Watch out Nortel!

I was reviewing Nortel Enterprise group's performance in Q1, 2007. The vendor registered a sequential growth of 18% on system deployments (47% y-o-y) in EMEA. Nortel enjoys continued success in emerging markets especially in Russia and the Middle East. Its growth in Q1, 2007 has been concentrated in the sub 200 segment. Its BCM series and KTS portfolio have been the most successful products.

One of the key challenges for Nortel is to grow its MLE installed base. While Meridian M1 continues to be successful, CS1000 series struggles to grow in comparison. Overall, Nortel's growth in this segment has been modest.

Overall, Nortel is in a great shape. Its Innovative Communication Alliance (ICA) with Microsoft is on track. The alliance has already launched a few solutions and announced several others to be launched later this year. Microsoft and Nortel are conducting joint roadshows in Dubai, Manchester, Johanesburg and Copanhagen in the next three weeks. Already, both companies have started working on listing tier 1 accounts to be targeted.

Recently Nortel enhanced their ethernet switching portfolio ERS 2500/4500 to support multimedia communication. This will help ICA provide unified communication over converged infrastructure in the SME - a very large and untapped market segment. In addition to premise based solutions, ICA has come up with a roadmap of hosted solutions involving CS2100, Microsoft HMS and Active Directory.

In addition to ICA, Nortel stands to leverage its JV with LG. At WinHEC earlier this week, Microsoft announced that LG-Nortel phones could successfully work with OCS 2007. Currently, LG-Nortel offers an extended portfolio of IP phones and IP based KTS systems (iPECS and ipLDK series).

My outlook for the vendor is positive. I expect Nortel to grow at 5-10% sequentially this year.

Cisco IP telephony grows in Q1, 2007

Cisco Unified Communication Group reported growth in Q1, 2007. Phone shipments that form their primary barometer grew sequentially by 3.2% and 66.9% y-o-y in EMEA. In the enterprise market, Cisco had a small growth sequentially and approximately 32% y-o-y. The large chunk of growth is in the SMB (25% decline sequentially and over 100% growth y-o-y).

Cisco launched Unified Communication 500 series for the sub-16 segment to cater to the new market demand. This product overlaps with the target segment of Linksys LVP 9000. In addition to the 500 series, Cisco launched Unified Communication Manager Business Edition for the 150-500 users. This software runs on a single rack unit server.

Over the past few quarters, Cisco is reaping the benefits of early wins. A large number of customers that have had deployed Cisco Call Manager are growing their footprint of Cisco IP telephony. Some of the large wins such as the Abbey National, Bank of America and State Bank of India require branch office connectivity; fuelling traction for Cisco Unified Communication Manager Express.

Cisco has seen a rise in the average selling price (ASP) of IP phones this quarter. I believe that this to be a one-off variation. Overall, Cisco faces a downward price pressure for hardphones. Also, there is a strong traction for SIP phones. R5.0 and R6.0 supports third party SIP phones that users can connect after buying a 'right to use license'. Growth in softphones have been comparitively lower than IP phone growth- softphone adoption is concentrated in larger deployments often complementing hard phones.

Cisco has invested in developing markets in Eastern Europe and Africa (both sub-saharan and North). Cisco continues to beat the average market growth rate. In the coming quarters, Cisco is expected to see increased competition from Nortel and Mitel in the enterprise segment. In the SMB market Avaya has been very active. They have launched a number of new products like Cisco.

Chart Focus: Microsoft names handset vendors for its UC suite

Interactive Intelligence embraces mobility

The value of extending enterprise apps on to mobile devices has been well articulated. It reduces decision time, improves efficiency and therefore contributes to overall productivity. This is well known, however its value in the contact centre industry goes far beyond that.

Although the contact centre industry has introduced new communication channels such as e-mail, self service, web chat etc, customer service is predominantly desk-based. Interactive Intelligence Interaction Client® Mobile Edition has the potential to change that.

The Interaction Client®, Mobile Edition is a graphical client interface that supports the Windows Mobile 5.0 and Smart Phone operating systems to make Interactive Intelligence IP telephony functionality accessible via mobile devices such as the Microsoft Windows-Powered Pocket PC and the Windows Mobile Smartphone.

