In shadows I see shapes, shapes of the future
Last week, many probably did not notice, or did not care that British Telecom, a company as old as Ma Bell announced list of vendors who would supply gear for its ambitious all IP network, the BT 21st CN. The $19 billion order was going to prove to be a windfall for some, and end of the road for others. It was also a road map of the future of telecom/broadband industries and it would define the future leaders.
One of the most interesting aspects of the announcement, was that Marconi, the venerable British telecom giant had been left in the cold. Alcatel, the French telecom giant that has been on an afterburner lately, is not getting any part of the access dollars either – surprising that it had so long dominated the access equipment business. Nortel was nowhere to be found as well. Instead it was names like Cisco and Juniper (via a Lucent Technologies link-up) were prime contenders, along with some bits and pieces for the usual European suspects – Siemens and Ericsson. In the world of IP, there seems to be no room for old timers.
The biggest surprise was Huawei, the Chinese upstart, which in my opinion is going to cast a long dark shadow over the old telecom equipment leaders, replaced it. So much so that there is speculation that Huawei might buy Marconi. Huawei’s inclusion sends a clear enough message: if its good enough for British Telecom, then its good enough for SBC, Verizon and every other PTT which has made the old timers like Nortel, Lucent, Marconi and Alcatel, fat and happy for so long.
In lower cost economies like India and rest of Asia, Chinese vendors like Huawei, ZTE and UTStarcom have become solidly entrenched and are using that base to learn about scale and using that scale to offer gear at prices which are far below the offerings from the old world equipment provider. In other words, the bloated cost structure of 20th century leaders puts them at a disadvantage.
At present, smart money says that Huawei’s of the world are being used a bully pulpit by carriers to squeeze dollars out of old school equipment vendors. I noted in my previous piece, the Huawei Factor, which the Chinese vendors are going to be a deflationary force that is going to force other vendors to do irrational things. I see it happening sooner than later.
Alcatel has responded by going up the food chain and offering network integration services at its unique selling point. How long can it maintain that role? Wouldn’t IBM want a piece of that? How about the newly resurgent AT&T with a deep pocketed and every willing parent, SBC?
The industry is going into the second phase of what I like to describe as self-immolation, and when it ends, there will be new leaders, and they will have strange Asian names.
Shall we say, a new telecom world order!
Om, that was an insightful piece, and I used it as a basis for my own rant. The bigger question is – what can North American and Euro vendors do to compete against this competitive threat?
consolidate, and streamlie their cost structures. it is painful what is happening, and there is nothing they can do about it except innovate their way out of the madness. it is looking bleak out there.
In my mind there is no hope for EU, old school Asian, and NA big boys. Their best bet is to merge with or sell out ( a la IBM) to the Chinese guys. This is a Darwinian struggle that they are doomed to lose. This doesn’t mean bad things for the old school tech markets, however. With the dinosaurs gone, the nimble little mammals will have a chance to thrive.
“In lower cost economies like India and rest of Asia, Chinese vendors like Huawei, ZTE and UTStarcom have become solidly entrenched…” Can you explain what you mean here ?
As far as I know, these three hardly have any market share in the Indian network market. The private players are wary of them, and state tenders rule them out in qualification criteria !
Also, the equipment game is played not just in the open market of tenders and deals. It starts on the discussion boards of standardization bodies like 3GPP, 3GPP2, OMA, IETF etc. How active are these players there ? Or, for that matter, how much innovation driven are they in the technological battles that we are seeing in the so called ‘convergent’ markets today ? How many network technology related patents are they holding ?
Ofcourse in the long run they can succeed, like Samsung has shown in telecom terminal market. But, I don’t see all the relevant ingredients, not yet !
