Communications on the cusp of change


2 Mar 2004

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In his opening shot at the Nortel Networks press conference in Cannes last week, president Pascal Debon (pictured) declared that 2004 was the year that wireless went broadband. As a single-line summary of the fever that gripped the 3GSM Congress it was a neat sound bite, echoed on Nortel badges that proclaimed “3G for real”, but it barely does justice to industry rumblings that threaten to shake up the entire global communications market.

The rollout of 3G networks has already seen a significant shift in the industry power base as a growing number of ‘swapouts’ have occurred, where mobile operators replaced their first-generation 3G infrastructure with that of another supplier. Nortel and Siemens have both had significant wins in this space, with the likes of Nokia losing out.

So what’s going on? According to Richard Piasentin, president of Nortel wireless networks EMEA, it comes down to a commitment to research and development (R&D): “A long time ago we made a set of decisons on where we thought we could be successful. In 2003 we had our first full year of profitability in six years but we could have done it earlier if we hadn’t protected our R&D investment in the data space and UMTS [universal mobile telecommunications system — the 3G network technology].”

The payback is that Nortel, barely a player in GSM with less than a 10pc share, has been very successful in breaking into 3G, enjoying contract wins with BT, Vodafone, Telefonico and Orange.

“The operators realised they couldn’t launch mission-critical networks and needed a partner that could deliver,” Piasentin told siliconrepublic.com. “We made a call four or five years ago about where we thought this industry would go from a convergence perspective. Now we can deliver a robust data network for fixed line, wireless and mobile.”

He had little sympathy for Nortel’s competitors in the mobile infrastructure business. “You’ve had incumbent suppliers that said they had the credibility because they have rock solid 2G networks. Then you get Nortel coming in saying UMTS is different,” explained Piasentin. “It’s a data network and it’s based on wide-band CDMA [code-division multiple access] technology. Being able to build and optimise 3G infrastructure is a very different skill to building TDMA [GSM technology] networks. We have feet in both camps.”

His argument is that its customers in the mobile space receive the benefit of what Nortel says are effectively fourth generation base stations while its competitors are deploying first generation hardware.

Debon predicts an inevitable outcome: “The winners of 3G will not be the winners of 2G because it is a new game. It’s all about voice-over internet protocol (VoIP) and multimedia over IP.”

In a high-profile US deal Nortel was brought in by Verizon to replace its time division multiplexing infrastructure with VoIP networks, a technology that Depon described as enabling a massive move towards integration, not just in terms of voice and data — the cornerstone of IP telephony — but also in the convergence of fixed and mobile. The technology is now here, for example, to take a ‘soft call’ on a laptop, in another country, when someone dials your office number.

“We strongly believe in converged networks,” said Debon, “and we are unique in being able to give our customers a robust end-to-end network.”

Piasentin picked up the theme: “Ten years ago everyone was talking about convergence and it got a bad name. No one could make a business model that worked and the integration problems were insurmountable. There was no standardisation so effectively it died a slow death.”

The Verizon contract is one sign of its rebirth, motivated by a telco that wanted to secure all its customers’ communication needs. “Verizon has a large penetration of ADSL but there was a competitive threat from other companies that used them as a dumb pipe for their own VoIP services,” explained Piasentin. “It has recreated its core with VoIP so it can retain those customers.”

Communication networks are essentially about access technology with service layers on top. The challenge for service providers, from both the wireless and fixed worlds, is to make a play for the most customers across the most layers.

“The dynamic in the industry becomes who owns the strongest billing relationship because the technology is now there,” says Piasentin. “Whoever has the strongest billing and brand has the ability to own an entire customer base. That’s the fundamental transition in our business.”

As the wired and wireless worlds converge and the battle begins among the service providers, the only surefire certainty is that the likes of Nortel Networks and its more quick-witted competitors are going to be kept very busy.

By Ian Campbell