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Carriers take convergence plunge
By Susan Breidenbach
They used to be IXCsSprint in June rattled industry cages by announcing plans to build an Integrated On-Demand Network (ION). This network will use ATM equipment on customer premises to concentrate voice, data and Internet traffic, and ship it out over a broadband facility that would have to be leased from a local-access carrier.
New players with big batsThe start-ups believe they are positioned better than WorldCom MCI because they have a clean sheet of paper to draw their networks on and a big bucket of capital to build them with. These "pure plays" are proceeding with a total lack of fear, buoyed by highly valued stocks and free of any installed-base dilemmas. While traditional carriers are pinned down by the inertia of huge circuit-switching infrastructures, the new entrants "can step right up to the plate and swing," says Marion Boucher Soper, an analyst with investment banker Bear, Stearns in New York. Instead of worrying about intricate bandwidth-management solutions and evolving quality-of-service (QoS) standards, the new players advocate a much simpler approach: over-provisioning. Fiber optics, after all, are on the same price/performance curve as electronics, so bandwidth is getting cheaper and cheaper. These companies tend to see ATM as a necessary evil under current circumstances and would rather put IP on Synchronous Optical Network (SONET), or even directly on the optics. "ATM is an excellent technology for carriers that have to structure deployment strategies in an environment with constrained bandwidth," says Lew Wilks, president of Qwest Communications International's business markets unit in Denver. However, while Qwest's original intent was to build a "pure IP" network, market realities - ATM dominance on carrier backbones and the relative immaturity of IP switching technology - forced the carrier to implement ATM. Qwest has spent $2.6 billion building out a fiber infrastructure along highly protected railroad right-of-ways, where buried cable is least likely to get damaged by backhoes and tree roots. The company lays two side-by-side conduits - one with 96 fiber strands and one entirely empty, to accommodate future fiber technologies. "Some of our competitors have only one fiber on some legs of their networks, while 24 is the least we have anywhere," Wilks says. "Rate arbitrage will go away over time, so margins are what you need to survive, and we have a very low-cost infrastructure." Founded by executives from competitive local access pioneer MFS, Omaha-based Level 3 Communications is approaching end-to-end services from the opposite direction. The company has installed local fiber loops in 50 U.S. cities and another 20 or so abroad, and is connecting the dots with a long-distance fiber network. "Voice will eventually be just another application on an IP network, and ours is the first network totally optimized around IP traffic," says Ron Vidal, senior vice president in charge of new ventures for Level 3. "We have no circuit switches at all." Level 3 acquired Xcom Technologies earlier this year and consequently now owns technology for connecting IP networks to the Signaling System 7 call signaling infrastructure. That will help Level 3 deliver call control, which has been one of the missing pieces in IP telephony. Williams Communications in Tulsa, Okla., is another one of the young turks starting with a clean slate and deploying huge amounts of fiber around the country. The company is building out its network with 144-fiber cable and deploying OC192 with dense wave-division multiplexing on each fiber. The lack of QoS for IP convinced the carrier ATM was the only way to go. Williams eliminated cross-connect equipment by migrating to GX 550 ATM switches from Ascend Communications. The company is also migrating SONET into the ATM switches and thus avoiding SONET terminal equipment. "So we're saving 50% to 80% on hardware costs," says Wayne Price, manager of technology development for Williams' network division. Some experts doubt that over-provisioning alone can guarantee business-quality voice in the long run. The demonstrations sound great now, but the networks don't yet have any traffic to speak of. Nevertheless, all that buried fiber is clearly a precious resource. "The cost of switching has gone down by orders of magnitude, while the cost of right-of-ways has not changed that much," says Hal Varian, dean of the School of Information Management and Systems at the University of California, Berkeley. "Fiber in the ground is like money in the bank." And the bandwidth bandits are using it to buy market share. While this is just a short-term strategy, large corporate customers can take full advantage of it. "There's only an upside for enterprises," Soper says. "They are getting accelerated services at great rates." ILECS: Eating their young Clean slates are an advantage in a lot of ways, but they can also imply lack of experience. Here the scales are weighted heavily in favor of the incumbents that have been deploying and supporting huge networks for a long time. "The traditional carriers haven't been the movers, but