IP's share of the massive $200 billion telco market is about 10% and growing. That is reason enough for Cisco to up its efforts in the field, Tony Bates, the vendor's service provider supremo, tells NME.
The IP telecom business might only be worth about 10% of the total telecom spend - but that's 10% of a $200-billion market and it's growing while the non-IP share is shrinking. That's more than enough potential for Cisco to justify continuing investments in its telco business, according to Tony Bates, senior vice president and general manager of the Service Provider Routing Technology Group at Cisco.
in Cannes that while its share of $200-billion market is relatively small for the company, considering it dominates the enterprise switch field, the move to IP by telcos represents a massive growth opportunity for the company.
"Where is the rest of it going?" he asks referring to the fact that its dominance in the IP enterprise network market is not mirrored in the telecommunications market. "It is going into access technology," he says, adding that telcos were beginning to get rid of the legacy systems in favour of IP.
"The IP potential will continue to creep up because you can even IP-optimise the access. A good example is in mobile space. People talk about IP RAM. Because it is almost all data running on IP so why not put it on IP," he adds.
Cisco intends to pick and choose the IP-based applications it brings to market. For example, says Bates, Cisco would probably never do legacy voice integration. There is a reason for that: rather than deliver a turnkey solution, much of what is needed is migration - and Cisco is not into migrating something it knows nothing about.
"You have to know the legacy and what is entailed in transformation, and what a lot of the big telcos have to go through. As it turns out it is as much about understanding the legacy. Those systems are actually proprietary; it doesn't play to our strengths," Bates says. "The level of investment to get there versus where people are really going - it just doesn't make sense for the company. If you talk to our large customers they see us as a telecommunications host product company, but we will pick and choose our areas," he adds.
For the same reason he does not see Cisco about to get into radio networks, for example. Again radio networks, while built on standards at the top level, are proprietary at the base station level as they can only communicate with certain makes of phones.
"It would be arrogant of us to say we could enter into those markets. But where there is an IP-based aspect to it, you will continue to see us make investments," he says.
He sees video delivering an exponential growth curve in the region despite Middle Eastern bandwidth limitations and the need for some enterprises and telcos to go "through a little bit of an upgrade cycle". Cisco, which has forecast savings of 20% on a company's travel budgets, believes it has a sound value proposition to make for video and has already deployed video conferencing in its offices around the world.
"We are lucky in that we are able to deploy the infrastructure quicker than countries but I think you have to look at the overall ROI of that. It seems to be very powerful. I am here talking to you today face-to-face, but I have to see a lot of global customers when I get back next week. So I have up to seven meetings with telepresence with those customers around the globe. It saves so much time not only on a personal level but also on a company level. There is a business case," he maintains.
And despite the cultural expectations of the region for face-to-face meetings, he does not see this limiting growth in the Middle East.
"Where can IP go? It won't solve all things but you will continue to see a momentum shift to it that will grow at very healthy 20% year-on-year," he says.
Bates admits there are limits to IP, and maintains that its development is on par to the railway, oil drilling or Guttenberg press and as such is a "seminal invention" and far from being classified as ‘old' technology.
"The principles of IP are very strong. It is actually young if you look at its evolution. If you look at the IP suite of protocols, which are defined in the ITU, they are evolving as we speak right now. Just like the transistor they are based on a well-thought-out architecture. That's what separates it from other technologies that have been and gone like ATM. They didn't have those incredibly well-thought-out principles," he explains.
Cisco's entry into traditional telco and service provider markets over the last few years is marked by its IP next generation network which is helping the company differentiate itself from many of the other more established players in the market.
"We have been involved, certainly on the internet side, for many years, but in the last five to six years we have put a lot more investment in what we would call carrier class engagement and that's not just products; it not just about building highly available products; it's the way you work with telcos," says Bates.
"One of the things that makes us a little bit unique is that we play across four markets. We have a service provider division and enterprise division - which obviously has been the heritage of the company - an SMB division and more recently a consumer division particularly around the connected home."
By playing in all four markets Cisco is in an ideal position to leverage its different experiences and develop solutions that are relevant to the market. By identifying consumer needs it can recommend infrastructure solutions that meet those needs.
"What happens with a lot of requirements, if you think about it, is that the route to market for most consumers is still the telecommunications provider. If you want a phone service you don't buy a phone from Nokia, you buy it from Orange; or you don't buy a set-top box from Motorola or Cisco or Scientific Atlantic," Bates says.
"So because of this knowledge - of this customer feature and customer requirement - we have the ability to say what is needed in the infrastructure. There is kind of a trickle down effect. It has happened time and again. Things that used to run in computers now run in routers and switches."
He gives VPN as an example of the many instances where this is the case. Security used to be built into a separate appliance, but is now integrated into switches.
"We try to say what it is that an operator can optimise based on the feature requirements and we actually have, in some cases, created alliances with some of the larger carriers especially in the US. We actually create managed services where it is our end devices, but the channel is the carrier. We provide the end-to-end value proposition. A great example is a managed firewall," Bates says.
"So in many ways this differentiates us. The opposite model is one that says ‘well, OK Mr Customer we want this. You provide it, end-to-end at this layer'. We have a much more networking and creative model."
Cisco's presence in the telco market is continuing to expand and it is continuing to grow market share and will continue to do so says Bates, as telcos move across to IP.
"There is a general acceptance that whether it is today, three years five years, IP is the general trajectory. No one really argues that. There is an issue of timing because it involves a migration or transformation - you just can't throw what you've got. You've got to migrate and add. So we are on this journey but we do feel well positioned where we are with what we've learned over the years," he concludes.
Cisco's rivals - long-established in the telco sector - will not give in to the IP upstart easily. The Californian giant has a fight on its hands - the market will see if its unique approach pays off.