In the enterprise space, the inclusion of the mobility dimension makes Interactive Intelligence' EIC more compelling. However, the major limitation of the mobile client is its reliance on HSDPA for synchronous multi-media communication- a vital element in contact centres. As an alternative the mobile client allow data transmission over WLAN and voice over cellular network.

Mitel acquires Inter-Tel: Its all about IPO

Last friday, there was news that Mitel announced definitive agreement to acquire Inter-Tel. I couldn't join the conference call that day. My curiosity was addressed yesterday when I went on a call with the senior management of Mitel Networks.

I wanted to know why Mitel bought Inter-Tel. Mitel is far bigger than Inter-tel. Both play in the SMB. Both are dominant players in the U.S. And Mitel has been dabbling with the prospect of an IPO for over a year now.

I asked Don Smith, CEO of Mitel as to why his company agreed to pay 57% more than Inter-Tel's net sales ($428 million) in 2006. The price-earning ratio of the deal is 27.8 which seem quite high when Inter-Tel has been growing by 3.6% y-o-y by sales and the U.S CPE market growing at 6.2% y-o-y.

Don said that Inter-tel was on Mitel's radar for some time now. He thought the timing to be right. Mitel had to face a proxy battle from Mihalyo for sometime-in the end Mitel walked off paying 10% over the last offer made and 8% premium to the last traded price of Inter-tel stock.

In addition to the acquisition of Inter-tel, Mitel announced its intent to withdraw from the IPO registration process. The timing of the withdrawl is interesting. InfoTech's research places Mitel+InterTel as the leader in the sub 100 segment market in the U.S and ranked two in the sub-500 market in U.S. I reckon this acquisition is all about the IPO. We shouldn't be surprised to see Mitel re-register for an IPO sometime next year. Whenever it does, it can value itself at Inter-Tel's price-earning ratio; that wouldn't be all too bad.

But then what does the acquisition mean to Mitel? During the call with Mitel, I learnt that there is low channel overlap. This allows to leverage existing relationships to promote products from both companies. It is believed that both brands will continue to co-exist. One of the significant advantages of Inter-tel is its real-estate (57 offices) in the U.S- something that will give enhanced direct touch capability to Mitel as it attempts to break into the MLE with its ICP 3300.

Is this the beginning of a trend?

There are several players in this market that are looking for partnership. Nortel managed an ICA with Microsoft. ShoreTel is taking the IPO route. Siemens Enterprise search for a partner continues. However, there is no reason to believe that Mitel's acquisition of Inter-tel will begin a trend. I think this to be a tactical move towards a successful IPO.

Chart Focus-Key entities of UC

ShoreTel-The world is Orange

One of the leading IP PBX players in the United States, ShoreTel, has been slowly developing a footprint in Europe. Armed with a strong team, interesting product, and granular pricing-the vendor has already established footprints in UK, Spain, Benelux, Sweden, Denmark, and Ireland.
I saw a demo done by Jerome Joanny, their International Product Manager. Honestly, from what I saw- their solution is very easy to use, simple and user friendly. Although, I didnot test the whole range of features it became obvious that the solution was designed keeping the user in mind. Jeremy showed us their new feature- ring back tone. He said their product development team is working very hard to bring in mobile phone type features and functionalities into the PBX.

ShoreTel solution fits the 100-200 user segment very nicely. Steve Timmerman, VP of Marketing believes that his product is a good fit for a wide segment of the market. Their a-la-carte pricing model allows customers to buy as they grow. With close to 56 partners in EMEA, ShoreTel is aiming to build a momentum. The vendor has successfully leveraged the reach of service providers such as British Telecom in Spain.

One of the USPs of ShoreTel is around customer satisfaction. Although, I haven't delved into the details of how they get it measured, the passion in their team to uphold the levels of customer satisfaction and beat it is quite incredible. In my numerous discussion over the last couple of years, I have consistently seen this message come across. I must say that overtime it has become powerful.

