5/4/98 Telepath article. Discusses changes in RBOC procurement policies. Very favorable for companies like ASND, e.g., Bell Atlantic
"Measuring up in a whole new market. Rigid old procurement policies give way to faster, more flexible purchasing patterns"
pubs.cmpnet.com
By Alan S. Kay
May 4, 1998
.......
Not that long ago, there was little point in asking about relationships
between telephone companies and equipment vendors. After, all AT&T and
the Bell companies dominated the industry and bought virtually all of their
equipment from Western Electric, a sister company.
Things have changed a lot since you could have a dial phone in any color you
wanted so long as it was black. In the decade and a half since the government
broke up the Bell system, the telecom marketplace has fragmented, with a
confusing array of new service providers-CLECs, ILECs, IXCs, CAPs,
ISPs-battling for share in markets that until recently were barely more than
futurists' visions. And a host of new equipment suppliers have sprung up to
serve those new carriers as well as the traditional service providers.
But telecommunications is not like other new marketplaces. The hallmark of
the voice telephone system is reliability: One of the touchstones of the public
switched telephone network is that the dial tone will always be there.
To preserve that reputation, local carriers and long-distance companies must
temper their desire for cutting-edge, cost-effective equipment, much of which
is new and unproven, by imposing some old, familiar-but expensive and
time-consuming-requirements to meet traditional central-office equipment
standards.
But expensive and time-consuming are not advantages in the age of the
Internet and new competition. "Smaller, newer companies are much more
adaptable to new technologies and innovative ways to get technologies out
quicker," said Buzz Schadel, vice president of corporate marketing for
eFusion Inc., a Beaverton, Ore., Internet telephony vendor. "The reason you
see alternative carriers like WorldCom growing so much is that these newer
upstarts are much more flexible."
"With their brands and their facilities-based infrastructure, the traditional
players are so slow to move," said Kelly McGovern, vice president for
Internet and telecom marketing at Bay Networks Inc., in Santa Clara, Calif.
"They're surfing this voice wave, and things are looking good. But there's this
rock under there-and that's the emerging carriers."
The issue of how to introduce equipment from new vendors into central
offices is far broader than just new competition, though; it also involves the
development of new data-oriented markets. These are markets in which
traditional carriers, both local and long distance, want to compete.
There's certainly no shortage of hardware and software vendors ready to sell
data-oriented gear to service those markets to Bell companies and other
established carriers. But the culture of provisioning the telephone central office
isn't one that's historically been very open to new technologies and to young,
untested companies.
That may not be much of a problem for established voice carriers, at least not
right now, according to one analyst. "One of the things I think it is crucial to
understand," said Tom Nolle, president of CIMI Corp., a telecom
consultancy in Voorhees, N.J., "is that this 'rapidly changing marketplace' is
not changing all that rapidly. Voice networking or traditional networking
accounts for 90 percent of the revenues of the common carriers.
Institutionally, they are fixated on a level of service, quality and reliability we
have come to expect."
In carrier voice networks, quality of service is maintained largely through
adherence to standard procedures and equipment specifications. Key is the
Network Equipment-Building System(NEBS), a set of hardware
requirements intended to ensure that equipment is designed efficiently and
operates reliably. The NEBS standards, originally established in the 1970s by
Bell Labs, define a set of spatial, environmental and safety requirements for
equipment to be used in central offices and other telephone buildings.
NEBS certification is a lengthy, costly process. According to Crystal Group
Inc., a Hiawatha, Iowa, company that manufactures computers for telephony
use, obtaining NEBS certification can cost an equipment manufacturer
upwards of $100,000 per piece of equipment tested. The cost of this
certification typically is passed on to the buyer, making NEBS-compliant
equipment significantly more expensive than comparable commercial
equipment.
To challenge that mind-set, incumbent carriers may well need to turn to
young, small, venture-backed companies, many of which may not yet have
track records in shipping products. Historically, that would have been a
problem for companies that descended from Ma Bell. But Mr. Nolle said that
won't be a problem in the future-so long as the equipment isn't going into the
central office.
"If the carrier community is presented with a combination of a clear service
opportunity and products that are noticeably superior in supporting that
opportunity, the carrier community will buy them, regardless of the pedigree
of the vendor," he said. "The carrier community will certainly value experience
if the features and other characteristics are equal. But where no comparable
capability is available, they will buy from the new player."
Mr. Nolle suggested that carriers will increasingly begin to segregate their
facilities, creating data-networking centers in locations physically separate
from voice-telephony central offices and provisioning those data sites with
less expensive, commercial-grade equipment.
That's a widely shared vision of the future-one in which data connectivity
services are provided by a wide range of carriers and service providers. For
the new competitive carriers-those without local dial-tone
responsibility-NEBS compliance will be an issue only if they choose it to be.
Given the nature of the competitive environment, that's not very likely, at least
in the case of enhanced and data transmission services.
In fact, vendors report that competitive local exchange carriers (CLECs) and
Internet service providers are buying enterprise-grade routers, switches and
other networking equipment rather than telco-style equipment.
"Think about some of the larger national Internet-backbone providers. Many
of them service their Internet access customers out of real estate that isn't the
traditional central-office-based environment," said Marilyn Suey, marketing
vice president at Assured Access Technology Inc., a young Milpitas, Calif.,
manufacturer of high-density switches. "It's more like a computer
environment. There, environmental and safety requirements aren't as stringent
as they are at the NEBS3 level."
