The Hindu Business Line : Building blocks of change

The path to business transformation invariably begins with the big picture in mind. And that is the journey Canadian telecom giant Nortel, with its over 100-year corporate history and $10.5-billion in revenues in 2005, has embarked on since November 2005 under a new core management team, spearheaded by its President and CEO, Mike Zafirovski, an ex-Motorola and GE veteran.

Addressing a press briefing at the recently concluded ITU Telecom World, 2006, at Hong Kong, Mike Zafirovski highlighted that the industry is poised at a series of inflection points and Nortel is in the middle of its transformation to capitalise on them.

The three megatrends Nortel is betting on big time are: Hyperconnectivity, True Broadband and Redefined Applications, he added.

Blurring of boundaries

John Roese

Elaborating on these megatrends, the CTO, John Roese, said each of these trends is set to unleash a powerful series of changes that could transform the face of the industry. Speaking on hyperconnectivity, he said that by 2010, a plethora of IT, mobile and consumer electronic devices are likely to get connected. (See Graphic). The estimates show that over 5 billion mobile network end points will be connected by 2010, which is expected to play to Nortel's inherent strengths in telecom.

According to Roese, video may turn to be the `next voice' in transforming the very nature of broadband wireless networks in the coming years.

And finally, in his view, the networks will be far more application-aware and vice versa, opening up the worldwide web services market to $80 billion by 2009.

Underlying these megatrends is the steady move on the part of the industry to build tomorrow's next-generation IP-based network. Potentially, Nortel visualises a blurring of boundaries between wired and wireless (through fixed-mobile convergence), seamless integration of carrier and enterprise and of applications and infrastructure creating a new `convergence' paradigm in the industry. (See Graphic)

Strategic building blocks

Over the past year, Nortel's core management team has articulated a multi-pronged strategy to progress towards the next phase of growth, with a three to five-year roadmap in mind.

Most of the key executives in Nortel's core management team have joined only over the past year.

The key members are its CFO, Peter Currie, CTO, John Roese, ex-Broadcom with 16 granted and pending patents in his name, Chief Strategy Officer, George Riedel, ex-Juniper Networks, Daniel Carrey, Executive Vice President, Corporate Operations and Chief Marketing Officer, Lauren Flaherty, ex-IBM, among others.

Mike Zafirovski

As Mike Zafirovski puts it, Nortel's strategy aims to map its strength to high growth segments. The four-plank strategy ranges from its:

Focus on 4G (pegged on WiMAX as a start)

Focus on metro ethernet for backhaul capacities

Focus on Next-Generation enterprise, say, with the Innovative Communications Alliance with Microsoft

Focus on services

Hitching the wagon to 4G

Nortel is hitching its revenue wagon to the uptake of fourth generation (4G) mobile broadband networks, loosely built with WiMAX as the first step.

As a strategic business priority aimed at focussing on 4G, on December 4, Nortel entered into a definitive agreement with Alcatel-Lucent to sell its UMTS (a 3G mobile standard that offers an enriched path for GSM) access business to the latter for $320 million, also involving a transfer of 1,700 employees. This formalises the non-binding memorandum of understanding signed on September 1.

Making a roundtable presentation to a group of visiting Asian journalists, Shrikar Kasturi, Director-Business Development and Marketing, Wireless Broadband, said that though voice was still the king, evident from the minutes of usage and subscriber growth, existing and new broadband (linked to the Internet) services are driving a new wave of growth.

The three key market drivers of 4G or WiMAX to start with are the order of magnitude improvement in performance, cost and the number of connected devices, he said. The need for improvement in performance has become imperative as music, gaming and VoIP are proliferating at a mind boggling pace.

Using ITU Telecom World 2006 to showcase its growth strategy

The estimates by research outfits show that almost 6 per cent of mobile subscribers downloaded full songs to their mobile phone and music downloads have doubled over the past year. Through Xbox Live, 1.3 million text and voice messages (driving VoIP) are being sent every day, adding up to half a billion messages per year.

And to top it all, a new wave of explosion in video is finally upon us. It is estimated that in a single month, the number of videos has grown by 20 per cent and YouTube (acquired recently by Google) alone uploads 65,000 videos every single day. Throw in the connected devices thesis of 5 billion mobile network points spelt out by Nortel's CTO, and the network capacity needed grows manifold.

