Dream Networks Face Nightmare Forecasts
by Sandra Borthick

Published December 2001

Abstract:

It's a shame the market can't muster more enthusiasm for the current crop of routing and switching products. How ironic that such a strong and diverse set of options faces the most dismal purchasing forecast in years.

A broad range of routing and switching options are competing in a very tight market. It would be a buyer's market, if the buyers weren't just as financially strapped as the equipment vendors, and if anyone could see how to break the broadband access bottleneck to profitably market the capacities and services these new technologies could unleash.

Instead, the carriers have announced 5- to 20-percent capital spending cuts for next year, and an even slower pace of DSL deployment. In reality, the capex cuts began this year.

In the current market, vendors are soft-pedaling technical differentiation and instead emphasizing their products' cost-effective scalability, reliability and the opportunity to gain share in "market transitions." This makes for a sensible pitch in these uncertain times, but carriers would have to be crazy to trumpet their adoption of any cost-cutting technology without announcing some high-margin services to layer on top of it. Otherwise, customers would expect the economies to be passed through, and the carriers would end up cannibalizing their existing services.

Unless someone figures out how to make IP-based network services attractive, and how to break the local access bottleneck, the future belongs to the past. The consolidated IXC/ISPs and the re-monopolized ILECs have already withdrawn or slowed all their integrated and broadband offerings, and will likely try to just starve out their latest Ethernet-based competitors—like Cogent, Telseon and Yipes—much as they did with DSL providers Covad, NorthPoint and Rhythms.

The only good news in this—and it's pretty weak—is that the product "playing field" is more level today than it has been in years. No longer do incumbent vendors like Cisco, Lucent and Nortel enjoy unquestioned, cozy relationships as suppliers of record to their carrier customers. Most of them spent the last few years, and a lot of money, buying up new technology start-ups and trying to incorporate often-immature gear into their product lines. They are as highly leveraged, vulnerable and hungry as some of the startups.

There's really nothing the equipment and component suppliers can do about this gloomy prognosis, except perhaps to arm and encourage those service providers that might yet take on the titans, break the access bottleneck, and roll out some real competition.

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