Communications Watch: Why brand matters
By Om Malik
Red Herring
October 15, 2001
In the hard-hat world of telecommunications, does anyone give two hoots about
the brand of the equipment installed in the central office? The answer is yes.
With startups falling like leaves from birch trees, telecom carriers are becoming
increasingly conservative when it comes to doing business with younger
corporations.
A quick check with some of the largest buyers of new networking and
telecommunications equipment shows that despite having grave doubts about the
research and development abilities of large equipment vendors like Nortel
Networks (NYSE: NT), Lucent Technologies (NYSE: LU), and even Cisco Systems
(Nasdaq: CSCO), these carriers are willing to make purchases from them.
"Startup carriers typically go with startup equipment
makers because there is greater customization of
product and more wriggle room when it comes to
pricing on smaller orders, but larger carriers are tied to
larger vendors because of bulk buying and the need for
interoperability across vast networks," says Robert Saunders, an analyst with
Eastern Management Group, a New Jersey-based telecom consultancy.
TURNING UP THE VOLUME
Amen to that, says Charles Fleckenstein, a spokesman for Sprint (NYSE: FON),
who adds that the long-term viability of its equipment supplier is a top priority.
"Can the company provide support, is the equipment interoperable with other
gear, and can the vendor provide the equipment in volume?" he asks.
"Does brand matter? To be honest, we entertain a lot of suppliers and we are
driven by the need for high quality and good price. As this is the case, our
purchases have generally gone to established manufacturers," says Frank
Denniston, president of networks at London-based Flag Telecom (Nasdaq: FTHL).
Flag's vendors include Alcatel (NYSE: ALA), TyCom (NYSE: TCM), Lucent, Ciena
(Nasdaq: CIEN), NEC (Nasdaq: NIPNY), Juniper Networks (Nasdaq: JNPR), and
Cisco.
"It does not mean that we don't track and encourage startups with new ideas,
sufficient capital to deliver, and proven technical competence," adds Mr.
Denniston. "As a purchaser in these economic times, we closely watch what we
buy, but are able to exercise a great deal of leverage when dealing with any of
the suppliers." He points out that the company has bought metropolitan
networking equipment from a relatively young company, Zaffire, and is in the
process of having discussions with others.
But read between the lines, folks: startups will have to cut their prices to the
bone to win business from the carriers.
DOWN THE FOOD CHAIN
These are tough times for startups. One couldn't blame them for throwing in the
towel, but some are looking to adapt. Take Boulder, Colorado-based Network
Photonics as an example.
The company started out making full systems, but realizing that it is going to
have a tough time in the near future, it changed its business model. Now it makes
subsystems, which are like knock-down kits that will eventually be sold to other,
more established equipment makers. Lightchip, a Salem, New Hampshire-based
startup that makes optical subsystems, is also seeing its revenues increase
gradually and is said to be a supplier to Cisco.
Companies like Cisco or Nortel buy these subsystems, add their own bells and
whistles, and sell them to increasingly brand-conscious carriers. As they say,
when life gives you lemons, make lemonade.
In the next Communications Watch, I will be exploring the market opportunities
for subsystems.
To get this column sent to your inbox, subscribe to the email newsletter. |
