Hi Sam,
I’ll respond to your questions that are quoted below with a preface that states that, the cannibalization that has taken place causing much of the erosion of profits in the common carrier business have not slackened to the extent that we’re now at a ground zero playing field. The same effects linger, with everyone hoping we’ve hit bottom, but I don’t think so. We’ll continue to see things like the PSTN going away, or fading quickly from the image it once was into something that sits behind the curtains simply to assist in a massive migration to IP and other packetized forms of traffic, while enterprises continue to leverage their own (customer-built-and-owned) network infrastructures, which are dramatically different in functionality and cost structure than the models they’ve used for the past quarter of a century.
The migration goes on, in other words, with corresponding effects on the overall economic model being one that approaches zero pricing, but will never quite get there. It’s like the movement of the second hand on a clock as one undergoes spaghettization while approaching the bottom of a black hole. The second hand never quite stops moving, yet it never makes it to the next digit.
(To my economist friends out there, please don’t take what I’ve just stated literally, although the effects I’ve described have been eerily close to what has actually taken place in the telecom space, if you want to start by comparing the price of a call from NY to Rome Italy, of just ten years ago. In fact, under the present conditions international voice services can be said to be so cheap as to cost virtually nothing today, sans the cost of a broadband pipe that is leveraged against everything else one does.)
"... make a prognosis to what extent within the next three years the major IXCs (ATT, MCI and Sprint) will (or won't) outsource their long haul networks to the likes of Level 3, Broadwing, etc"
It's funny, uncanny is probably a better word, that you should ask that question of me at this time.
I recently spoke with a VC friend about the plausibility of doing a rollup of non-dominant players in the emerging fiber-to-the-x arena, along with some of the smaller cable operators and VoIP plays. Muni nets and independents also came into focus. The intent being, to leverage both of the carriers that you mentioned as affordable, dual-homed interstate backbones for these local providers, while at the same time generating a source of much-needed revenue for these state-of-the-art optical backbone players. [If you or anyone else here knows of someone who would consider this in a serious, albeit highly speculative, way, you've got my email address.]
One problem that is becoming more obvious with each day is just how, exactly, the interstates, especially those that are not vertically integrated from the mixed residential-smb-soho-enterprise community levels on up, are ever going to make money again. The inter-exchange carriers that you mentioned have all but given up on traditional facilities based, or even unbundled forms of facilities based retail to anyone other than large corporate enterprises and government bodies, and even there many of those are rolling their own networks by using the fiber capacities offered by their less dominant peers and by some of the lower order providers that only pull fiber for a living.
And these same IXC giants of yore have elected to offer a lower revenue generating model of parasitic voice (Vonage-like voice applications that ride over other peoples’ broadband channels) to gain as much traction as they can, while viewing each of their additional quarterly reports with added dread.
Will this be sufficient to replace the tens of billions of dollars they’ve already lost and continue to lose annually for this and other reasons, including the effects of IP normalization and the neutralizing effects brought about by the bandwidth abundance spawned by the activities of the boom years? I don’t think so. So, they will have to look at innovative ways to turn their next buck, it seems very clear to me. It’s either they become successfully innovative or some massive takeover by the government will have to take place (no, it is not possible without imposing an undue amount of pain on national welfare to have any of these go into default and then fold, which is probably an excellent topic for another thread), or forsooth!, pricing levels mandated by law that will allow them to survive. I don’t think we’re ready for that approach yet, either. So the market will have to mend itself like it has been doing for years. Which does lead to another interesting possibility, of course, and that is for any of the IXCs you mentioned doing a planned restructuring, including filing for Chapter 11. Heck, that’s how most of their leaner, meaner and younger competitors have done it, and continue to eat at their heels. I’m surprised that AT&T hasn’t taken a similar approach (of course, MCI already has filed and returned, but for different reasons and with an end result that is, itself, still in question).
Returning to my idea of a rollup of the less dominant providers that I began this reply with, while I don't think that this will come about en masse, as I hypothesized above, I can certainly see some portions of those less dominant provider communities banding together to enhance group purchasing power, if not also being folded into one or both of the backbones you cited as local service entities, as well. The latter would satisfy the need of the backbones by adding the vertical integration component that they are lacking today. The pendulum sometimes swings in unpredictable ways, however, sometimes keyed more to the regulatory whims coming out of Washington and the District Courts than other economic impetus, so who can really tell what will become commonplace, or even economically plausible, three years out? My present horizon doesn’t extend beyond six to twelve months, and even that window can prove to be frivolously irresponsible, depending on where and when the next bombshell is pointed.
As for the larger three IXCs, AT&T, MCI and Sprint? I can’t tell you which peg fits which hole, because the dimensions of the pegs and holes are both changing rapidly with time. Sprint seems to be chumming up with the cable operators again, and it wouldn’t surprise me to see them do something there. MCI and T have been cited as talking with one another, but neither will admit it. Most of the RBOCs have stated that they are not in the market to purchase a long haul carrier, and will build their national nets piecemeal, instead. But who could deny that picking up the subscribers of either AT&T or MCI, or both, could represent anything other than an upside event for them?
You asked:
“… whether you would think the major focus would be on buying dark/dim fiber, wavelength or even IP capacity (if the latter is possible at all).”
In theory, wavelengths would appear to be an ideal unit of network currency, like T3s (and slowly encroaching OC3s) have been now, for some time. In practice, however, very few providers are set up to deal with wavelengths as such, because there is no common distribution mechanism in place within the larger xLECs and IXCs for dealing with quantities of light in a productized manner, other than to the largest enterprise users and other carriers who will treat those wavelengths as a semi-permanent or permanent utility channel.
Carriers will readily use wavelengths to groom their internal traffic, but they are less up front about their willingness (or their preparedness) to sell them at the retail level at this time. I underline “at this time” because as technology advances lambdas (wavelengths) will become as malleable in the future in the optical, photonic domain as T1 streams are today in the electrical, digital domain. We’re just not there yet.
“ To what extent does insufficient standardization in the IP and MPLS area make outsourcing of IP capacity impracticable?”
I guess I’d have to first ask you, what type of organization is seeking the outsourcing? Is the user in this case a carrier or an enterprise.
Internet Protocol (IP), per se, is standardized across mostly all commercially viable public Internet domains, despite variations in versions. The latter find a remedy through backwards compatibility provisions. For example, the manner in which Ipv6 is able to carry Ipv4 traffic through encapsulation techniques.
MPLS and most of IP’s “helper protocols,” as poster ftth likes to call them, like those that support Quality of Service, or QoS, in particular, and the variations in which some VoIP traffic is handled from one provider to the next remain balkanized to some degree, differing sometimes widely from one ISP’s autonomous system (AS) to another’s. Attempts at harmonizing these dissimilarities continue to be publicized, but I’m not sure any real progress is being made there to speak of, other than implementations that are situation-specific and requiring a partnering approach between two or more SP in order to satisfy a given large users’ demands. To that extent I’ve seen routes and nodes customized across SP borders for a large institution, but it’s not common practice for them to do so.
At this point if one of our 'Net-savy friends from Cisco and / or elsewhere would be kind enough to add a few words, while at the same time showing me a little bit of leniency for the license I took above, it would be appreciated.
Comments, corrections, questions are all welcome.
FAC
frank@fttx.org |
