More optimism at Wednesday evening keynote

ATLANTA--Providers have to tough out this market, but the ones who focus on price, performance and partnerships will do well, predicted James Crowe, CEO of Level 3 Communications, as he gave Wednesday's closing keynote speech. 

“The previous three years were unhealthy for our industry,” he said. “There were excesses in our industry--at the component level, at the equipment level. That excess is going to disappear, there is no doubt about it, but we will remain one of the fundamental industries in the economy.” 

Communications is “one of the pillars of information technology,” Crowe continued. The “information technology revolution” revolves around the three things you can do with information: process it, store it and transport it, he added. 

The first two have seen significant price/performance changes in the last 10 years or so. Processing has seen a doubling of price performance about every 18 months and storage technologies have improved 40% to 45% per year, he said. “The price/performance for communications has remained relatively flat.” 

That was the situation until about five years ago when IP and optical technologies started to change networking. Then there was a fundamental shift from a technology-planned environment to a marketplace-planned environment. Gone are the days where standards bodies discuss, debate and decide how technologies will be implemented. 

“That is glacially slow compared to the more difficult to manage, but more rapid market-based technology [growth],” Crowe said. 

The key to this phenomenon is, “for every 1% you drop in price or cost, you have to get more than a 1% increase in demand,” he said. “In our industry, value creation requires both rapid performance improvement and rapid increases in demand. The magic occurs when you have both.” 

Communications, Crowe averred, has the clear potential to be more price elastic than other information technologies for two reasons. “Decades of high prices have created…many years of substantial latent demand [and] communications is getting less expensive more rapidly,” he said. 

Though Crowe conceded that the cheapest way to move information today is to “put it on a DVD and put it on a truck network,” that is changing. Software distribution and music distribution are two examples of how people are using communication networks to transport information more cost effectively. 

Just having the fastest network won’t be enough, however. Crowe says significant changes must occur in the way companies do business, and that means the supplier chain has to change. 

The “new communications supply chain” he described forces more partnerships between companies and between carriers. Starting at the base level, component providers will sell to equipment providers, which will sell to network providers—companies that own the backbone and access networks. In turn, they will sell to or partner with service providers, which include portal companies, ISPs, application service providers and hosting companies. 

“To get big economic improvements, you have to coordinate the entire stack,” he said. “That is visible today in computing when you go from a 486 [processor] to a Pentium.” 

Rapid price/performance improvements coupled with new financial models and new organizational models will lead the shift from a utility market to a technical one, he concluded. “The future is bright for all of us if we continue to push down cost and prices.”
Susan Biagi is editor in chief of Telephony. She can be reached at sbiagi@intertec.com.