2003 Top Ten: Heavy Findings

Heavy Reading has only been around since September, but in its first four months of operation it has already been able to cut through dense thickets of marketing hype to expose some surprising realities about the networking and telecommunications industries.

Heavy Readings analysts have issued groundbreaking reports on multiservice provisioning platforms, master plans of the world’s largest telecom equipment suppliers, next-generation DSL platforms, and carrier and vendor plans for third-gen Sonet/SDH. Meanwhile, HR has created a unique and critical reality check for vendors, their customers, and prospective investors: unbiased, independent market perception studies that gauge attitudes and opinions of buyers and users of networking and telecom products around the world.

Here’s Heavy Reading’s list of its most notable research findings so far:

No. 10: DSL providers that put too much emphasis on distributed architectures could be making a costly mistake.

The move by some carriers to push broadband remote access server (B-RAS) functions into central offices will actually increase operating expenses, as Analyst Graham Beniston demonstrated in Next-Generation DSL Equipment: The Path to Profitability. In the Asia/Pacific region, where cost containment is a huge factor in DSL deployments, carriers are taking a more centralized approach to B-RAS deployment. It’s a strategy that DSL providers in North America and Europe should examine carefully.No. 9: No matter what John Edward says, crossing over is not for everyone.

Results from HR’s market perception surveys show that some big-name vendors are having trouble getting established in new markets. In HR’s Fall 2003 OSS Market Perception Study, survey respondents graded Microsoft Corp. (Nasdaq: MSFT) only sixth-best (and tied for sixth-best at that) as a supplier of middleware systems. Computer Associates International Inc. (CA) (NYSE: CA) is another giant that’s struggling to establish itself not only in OSS but also in storage networking, according to results from HR’s market perception study of the storage networking business.

No. 8: Brand recognition is a big weakness across almost all OSS market sectors – even for established vendors.

The fragmented nature of the OSS business was clearly evident in HR’s market perception survey of 433 service provider and enterprise respondents. For instance, among the 25 suppliers of retail billing systems, only one – ADC Telecommunications Inc. (Nasdaq: ADCT) – was identified by more than half of the respondents to that survey category, and no vendor was able to break the 50 percent recognition mark in the revenue assurance/fraud management systems category.

No. 7: Some big-name vendors no longer are perceived as market leaders by prospective customers.One overarching result from HR’s market perception studies is that name recognition does not necessarily translate into a reputation for market leadership. Lucent Technologies Inc. (NYSE: LU), Storage Technology Corp. (StorageTek) (NYSE: STK), Sun Microsystems Inc. (Nasdaq: SUNW), and Telcordia Technologies Inc. are among the high-profile incumbent vendors that are losing their leadership edge, according to HR survey respondents.

No. 6: China is poised to have a huge impact on the telecom equipment market, but as a supplier rather than as a consumer.

Evidence is mounting that Huawei Technologies Co. Ltd. will be a huge force in the telecom hardware business, as will Huawei’s closest rival in China, ZTE Corp. Prospective customers already recognize Huawei as a supplier of low-cost products, according to HR’s 2003 Telecom Equipment Market Perception Study. In an upcoming HR report based on exclusive interviews and tours of Huawei’s and ZTE’s operations in China, Peter Heywood will explain exactly how the two companies plan to conquer the telecom equipment market – and why established vendors should be worried.

No. 5: Transport and packet networks will remain distinct entities in incumbent carrier networks for at least the next decade.

Vendors are clearly pushing ahead with product strategies aimed at converged networks, and carriers are clearly interested in the technology developments that will enable convergence. But in this case, the tail will not wag the dog, as HR Chief Technologist Geoff Bennett found in Setting a Course to Convergence: The Incumbents’ Wireline Strategies. Incumbent carriers still don’t see a driving need to sacrifice existing money-making services on the altar of convergence, no matter what they hear from suppliers. Those suppliers that run too far ahead of their customers are likely to run into a brick wall.No. 4: Buyers of enterprise-class 802.11 wireless LAN products are looking beyond big-name vendors in their search for solutions.

HR’s latest market perception study, covering the white-hot enterprise-class wireless LAN market, shows that the mindshare battle among vendors is wide open in several critical WLAN segments, including WLAN switches. One reason for this fluidity is the absence of telecom powerhouse Cisco Systems Inc. (Nasdaq: CSCO) from some key segments. Cisco’s absence from the WLAN switch market is creating important opportunities for other incumbent vendors and WLAN specialists like Symbol Technologies Inc. (NYSE: SBL) and Trapeze Networks Inc.

No. 3: Ethernet will not account for the majority of sales into any part of carrier networks until 2007.

HR’s very first report, Multiservice Provisioning Platforms: Empowering the Metro Edge, yielded one of its most surprising findings and confirmed just how wide the gap between vendor positioning and market realities can be. Listen to telecom equipment suppliers, and you’ll come away convinced that Ethernet is at the top of each carrier’s purchase list. HR’s reality check shows that just isn’t the case.

No. 2: Carriers are finally starting to walk away from Frame Relay networks, but ever so slowly.This finding jumps the gun a bit, because it will be explored in depth in a January report on carrier attitudes toward IP/MPLS backbones. But a survey of more than 400 service providers shows that carriers plan little or no investment in Frame Relay technology starting in 2004.

No. 1: Next-generation Sonet/SDH platforms will be as fundamental to telecom networks in the coming decade as routers were to the Internet of the 1990s.

HR’s biggest report to date yielded its most significant finding: The demise of Sonet/SDH in carrier networks has been greatly exaggerated. In The Future of Sonet/SDH, Chief Analyst Scott Clavenna details how third-generation Sonet/SDH technology will serve as the foundation for carrier networks into the next decade. It’s the kind of finding that boots conventional wisdom square in the seat of its pants – which is exactly what Heavy Reading intends to keep doing.

— Dennis Mendyk, Managing Editor, Heavy Reading