Although they are a strong player in the US, ShoreTel faces the same challenges as most small players in Europe. They are trying to consolidate their resources and gain traction, with customer satisfaction in mind. Ken Bailey their EMEA Marketing Manager pointed out the criticality of channel development. They are predominantly two-tiered except for Germany and their growth rate is dependent on the selection of the best-fit channel. In the last few months, ShoreTel has been active in the Nordics-led by Justine Cross. They have not only recruited two VADs but also have gained some customers.

I think that ShoreTel faces competition from BCM 50/200, Cisco ISR & Call Manager Express, Hipath 4000, Avaya IP office, Ericsson MD Evolution, Alcatel OmniPCX office, Inter-Tel 5000/7000 amongst others. Between them, shipments account for in excess of 2 million lines in the 100-200 user segment in Europe. From top of my head, the market size of 50-250 user segment in Europe is approximately 28 million lines. IP penetration in this segment is in low teens. If we buy ShoreTel's message that their TCO is lower than Cisco, Avaya and Nortel and that their customer satisfaction is the highest, their solution is a good bet. I recommend ShoreTel to greenfield sites and organisations that have a clear IP adoption strategy.

Roaming 'rip-off'-Game over

Telecoms.com reported-"A committee of the European Parliament has backed proposals to cap roaming charges for mobile calls made abroad, voting in favour of a Eur40 cents (£0.27) per minute ceiling for an outgoing call and Eur15 cents (£0.10) per minute for an incoming call.

The proposal will be put in front of the full 785-seat EU assembly in May which will decide whether a cap on roaming charges should be automatic, or require customers to request it from their operators."

This news is good for some while bad for others. I am sure GSMA and the operator will agrue that this is a bad move and will affect the profitability of mobile carriers. However, bad mood is expected to reign with innovative players such as LGC Wireless and others, since the proposal diminishes the value of their offerings. It is to be noted that extortionate roaming bills and relatively higher access rates have help form an alternative industry- one that aimed to help consumers and enterprises beat these toll gates. I call the offer 'mobile toll-bypass' untility.

The good news is for the consumers. In advanced countries in Western Europe, the average mobile usage per person is just 4 minutes a day. Using the same infrastructure and services deployed in emerging countries, users talk for much longer- and pay far less-in charges adjusted to purchasing power parity. Good news is for non-mobile carriers, if this proposal becomes legislation they would be able to predict their costs with greater accuracy and price their products more appropriately.

Overall, I think this move will help the industry in predicting costs, and determining value in roaming. The purse of the consumers won't shrink-I believe, they will instead take more for the same money. Licensed mobile operators will remain in business for longer- as this move takes away some cream out of the value propositions of alternate solutions.

Carrier Hosted UC

In a move that could potentially shape the future infrastructure deployment scenario within SMBs, Innovative Communication Alliance (ICA) formed between Nortel and Microsoft has announced its intent to offer carrier hosted converged office solutions to small and medium businesses (SMBs) and enterprises.

It is believed that service providers will begin customer trials during H2, 2007 with GA released by end of 2007.

Hosted telephony solutions have gained some traction in the market. Forecasts suggests 15% of all enterprise telephony shipments in Europe could be non-premise by 2010. Despite the growth rate, non-premise deployments would still constitute a very small percentage in terms of installed base. The primary challenges associated with hosting have been credibility, reliability, richness of the solution and quality of service.

Nortel-Microsoft's entry into the market will alleviate the restraint around credibility. The new carrier hosted converged office solutions include e-mail, instant messaging, VoIP, click-to-call, video conferencing and other multimedia services. We have experienced mature network based E-mail, IM, video conferencing services. However, most of them are disparate and are consumer grade. Network based click-to-call is yet to be very popular. The case for network based VoIP is quite similar to hosted VoIP.

I reckon that with adquate security framework, asset management policies, flexible but robus process and binding SLAs, these services can add tremendous business value. Carriers on the other hand will be able to derive greater value from their existing network investments and resources.

Enterprise Telephony - Market Performance Card

This card is demonstrates the relative performance of tier 1 vendors by their PBX line shipments in Europe in 2006.

