Between the technology providers and the users, it is difficult to say who is influencing whom. Till not so long back, the carriers boasted more about the size and complexity of their networks rather than about the convenience of the users of those networks. The speed at which the telecom network managers—considered one of the most conservative ones—are adopting the new, yet-to-mature technologies implies that the new generation datacom equipment makers have done an excellent marketing job. But wait a while. What makes the datacom companies change so fast—adjusting, restructuring, acquiring, merging—all in the name of addressing the needs of the carrier market better? It is the "chicken and egg" story, you know.

Without trying to pass our own judgement, let us look at things from both the angles.

The Carrier Network

Till recently, telecom was a government owned monopoly in most countries. Transition to a competitive environment has resulted in all the changes that we see today.

Two major limitations of the legacy networks are worth detailed discussion.

One, the proprietary nature of the TDM switches of today have made the operators completely dependent on the equipment providers for new features. The new generic set of features are decided by the vendors and not by the service providers as and when they want, not allowing him (the provider) to introduce services that are more relevant for his subscriber needs.

Two, the Internet has led to drastic decline in the cost of telecom services. But the cost of the traditional telecom equipment, though reduced considerably, has not really kept pace. Hence, the traditional carriers are finding that the game is becoming more and more unfavourable to them. Also, with Competitive Local Exchange Carriers (CLECs) entering the game, telecom is no more a high-entry barrier business. But for these small operators, a legacy TDM-based switch-based network could require an initial investment of not less than $3 million on network. A new generation, packet-based network can be set up at a fraction of that cost—about $1,00,000 or so.

Hence, many operators are looking beyond the current technology. IP, riding piggyback on the popularity that it has gained through the Internet, has clearly emerged as the hot favourite. Some carriers have already deployed it over ATM backbones in some places and over the SONET/SDH networks directly in others. There is a consensus that the gradual shift will be towards IP at the core, over the physical fibre (DWDM-based) networks. Then, the whole network will be a converged IP network with multiple applications—voice, data, and video—running on it.

However, few are willing to predict the death of the traditional PSTN. According to Dataquest, the sale of analog modems will cross 46 million by this year-end. Also, IP has so far managed to take only a minute share of the total communication traffic. According to market reports, in 1999, out of the $400 billion global minutes' marketplace, IP telephony accounts for less than $150 million. Long way to go.

The Networking Scene

In next three-four years, the analysts say, the carrier data market is likely to be about six to eight times bigger than the enterprise market. Established carriers are upgrading themselves to accommodate data communication demands. Newer, smaller players are entering the fray. These greenfield operators are going for packet-based networks right from day one. Suddenly, the carrier market looks more attractive than ever before. Whether it is a high-end networking player like Cisco, a mass market networking player like 3Com or new start-ups like Juniper and Empowertel, carriers are where the action is.

Most of the restructuring of the networking product vendors is aimed at better tapping the carrier market. Though these companies have access to the new generation packet technologies, they have a long way to go before they can actually think of providing an end-to-end solution to a multi-service incumbent network operator with considerable subscriber base and also to fairly large new carriers.

They do not have access to certain carrier-only technologies like access technologies. And their understanding of the complex, rugged carrier networks in limited. They have primarily been box sellers and have never done networking themselves.

Merger and Acquisitions (M&A) is the route that most of them have taken to fill these gaps. If one closely observed the acquisitions that companies like Cisco have done recently, one would find them targeting not only the optical networking companies, but also companies in broadband access (both DSL and cable) and wireless.

However, no "enterprise" vendor, as their competitors in the carrier space call them, has been able to build the strength in network design and solutions, which is a must for operating in the carrier space. Cisco, for example, talks of a model that is exported from the enterprise market—working with independent integration companies as partners. This, feel analysts, will work in the small service provider space like ISPs, but not with larger operators. This is a hurdle that networking vendors have to overcome.