Q&A with Tony Bates: Sorting Out the Telecommunications Revolution
June 5, 2006
It's clear the old ways of the telecommunications industry have come to an end. But what the new world of telecommunications will be is still a matter of debate. Certainly, it will include good old telephone connections offering various data, video and mobile services. Now combine those into an infinite variety of permutations. Figuring out what the most successful of those combinations will be is the sticking point. Don't forget the billions of dollars of investments the industry needs to build the modern networks required to support all these services. Whew. No one said the telecommunications revolution would be easy.
To help sort out this momentous transition, News@Cisco spoke with Tony Bates, Cisco's senior vice president and general manager of its Service Provider Routing Technology Group. Bates holds seven patents for networking technologies and has helped develop some of the most advanced networks in the world. The following is a modified excerpt from a News@Cisco podcast interview with Bates (A full transcript of this interview is available via podcast at http://newsroom.cisco.com/dlls/podcasts/audio_feeds.html.)
Can you provide an overview of the current state of the telecommunications industry?
Tony Bates: One of our favorite words at Cisco for describing what is going on in the telecommunications industry is "convergence." Traditionally when we've talked about telecommunications companies, they've been divided roughly into three large groups based on their particular service and type of network they use to offer that service. So, there's the phone, or "wireline" companies, with twisted copper wires; the cable TV companies with coaxial video networks; and the cell phone companies with their wireless infrastructure.
Then there are the new players entering the market that don't have an old network that categorizes them. They have shiny fiber optic networks using the latest Internet infrastructure and other networking technology. They can offer everything from phone service to Internet access to HDTV. You can even throw in a new category of Internet service providers, such as Google, Yahoo, MSN. These companies offer email services, voice services, instant messaging, downloads, and other types of communications options that are for many people nearly as valuable, if not more so, than traditional telephone service.
But because of the Internet, the development of Internet protocol (IP) as a foundation for all types of communications, and other advances such as with fiber optics, all of these providers are converging into one, combined communications market. If you started a telecommunications company today, it wouldn't have to offer just telephone service, or cable TV, or wireless communications. Using one network, based entirely on IP, it could offer any and all of those services. IP makes it possible to run telephone calls over coax or to send video over telephone lines. So this means that today, all telecommunications companies have to offer more than one service because their competitors are more than happy to take away their customers. This is why we now refer to the wide range of different telecommunications companies as "service providers." These companies are no longer defined by their network infrastructure or the service that infrastructure supports. These companies and certainly other yet-to-be-invented types of companies are all merging together into one, massive communications market. And this is no small transition. The infrastructure work that needs to be done is huge. The mindset, the marketing, the billing, the service, it all requires a huge shift. So the market will be getting sorted out for many years.
What role does the Internet now play in the changes taking place in the telecommunications industry?
Tony Bates: The Internet has been the fundamental equalizer of this change. When the Internet came along, it did a few things. The first thing it did was that it started to create a global infrastructure, a global network, that could tie all other data networks--such as those at universities or those run by a telecommunications company--together. The second thing the Internet did was to drive the need for broadband. With the Web, people got a taste of integrated multimedia, and their appetite has been relentless ever since. Now, Internet video is becoming more and more common, with picture quality at acceptable, even excellent, levels. But they want more. They know they can get more. Now it's a question of who can do the best job of providing the richest, most dependable, most compelling types of multimedia communications services. So, really, everything is converging on the Internet or, more precisely, on communications infrastructures using technologies that support IP. From this basic protocol, a very open ecosystem of network technologies has evolved that has created a platform from which all types of telecommunications can take place: voice, video, data, and text, all in an endless combination.
Why are all the different communications services providers moving to networks based on Internet technologies?
Tony Bates: Beyond its ubiquity and role as the de facto standard for Web-based communication, Internet technology provides a two-fold benefit to service providers. First, it saves them money. Some of these bigger service providers are running dozens of networks: one for telephone, several different ones for data, perhaps a wireless network or two. And with all of the mergers some companies now have a combined 40 or 50 different networks. But Internet technologies, particularly Internet protocol, serve as a universal translator of sorts for all these different communications systems. An IP network can provide a full array of data communications, voice communications, and, increasingly, video communications, including high-definition TV. So if service providers can consolidate at least some of their networks, if not all of their networks, they can greatly reduce basic operational overhead costs. That's the bottom-line benefit of IP. Then the top-line benefit--how it helps service providers generate new revenues--is flexibility. Because IP can carry all types of communications traffic, it provides the best foundation for combining different forms of communications. So if, for example, a telephone company wants to provide video services, it can use an IP infrastructure to carry both its voice traffic and its video traffic. These flexibility demands are becoming more and more important as all service providers look to create new services that set them apart from their competitors and inspire customers.
What will determine which service providers succeed in the telecommunications revolution?
Tony Bates: Well, first, let me divide the competitors into two very different types of companies, each facing different challenges. First, there are the guys with the big bucks; the Verizons, AT&Ts, France Telecoms, NTTs. We call these guys "incumbents" since they were the ones running the telephone and data systems before the telecommunications revolution took hold. In many ways, these players have the advantage: they are huge, with lots of money, and they already have many, many customers in hand. But, their previously lucrative basic telephone services are getting hammered. Because of competition, prices worldwide on phone calls have been plummeting. Basic phone service is almost an after thought in the business these days. So, these big guys need to do something, since their old standby profits are fading fast. But they've already invested billions in huge networks that are either just plain old or at least inflexible. I think the winners from this group will be the ones who are prepared to cannibalize their own businesses before someone else cannibalizes them.
We also have what we call the "green field" players. These are brand new companies that have built new, modern networks from scratch over the last few years. Their networks are top-flight and ready to handle any kind of multimedia application that their customers might want to use. So they don't have the same infrastructure upgrade issues of the incumbents. But most of these companies are small and they have to go against these entrenched incumbents.
For either type of telecommunications company, survival and success in this new era boils down to a few basic characteristics. First, they have to be nimble. Services are evolving rapidly. Instant messaging, picture phones, municipal Wi-Fi networks; these things did not exist just a couple of years ago. Now they are everywhere. Most people agree that this type of innovation will continue for many years in the telecommunications industry. So regardless of your size or network structure, you need to be ready, really anticipate, what the hot new services will be. And this highlights the second characteristic that I believe any successful service provider must have. The winners will need a strong stomach for risk because the investments necessary to make it through this transition are challenging, to say the least. The winners will have to make the bets that put them ahead of competitors. Speed of service deployment is everything these days. Finally, they need to have the operational capabilities to deploy and manage all of these systems. These services must be as dependable as the telephone before mainstream citizens adopt them. While there's plenty of technology geeks out there, most people just want something they don't have to think about or worry about having glitches. So, all in all, telecommunications service providers face a very tall task for the foreseeable future.