Enterprise Telephony shipments forecast

PSA initiative?

Sponsored by some of telecommunications biggest names, British Telecom, Cable & Wireless, TeliaSonera and QinetiQ, the Product and Service Assembly Initiative (PSA) is a collaboration of vendors and service providers who are looking to solve today’s largest operational problem: How to create an IT reference architecture which will:

- Streamline the NGN product/service lifecycle
- Bridge the service creation gap between OSS/BSS/Service Execution
- Reduce the cost of service/product production


The founding members of the ‘Product and Service Assembly’ (PSA) initiative today announced that Convergys, Microsoft, QinetiQ and TIBCO are to participate in the second phase of the Product and Service Assembly Initiative and associated TeleManagement Forum (TM Forum) Catalyst.

The aim of the PSA initiative is to develop a reference IT architecture that enable new telecommunications services to be easily assembled from existing or new service elements and to dynamically orchestrate the required changes that result within the appropriate OSS/BSS applications.

QinetiQ, one of the world's leading defense technology and security companies joins BT, Cable & Wireless and TeliaSonera as sponsors of the initiative, while Microsoft, TIBCO and Convergys join existing vendor and systems integrator participants Atos Origin, Axiom Systems, Huawei and Oracle.

The approach is based around a set of co-operating product and service catalogs that are designed to allow product management, service and network engineering and operational communities to easily collaborate. TM Forum standards are leveraged to provide off-the-shelf integration of the OSS/BSS elements, dramatically reducing the time in which this type of architecture, utilizing multiple vendors’ products can be created and demonstrated.
Phase 1 of the PSA Initiative’s Catalyst demonstration, which served as the initial ‘proving ground’ for the Initiative, was successfully showcased at TeleManagement World (TMW) Dallas in December 2006, through a scenario that showed how a VoIP-based product can be conceived, designed, assembled and delivered within a matter of minutes.

The second phase of the PSA initiative expands the scenario to a consumer oriented Triple Play bundle of high value broadband media services that includes broadband Internet connectivity, basic voice services based on VoIP and IPTV services including Video on Demand. This will allow the development of production ready standards and the creation of an ecosystem of PSA compliant COTS.

Ofcom and Enterprise Mobility

Ofcom has stepped in to regulate the mobile call termination charges, in what I think would lead to a depreciation in value of enterprise mobility offerings. Last year, Ofcom awarded 12 licenses from its guard band in the 1800-1900 MHz frequency range. It was believed that the licensee's will derive value by offering a bypass from high call termination charges, making the propsosition very attractive.

However, now that the termination charges are being regulated, alternate solutions stand to lose some shine. In addition, interconnect between these new players and mobile carriers are yet to be worked out, restricting the networks setup by these players into what would look like islands.

New metric for calculating productivity: Profit per employee

Several vendors ask me how we could evaluate the intangible benefits for a business. Increasingly, new applications such as Unified Communications offer intangible benefits such time-savings and ease of communication amongst others.

The key to the measurement is the metric-Profit per employee. If a company moves away from measuring capital intensive universal financial performance and focusses on the core business to measure profit per employee, there is a greater chance to measure the intangible benefits of the new applications of ICT.

Media enterprises are losing the plot.....

Financial Times, London reported that NBC Universal and News Corporation have sealed plans to create an online site to distribute professionally produced film and television content- the biggest media industry effort yet to knock YouTube aside as the top online video destination.

The report goes on to say News Corp and NBC Universal, part of General Electric, will create a 50/50 JV, yet unnamed, based in LA and NY. Mr Chernin will sit on the new company's board with Jeff Zucker, NBC Universal president and Chief exec.

It is known that the proposed JV has the blessings of AOL, MSN, MySpace and Yahoo to disribute the videos, which will be free to internet users and funded by advertising. Video content is expected to be beyond news. The JV is aiming to license content from other media houses including Time Warner, Sony Corp, CBS and Viacom.

