A softswitch problem...
Softswitch Setbacks Portend Larger Challenges
By Joe McGarvey, Inter@ctive Week
June 19, 2000 6:17 AM ET
Once on the leading edge of the next generation of telephone switching gear, Lucent Technologies is now rebuilding its softswitch strategy, following the departure of key personnel and the loss of a highly publicized contract with international carrier Global Crossing.
A softswitch basically extracts the call control and signaling intelligence of a traditional telephone switch and stores it on a standard Internet server, allowing circuit-based hardware to be replaced with packet-based switching equipment. This hardware is a key component of next-generation Internet Protocol-based telephone networks.
Lucent's primary softswitch architect, Murali Aravamudam, executive director of communication software, left the company two months ago for a start-up, and Global Crossing recently dropped its order of Lucent softswitches because they were too slow in routing calls.
Industry analysts said the setbacks could tarnish Lucent's reputation as the leading supplier of reliable, state-of-the-art telecommunications equipment.
"Lucent stands to loose mind share from not having an aggressive stance on softswitches," said Steve Byars, an analyst at research firm Current Analysis. "It's really a mind-share issue."
Switching gears
Moreover, Lucent's apparent hiccups in putting together a solid product based on the same type of technology that governs the flow of traffic over the Internet could be seen as emblematic of a larger struggle.
Similar to traditional telecommunications competitors Alcatel, Nortel Networks and Siemens, Lucent's long-term survival rides on the company's ability to make a smooth transition from being a supplier of traditional telephone gear to being a provider of equipment for next-generation networks.
Lucent now faces challenges similar to those that the personal computing revolution posed for IBM, which held a monopoly in mainframe computing, in the early 1980s, said Hilary Mine, an analyst at Probe Research.
Although Lucent does not break revenue into specific divisions or product lines, the company is believed to derive billions of dollars from the sale of circuit-based telephone switches, which at present control the flow of local and long-distance voice calls and come with an initial price tag of several million dollars.
But like the mainframe, circuit-based switches face possible extinction as the telecommunications industry, driven by the emergence of the Internet as the dominant communications medium, migrates to a packet-based model. This transition essentially involves chopping up voice signals into packets of data, which can then be shuttled across the public network much more efficiently than traditional voice traffic.
In the past few months, Lucent has strengthened its softswitch program by integrating it with segments of its traditional switching business and combining it with assets acquired with the purchase of programmable-switch maker Excel Switching. The new resources, which have been assembled into the Open Networks Solutions group, will enable Lucent to accelerate product development, according to Mike Decelle, vice president of marketing for the OpeNet group at Lucent.
"We had a lot of learning to do, and continue to face challenges just as any supplier of a next-generation platform," Decelle said. "It's a complex space and it takes time to bring forward the full scope of capabilities customers are asking for."
A taste for its own?
Lucent, which was one of the first companies to introduce a softswitch, also finds itself in the strategically precarious position of spearheading a technology revolution that could rob it of what is perhaps its most lucrative revenue base.
"The whole issue is cannibalization," Byar said. "That will be part of the reason Lucent is, shall we say, slow rolling the softswitch out."
Although Lucent officials, including Chief Executive Rich McGinn, repeatedly professed the company's willingness to "eat its own" in order to stay on top of the market, analysts and industry insiders said Lucent may not be willing to gobble up its circuit-based switching line as fast as the market is demanding.
While Lucent would like to control the pace of the evolution from circuit switching to packet switching, competitive forces are likely to dictate the timing. Fueled by the demand of hundreds of competitive carriers for an entryway into the voice market without the need to purchase an expensive circuit switch, dozens of equipment and software makers are rushing to market with softswitches and other alternatives to traditional voice gear.
In addition to Alcatel, Cisco Systems, Marconi Communications, Nortel and Tellabs, several start-ups appear to have pulled ahead of Lucent's softswitch initiative, including ipVerse, Sonus Networks, Telecom Technologies and Unisphere Solutions. It was Sonus' softswitch that replaced Lucent's softswitch in Global Crossing's network. Although the Lucent gear was pulled for its inability to handle the required number of calls each second, Global Crossing officials said the carrier is still evaluating Lucent technology for other portions of the network.
The good news for Lucent is that time does not necessarily appear to be of the essence. Analysts said it will likely take competitors and start-ups at least another quarter or two to begin offering legitimate replacements for local circuit-based telephone switches. Lucent also has a softswitch contract with Level 3 Communications.
"The reality is that almost nothing works now," Probe's Mine said, "and some things only work with certain applications."
In addition to the fact that Lucent has plenty of time to get its softswitch house in order, several analysts said the telecom giant is not faced with the prospect of losing its circuit-based business overnight. Though some competitive carriers are beginning to cap their investments in circuit-based technology, others, and dozens of incumbent carriers, will continue to purchase circuit-based gear, according to analysts.
"Class 5 [circuit switches] are selling great, and they will be around for a long time," said Mike Arellano, an analyst at Degas Communications Group. "If you're a CLEC [competitive local exchange carrier] in the U.S. and you want to make money tomorrow, you're going to buy a Class 5 switch."
Even so, the company faces a tough road ahead. Lucent suffered the first poor financial quarter in its history at the outset of the year, and analysts at Lehman Brothers recently warned that Lucent would not meet expected revenue in 2000 and 2001.
Cultural warfare rages on
And despite numerous acquisitions of data networking companies, including the $20 billion purchase of Ascend Communications, analysts said the company is in a constant state of cultural warfare between employees steeped in traditional telecommunications technology and new arrivals with data networking experience.
Mine said both Lucent and Nortel have a big advantage over data-oriented competitors in the area of softswitches, because of their experience in creating technology for the 100-year-old public telephone network. At the same time, however, she said, their heritage in a slow and lumbering industry could limit their ability to exploit that advantage.
"They are also both very Bell-headed," Mine said, using the industry slang to describe the mentality of telecommunications executives.
Experts said the direction the company takes in the next year or two could be crucial to long-term success.
"Lucent is trying to transition from being a market leader and having the world at its feet to having a real fight on its hands," said Christin Flynn, an analyst at research firm The Yankee Group. "It is a big year of transition." |
