John Roese’s Blog CTO, Nortel

Location: Flying Back from Barcelona/3GSM

The conclusion I draw from just having spent most of the week at 3GSM is that the strategic bets that Nortel is focused on going forward - to accelerate 4G, to recreate the carrier wireline model, and to transform the enterprise communications experience - are exactly the right places to focus. How I come to that conclusion can be seen in the tone and tenor of 3GSM and some pretty clear common threads that are at the center of the mobile operators’ paradigm.

First, a bit about the show. This was a huge show, with attendance apparently up significantly from the last few years. Some estimates, in fact, were in the 60,000+ range. Every major and minor provider, operator and supplier was present and in force, including almost every CEO from those companies, along with their senior teams and key staff. In general, this was ground zero of the mobile world. Because of that, the tone of 3GSM is pretty much the tone of the industry.

Second, this show should really be called something other than “3GSM” because believing that this was only a show for 3G would certainly be incorrect. The 2G, 3G and now 4G worlds were all represented, as were the various applications that operators, both fixed and mobile, use (such as video, roaming, and enterprise services). There was also a strong presence by the wireline community and various professional and global services organizations. I guess the name 3GSM has some recognition, but in my opinion it fails to capture the real essence of this show.

For Nortel, this distinction is important in that almost all of what we showed there and most of our dialog with customers was centered around things beyond 3G. To be honest, before I arrived at the show I was concerned that 3GSM might not be the most appropriate place for Nortel to be, given that we are possibly the most vocal advocate of accelerating various 4G technologies, such as IEEE 802.16e mobile WIMAX, Ultra-Mobile Broadband (UMB) and LTE (Long Term Evolution).

Third, the dialog with customers and partners at this show confirmed that there are some serious changes going on in the mobile world. No longer is the discussion around “if” 4G will happen, but more around “when and how”. Even some of the vendors who were publicly criticizing technologies like WiMAX and also implying that LTE was nothing more than a concept for the distant future - primarily because of their 3G product focus - are now announcing some strategies to accommodate 4G technologies. There were also keynotes from many very significant leaders who either embraced a 4G paradigm or, at least, acknowledged the potential issues if the industry does not get engaged to shape the 4G world as a near-term priority. (See some of the links below of press coverage on 3GSM.)

Finally, there were real products there (at least from Nortel :)). We had our 802.16e system (in trials now) and an early LTE system live and showing a wide range of media delivery (voice, video, data…) at speeds current networks are only dreaming about. There were a few other vendors showing some 4G technology (I did not see any other live LTE systems, however), but it was pretty clear Nortel is the company focused on leading its acceleration.

The last observation from the show is that our goal of accelerating 4G is related very tightly to our other key strategic thrusts in Nortel – i.e., carrier wireline and enterprise. In the carrier wireline area, for example, our efforts to dramatically drive down CAPEX and OPEX through next-generation technologies are important because these savings are what will help fund the build-out of 4G. Today, there are confines to economic envelopes and the ability to throw a huge amount of capital at 4G. The way the 3G world played out years ago, in terms of CAPEX spend, is not going to happen again. New technologies like PBB/PBT (Provider Backbone Bridging/Provider Backbone Transport) in our Metro Ethernet portfolio are critical to reducing the backhaul costs and operating costs of the core and aggregation networks, and thus to improving the overall economics of this new 4G world.

Additionally, our effort to bring unified communications to the enterprise and to create intelligent enterprise networks is critical to the 4G market because the best early customer for 4G will be (in my opinion) enterprises desiring to extend their Intranet paradigm over mobile networks (something that is difficult, if not impossible, to do in existing 2G/3G networks today).

When you look at the strategy we have laid out, it fits very well in the 4G world: to create a new mobile broadband network that is flexible, cost-effective and high performance from Day One; to help fund its build-out by driving the complexity and cost out of the wireline and backhaul network through new optical and metro Ethernet solutions; and, finally, to get enterprise communications systems to a state where the ability (via SOA or Web Services) to extend the enterprise experience into the carrier network collaboratively is a reality, thus creating a new class of high-value customers for the 4G world.

Overall, for being the CTO of a company that is pretty public about the deficiencies of 3G and the need to accelerate the future, I actually felt pretty well aligned to the reality that was seen by the mobile market, regardless of the name of the show :D.

One last, last observation… the one thing that was not at 3GSM with enough force was the acknowledgment of the hyper-connected world. This show was far too focused on the classic handset and voice terminal in the mobile paradigm and showed a pretty significant lack of vision around the opportunity to connect more than just phones to the mobile network.

The good news is that I clearly saw that our customers understand this opportunity but that the majority of vendors are still stuck in a world where the only entity on a mobile network is a cell phone. I think that will be a problem for them.

As I described it to a few folks, the industry focuses on ARPU (Average Revenue Per User) as a measure of opportunity. The problem with that is that in most markets today the assumption is that there are few, if any, users who are not already on a mobile network, which means the only way to grow is to charge each user more for the use of the network by their device. Obviously, mobile phone plan prices are not cheap, so the ability for the customer to pay more is pretty limited. On the other hand, if you focus on hyper-connectivity, you create a system where, in the ARPU equation, the U (user) value can grow dramatically as you add entirely new classes of devices to the mobile network.

Granted you can’t charge the same price for an MP3 player on 4G as you do a phone on 3G, but if you scope it out, even at lower cost, the ability to move to hyper-connectivity increases node count by orders of magnitudes and, with that, total revenue available to the industry increases in a dramatic way.

I think this thinking is one of the last artifacts of the 3G world, but with the acknowledgement that 4G is real and coming much faster than the industry thought (or wanted, in some circles), support for hyper-connectivity is not just possible but necessary for the industry to be successful and relevant.

Some interesting press clippings on 3GSM:

Business Week: Vodafone CEO: Mobile Biz Must Move Faster

Telecoms.com: Sarin warns industry to work faster to beat WiMAX

Light Reading: Nortel CEO: 3G Can't Cut It

Total Telecom: Nortel clears its decks (subscription required)