they can certainly be very effective followers," says Neville O'Reilly, director of enterprise consulting for TeleChoice in North Brunswick, N.J. The biggest convergence challenges are at the edge of the public network, in traditional ILEC territory. The ILECs are in a difficult situation, with $20 billion to $30 billion sunk in circuit-switching equipment on depreciation schedules of up to 20 years. They want to protect these investments and avoid cannibalizing their traditional voice business. "If their inaction creates a vacuum, alternatives will come into play," says Joe Firmage, chairman and CEO of USWeb, a Santa Clara, Calif., company that offers various Web services through a network of affiliates. "They can either eat their own young or watch competitors eat them." Now ILECs seem intent on swallowing up each other. Bell Atlantic just one-upped SBC Communications' Humpty Dumpty act of gluing the RBOCs back together again by announcing plans to merge with GTE. The combined $53 billion entity would surpass AT&T as the largest U.S. carrier. Many regard the proposed merger with dismay. GTE has been the wild card in the traditional ILEC camp. While the RBOCs are awaiting the regulatory go-ahead before they can get into the long-distance market, GTE has been under no restraints. The company is an ILEC in 28 states from Hawaii to Florida - albeit largely in secondary and tertiary markets. Additionally, it bought 24 strands of fiber from Qwest to start deploying a long-distance network. GTE expects to be the biggest provider of ADSL services by year-end. IP telephony trials have all been internal so far, but the company plans to roll out commercial IP fax services in the fourth quarter. The Bell Atlantic/GTE merger will take at least 12 to 18 months to complete and may never go through. Besides significant regulatory hurdles, the two companies have divergent management perspectives, and GTE's shareholders will have to approve a deal that has the market pricing their stock at less than it was before the merger was announced. Meanwhile, Bell Atlantic is venturing into convergence waters with a recently formed subsidiary called Bell Atlantic Data Solutions Group (BADSG). The idea is to have a separate, unregulated entity that is a lot more nimble than the huge parent RBOC and that can compete on more of a level playing field with companies such as Qwest, Level 3, and Williams. BADSG is in charge of building the new packet-switched long-distance network Bell Atlantic announced in June. First-stage deployment will connect hubs in Boston, New York, Philadelphia and Washington, with plans to extend the network throughout Bell Atlantic's 13-state region, across the country and around the world. Commercial service delivery could begin as early as January 1999. "We will be spending $400 million over the next three or four years just in the Bell Atlantic footprint," says Herb Osher, vice president of marketing for Bell Atlantic Network Integration, now a part of BADSG. The ATM-based network will initially be used mainly for business data services, including managed IP networks. Because parent company Bell Atlantic is still prohibited from offering long-distance voice in its own region, deployment of converged voice services on the new network is "contingent on regulatory relief," Osher says. US WEST is approaching convergence from the opposite end. Threatened on the local-access front by cable-TV companies, the Denver-based RBOC is deploying integrated dial tone and "Web tone" services for enhanced local access. The company has launched ADSL services in 40 markets across Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming. "Using second-generation DSL technology, we may be able to deliver DSL services over 60% to 70% of our loops," says John Charters, vice president of Internet services and application development at US WEST in Denver. Indeed, while other telcos focus on laying fiber, the RBOCs and GTE are effecting a copper renaissance. SBC is focusing on the residential market as it successively glues Baby Bells back together. SBC's Pacific Bell subsidiary has been particularly aggressive about rolling out DSL services. According to Charters, these developments disprove claims that the ILECs don't get it when it comes to convergence. "We do get it; we're just more pragmatic in our approach," Charter insists. The question is whether the market will wait for them. "I want to see one of the ILECs step up to the plate and tell Wall Street, 'We're going to take some losses while we make major investments in a converged network,'" Firmage says. "It would be enormously painful, but they have the cash to do it with and the runway to take off from - if only they have the vision and the courage to proceed." |
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 Changing the tune of telecom By Marty Kaplan, senior vice president and chief technology officer at Sprint.
The golden age of telecommunications Drill down into IP convergence:
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Links Breidenbach is a consultant and freelance writer in San Mateo, Calif. She can be reached at sbreidenbach @usa.net
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