Manish
check out some of the recent announcements from most of the carriers – BSNL/MTNL are favoring these two companies, while Reliance is going good business with UT Starcom. This is news which is commonly available on the web. lets not confuse membership of standard bodies with business opportunities. if that was the case, then lucent would win everything. next 12-months will prove that chinese are the ones to watch in India
Om, as far as I know BSNL/MTNL are not favouring chinese vendors. They had Lucent, Moto and Ericsson as their main suppliers. And the 2003-2004 BSNL deal (supposedly biggest GSM deal in the world in terms of subscriber numbers!) went to Nortel, Nokia (and Alcatel directly appointed in place of Lucent). Huawei did not win, while ZTE was disqualified from bidding (not enough market experience!). And you know Huawei bid was, surprisingly, higher than other big European/American vendors. So apparently the biggest chinese player is not able to keep down costs as it grows bigger ! Ofcourse this might not apply for all deals, but this is a fact for this particular case.
The latest buzz in India is the 30million (or 40million) GSM line tendor which BSNL has recently announced. Its not out yet, and would be a long drawn process as usual. But I have a very strong feeling it would again not be going to the chinese players. Especially because BSNL is projecting it as 3G tender. Bharti has also announced its 1billion(?) investment plan for 3G. I am again pretty sure its not going to go to the chinese players.
This is the result of business flowing from the standardisation bodies. Especially for bigger operators who have their own vision. They usually bring that vision to standardisation forum, and the big vendors take that vision forward. Invest few millions and few years in developing it. Ofcourse the operators dont have a binding agreement with them, but unless something goes horribly wrong, those deals go to these big vendors. And the asian players are pretty silent in the innovation and technological leadership area.
As I said earlier, this is especially important in the ‘convergence’ market since its bringing forth technological shifts to the forefront in an unprecendented way. So the WiMAXs, the HSDPA, the UMA, WiBro, EVDO, IMS…these are the future business makers (in the next 5-10 years). So the chinese players would grow, no doubt, they will get some business. The old GSM business, the small operator (low vision) contracts, the old PSTN infra deals etc. But it will take a lot of time for them to catch up. And that too if these shifts even out in the future, or the chinese players become big enough to lead the way in innovations.
Lets see what happens in next 12 months. And remember, I believe chinese will get business, just that they wont ‘kick ass’ yet !
And by the way Lucent is loosing business due to muddled up business tactics, and maybe their internal re-focussing cycle. Also, I would like to find out how much of Reliance business is with UT Starcom. And whether that can be termed as ‘entrenchment’ !
Manish
You wrote:
And the 2003-2004 BSNL deal (supposedly biggest GSM deal in the world in terms of subscriber numbers!) went to Nortel, Nokia (and Alcatel directly appointed in place of Lucent).
I can tell you that Nortel had to take a loss just to secure their portion of the deal. I wonder if the other two (Nokia and Alcatel) also did the same or not. And BSNL also has another option for more Nortel gear (again at yet another loss). NT used the old “strategic play” argument in justifying the loss… but one wonders if ‘strategic’ meant displacing lower cost competitors. Keep in mind that officially, Nortel does not want to play the price game in some Huawei/ZTE/UTStarcom low bids.
In the meantime, talking about UTSI, have you heard the $9/port pricing for a softswitch in Asia?
Yes Ronald I know what you mean when you talk about ‘Strategic Play’ and making losses 🙂
But I still wonder whether this is actually a loss for Nortel (and Nokia, Alcately etc.) or is it just more business at a lesser than normally expected profitability (as defined and desired). And whether this is going to be the long term story for most of the players now. And the bigger point is, can they all play this game for long ?
The way I see it, and I have tried to highlight it earlier also, the bigger European and American players will and can compete with Chinese vendors in the strategicially important market deals (like these in India) which have a long term and higher profitability growth path (just imagine if these deals means Nortel, Nokia etc winning 3G deals with BSNL new tenders). And the Chinese players would defeat them in lesser important deals (not necessarily means lower monetary value deals in the short term).
I dont see this as very good business prospect for the Chinese players, but sure they will keep on growing. Afterall, they are still more profitable with those deals. But for them to really compete, they will have to move up one more level. For example, tell me one really big and strategically important deal that the Chinese have won in the open markets ? (maybe BT deal is a bit in that direction, still we need to know more details of that)
while we all know the amount of loss that nortel is making on the BSNL deal, is there any information available on the estimated loss to nokia on their BSNL deal?