Redback President sees opportunity in telecom slump

The impact of the telecom downturn on the larger players is well chronicled. But even though affected similarly, some smaller players are viewing the slump as an opportunity to show their stuff. Redback Networks President and CEO Kevin DeNuccio recently shared his perspective with Network World Managing Editor Jim Duffy.

What's to spur broadband?

The FCC is protecting a class of customer that doesn't exist anymore: the data CLECs. The data CLECs are all gone. They have to release the RBOCs for an unbundling situation. DSL is not on a price curve it needs to be on. It is a high-risk business in that it doesn't make money today for most of the RBOCs. If they want them to invest in that we've got to look at the cable companies and new wireless technologies as a competitive threat to that. Meaningful regulatory change, I think, is within six months.

271 relief here is an opportunity for an SBC or BellSouth or a Verizon to go in and capture the business from the IXCs. That's what I think is going to change a little bit in terms of where data dollars get spent. That's important for us because even though we supply all the IXCs with SMS [subscriber management] gear, they're pretty small in that space. They're either for backhaul or their small DSL efforts. We're well positioned with the RBOCs and the PTTs around the world. Our core competency in subscriber management and in how you manage a network is going to play to our strengths. The way they manage DSL networks today is the most sophisticated way of any network management. When you start to think in terms of VPNs, an SMS model of managing your network is a very intelligent way of managing your network. Our customer base and our position in DSL is positioning us really well to play in how they think about re-architecting the edge of the network.

Are you targeting mulitcable systems operators (MSO) more aggressively given the impending collision with the regional Bell operating companies?

We are just beginning to (target them). In countries where cable companies run like the RBOCs do - they offer broadband as a wholesale service to ISPs or to content providers - there's an SMS model usually in place. We play in that kind of space around the world. In the U.S., they have not been doing that today. But they're just coming around, and they're coming around for two reasons: one is, with this open networks that they have, some power users are chewing up a lot of network processing and network bandwidth. So they're looking for a way to cordon off these high-powered users so they don't sink a whole neighborhood. The second is, are there new kinds I can offer where you might want to do user management. Up until now, there hasn't been a driver there to do a user management model in my network. We have some significant opportunities that we're working.

Would Redback consider getting into the cable modem termination system business?

Right now, I've been paring down what we do given the fact that I think we need to get more focused. To get through the downturn that we're in with the balance sheet that we have, we need to be very tightly managed as a company. We're focused now and where we have significant differentiation. We have to get our foothold and then grow from a position of strength. You mentioned optical transport. We've really backed down on our investment there, significantly. We haven't discontinued the product line but we got a very small R&D team so we really downsized the R&D team. So our product roadmap is fairly limited there. It's not a big push by us today, the optical transport space. Reality is No. 1, there's not a lot of spending there, virtually none; and No. 2, it's the kind of technology that you can throw a lot of money and engineers at and you can do it. So when I look at the competitive landscape I say the traditional guys are not going to give that up, because circuit switching is dead. Optical transport is their next biggest business. This is not sophisticated engineering; it just takes dollars to do it. There's no way a small company can keep up with these guys. Strategically, we're taking care of our customers and we're doing the features that our customers are demanding us to do. But I think we will migrate a lot of those net works to routing. Our routing and SMS differentiation is so huge compared to Cisco or Juniper or anybody else in the business, or we wouldn't have the traction we have today in a weakened state and in a weakened environment that the world is in.

Are you committed to the intelligent transport market or are you going to exit it?

We're not exiting it but we have completely changed our view as to what our investment profile needs to be there. Our investment profile is to satisfy the customer base (Williams, Genuity, Qwest) that we have vs. trying to necessarily grow it as a strategic thrust for the company. We can evolve those networks and evolve the rest of our business opportunity with the customer set, and not try to go for the continued leapfrog, generations of intelligent transport.

In edge routing, what are your chief differentiators from Cisco, Juniper and Laurel Networks?

If you look at SMS and what Redback built, it built an operating system for the first time with user-to-network in mind, not network-to-network. If you look at IOS and the way it was architected, it was designed really for the enterprise, a multiprotocol router. It was the only IP operating system so it moved in and became the Internet as well.

Juniper inserted in by building a core operating system. They inserted in at the high-end when Cisco couldn't scale up.

Both of those operating systems though, form a design standpoint, were designed with network-to-network communications in mind, which is what Cisco talks about: everything is becoming a network of networks. The order of scale and the way you build product for a network of networks is dramatically different than of your thinking about the edge of the network and the way users hook up to the network. SMS was designed as a user to network operating system. And it differs, by an order of magnitude, in terms of what it's capable of doing. You have almost a 300-to-1 scale in what the software can do. Because it was designed to do something different. SMS beats Cisco everywhere around the world. How does little Redback beat Cisco in the routing space unless it truly had a technology advantage? I ran sales at Cisco for 7 years. We couldn't beat Redback in aggregation. Here I am. It's because of what I think the next generation of aggregation is going to be. I think the DSL model is how you're going to manage data networks.

