Faced with the difficult choice of antagonizing its installed base by pushing upgrades to voice over IP or ceding
the next-generation telephony equipment market to startups and aggressive rivals like Cisco and Sonus, Nortel has settled on a precarious strategy it calls a 'blended' approach.
That means spreading its bets between pure IP devices pitched at both enterprises and carriers, building in migration capabilities for converged networks and continuing to support its legacy infrastructure.
The most recent manifestation of the blended strategy is the release within the same week of an enterprise media server - essentially a scaled down version of its carrier media server - with support for session initiation protocol (SIP) and a wireless-enabled IP PBX that supports H.323, the ITU 'rival' protocol to SIP favored by incumbent telcos for enhanced services applications.
Nortel would prefer to see the balancing act as an advantage rather than a dicey toss-up. For one thing, few other companies can articulate a migration strategy with the depth that Nortel can, despite the claims of a host of startups or other players like Sonus. Plus, while circuit switching is battered, it isn't going away anytime soon, so ignoring the market would be foolhardy. But above all, Nortel wants to avoid the appearance of grabbing at straws in what is a strategic and high-stakes market.
The company's options in approaching voice over IP are limited by its enormous installed base of digital telephony equipment at enterprises and circuit switches at carriers. The notion of ripping out existing equipment and replacing it with IP-based equipment isn't likely to find a receptive audience at carriers and enterprises suffering hangovers from the telecom binge. But a cautious pace has its risks, too. Cisco has no qualms about a pure IP approach, since the increased IP traffic generated by new applications feeds sales of its core routers. Also, startups building media servers or Class 5 gear using emerging technology like SIP won't have to contend with competition from an incumbent supplier that carriers are more comfortable with.
Nortel earlier this year consolidated its carrier and enterprise voice transport and services equipment into a single division headed by Sue Spradley, who was president of the carrier VOIP division. The impetus behind the change is that enterprise networks are looking increasingly like carrier networks in terms of applications and architecture, apart from the fact that enterprises don?t have to bill their employees for network usage.
At the same time that Nortel consolidated its enterprise and carrier voice divisions, executives sat down to devise an overarching strategy for the business. Some early suggestions were rejected, Spradley admitted, until the company settled on its 'blender' strategy. It boils down to enabling different rates of migration or none at all, and spreading R&D resources between areas like SIP and the slow integration of IP capabilities into devices like its Meridian gateway or Business Communications Manager PBX. Nortel can also support what's known as 'cap and grow,' or installing packet switches to cater to growing network traffic rather than another circuit switch. Seen in isolation, the product strategies could be interpreted as conflicting, Spradley conceded, but don?t contradict its overall strategy.
Where Nortel differs from other incumbent vendors like Cisco or Sonus (which can be classified as incumbent by virtue of its success in early softswitch deployments in areas like Internet offload), is that it has straddled the carrier and enterprise markets and has built both circuit switch and packet telephony equipment. Its Business Communication Manager PBX is widely deployed, for instance, and it is one of the major vendors of Class 5 switches. In fact, its installed base for Class 5 switches has proven to be an entry point for packet switching, since carriers, like Sprint for instance, will simply upgrade the software on their existing switches to handle packet traffic.
Nortel is confident that pushing SIP with its Interactive Media Server, or CSE Multimedia Xchange in the enterprise market, will stave off startups and position the company to provide the next wave of enhanced services. Media servers separate media processing from the application logic. Nortel has been criticized for not making a clear division in its equipment between the two functions, but Spradley is confident it has solved those issues. SIP is also important for Nortel's plans to eventually integrate its wireline and wireless portfolio.
Although the company paints its installed base as a strength, Nortel's options are limited. Pursuing parallel strategies avoids creating the impression the company is forcing voice over IP onto skeptical users, while at the same time ensuring that it isn?t seen as being tardy in embracing new technologies. But it is not without its risks. Any resources dedicated to its legacy infrastructure is money that could be dedicated to combating rivals like Cisco and Sonus or startups like Convedia or SnowShore in the emerging media server market.
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