. "In parallel, we've worked very hard on network architectures and trials that provide full service network capability." Orr took a few minutes at Supercomm to describe his take on the industry and frame Alcatel's work in North America. He is determined to run a reality-based enterprise that, like the industry, masters attainable frontiers, not imaginable frontiers. The distance between the two frontiers is measured by economics, not technology. Orr is rooted in the traditional telecom business. His early years with GTE included a stint as network director for General Telephone of Wisconsin. In 1985, he joined Rockwell's Network Transmission Systems Division. He was at ground zero when Alcatel, at that time huge globally though only an impatient also-ran in the U.S. telecom market, made its stunning acquisition of Rockwell's marooned Dallas-based telecom giant in 1991, snatching it from Ericsson's hands at the last possible second. Quickly tapped by Alcatel to run its new U.S. operation, Orr has adapted to sea changes within his organization and industry. Now, in addition to his responsibilities at Alcatel Network Systems, he serves as president of the NAFTA Area of Alcatel Telecom, the global telecom operation of the Paris-based holding company, Alcatel Alsthom. And now his customers are not telephone utilities but diversified information companies. Rooted in the traditional past, launched toward new industrial frontiers. That's Orr and Alcatel-and the industry itself. What do customers want now? Orr answers that fundamental question by zeroing in on economics, and contrasting today with yesterday. "More and more, customers are looking for revenue growth beyond traditional growth by traditional customers in traditional areas of service," he says. In the traditional past, since revenues were essentially fixed (the only true variable being line growth from new builds), profitability was a function of cost. That iron equation defined technology developers like Alcatel as well as network operators. No more, says Orr. "Now every discussion with customers revolves around the questions: How do I grow my revenues? How do I protect my revenues?" Throwing new technology at customers doesn't work. Not because the new technology doesn't work. It does. But the economics don't. Yet. Example: video-on-demand. VOD today is controlled by Blockbuster. How far, Orr asks, below its current price point is Blockbuster willing to go to continue to dominate VOD? That is the price point that network operators-and their suppliers-need to hit. "Carriers have done an excellent job of evaluating that price point," Orr argues. "Manufacturers are working hard to reduce the cost of implementing the technology. We haven't reached that price point. We are extremely close. "In the meantime, companies will pursue revenue opportunities such as high-speed Internet access using perhaps not the ultimate solution but a technology that will be mature, allowing carriers to understand the marketplace." Here, the future shakes hands with the present. Revenues are being built and demand for services extended, Orr notes, by enhanced services that have long been on the shelf, like custom calling. "The number one selling product is as simple as second-line service." These revenues are being plowed back into full service networks that can handle voice, video and data. This double, economically defined dynamic-using revenues from innovative (though not necessarily new) services provided from pre-full service networks to build full service networks that will create new service sets and more revenue streams-is developing in an intensely competitive atmosphere. Network competition, unlike commodity competition, is not defined entirely by price. "In the last two to three years, price competition has continued, but there is another competitive factor: network reliability, network survivability," Orr says. Alcatel is "focused on providing highly survivable bandwidth" using ring technology [including microwave radio rings] that ensures "extremely fast-less than 50 millisecond-restoration for catastrophic failure such as cable cuts." Orr is focusing Alcatel on being a full service network provider. "In all this technology-video, data, bandwidth management, wireless-Alcatel will be able to fully address network needs," Orr promises. Orr plans to lead Alcatel toward technology's frontiers by respecting the economic considerations that drive technology development and investment.