Telecommunications on the move

Telecommunications on the moveThe place was Phoenix, Arizona; the topic was how the telecoms business is changing; the event was the Andersen Consulting Accelerating Transformation annual conference. Tom Foremski reports
The Internet is making a major impact on telecommunications but there is a large degree of uncertainty – according to speakers at a major telecommunications conference. IP Telephony
IP telephony threatens to change the entire nature of the telecommunications industry and some US companies such as Level 3 are banking on massive use of IP telephony services
Level 3 is beta testing a major IP telephony service that promises voice quality indistinguishable from regular switched circuits, using its high-speed network. If the network is overloaded or having other problems, Level 3 switches the voice traffic to traditional carriers transparently to the user.
“While data bit traffic over networks now represents more than 50 per cent of the traffic, voice bits are where 91 percent of the revenues are,” said Level 3 CEO James Crowe. “We believe IP telephony will be a killer product because once that is set up, we will be able to leverage the increasing performance of packet switched technologies which double in capacity every 20 months compared with 80 months for traditional switching circuits.”
Incumbent telecommunications companies such as Deutsche Telekom, face the prospect that their own IP telephony services will cannibalise a major part of their business. “We have to offer IP telephony in order to block other companies from coming in and taking away our customers,” said Thomas Baubin, chief strategy officer at Deutsche Telekom.
While US companies are making major investments in IP packet switching on fast fibre optic networks that enable IP telephony services, there is a need to change the control over local copper wire loops that serve consumers, says Crowe. “These local loops should be cut off from the local telephone companies and made available to any company. The local phone companies have too much control over these loops.”  
Over 250 representatives of more than 100 top telecommunications firms gathered last week in Phoenix, Arizona to discuss the changing telecommunications business at the Andersen Consulting Accelerating Transformation annual conference.
The role of the Internet and the use of Internet technologies plus broadband and wireless communications issues were key themes at the conference. But there was also a lot of uncertainty about the future and how Internet technologies are changing telecommunications industries.
“We are at a historical inflection point,” said Joseph Nacchio, CEO of US-based Qwest Communications International. “Looking back, future generations will see this point in time as profound as the discovery of the new world.”
These comments were echoed by James Crowe, CEO of Level 3 Communications. “We all know that something very significant is happening but it is difficult to predict the future. I think we will all be very surprised at how telecommunications changes over the next few years.”
Nacchio pointed out that the pace of change in communications technology and performance is accelerating and beginning to match the pace of change in the computer industry. While it is difficult to determine where the new telecoms markets and what the services will be, speed to market is important.
“Speed to market overwhelms the precision of decisions, we will all make mistakes but time to market is increasingly important,” he added.
Companies like Qwest, Level 3 Communications and others, are relatively new in the telecommunications business and there was mention of the ability of such companies to move faster than incumbent rivals which have large investments in outdated legacy systems.
“There is a significant advantage for companies that don’t have large legacy systems,” noted Milo Medin, chief technology officer at broadband cable services company @Home Network. “We can move faster because new communications technologies are increasingly better than what has gone before.”
Level 3 is following a similar strategy to Qwest with a fast international fibre optic network designed to be easily upgradable. “Traditional telecommunications companies worked on a 14 year upgrade cycle but this is too slow,” said James Crowe, CEO of Level 3. “With constant upgrades in the performance of fibre optics and related equipment, you have to perform upgrades at a much faster rate. We have designed our network with up to six conduits so that we can pull out the older fibre optic cables and replace them with faster performing cable.”
Broadband communications was a topic touched upon by several speakers. “A lot of large corporations have told me they are ready for DSL but none of the telecommunications companies are battering down their doors offering DSL services,” said Maribel Lopez, senior analyst at US market research firm Forrester Research.
“The problem with DSL is that the incumbent telecommunications companies are reluctant to make the investments needed because they don’t have a good enough business model,” notes Dan Elron, a partner at Andersen Consulting. “We are advising companies to offer DSL based content services to subsidise the cost of providing DSL.”
At Level 3, broadband is less of a concern. “Today’s broadband is tomorrow’s narrowband technology. We are more interested in providing very fast networks with wireless and broadband for the local data distribution channels,” said Crowe.
European telecommunications companies were credited with being ahead of US counterparts in wireless technologies.
“Wireless IP makes a lot more sense than using a PC in the home to access the Internet. If I’m looking for a restaurant, it is better to do that on the smart phone in my car,” said Mika Vehvilainen, senior vice-president at Nokia Telecommunications.

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