Saturday, September 16, 2006

Open source and VOIP is nightmare for Network Equipment vendors

Inspiration for this post is an article I read in Linux world about how an university made huge savings by shifting to open source PBX from Cisco one, for those of you who is interested in reading this article here is the link .Though I have been following open source projects in the field of telecommunication in general for more than 4 years I have never been more convinced then now that these projects are going to impact networks vendors bottom-line and hence a serious opportunity for other players to entire the space .

It is pretty clear and accepted fact that Linux in Operating system space, MySQL in Database space, JBoss in App server space to name a few not only posed serious threats to traditional Software vendors but forced the industries business model for ever .IBM is a solid and biggest example the company that not only embraced open Source SW but also used it effectively to turn around its business and revenue from pure product based to today’s predominantly services based business. It is worth to note that before the rise of Linux which basically formed the nucleus/heart of open source movement the commercial proprietary SW ruled the market and had good pricing power making SW industry as one of the elitist and high margin industry .But the whole landscape has changed in span of little more than half decade .My point of writing this issue is to form a basis for comparison with what is happening today in telecommunication equipment business.

Telecommunication industry has not changed much from business model perspective from the days of first PSTN network nearly more then a century before. as a result of which you can see handful of big players who are there from nearly century controlling most of the market (eg Ericsson,Alcatel,Lucent to name a few).But things are changing rapidly after internet boom with IP establishing itself as undisputed layer for carrying traffic which resulted and gave opportunities for companies like Cisco to be created .But though there was some rationalization happening w.r.t to networking technologies but business model ( i.e still customer needs to shell out per licensee fee) didn’t change .But now I think with advent of VOIP to mainstream business coupled with open source movement in this field would definitely change the landscape,VOIP forms the nucleus/heart of open source movement in telecommunication industry same way as Linux formed the heart of open source movement in SW industry. Now the interesting thing to watch is which big telecommunication player would embrace open source to propel it next stage same way as IBM did it in SW industry? I guess there needs to be similar kind of crisis as experienced by IBM in one of the big telecommunication players for it to embrace it .So far telecommunication vendors are trying to merge among themselves to survive but it wont be too long when one of them at least is forced to embrace open source ecosystem and subsequently change its business model. Which may well form the basis for their survival in converged world also?

Tuesday, September 12, 2006

European operators Convergence Strategies

This posting continues on the convergence topic but from different player (i.e. Operator) perspective. Trigger for this posting are two separate announcements from two European telecom giants. Telecom Italia confirmed that it is restructurings its telecom business into two separate units one focusing on fixed business the other on Mobile .Where as at the same time worlds largest mobile operator Vodafone announced that it is teaming with BT (British Telecom) to provide fixed broadband service under its brand to its UK customers .Idea behind this posting is to try to figure out underlying strategies behind these companies.

Telecom Italia presently has 40 billion Euros debt at the same time the group has quite large sized fixed (includes broadband) and mobile business. Many pure large mobile operators like Vodafone would envy and love to have such strong fixed business. Basic reason being that in converged market if they own both business they can bundle services better and in turn increase not only customer base but also churn out better operating margins. But for Telecom Italia story is different after failing to leverage both business together they announced that they would separate it into two separate independent entities eventually as many expect that it may sell its separated mobile unit for an estimated 35 billion euros .which could be used to clear debt and in turn will allow it to concentrate on fixed business .Already it has announced content deals with Fox to stream its movies for its broadband customer base .So in short strategy seems to be that it would concentrate only on fixed business but the same time expanding itself as Multimedia content provider. My view is that they may partner with some mobile operators to bundle services if the market looks attractive for bundled services .instead of owning all network to deliver those services in-house.

Vodafone on the other hand which is presently a pure Mobile player it has been speculated for long time that it would acquire some major fixed player ,took a another interesting but similar approach ,it tied up with BT to offer broadband services under its brand name in UK.Vodafone in 1990s was known for acquisition based mobile growth strategy .the underlying logic at that time being that scale matters and being a dominant global pure mobile player gives the required edge to maintain high growth rate .But in last year or so as in western markets the mobile subscriber growth totally slows down with no significant data revenue streams visible at the same time to offset the slow growth on pure mobile voice revenue ,Vodafone was under severe pressure to have a convergence strategy to sustain growth .The option was to go into acquisition spree as at did in 1990s only this time target being fixed Telco so that they can offer bundled services . Or partner with fixed Telco. It is with BT announcement that it is at least for now clear that it would pursue partnership route to converged services.

So basically one thing that can be concluded is that 2 big operators find that partnering route to converged services is better then owning all networks themselves to deliver those services. From my view point it makes a perfect sense to partner then to own all networks themselves .Reasons are many but most important among them is with present technologies there are no synergies to own all networks i.e. there is no significant advantage to be gained .The situation may change in future when single network can provide all services with good quality which in my opinion is not true at least at the present stage .Though you may argue how about IP as underlying tech to deliver all services but in my opinion we may have to really wait for some more time to really happen because with present available deployed network technologies none has bandwidth that can provide all services .Let me leave to next posting what I mean by it and try to argue with proper examples.

Wednesday, September 06, 2006

Nokia Buys Again

Nokia buys again this time a Location based application provider Gate5.As suggested in my earlier posting that Nokia will buy more application providers in different strategically important domains this buy from Nokia justifies my statement. In this posting I will try to put my thoughts why Nokia bought this company.
To begin with Gate5 is a smaller company then their recent acquisition Loudeye.It has 70 employees and is based out of Berlin Germany. The financial terms were not disclosed but it definitely has no impact on Nokia quarterly results which indicates cost of the aquisation should be very low .Gate5 basically has Navigation applications portfolio targeting both in car navigation systems and Smartphone and PDA market .The part which interests Nokia is navigation application portfolio for S60 Smartphone. So the basic logic and reasoning behind this buy seems pretty clear that Nokia would like to ship this software as default in their high end N Series Devices which are expected to have inbuilt GPS receivers’ question might be is why couldn’t Nokia partner with some other more established and popular navigation SW vendors like Tom-Tom ,Route66 or Navicore who also have similar offerings My guess is that Nokia would try to push in long term to have GPS revivers in mid range phones also and would like to ship navigation SW as part of basic device offering so as to have a competitive offering. So in such a scenario to have cost effectiveness it is better to have application in house rather then through partnering process. Another interesting move might be that they start bundling this navigation SW with their Bluetooth enabled GPS receivers so as to offer complete solution rather then selling just GPS receivers to customers like now .So in all it makes sense to acquire company like Gate5 .
Another interesting thing to note is both gate5 and Loudeye buy are though strategically crucial for Nokia they went and bought small companies with tech assets rather then buying big companies with already established customer base for example instead of buying gate5 Nokia could even have bought much bigger and established company like Tom-Tom .This basically shows that Nokia thinks it has great brand value and the converged space is still infancy stage and hence by acquiring small tech focused companies today it would be in great position in future when this market hots up .And another thing is that Nokia would still like to be primarily device vendor but at the same time wouldn’t like the value to be taken away by SW and application service vendors hence would like to bundle crucial applications and services itself in devices and use it as differentiating factor w.r.t to competitators.I would say all of its competitors including Motorola are lacking or unclear about their strategy in this space i.e. converged device space)It would be definitely would be good to see how these companies react if and when this market of truly converged devices happen and also worth to watch is weather Nokia startergy really pays off .