Stretching for new business: service providers today are expecting equipment suppliers to deliver extra revenue, and not just technology. CTO Niel Ransom tells group editor Robert Clark how the French vendor has re-focused on systems, moved into services and learnt how to partner - One-To-One

Telecom Asia, Dec, 2003 by Robert Clark

Telecom Asia: What's the outlook for the optical sector? Is Alcatel still in the optical business?

Niel Ransom: A year ago we sold off the Alcatel microelectronics business, and then recently we sold off the optronics part which was the optical components part of Alcatel. Because we see where our strength is going to be is at systems level, and more looking at the applications that make use of telecommunications connectivity. That's where we want to put our emphasis. Lucent, Nortel and others have come to the same conclusion: it's best not to be your own component supplier.

What's happening in optical? On one hand, it's been a disaster. The volume of optical equipment shipped worldwide has just dropped horrendously in the last three years. I remember in 2000, when we started the year we had already sold all of the optical fiber that we could produce that year already on January 1st.

From a technology standpoint, what's happening in optical is easy to predict. Optical systems always go up by factors of four. So if you have 2.5 Gig systems you know the next step is going to be 10 Gig, and if you have 10 Gig systems you absolutely know the next step is going to be 40-Gig systems.

We knew what the next step would be, it would be 40-Gig, and it would be optical switching, with a heavy amount of data interfaces. So the trends are clear but somewhere along the way the networks became saturated, especially in the longhaul, so all those systems are delayed, waiting for the capacity to get used.

That having been said, I look at where Alcatel should be investing, and [in] what part of the network we ought to be putting our R&D resources. And I look at something like optical, this has been a really rough area. Is that something we should continue to invest in?

What we see is that optical networking is not a technology that had run its time and is now being replaced by a new technology. In fact, we fully expect that 20 years from now the dominant way to send information over long distances is going to be optical. It's not that the technology has been replaced by something else. It's simply a matter of excess capacity.

But that capacity will be burned up and there will be a resurgence, and at that point we then expect to start seeing these 40-Gig systems coming in--not only 40 Gig from SDH-Sonet but also 40-Gig Ethernet interfaces.

What are service providers looking for now and how have their needs changed?

What has happened, sort of driven by the technologies we're working on, we're finding cheaper and cheaper ways to do that. Such that the underlying cost of sending information from point A to point B is getting lower all the time.

But the carriers are saying, where are we going to get our revenues? Their focus more and more is on revenue-generating applications that can ride on top of that. Things that provide additional value that the end-user is willing to pay for. For example, in the case of DSL, network operators worldwide are deploying DSL in great volumes, but what they're looking for are ways to generate revenue in addition to the basic subscription for just DSL.

So they're looking, for example, at work-at-home packages, so the user at home can appear part of the same managed IP-centrex group. There's a lot of excitement today around video for DSL and interactive video services over DSL.

Just to pick video over DSL as an example, how difficult has that been for Alcatel as a traditional equipment supplier?

Well, it's been quite a stretch for Alcatel. Alcatel traditionally has been a telecommunications equipment supplier; we supply the equipment that allows the network operators to connect people together and machines together to send information back and forth. Now we're becoming a company that also provides applications and end-to-end solutions over basic communications. That has been a stretch for us.

What we've realized as we've done so, there were skills that we lacked that we had to gain, especially in the case of video, and that's why we've chosen recently to acquire iMagic TV and thirdspace. Those were companies that were focused on providing this value-added video services over broadband access, and they had that kind of skillset we realize we needed.

We've also recognized we're going to have to partner like never before. If we're going to provide a solution it's not going to be end-to-end Alcatel equipment, yet we've got to be able to put it together and provide a solution. For instance, Alcatel has decided not to build set-top boxes, and yet a set-top box is a critical part of a video-over DSL solution.

In the last three years you've seen companies restructure not just their finances but also their networks. What are the tasks for carriers in trying to build NGN to go from all circuit-switched to IP?

A few years ago it seemed clear how this was going to happen. There were companies starting to deploy voice over IP in the backbone ... in order to take advantage of two things, the lower amount of bandwidth that you can achieve with voice over IP, and take advantage of therefore being able to put more calls over the connection, but also certain regulatory rules that said that Internet services were deregulated and not taxed like standard services. It would first be deployed on these long distance routes.. and then migrate towards the end-user tilt finally one achieves an end-to-end voice over IP network.