(SMS) is only the third (router) operating system built from scratch. We have one of three engineering teams, in my opinion, that can build one in the world. Every single protocol is written from scratch.  They took all of what they know about IOS and JUNOS and said, 'Oh my God. This is what the next world is going to look like.' When they rewrote the operating system and rewrote every protocol, they built it completely different from the way JUNOS was built and from the way IOS was built. The foundation architecture that sits there is so dramatically different from what anybody else has, it can't be replicated for years.  IOS and JUNOS think about IP connectivity; they don't think about services and users.

The problem with the IOS operating system is that it's so monolithic, once you turn on a couple of things system performance degrades significantly.  Cisco has a legacy problem of reliability because of the monolithic nature of the code.  I think ultimately they'll have to go with dual operating systems. I don't see how they can carry all that legacy forward.

What about (Unisphere's) Unison?

The underlying Unisphere operating system is a Gate D operating system. It's modified from industry standard code that's off-the-shelf. They have the best SMS implementations of anybody. The work that they did was very very good compared to anybody else. They basically took off-the-shelf software and laid SMS on top of it. They can get 8,000 users on a box, which is better than Cisco and rivals our low-end system. They built a pretty good platform and, in my opinion, have become our only viable competitor. Cisco, because of their size and presence, is in the bids all the time. But they are not a viable competitor, to be honest with you.

I'm glad about the Juniper acquisition of Unisphere because I'd rather have two competitors than three of us or four, because it does confuse the issue. I think the challenge for Juniper is they view their strength as the percentage they were able to gain in the core, and they wanted to take JUNOS and move it to edge. They've been fairly unsuccessful at that, selling baby core routers at the edge. It's unclear to me how they are going to sort through their operating system and SMS stuff. But they're going to be deficient to what I think our capabilities are.

The edge marketplace today is somewhere between $350 million and $400 million on a quarterly basis. Nearly $300 million of that is still the 7500. I look at what was built and offered in the market to replace the 7500: the 7600 and the 10000. Both have failed miserably. These are the two products that Cisco has today to try and replace the 7500. There's no traction. $15 million, $20 million tops on a quarterly basis, each one of those products.

I look at Juniper who's been in the market with small M-series class routers, they have $20 million in revenue. I look at Unisphere, who last quarter did $35 million, half of which is DSL aggregation and half is edge routing. So they've got $15 million or $20 million. I see four boxes trying to replace the 7500 that are $15 million or $20 million in a year and a half in market - none of them are the answer. That's how I look at the competitive landscape. We're going to have $15 million in revenue probably by the first quarter after a few quarters in a dismal capital spending environment. We have something. The customers realize it and that's why we're able to win. As a small company against these guys, people want an alternative to the 7500 and they want an alternative to Cisco. I think we have it. We're up to 15 customers.

You have less competitors but they're big and varied…

At some level, technology becomes a driver. When you talk about orders of magnitude difference, when you talk about a box that can do 2,000 VPNs vs. 200… What our strategy is, is first to be viewed as one of three choices the customer has in the IP world. The next step under that is to convince the world that we're the alternative on the edge. We run your most sophisticated edge network today. Here's how you bring your other types of traffic onto a converged edge and manage it the way you manage your DSL network… is a way for use to become the alternative at the edge, just the way Juniper became the alternative in the core. It's kind of a dual-edged sword, the environment we're in. It's hurting us because capital spending is so low; but it's also giving us time to really show the technology to the customer. You know the Death Row of router vendors that have tried to come to market and failed. It's a laundry list. They don't have the depth of software and engineering talent to actually make it work. There's that much differentiation in it that Cisco just can't bowl over us and just sink us on a given deal like I used to do day in and day out.

There are marginal differences between Cisco and Juniper. I'm saying we have an order of magnitude, five to ten times. That starts to make technology emerge as a more important evaluation criteria, not marketing or balance sheets or anything else.

The other aspect that we have that's way to our advantage is we have the top 300 companies around the world. We have 17 of the top 20 DSL networks, we have every RBOC, we have every IXC. We're not a foreign entity to these guys. Verizon has 900 routers of ours in their network today. That's twice what they have of Cisco. They know us pretty damn well. We've been running at 5 9's for seven months. They've never seen 5 9's on a Cisco router. Despite Juniper's size, we have a better customer base than they do. They're not in the PTTs and RBOCs. They're in the ISPs and the IXCs. Those are not the customers that are surviving this wave of destabilization.

So do you have insight into these reports that Juniper is about to land a $300 million edge contract with Verizon?

Yep.

Any truth to them?

Nope. We've been in a dogfight there since the day I got here a little over a year ago. Is there an enormous buildout going to happen at Verizon? Yes. Could it be to that magnitude? Yes. Has Unisphere or Juniper won it? Absolutely not. It's not going to be like an award and someone gets it. The three of us (Redback, Juniper and Riverstone) are going to be fighting it out for a long time. They're going to make use fight it out and see what's best. It's going to be a dogfight for awhile. I don't think you're going to see an award or a clear winner there. It's too big a deployment and I think they're going to test the technologies and deploy the technologies and see how it works out, vs. some kind of big bang award like that.

What's going on with Nokia in terms of product development?

Related:
1 2 Page 1
Page 1 of 2
SD-WAN buyers guide: Key questions to ask vendors (and yourself)