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Is Softswitch Deconstructive, Disruptive, or Both
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A quick review of telecommunication vendors shows a serious downturn in their sales and stock price over the last two years. Traditional telecommunications switch vendors Lucent technologies and Nortel are good examples. Formerly, these two titans of the industry dominated the North American switching market in Class 4, Class 5, and PBX switching platforms. Internet-related technologies are potentially deconstructing the current North American switching industry. Although these vendors will not disclose revenue figures for specific platforms, a brief review of announced sales reveals no significant sale of Class 4 or 5 switches in the past two years. Sales of these switches are off because many service providers have expressed a reluctance to invest in Class 4 or 5 switches as softswitches enter the market. Softswitch or Internet-related technologies may be deconstructing the telecom vendor industry via a form of psychology. Large service providers have made it no secret that they are not going to invest in any Class 4 or 5 switches as they wait for softswitches and Internet-related technologies to emerge. Given the traditional long depreciation schedules of traditional switches, decision makers at the incumbent telcos must plan in terms of future decades. In short, they must have a vision for the telecom infrastructure against which they will be competing 10 years in the future. As described in earlier chapters, softswitch offers a flexibility in delivering features not possible on Class 4 and 5 switches. Service providers do not want to find themselves at a distinct disadvantage to their competitors in the future once softswitch technology matures and becomes more widely installed. Among RBOCs and interexchange carriers (IXCs) is the decision to wait and see. Suffice it to say that if the large carriers are strapped for cash, they are not spending money on new infrastructure. In addition, a wave of mergers and acquisitions in the industry has also made it wise to avoid cap ex, or capital expenditure, which makes the balance sheet of the carrier look better to an acquiring party. Some carriers at the time of this writing are so deeply in debt that they have been labeled as being credit challenged, which negates vendor financing of the sales of any new products. A snapshot of new technologies in the telecom industry points to other deconstructive forces. VoIP can be delivered in increments of one IP phone, which negates the need for a big centralized switch. Failing that, the deployment of four-port or eight-port media gateways that connect to the IP network for VoIP also negates the need for a large centralized switch. Vendors of these smaller platforms are numerous with new market entrants
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occurring frequently due to a lower barrier to entry in the vendor market. Many of these products originate in Asia where manufacturing costs are relatively low. Mainstream Class 4 vendors are Lucent and Nortel. Lucent s fiscal year for 2001 ended September 30 with an annual loss of $16.2 billion. Nortel networks reported an annual loss to date on September 30, 2001 of $4 billion with another quarter to go to finish their fiscal year. Although these are the two mainstream providers of Class 4 switches in North America and they have been in business a long time, these financial losses point to serious problems for those firms. The chief products of both firms were circuitswitched telephone switches in the Class 4 and 5 markets as well as PBX. The challenge for these mainstream vendors is to produce a product line that can compete favorably in the converging market and be well positioned for the converged market.
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