On looking at the big news, it seems like YouTube is sure to be threatened. However, minute inspection tells otherwise. In today's world, the content that is proposed to be distributed by the JV is already available through television, a service that is widely accessible across countries through a licensing agreement. The business model is based on advertising and license fee (applicable in only some places). The JV aims to put the content into another distribution channel, that it perhaps considers to be more far reaching. They hope that this will improve their overall top line at the cost of an insignificant increase in the bottom line. I would not agree to this general consensus without more data. I say so because, where ever advertisers stand to gain value or customers, existing distribution reach those parts. It includes politically difficult countries such as Iran, Russia, China amongst others. Moreover, the JV allows free access to its content, therefore depriving it of a natural source of revenue (license fee). Saying this, I am not disapproving the use of internet. I suggest looking beyond existing business model to derive value. I am in agreement on a fundamental position, that the centre of information, entertainment for consumers is fast changing from being a TV to being the Internet. Hence, there is a need to be present in this new medium. There is a potential to gain more eye-balls, however the chances of improving topline will need some out-of-the-box thinking like what Google did years back.

Talking of the shift in preferred media, I would like to point out to the shortsightedness of the media moguls of the JV. YouTube isn't what it is because it shares some pirated versions of news, TV shows and cinema. It is what it is because of a different paradigm. Its the concept of user generated content that give it the scale at such low costs, and also the popularity and visibility. The moment somebody tries to bring QoS of TV into the internet world, the costs would be too formidable to offer free services and just depend on advertisers. Further, leveraging the internet is one thing and partnering with stronger distribution channels another. Google Video, a service from Google will be a biggest contender. If Google Video joins the plan and become a distributor along with AOL, Yahoo and others, it will be a completely different ballgame. The JV in such circumstances will become restricted to content generation and marketing with distribution left to people who know the trade.

Nortel on track with management priorities

Life has not been easy for Nortel's CEO Mike Zafirovsky. He took the helm when Nortel was reeling. He communicated his vision and now he is executing them with perfection. Last year, Nortel divested its UMTS access business to Alcatel, now Alcatel-Lucent. Later, Nortel inked a major innovative communication alliance (ICA) with Microsoft around enterprise communication (unified communication). Steve Ballmer, CEO of Microsoft likes to compare ICA with their relationship with Intel and DEC (later Compaq and now HP).

Now, Nortel is getting ready to get rid of its GSM business. Rumour mills are abound with the news that Alcatel-Lucent has secured an agreement towards 'first option to buy' when the business goes on sale. Since I don't track the mobile market, can't offer much beyond the news. However, with all this Mike and Nortel are keeping their promise to be in business where they are the best.

Uptake of web 2.0 apps within enterprises

There is a rise in user activism these days. Leveraging the scale and reach of internet, user-driven applications and services have created a new paradigm, sometimes referred to as web 2.0. The success of MySpace, Wikipedia, YouTube, Facebook and Orkut are some examples. Most of these developments have been in the consumer space, something that the enterprise market have been keenly watching for sometime.

The technologies that power web 2.0 phenomenon have had traction in the enterprise market. Collaboration, including Web services, peer-to-peer networking, blogs, podcasts, RSS, social networking, mash-ups amongst others have been tried and deployed within enterprises. Saying that the strategic direction in general has been towards adoption of technologies that enable automation and networking.

In one of McKinsey's recently published surveys, 79.3% of early adopters of web 2.0 applications were satisfied with the financial ROI over the past 5 years. Only 10% of respondents said they were dissatisfied. However the situation changed with fast followers. Only 59.5% of respondents claimed to be satisfied and 17.4% were disappointed.

One of the key challenges for web 2.0 apps has been to demonstrate value and put a price tag to it. Fortunately for the users of the internet, it allowed for unique experiences that led to a movement. Most of these applications came free of cost. In one of his visionary presentations, Cisco's Chief Development Officer, Charlie Giancarlo very nicely explained the changing lifestyle of the new generation. He explained with amusement that his daughter uses e-mail only when she wants to connect with him. The Google model created a new form of doing business. Internet gave it the platform and the market. Still the fundamental question of assigning a value to an application remains central and unresolved.