Service providers aren't reneging on their commitment to high availability, said
Mr. Schadel of eFusion; they're finding other, less expensive ways to deliver
it, such as a network of systems that operate in immediate failover mode.
"I like lots of little boxes," said Marc Evans, chief technology officer at The
Destek Group Inc., a Nashua, N.H., company that provides WAN
connectivity to businesses and institutions. "If I'm only deploying one or two
pieces of gear, I'm taking a risk with computer-grade gear. But if I'm
deploying many of them, do I really care if a small percentage of the overall
equipment fails?"
Money, in particular the cost of equipment, is a significant issue for service
providers. Mr. Evans said a big price differential can help vendors build
reliability into systems by using additional equipment and by having spares on
hand. He said he evaluates computer-grade equipment on the job to
determine its behavior and reliability, and then he shops for price. "If I save
50 percent, it's a heck of an incentive," he said.
Ironically, the purchasing and decision-making styles of the large, established
telephone companies and the new competitive carriers appear to be
converging. ISPs and CLECs are becoming more structured in their
purchasing processes as they grow, according to equipment vendors.
Said Joe Furgerson, director of marketing at Juniper Networks Inc., a
Mountain View, Calif., vendor of Internet hardware and software: "These
people are managing huge networks. There's certainly a lot in the lineage of
the telcos to be learned: You do have to proceduralize things because, if you
don't, you're dealing with so many people across so many functions that your
network operational performance can get compromised."
Some vendors, who didn't want to be identified, said the Bell companies are
having a hard time with the rapid growth of the Internet. "They can't deal with
it," said one. "It's not voice but data, it's fast moving and it requires some
bend."
Nonetheless, things are changing rapidly. While many critics have argued that
the hidebound bureaucracies of the Bell companies wouldn't-or
couldn't-change until the generation of managers who learned the business in
the old Bell system had been supplanted, recent developments suggest the
shift is already occurring. For example, many of the Bell companies have
created nonregulated business entities to market lower-margin but
fast-growing data services.
U S West Enterprise Networking has made the cultural shift necessary
to allow it to be quicker in the marketplace, according to Mike Sapien,
vice president for market development. Emblematic of that, he said, is its
positioning of its data-oriented business. "Six years ago, when Enterprise was
started, the whole data business was a small boutique business within U S
West. The difference now is that we have become more of a heartbeat of U S
West, focused on the data movement we need to make and the Internet
space we're going toward."
Changing gears
As part of that shift, the company's purchasing philosophy and management
attitudes toward it have changed as well. Where once every purchase
required a request for proposal and a formal evaluation, testing and approval
process, time-to-market concerns have led to a softening of that bureaucratic
resolve.
U S West is trying to speed up the process by taking new approaches. The
company has established a strategic relationship with Cisco Systems Inc. and
is relying on Cisco to bring in other technologies that will get U S West closer
to the IP world more quickly. This approach, Mr. Sapien said, reflects a new
pattern of alliances with vendors rather than just purchasing relationships.
There's also more room for newer and smaller companies to sell to U S
West, although one of the best ways for that to happen is through Cisco as a
partner. Helping that development, Mr. Sapien said, is a shift in U S West's
attitudes toward standards compliance. The company is showing "a little more
tolerance" for some variance in compliance with standards such as NEBS for
central-office equipment. At the same time, he said there is a pattern
developing of placing nonvoice equipment in a corner or another room so
they're technically not in the central office and therefore need not comply with
NEBS.
One of the most radical shifts in Bell company procurement patterns is to be
found at Bell Atlantic. Ethelyn Katz and Teresa Carroll, director and vice
president of corporate sourcing, respectively, said the company has created a
new purchasing structure that mirrors the segmentation of the markets Bell
Atlantic competes in, rather than its internal bureaucracy.
The team approach
Bell Atlantic now pursues its sourcing needs with suppliers using 11 teams of
sourcing and technology professionals that manage market segment purchases
regardless of what business unit that technology is for. It is, Ms. Katz said, a
"very flat" organizational structure.
"We're now defining needs across the entire organization. Those needs are
then taken to the marketplace by corporate sourcing," she said. The teams
represent the stakeholders seeking the acquisition and are empowered to
choose products and make the buy on behalf of the company.
The change allows Bell Atlantic to buy current technology as needed to suit
the company's target market positioning, rather than having to tailor
purchasing decisions to decades-old standards, the two said. That doesn't
mean relaxed standards, but rather clarified ones, they added.
What does this mean for Bell Atlantic's willingness and ability to buy from
nontraditional vendors? "Our new approach allows us to say to the
marketplace that we will consider all possible suppliers," Ms. Carroll said.
"All you need to do is tell us what you're about and how you will meet our
needs."
Assessment of those suppliers, she said, is now done on an
acquisition-by-acquisition basis. "Our source-process leaders are out in the
marketplace every day, finding out what's going on. And part of the
empowerment of the team is to look at suppliers for another way to do things.
If it will bring value to Bell Atlantic, we should always be open to changing the
specs, for example," Ms. Carroll said.
Can a new purchasing structure change a Bell company into an agile
competitor in new markets? That assertion is, understandably, greeted with
some skepticism among telecom veterans. But it does seem clear that the new
competitive marketplace, both for the new players it involves and for the
pressures it has placed on existing carriers, has opened the door far wider for
a new generation of vendors to enter.
Alan S. Kay covers business and consumer technology from San
Francisco.
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