IT industry disrupts network value-chain

IT industry will disrupt equipment providers

As IT Telecom technologies are converging, the two industries practice co-petition. A good example was the impact of development of VoIP solutions in my own organization : HP OpenCall business Unit.

The new service development approach
Until 2000, the business unit had mainly supplied network equipment providers (NEPs) who then supplied telecom service providers (SPs) with integrated solutions. Prestigious customers such as Alcatel, Ericsson, Nortel, Nokia purchased from HP the real-time databases and signaling hardware to deliver intelligent network (IN) applications such as mobile pre-paid, #800 and Voice VPN services.

Enters Cisco with the VoIP wave promising a next generation telecoms and service infrastructure and outsourcing the service development to partners. Together with HP they launched the International SoftSwitch Consortium (later IMS forum) attracting many new software start-ups such as Netcentrex. And service providers like France Telecom / Equant or Fastweb requested that HP, not a NEP, leads the delivery to them an integrated solution. And for Cisco, working with integrator and systems vendors, the model was "business as usual". That's how HP delivered in 2000 a VoIP VPN to Equant, designed to serve corporate customers worldwide and scale to millions of subscribers. Another residential VoIP and IP TV deployment was to a new service provider, Fastweb who reached over 600'000 subscribers in 4 years. For these projects we assembled HP OpenCall service controller, Netcentrex and Radvision signaling elements, Kasenna media management and set-top boxes, Atos Origin custom service design and of course Cisco's IP PBX, VoIP gateways and MPLS backbones. As communication applications move to IT, the new world is fragmenting.

Managing the new value-chain
What has been the impact on OpenCall business unit. Well it has been forced to pursue a dual way to market : selling technology to industrial partners (the NEPs) as well as competing with them to sell to their customers (the SPs). This obvious channel conflict has been discussed by Benoit Sarazin from Farwind in his "Competing with your own channels" blog. He described how HP was able to grow faster than the market with this dual strategy. For the moment, the channel conflict only in the emerging applications market, where a significant market risk exists and players are willing to co-pete. And most importantly, innovation in communications requires new smaller players from the software space to enter the value-chain. And of course there is still plenty of room to cooperate on the infrastructure business. But when price pressure will come, both IT and NEP industries may want to commoditize each other.