Today enterprise investment in web 2.0 apps is around creating another channel to interface with their customers, suppliers and partners. The advantages of the channel is around costs, transparency and collaboration. Enterprises derive significant in-tangible value from the use of these apps in managing internal collaboration. Value is derived from time-savings, resource management, collective intelligence amongst others. Lifestyle improvement at work is another driver that is at time overlooked.

Italian province of Trento goes Wi-Fi

The province of Trento is the southern part of the historic Trentino region whose history dates back to the mid-stone age. Being an autonomous province, the local administration has to fend for itself. The terrain is mountaneous which doesnot offer a great scope for wired network deployment. Therefore, its no wonder that DSL penetration is lower in this area in comparison to the national average of Italy. The economy of this province depends on primarily on agriculture and tourism. Lower spending capability in communication services and a difficult terrain are probably the chief reasons for the lack of adequate communication infrastucture in this region.

Not any more. The public administration has decided to deploy wi-fi to provide municipalities, businesses and residential users access to internet and voice services with wireless broadband access. Alcatel-Lucent along with a consortium of sub contractors will deploy 1600o wi-fi access points in one of its largest deployments in Europe. If successful, voice over wi-fi will be rigorously tested in this province as some parts will have no alternative access route as DSL isn't widely deployed. The province has a optical backbone that the Wi-Fi network can leverage. However, the rollout of the solution will take time. Until then we'll have to wait for the outcome....

Is FMC on track?

I read a report that says that FMC is firmly on track. However, my understanding had been that FMC has suffered casualties, for instance Deutsche Telekom abandoning its T-one service and BT not getting enough uptake for its fusion offering.

To investigate further, I followed the trail of the report to FMC services elsewhere- UMA in the Netherlands, Denmark, USA, Italy, France, and the UK, and dual-mode WiFi-GSM services in France, Germany, Spain, Japan, and Scandinavian countries-these are examples cited in the report, which I think is missing a point. FMC services have got some takers for sure, but then these (some 400,000 subscribers globally by end of CY 2006 representing less than 3% triple-play subscribers) users are the hep crowd who get the latest to stand out. This number includes users who have bought the latest service package, and aren't necessarily users of FMC. What I mean by that is, someone buying the latest Nokia E-series phone doesnot necessarily become a 3G user, the consumer can be using the latest device to make simple voice calls. We will need to look at other statistics such as network usage or service usage to determine the uptake of FMC. Saying so, I agree that for operators and investors, what matters is sales of FMC service packages. Currently, the usage of FMC services is pitifully low and the sense of fashion parity is yet to kick-in with the mainstream. In the current state of the industry, its a very costly proposition to stand out in this market. With ever changing industry dynamics (what with all the consolidation), constantly revised marketing schemes, launch of new devices have left the consumers feel lost in this myriad of change. The sense of catching-up with the latest will happen for sure, but at a cost. The conumdrum will have to solved, allowing a set of simple and clear propositions emerge offering customers choice and value. Will FMC in its current form achieve this state, I don't know. I remain, the skeptic!

Cisco acquires WebEx

Cisco announced the acquisition of Webex- a web based conferencing and collaboration service provider. In an all cash offer of $3.2 billion Cisco gains access to the SME market along with a new but growing subscription based business model.

The offer of $57 per share for WebEx communications Inc is 23% premium over yesterday's closing price at Nasdaq. The buying price is almost double the January stock price of WebEx. WebEx made $380 million in net earnings in FY2006. It has around 2100 employees serving 28000 customers, approximately 2.2 million users across 85 countries. WebEx is the market leader in its space with around 65% market share followed by Microsoft and Citrix. Close to 80% of its business is in the non-enterprise segment. It has a considerable reputation in the SME space.

WebEx brings to Cisco market knowledge of SME, an area where Cisco hasn't been a player to be reckoned with. Also, WebEx offers Cisco with a unique business model. Subscription based services of unified communication and collaboration is in its nascent stage. As this model gains credibility, improves reliability the platform can offer an affordable channel for SME's to access the latest developments in unified communication and collaboration being disassociated with the technology risks.

The unified communication landscape is evolving. The game is on.