Marrying Ethernet, optics in local Internet

Nortel to face market competition from Cisco, new entrants When John Roth, CEO of Nortel Networks, spoke about "the local Internet" at Supercomm in Atlanta in June, he took even some of his own executives by surprise - not by the idea, but by the timing. "It threw us into a bit of a tizzy," one executive said. "He let the cat out of the bag a little sooner than we wanted him to."

Now Nortel executives are busy putting fur on that cat with their Optical Ethernet portfolio, which they claim will make it possible to localize the Internet. Currently, Optical Ethernet is a stew of existing products and product lines - the OPTera Metro dense wave division multiplexing platform, the IP/Optical Service Node and the Preside service management software - marinated to taste in a sauce of professional services. Nortel has two beta customers: Bell Nexxia, the Canadian ISP, and Utfors, a competitive telecom carrier in Sweden. This fall, Nortel officials said the company will roll out new products and partners and announce new customer wins in North America and Europe.

"We think that enterprise outsourcing is going to be a big, big, thing," said Peter Evans, vice president of strategic marketing/local Internet for Nortel. "There's not a lot of value in providing point-to-point connectivity any longer. With [Nortel's offering], a carrier can provide enterprises with flexibility."

The reasoning behind the move is hardly original with Nortel: Demand for bandwidth is insatiable, and the current broadband infrastructure is inadequate; optical Internet data centers are being built; the demand for Internet outsourcing is increasing. And finally, an increasing percentage of Internet traffic is local because more content is being placed on points of presence and in central offices nearer to the customer. Estimates of how much nearer vary, but analysts agree on the general trend.

"They're absolutely dead-on," said Hilary Mine, executive vice president of Probe Research. "Probe's ongoing analysis of Internet traffic... shows that traffic is localizing already. And we think that it's moving to 20% or 30% never touching the backbone already, and we expect that to move to 50% in two years."

That the current Internet infrastructure is not up to handling this shift also is clear, analysts said.

"I think it's fundamentally true," said Ron Westfall, senior analyst for Current Analysis. "What we have with the Internet infrastructure today, if you look at how ISPs do peering contracts, they do them on an ad hoc barter basis. So the public Internet isn't there when it comes to business-savvy services."

Paul Adams, Nortel's vice president of local Internet/Europe, waxed lyrical about the possibilities.

"Imagine if we could give you access in milliseconds instead of your having to wait forever for the bloody thing to drip in at 14 kb/s or whatever," he said. "That would be a much more satisfactory Internet experience."

Nortel officials believe the company's market and network presence, and its dual background as supplier to enterprises and carriers, will give it an edge over competitors. And according to analysts, competition is inevitable. One sign of how well Nortel's initiative is doing will be the number of new market entrants that sell products and services to bring content closer to the end user, Mine said. These newcomers expect to tell carriers - their main target customers - that the broadband bus is leaving the station and that they need to get aboard.

Westfall said the competition already is there. "The first one, right off the bat, is certainly Cisco," he said. "They've done initiatives that parallel this, but they have different phrasing. They have the Cisco Content Networking Initiative. It's the same kind of theme."

The two companies are matches for each other in terms of product breadth, Westfall said, and Cisco's large presence in the routing market is balanced by Nortel's advanced IP delivery platforms. "Marketing will play a huge role," Westfall said.