Data market darlings?: ISPs drawing increased attention from vendors

As the telecom business becomes more data-oriented, goals and needs are changing for both equipment vendors and carriers.

Part of the change is a shift in the definition of a carrier. With the growth of the Internet, some Internet service providers have grown into network operators as well as access providers.

Changing the way ISPs operate could also change the way traditional telecom equipment vendors view them. ISPs have long been served by vendors whose products were designed to handle data traffic. But could the ISPs provide an increasingly lucrative opportunity for the big traditional telecom powers as well?

Conventional voice-oriented vendors are beginning to develop equipment that marries voice and data applications specifically with ISPs in mind, said Ruth Chatterton, Internet consultant at TeleChoice.

"All the big equipment vendors are eyeing ISPs as a new kind of distribution channel," she said.

Northern Telecom has made a strong move to build on its established position in voice networks with applications that address data-traffic needs. Its Public Data Networks division is dedicated to developing individual products and systems solutions that appeal to data carriers as well as more traditional customers that are moving to develop strong data networking capabilities.

"What we're trying to do with Public Data Networks is recognize a number of important trends," said John Marson, solutions marketing director for the division.

Those trends are the convergence of circuit-switched and Internet protocol (IP) technology customers' desire to focus marketing and capital resources on multiservice networks, and the emergence of a new class of carrier that seeks to integrate voice and data services from the outset. Nortel is both developing new products and integrating existing products into new offerings to meet emerging needs, Marson said.

"Because we have a strong base in traditional networks and with carriers, we're in a position to understand what is needed to evolve," he said.

The growing importance of data is prompting research on the development of ISPs as customers for equipment vendors. Lee Doyle, data communications vice president for Framingham, Mass.-based International Data Corp. is conducting an ongoing study this year called "ISP Network Infrastructure." Traditional equipment vendors are devoting more attention to ISPs and their needs, Doyle said.

There are a number of reasons why ISPs are catching vendors' eyes, he said. "[Vendors] are recognizing that IP data networks may be an alternative to traditional telecom equipment. Also, there's the realization that Cisco, 3Com, Ascend and others are making hundreds of millions-if not billions-of dollars selling into public data networks."

However, the market for selling to pure ISPs may not develop into a huge separate market. Many major carriers are acquiring ISPs, and the ISPs that remain independent may be better off leasing network capacity rather than running their own networks, said John Coons, principal analyst at Dataquest.

Recently completed research indicates that ISPs are still predominantly buying from more traditional suppliers, and those leasing asynchronous transfer mode or frame relay service from carriers are reaping financial and logistical benefits, Coons said.

"Major carriers are good at operating big networks, carriers are good at running big networks, and most ISPs that have leased ATM service offerings have done so with usage-based pricing. They've turned what would be a fixed cost [installing a network] into a variable cost," he said.

ISPs have more incentive to leave networks in the hands of big operators as major access vendors develop products that support SS7. SS7 will allow collocation of access concentrators in carriers' central offices and facilitate increased concentration of customers on T-1s to the ISPs by a factor of 10, Coons said.

"The logical conclusion is that backbone will be in the hands of major carriers, and the transition will be invisible to customers," he said. "If that occurs, the ISPs will essentially become storefronts for Internet access."

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