ITU Telecom World 2003 Special: John Chambers and Rob Lloyd Comment On The Service Provider Strategy for Cisco

October 15, 2003

Cisco Systems® is going all-out to woo the service provider community, focusing approximately 50 percent of its R&D budget on the sector even though service provider spending accounts for about 25 percent of revenues at present.

John Chambers, Cisco president and CEO, and Robert Lloyd, Cisco president of Europe, Middle East and Africa (EMEA) Operations, explained the company's service provider strategy to press gathered at ITU Telecom World 2003.

News@Cisco took advantage of the opportunity to capture the latest high-level Cisco thinking on the service provider marketplace.

What is Cisco's service provider strategy?

John Chambers: Our service provider strategy consists of three key elements. First, Cisco is focused on building networks based on extensible and efficient packet-based infrastructures that reduce service providers' total cost of ownership. Second, we are focusing on services—layering existing and new types of services that can be brought quickly to market to generate revenue and profit growth for service providers. Finally, we plan to accelerate demand for these services by connecting business customers with service provider-driven services.

At the same time, we are looking to help service providers optimize their business, providing domain expertise to support business and network transitions, and improve operational efficiencies.

What are the key drivers behind this strategy?

John Chambers: In our view, there are four drivers to our strategy. First, our strategy is being 100 percent driven by the customer. Almost every major decision we make is driven by customers, and almost every mistake we have made has been as a result of not listening to customers.

Second, Cisco creates opportunities by moving into markets during periods of market transition—and typically these transitions occur when the market toughens, which is when you have a significant window of opportunity. The service provider community is facing such a transition now, which is why we are investing so heavily in this market.

Third, Cisco is moving in an evolutionary fashion from being specialists in routers and switches, to best in breed, to creating network-centric, end-to-end technology, which we feel strengthens our SP strategy.

And finally, doing what we say. It is hard to ask a customer to do something you are not doing yourself. Our intent is to be the best in choosing technology to change our own business processes and then using that experience for the benefit of our SP customers.

What are the key developments that have taken place in the service provider industry in recent years?

John Chambers: The past year saw a marked transition in the telecom space with widespread initiatives by major service providers worldwide to pursue converged services over converged infrastructure. Cisco has and is playing an integral part in this transformation and is committed to working with its customer to make their businesses more profitable.

In addition, service providers have become more global. And their revenue models are moving from a time-and-distance base, through flat-rate packages, to bandwidth and service-based fees.

How does Cisco's evolving technology focus benefit its service provider customers?

John Chambers: When we started out, we were a router company. Then we became a router and switch company. Around 1996, our customers wanted help in reducing support costs, so we moved into end-to-end networks.

In 2000 this developed into the concept of the 'network of networks.' This means having transparency between different architectures—company LANs, the Internet, mobile and cable infrastructures and so on—so an application will be able to see the device you are using, be it a laptop, mobile phone or in the future maybe a car, irrespective of where you are.

The move in the last year or two has been putting intelligence in the network. As everything goes on the network, we put more intelligence in the network, so customers can do more with the network. And not only is our technology getting smarter—it is also lasting longer.

Our next router will not have a three-year lifespan; it will have a 10-year lifespan. If you need to make a chassis change, you will only need to change the chassis - you will be able to swap over the cards in the back.

What can Cisco offer service providers in addition to technology?

John Chambers: A major requirement for most service providers is to lower their total cost of ownership and improve margins, but they are also focused on delivering new services to expand the existing marketplace - and this is the toughest thing for them to do.

Much of our success in the service provider market will rely on the extent to which we can help service providers with this problem.

Over the years we have developed an intimate knowledge of the requirements of the enterprise market and we can put this at the disposal of service providers to help them develop products and services that will work for their customers.

What are the characteristics of the service provider market in Europe?

Robert Lloyd: The key question being posed at ITU Telecom World this year is how to get to a next-generation packet architecture - and European service providers are helping to show the way.

Telecom Italia, for example, is leading the world in packet-based voice, carrying all its national long-distance traffic over IP - a total of 17 billion minutes a year - and saving 66 percent of its operational expenditure along the way.

T-Mobile, meanwhile, has a built a mobility service blending GPRS [General Packet Radio Service] and wireless LANs. And Fastweb is pioneering the development of managed services with an Ethernet-based bundle that gives it the highest average revenue per user in Europe.

Is IP the way forward for service providers?

Robert Lloyd: I think enterprises and service providers have pretty much decided that IP adds value and provides flexibility. The exciting thing it offers is the opportunity to drive dramatic increases in productivity - that is why it is ideal for service providers.