Carriers struggling over IP

Newly merged telco giants must face down integration and financial issues before they can tackle enterprise IP.

Telcos to vie for corporate customers, but not with advanced IP services at first.

Like Godzilla preparing to storm Tokyo, the new AT&T (formed from SBC/AT&T merger), Sprint Nextel and Verizon (with MCI) will soon pursue corporate customers with a monster-sized vengeance. But from all appearances, advanced IP services, as critical as they ultimately will be, won't be part of their early attack plans.

Instead, the behemoths will first promise corporate users more integration packages, consulting options and managed services. They'll battle furiously on these fronts, intending to turn decent profits that will see them through the longer-term fight for IP dominance.

Experts don't expect carriers to make major corporate IP inroads until 2009. Many corporate IT executives are concerned with more practical matters. For instance, some say they just want to see familiar faces once the merger dust settles. Others say they hope customer service doesn't tank as the carriers become internally focused on merging assets.

"We are not worried about infrastructure support, just the continuity of people in various organizations. The backbone of each of the major carriers and their partners are more than sufficient to handle our requirements. We also believe that our choices for equipment and network services will not be impacted by the vendors' consolidation," says Tony Pizzelanti, vice president of IT at Anthony Sylvan Pools, a pool and spa company in Mayfield Village, Ohio.

Though not overly worried, IT officials stress that they don't want to be ignored. "I have not been approached by any of the major carriers in quite a while," says Anthony Maceroli, managing director of IT at Fitch Ratings, a New York issuer of ratings and opinions on major credit markets that uses Verizon services. "It seems Verizon is preoccupied with the integration of MCI. It hasn't been in marketing mode as far as I can tell," he says.

Ignoring existing customers and missing the chance to grab additional corporate accounts would be a mistake for any of the carriers, especially given their need to address "three main pain points," says Gary Rubinoff, managing partner at BCE Capital, a venture-capital firm in Toronto. "As the [incumbent local exchange carriers] face increasing competition and erosion of their legacy voice-revenue streams, they must focus on increasing cash flow, reducing capital expenditure and improving competitiveness. Service platforms generally address all three of the pain points," he says.

Each carrier's platform will bear its own stamp, says Lisa Pierce, a vice president of Forrester Research. For example, Sprint Nextel will try to exploit its wireless and wireline convergence, while the new AT&T will try to make the most of its expertise with MPLS and in network management, she says.

Reading Verizon's future direction is tougher, Pierce adds. "There will be a lot of picking and choosing in terms of the best services MCI has to offer," she says, noting that Verizon is unlikely to abandon its new iobi Enterprise voice and messaging services platform.

Bob Rosenberg, president of Insight Research, explains the carriers' reluctance to move to IP: "In the near term, no one is going to benefit from IP. What you will see is essentially a diminution of revenues as carriers move customers from TDM to IP." But that reluctance can only last so long, he adds. "The problem with IP for the carriers is that they lose control of the end account. Over the longer term, there may be newer opportunities for the providers. But this will only happen when they are no longer phone providers but providers of digital business services," he says.

//The battle for enterprise accountsHere’s what to expect of the carrier conglomerates when it comes to your business:

The new AT&T will play up MPLS and network management.
Sprint Nextel will tout wireless and wireline convergence.
Verizon first will focus on MPLS and move into convergence.

This fundamental identity shift will be difficult but imperative, Rubinoff agrees. "The growth of IP technology in the network has proven to be a double-edged sword for the ILECs. Specifically, it forces the carriers to be providers of low-value packet pipes," he says.

While carriers have their fair share of IP problems, the shift has been slowed further by lethargy on the part of corporate buyers, Pierce says. "Close to half of the business customers we talked to in a recent study said they didn't see any reason to move" to IP voice, she says. "Generally, there will develop a greater acceptance of IP and movement in that direction. But what customers say vs. what they do in terms of IP adoption can be very different. It will be incremental and involve no hockey stick."

Steadfast interest, but no big moves

Incremental or otherwise, many corporate customers say their interest in IP is steadfast. "Although our underlying network architecture has changed several times over the past 10 years - going from frame relay to ATM to MPLS VPN - IP is still our major need and seems to me to be as futureproof as any technology," Fitch Ratings' Maceroli says.

At Fitch Ratings, all internal applications are browser-based, so the company mostly runs HTTP and Web services from remote offices to the data centers, he says. In addition, the company provides data feeds to outside customers via IP and allows travelers and telecommuters remote access to internal applications via IPSec.

Sylvan Pools' Pizzelanti also characterizes his company as ready for the IP plunge. "We started early enough in our planning to be ahead of any thrust by vendors toward VoIP. We went to them at least one and a half years ago," he says.

Major moves aren't likely, however, Rosenberg says. "No one believes that most enterprises are going to forklift TDM and replace those infrastructures with IP gear. We are predicting that 2009 will be the first year that you'll see more IP sets on desktops," he explains.

This steady evolution to IP, however, hinges on the carriers' embracing IP, he says. "There are some very innovative ideas out there. But there just isn't any marketplace traction until the carriers back them," especially because only the largest companies can justify building their own advanced IP networks, he adds.

For now, start-ups and smaller companies have been the ones dashing out in front with IP-based solutions, observes Rubinoff, whose firm has backed IP players Sylantro and NexTone. "We will see ILECs offering their own versions of VoIP," he says - just not right away.

Jones is a freelance writer in Vienna, Va. She can be reached at Jjwriterva@aol.com.

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