Though the 4G ecosytem is still in the nascent stages of development, Nortel estimates that WiMAX can help connect multiple devices (say gaming, digital cameras or laptops) at roughly three-to-five times the speed of 3G, but at one-tenth the cost-per-bit (of 3G).

The combination of cost-cum-performance may turn out to be a significant driver for mobile service providers to leapfrog directly from 2G to 4G or migrate from 3G, depending on the 4G uptake, with separate migration paths for GSM and CDMA subscribers. For those technically inclined, for GSM subscribers, the 4G-migration path is to HSDPA Long Term Evolution and CDMA EV-DO Revision C for CDMA subscribers.

Initial projections of the Global WiMAX infrastructure market suggest that it can grow to $7.5 billion at a 60 per cent compounded annual growth rate by 2010, says Shrikar, with market opportunities spread across the globe.

Most of the trials for WiMAX, the first 4G network will be in 2007, with full-scale rollouts expected in 2007/2008.

Powering clients through technology

Speaking at the press briefing at ITU Telecom World, Michael Pangia, President, Asia, said that Nortel has notched up some good wins in recent times.

Among the recent wins for Nortel are a WiMAX network being set up for Chungwha Telecom under the Mobile-Taiwan project along with another contract from Toshiba to trial a WiMAX project in the North Tohuku region in Japan.

Driving backhaul expansion

Nortel is banking on video emerging as the `next voice' in disrupting networks. This, along with the intersection of IT, telecom and entertainment and the need to create IP backhaul for broadband wireless, is expected to trigger a surge in bandwidth demand over the next few years. There are also indications that fibre optic excess of the telecom/dotcom years is fast drying up.

In another roundtable presentation on Metro Ethernet Networks, Edwin Fu, Metro Ethernet Solutions Leader, Asia Pacific/ China, highlighted that Nortel had a comprehensive metro ethernet portfolio that catered to a diverse range of application segments such as residential triple play, wireless backhaul, business services and HDTV/video surveillance. The advantage of metro ethernet stems from the strong bandwidth performance of advanced photonics complemented by the cost effectiveness of Ethernet. And the uptake of the metro ethernet is also expected to aid IPTV deployment, helping customers derive a much richer and interactive TV experience. Even in this space, Nortel has recorded some good wins recently such as the plans of The Chinese Academy of Sciences to enhance its scientific knowledge sharing capabilities with Metro Ethernet technology from Nortel.

The enterprise push

While the company did not specifically dwell on the enterprise side of the business in ITU Telecom, in a recent Analyst conference, the company has spelt out its enterprise strategy.

On the enterprise side, Nortel expects an increased migration to IP telephony, consolidation of data networks, virtualisation of applications and Web services, integration of business applications to desktops, telephony and mobility and increased reliance on services. It is opening up opportunities in each of these areas through IP telephony, unified communications, application-aware networks and mobility.

Nortel's Innovative Communications Alliance with Microsoft is a case in point. The key element underpinning the success of this alliance is the prospect of greater global workforce collaboration.

As knowledge work such as critical R&D or engineering services gets parcelled off across the globe between developed and emerging markets, the need to stay connected, remain mobile and maintain seamless communication across devices is fast becoming a driver of growth of Unified Communications.

According to projections made by Nortel, the Global Unified Communications opportunity is expected to grow at 16 per cent per annum through 2012 to touch $20 billion. And this alliance combines the strengths of Nortel in telecom with Microsoft's in software.

Focus on services

These trends logically lead to the need for focus on services and solutions as networks get more complex and communication becomes critical.

Take for instance, India's Bharti Airtel, which earlier this year entrusted the entire contact centre operations to Nortel in a five year managed services agreement for its growing mobile subscriber base, choosing to focus on its core competence as a mobile service provider.

According to Michael Pangia, in the first week of December, Nortel set up an Asia network management centre in India. It is also focussed on offering managed VoIP services for enterprises to help customers speed their transition to VoIP.

With the strategic direction of Nortel in place, 2007 will be a crucial year when the company will be watched on the ability to deliver on its promise.

maverick@thehindu.co.in

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