Target telcos

IP's share of the massive US$200 billion telco market is about 10% and growing. That is reason enough for Cisco to up its efforts in the field, says Tony Bates, Cisco's senior VP and general manager of the service provider routing technology group to Eliot Beer.

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By  Elliot Beer Published  April 1, 2007

The IP telecoms business might only be worth about 10% of the total telecoms spend - but that's 10% of aUS$200-billion market and it is growing while the non-IP share is shrinking. That is more than enough potential for Cisco to justify continuing investments in its telco business, according to Tony Bates, senior VP and general manager of the service provider routing technology group for Cisco.

Bates says that while its share of the US$200-billion market is relatively small for the company, considering it dominates the enterprise switch field, the move to IP by telcos represents a massive growth opportunity for the company.

"Where is the rest of it going?" he asks referring to the fact that Cisco's dominance in the IP enterprise network market is not mirrored in the telecommunications market.

"It is going into access technology," he says, adding that telcos are beginning to favour IP.

"The IP potential will continue to creep up because you can even IP-optimise the access. A good example is in mobile space. People talk about IP RAM (random access memory). Because it is almost all data running on IP so why not put it on IP," he adds.

Cisco intends to pick and chose the IP-based applications it selects to market. For example, says Bates, Cisco would probably never do legacy voice integration. There is a reason for that. Rather than deliver a turnkey solution much of what is needed is migration - and Cisco is not into migrating something it knows nothing about.

"You have to know the legacy and what is entailed in transformation and what a lot of the big telcos have to go through. As it turns out it is as much about understanding the legacy. Those systems are actually proprietary. It does not play to our strengths," Bates comments. "The level of investment to get there versus where people are really going - it just doesn't make sense for the company. If you talk to our large customers they see us as a telecommunications host product company, but we will pick and choose our areas," he adds.

For the same reason he does not see Cisco about to get into radio networks, for example. Again radio networks, while built on standards at the top level, are proprietary at the base station level as they can only communicate with certain phones.

"It would be arrogant of us to say we could enter into those markets. But where there is an IP-based aspect to it, you will continue to see us make investments," he says.

He sees video delivering an exponential growth curve in the region despite Middle Eastern bandwidth limitations and the need for some enterprises and telcos to go "through a little bit of an upgrade cycle". Cisco, which has forecast savings of 20% on a company's travel budgets, believes it has a sound value proposition to make for video and has already deployed video conferencing itself around the world.

"We are lucky in that we are able to deploy the infrastructure quickly but I think you have to look at the overall ROI of that. It seems to be very powerful. I am here talking to you today face-to-face, but I have to see a lot of global customers when I get back next week. So I have up to seven meetings with telepresence with those customers around the globe. It saves so much time not only on a personal level but also on a company level. There is definitely a business case," Bates maintains.

And despite the cultural expectations of the region for face-to-face meetings, he does not see this limiting growth in the Middle East.

"Where can it (IP) go? It won't solve all things but you will continue to see a momentum shift to it that will grow at very healthy 20% year-on-year," he says.

Bates admits there are limits to IP, and maintains that its development is on par to the railway or oil drilling and as such is a ‘seminal invasion' and far from being classified as ‘old' technology.

"The principles of IP are very strong. It is actually young if you look at its evolution. If you look at the IP suite of protocols, which are defined in the ITU, they are evolving as we speak right now. Just like the transistor they are based on a well thought-out architecture. That's what separates it from other technologies that have been and gone like ATM. They didn't have those incredibly well thought out principles."

Cisco's entry into traditional telco and service provider markets over the last few years is marked by its IP next generation network that is helping the company differentiate itself from many of the other players in the market.

"We have been involved, certainly on the internet side, for many years, but in the last five to six years we have put a lot more investment in what we would call carrier class engagement and that's not just products; it's not just about building highly available products; it's the way you work with telcos," he says.

"One of the things that makes us a little bit unique is that we play across four markets. We have a service provider division and enterprise division - which obviously has been the heritage of the company - an SMB division and more recently a consumer division particularly around the connected home."

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