Wave Issue 0107 2/5/01 Article 2-01

***Ankle Biting the Telephone Industry - Technology Meets
Entrenched Monopolies - COMNET 2001, Washington, DC
by John Latta & Amanda Rogos
(January30 - February 1)

Each year COMNET seems to get smaller. Washington, DC is not a
good city to hold a significant telecommunications conference in.
The show has a tag line "Building Business Value Through
Intelligent Networks," yet we had a hard time finding a coherent
thread in the exhibitors and the conference sessions. In spite of
these limitations there was gold to be mined on the show floor.
As is customary in our trade show coverage we seek underlying
trends, new companies and interesting products.

Two trends are behind fundamental changes in telecommunications:

Optical networking (which the WAVE Report described in its
report on the Next Generation Networks Conference Issues 2054 &
2056); and
The integration of connection based networks (PTSN and ATM
as backbone) and connectionless (IP networks).

For over 100 years the telephone system has served as the
foundation of the telecommunications industry. This has resulted
in a rich network, which is:

very reliable - the 99.99% reliability criteria;
pervasive - extendable to wireless phones;
scalable - supports 1b land line telephones
adaptable - capable of evolving to support data.

At the same time the network has its own baggage in the legacy
companies that support it, the ILECs, and burdensome regulations.
The success of the phone system was closely related to the
monopoly status AT&T had and its excellent engineering. Yet,
today many of these vestiges of the past are gone or they remain
an inhibitor of innovation or competition. The Internet with its
demands for IP transport and exponential demands for bandwidth
has changed the competitive landscape. More importantly it has
made possible a new competitive landscape shaped in part by what
technology enables. Although the end of the PSTN is not in sight
it is being seriously challenged. More importantly voice and data
services are being radically transformed. What we saw at COMNET
was only a beginning.

To understand these trends we first need to scope the size of the
telecommunications market. The TIA recently stated it as follows:

The overall U.S. telecommunications market (equipment and
services) grew by 12.5 percent in 2000, generating revenues of
$609.2 billion. Spending on telecom equipment continued its
double-digit growth, recording a 13 percent increase over 1999,
reaching $159.8 billion. Spending on transport services reached
$287.6 billion in 2000, an increase of 8.9 percent over 1999.
Specialized services, which consist of unified messaging, voice
messaging and broadband Internet access increased to an estimated
$5.8 billion, up 62.2 percent over 1999. Enterprise spending on
professional and technical services in support of voice and data
communications equipment reached $138.3 billion in 2000, while
network service providers spending in support of network
infrastructure equipment increased to $29.9 billion.

This is a huge opportunity market.

Certainly an entry point for competition is in voice. It has been
predicted that data will overtake voice by 2002, in terms of
bandwidth consumption. Yet, being competitive in the voice market
has proven difficult. Deregulation of what have been monopoly
markets happens at glacial speed. A key objective of the
Telecommunications Act of 1996 was to introduce competition in
local telephone service. This has been a failure. The white
knights of competition were the CLECs - Competitive Local
Exchange Carriers. Yet, they faced formidable challenges, which
included: gaining access to the local exchanges, fighting the
ILECs, securing significant capital for equipment, and finding
customers. While the ILECs constructed barrier after barrier, the
CLECs spent time and money to overcome, it was only time until
the CLECs run out of cash. This has already happened and many of
the CLECs have either filed for bankruptcy or are exiting the
business. Only three of the DCLECs (Data CLECs) achieved national
coverage: North Point, Covad and Rhythms). All three are in a
distressed state and it is highly unlikely they will regain their
past position of promise in the market. There is a critical
lesson from this: it is very difficult to secure a viable market
when your competitor is responsible for setting your gross
margins. Given that the ILECs are being faced with the prospect
of exiting their monopoly position they will do everything within
the law and at the edge of it to retain market share. They have
been especially effective in circumventing the competitive intent
of the Telecommunications Act of 1996.

There are three factors that signal a change in these conditions.

(1) The ability of ATM and IP networks to coexist and IP
networks to implement both traffic engineering and QoS based on
MPLS (MultiProtocol Label Switching);
(2) The creation of voice and data networks which can be
software based and easily configured by the users based on need;
and
(3) The delivery of new network services at disruptive
prices which can be easily integrated into existing business
networks.

MPLS is not one standard but many under the IETF (Internet
Engineering Task Force). It is based on a label, which allows for
a class of packets called a FEC (Forwarding Equivalence Class) to
be provided routing consistent with its QoS. This enables to
routers to no longer look at the individual packets but move the
FEC packets much more efficiently along a specific traffic path
in a MPLS network.

