That's my question! LVLT has not achieved a lower cost model...yet. They believe they can get there however. I'm not sure I buy into some of what they're saying - I don't have neither the background nor the crystal ball - but I'll try to articulate some of their points here - my apologies if some of this stuff is technically inaccurate. I have an EE degree that I haven't used in many, many moons!
(1) Pure IP Network. Packet switched networks make inherently more efficient use of available bandwidth than circuit switched. IP is the most widespread form of packet switching. THe analogy they point to is VHS videos. IP has achieved that level of standardization in the data world. Voice and later Video over IP will allow one network to serve all communications needs once Quality of Service issues are resolved. Right now they're addressing the problem like everyone else - by running IP over ATM, which provides QoS. But ATM forces you to pay a price....additional bits for flow control that LVLT believes are ultimately redundant if technology evolves to the point that IP can do without ATM altogether.
So that's the inherent advantage of IP Packet vs. Circuit. However, LVLT believes that on top of that, their focus on IP gives them freedom from legacy equipment, business processes, personnel requirements, operation support systems, and other baggage that might be very costly for other carriers (including, they're saying, Qwest) to carry in order to support their circuit switched business, and ultimately even more expensive for them to shed, if and when they decide to scrap their circuit investments to go pure IP in the future.
(2) Upgradeability. Lvlt is trying to build a highly upgradable network. They're installing a minimum of 6 conduits, only one of which they're initially using. Equipment, processes, oss,... they're saying everything they're doing is based on open standards with upgradability being the key objective. With this as well as their focus on IP, LVLT believes they are in a strong position to capitalize on future tech. advances, which they like to say are happening a lot faster in fiber and IP-related technologies than in any other communications technologies, especially Circuit switching. They believe they're in a better position than anyone else to pass the resulting cost savings to customers as the equivalent of Moore's law takes hold in telecom.
(3) Targeted customers. They're targetting business customers in major population centers, not residential. This is a much higher profit margin business, and they believe this gives them additional focus and allows additional cost savings.
(4) End-to-end service - both longhaul and local. THey may be able to avoid paying local access charges to rbocs and the like for a good chunk of their traffic; plus control of the technology all the way through the network - making for simpler, more manageable infrastructure.
(5) Strong role in standards bodies. They are working closely with major equipment vendors and standards orgs in defining future standards so they won't be caught off guard.
(6) Management team. That might be their greatest asset. 18 of their top 20 execs are from MFS, which was a big success. They've been there done that to a great extent. THey're familiar with the political and regulatory challenges, know the competitive playing field pretty well, and are (from what I gather) bent on revolutionizing the industry. I.e. they've made their money. Now they want to achieve greatness. |
