Those of you in the component, equipment, or carrier businesses should listen to the latest strategy presentation from Carphone Warehouse, a competitive carrier that offers broadband, voice, and mobile services in the UK. It offers a stunning picture of how low the economic barriers to entry have become when building a greenfield network. Now that the price of owning one has dropped, everyone wants a Next Generation Network (NGN), and no one wants an albatross of old telecom kit.
Amidst the Herculean efforts of British Telecom to roll out a nationwide forklift upgrade of their network (see BT’s 21CN – Reversing a Victorian Tradition), CPW is building their own mini-21CN and plans to bypass the use of BT’s network for transport services. This would make Carphone a completely vertically integrated carrier from a retail store selling services all the way to big-iron DSLAMs sitting in a local telephone exchange. It’s an extraordinary endeavor.
I suggest everyone spend 25 minutes and listen to the Carphone webinar overview of their NGN. (note- you need to skip to the section on the network)
One very interesting slide:
How can they achieve a network of similar function with substantially less cost? They are not burdened by 30 years of legacy protocol and equipment and can start fresh.
Carphone cites the rapid drops in equipment costs as a key enabler, as well as the lower costs of owning and operating your own dark fiber. They also cite that rapidly growing traffic requirements make outsourcing the connection un-economical.
This decision by Carphone is an excellent example of how the telecom capex environment is changing. Everyone is aware of the fundamental benefits of new equipment and protocols but they believe carriers cannot rapidly change the structure of their infrastructure. As a result, people (including myself) refer to telecom equipment revenue streams as annuities that can be milked for long periods of time.
I’m beginning to believe this assumption no longer applies. The reduced cost of owning and operating new equipment is so much lower than the status quo that carriers can no longer justify not capping expenditures on legacy equipment.
Verizon FiOS, Enterprises leasing and operating their own dark fiber, Cable VoIP, and IP-PBX’s are all examples of where a radical departure from the status quo delivers cost savings that are too compelling to ignore.
Equipment and Component vendors that do not have both feet in businesses that are built around NGN architectures will face faster declines than they expect. If I had a a legacy telecom ‘annuity’ business I think the time has come to take a lump sum payment.
What about the nightmare scenario: Have hardware providers become so good at delivering value that the total market for telecom hardware will decline even as demand increases?
I remain optimistic that networking equipment is no different than computing equipment, and that driving costs lower results in an even greater expansion of unit demand. That being said, as legacy equipment is thrown overboard, we may experience a one-time discontinuity that will be exceptionally painfully for some vendors.
Full copy of the presentation is here. But the 25min webinar is worth your time.