The concept of a softswitch has evolved which can replace the
traditional phone switch in a CO (central office). Vendors in
this area include: IPCell (now owned by Cisco) and ipVerse. Not
only is it possible for an organization to define its own
telecommunications services but individual services can be set up
and modified using XML based web interfaces. Such capabilities as
follow-me, total mobility, life style configurations, and media
adaptations are some of the flexibilities offered by these new
capabilities. The traditional phone network based on AIN
(Advanced Intelligent Network) does not have this flexibility and
user exposure.

Lastly, Ethernet is becoming the business networking WAN
interface of choice. Ethernet offers not only ease of integration
but when coupled with optical last mile and backbones much lower
cost.

Our coverage of COMNET will now include some of the most
interesting companies we talked to on the floor.

WAVE Wireless

When the Department of Education in the US Virgin Islands needed
to find a method of wiring the networks for several of their
schools located on 3 different islands, they were faced with
potential fiber installation, material and labor costs of up to
$3 million – plus the costs to lease T1 lines for connectivity.
Instead they decided to hire Wave Wireless Networking, a wholly
owned subsidiary of SPEEDCOM Wireless Corporation to install a
fixed wireless system using the 2.4GHz unlicensed band. Wave
Wireless ended up connecting 124 sites with their SPEEDLAN
wireless solution. Now the Islands have asked the company to
install the same kind of system for over 100 of their municipal
buildings.

Wave Wireless manufacturers broadband wireless products including
this wireless Ethernet solution that are used by ISPs,
schools/universities, government and corporate enterprise for
building to buildings connectivity and Internet distribution
within a 25 mile range. The systems operate within the ISM band,
a license-free band initially designated by the FCC for
Industrial, Science and Medical use.

Wave's wireless broadband solutions are sold through a network of
OEMs, distributors, value added resellers (VARs), and other
strategic partners. The company has operations in more than 60
countries, although 65% of their sales were done in the United
States last year.

Dependent on line of site, these systems are mostly used within
small campus environments and in regions where trees, tall
buildings and other obstacles, will not get in the way. Recently
though, SPEEDCOM Wireless finalized a partnership with SRI to
obtain worldwide the rights for six years to SRI's PacketHop
technology in the fixed wireless infrastructure market for the
primary frequencies, including 2.4 GHz, MMDS, 3.5 GHz and 5.7
GHz. PacketHop is wireless routing software that overcomes the
inherent need for a direct line-of-sight in fixed wireless
broadband networks.

The PacketHop design promises to reduce network overhead by
managing the way nodes communicate routing data to other nodes.
In essence, each remote nodes are installed that act as repeaters
- relaying multiple messages about their and other node locations
within the network, so that every node understands where the
other nodes are located, as they travel through out the network.
The company claims that this will reduce the overhead by 85
percent, resulting in a higher level of performance.

Wave's system, with PacketHop integration, will be available at
the end of Q2 2001.

Cogent Communications

Cogent's offering is simple - 100Mb/s Ethernet for $1,000 per
month. They are a pure play bandwidth provider with no data
centers, no ASP hosting or resellers. Their focus is on buildings
that carefully fit their profile. They are targeting 25 markets
with buildings that are near fiber rings, have 100,000 ft. sq. of
office space and 25 tenants or more. So far they have qualified
2,500 buildings and expect to qualify 5,000 to 6,000 in the US.
Once they target a building the objective is to sell to as many
tenants as possible and use this as a leverage point to gain
access to the building. It costs approximately $75,000 to outfit
a building. Cogent is "Cisco Powered."

There are 195 employees. The company has raised $426m in funding
and has 13 direct sales offices. So far it is in 5 markets and
has announced 13 markets. The company expects to have 12,400
route miles of fiber with 24,800 fiber miles. Much of its fiber
is leased dark fiber. The company expects to have 22 facilities
in 20 markets. The total network is optimized for data.
Restoration time is 1 - 2 seconds compared to SONET's 50ms.

Netspeak

Netspeak is a software company that provides: an Infrastructure
Suite (Gatekeeper and Route Server), Application Server,
Interconnect Gatekeeper, Media Server, Event Management Server
and WebPhone Client. These products implement VoIP solutions of
ISPs and others seeking to offer voice.

SS8 Networks

This company has a hardware signaling product for an IP based
voice network. This closely parallels the signaling provided by
SS7 in the PSTN. The product supports both H.323 and SIP. Its
functionality includes: SIP Redirect Server, a SIP Proxy Server,
a SIP Registrar or an H.323 Gatekeeper. The company claims it has
the first implementation of the Telephony Routing over IP (TRIP).

Sharegate

Sharegate has a DSL2000 Broadband Services Gateway. This provides
in interface to a DSL line. It implements within the SOHO
environment VoDSL within the home for up to 4 independent lines,
HomePNA up to 10Mb/s over phone lines, NAT, and DHCP relay agent.
It currently does not support VPN but this is scheduled for the
next release.

Market data.

www.tiaonline.org/pubs/press_releases/index.cfm?parelease=

01-03)

www.speedcomwireless.com