Transcript for UCStrategies Experts Discuss Communications Service Providers of the Future

Russell Bennett: Welcome to the UCStrategies podcast for May 17. My name is Russell Bennett and I’m the principal of UC Insights. With me is a group of UCStrategies experts. I think that it’s fair to say that the communications market is undergoing a fairly fundamental revolution. Two of the main trends are that the consumer is migrating from wire line to mobile and IP telephony. And the other one is that enterprises are migrating from telephony through to e-mail and other textual forms of communications and also multi-modal UC. And despite this, we haven’t seen much of a response from the traditional telephony carriers. Even in the mobile telephony space, a great deal of the innovation and the resulting mindshare has emanated from the device manufacturers. With so much innovation coming from the vendors, the new telecommunications space and so much communication happening on non-telephony networks, it causes me to wonder: who will be the communication service providers for the remainder of the 21^st century? Will it be the incumbents or will it be the new entrants? As I’ve said, we’ve got a range of UCStrategies experts with me and I would like to hand it over to Marty Parker.

Marty Parker: Thanks, Russell. I’m going to start by building on the topic of topology and transports that you’d brought up. So yes, there is definitely a major shift in the mix of communications. We certainly see that e-mail, over the past decade and a half or two, has been displacing voice calls. But we also see work spaces and blogs and social networks also replacing voice calls with more of a collaborative environment. Presence eliminates many voice calls and associated voicemail to people who are busy or unavailable. Instant messaging is also replacing many of the short voice calls: are you coming, are you late, are you on schedule? –those kinds of things. Now we also have video impinging on voice. We hear video is the new voice from Cisco, et al, and while the video may add a little bit more traffic, it’s basically going to replace a voice call every time it occurs. Desktop sharing for collaboration is also, of course, based on internet protocol, and increasingly the related voice or video communication with that desktop session is on the same computing device as the data network. So for those voice calls that remain, over half of them have shifted to the wireless networks, even inside a business office. And then increasingly, both the Smartphones and other Wi-Fi phones are being used on the Wi-Fi networks rather than on the cellular networks, and especially on the company premises.

So, most of these new communications methods that I describe are using internet protocols, not telephony protocols. To emphasize your point, Russell, traditional telephony traffic is being replaced or transformed in three major ways. Number one: a conversion to other communication modes using internet protocol. Number two: a conversion to wireless communications, increasingly over Wi-Fi or the cellular data channels. And number three: conversion to cloud-based services. In other words, when two or more parties are communicating in the cloud, their communications flow within that cloud divider’s network, not over the public network. Skype and WebEx are two leading examples of this and clearly, Microsoft and Cisco each figured that out by purchasing the two companies, respectively.

So with this much technology and technological transformation going on, what are the traditional carriers doing about it? Let’s ask our fellow experts about that. I’m going to pass the baton over to John Bartlett.

John Bartlett: Hi, Marty. Thanks for that introduction. What I’m seeing is that, as you mentioned, a lot of conversations, especially short conversations, are moving to instant messaging or SMS. It’s almost exclusively how I need to communicate with my daughter, it seems. And at the other end, we have communications, longer conference calls within the enterprise certainly, moving to video. Now out in the consumer space, we also see that. Skype has picked up a tremendous amount of traffic, especially overseas traffic, and claims as much as 40% of their traffic is now video – which is a very large number and to me, signals a significant shift.

And so the bigger question that Russell was asking is what are the carriers doing about this and who’s carrying this traffic? And in fact, I think you can see Skype as being a service provider. And so certainly they’re not one of the traditional service providers, they have a very large number of users, some of them pay monthly fees for the service, they use it on an incremental basis, and so on. And of course, what does it mean that Microsoft purchased them? I think that’s a very open question. But we don’t see that yet moving toward the traditional carriers.

Conversely, we do see the traditional carriers being quite strong in the backbone of what’s supporting that feeder connection, which is the internet itself. And so my anticipation is we can expect some consolidation over the next few years that may, in fact, move power back towards those traditional carriers -- we don’t know.

Within the enterprise, we see a lot of video conferencing within the enterprise. We don’t see as much yet enterprise-to-enterprise. There are nascent efforts in that space and there are service provider-like functions popping up to do that. Some belong to carriers: BT Conferencing, for instance, Tata, AT&T. But there are also providers who are new in that space: Glowpoint, BCS Global, Iformata, Vidtel, who are trying new models to see what works. So again, will they become the service providers for these services or will they get merged back into some larger entities, which we can identify as traditional carriers?...open questions. I’m going to hand it off now to Jason Andersson to talk about the cloud. Jason?

Jason Andersson: Yes, thank you for that. I think this conversation really is interesting to see who will be the new players in the future. And I think you could view the traditional telecom companies as a cloud provider of sorts even though their business model is not there yet. They have a lot of adjustments to do to be able to get into that mode of business and the question is, are they fast enough?

If you’re looking at the enterprise services when it comes to communication features, they are moving more and more, or from a strategic perspective of being looked at to be moved into different types of clouds. It could be e-mail services, it can be storage services, it can be even UC services with Microsoft 365 or GoogleDocs or whatever. So they are looking at the cloud as a potential solution for them to not have to deal directly with the servers and hardware and the things like that.

The other side is the mobile space, which is in a way, also is a cloud service. More and more communication moves over to the mobile side. Here in Scandinavia, where I’m situated, today almost 60% of all enterprise extensions that are sold—new extensions—are mobile extensions. The RFPs that go out are moving to 100% mobile, but then sort of turning back because they still have people who want to have a desk phone.

Collaboration across enterprise borders—now not inside the enterprise as much, but across the enterprise borders are looking at centers that are cloud-provided. You have the companies like Genesis before, but now do web conferencing things together with other companies, that offer even connections to hosted Lync servers and things like that. You have new types of apps that tie together the cloud, such as Google apps or fixed telecom providers using apps in mobile devices and then tying them into the enterprise to be able to share documents and things like that.

I thought it was interesting that you brought up beforehand – it was brought up the use of short messages and instant messages. Here you see that type of communication moving towards the mobile and towards the cloud and the question is when will the rest of the communication space do the same? I think it’s just a matter of evolution going slowly but surely towards the cloud, and the cloud providers are getting better and better in this. And obviously, if you look at the number of players in this space trying to tie up to, for example, Google apps or Microsoft Office 365 to create a UC solution with mobility based on the cloud, it’s really becoming a new type of game, a new type of architecture inviting new types of players into the field. I think, Dave, you’re going to continue a little bit on this?

Dave Michels: Yes, this is Dave Michels. I think there’s an interesting pattern or trend occurring with the way companies like Google are turning the carrier concept into an application, as opposed to the traditional carrier. I look at Google Voice and they’re not the only ones doing this. In fact, a lot of enterprise vendors are doing this. But I’m just going to use Google Voice as a more comprehensive example. But they’re the only ones, as far as I know, that have a passive dialer on the cell phone, for example. And so all the enterprise solutions require you to pull up an enterprise app and dial from that enterprise app. And then it usually requires you to receive the call back, the system calls you. Enterprise Voice has a completely passive dialer. It dials...you treat the phone like normal and then it calls -- I think it’s a bandwidth.com point of presence and substitutes the outbound caller ID completely passively. And then on top of that, they’ve done the same thing with effectively SMS, so that if you use your Google Voice number for SMS texting, you could receive SMS messages on your e-mail, you can have them forwarded to any cell phone that you’re using or multiple cell phones. Really, SMS has always been so tightly associated with the carrier and the phone number and they put a level of abstraction in between that. You’ve got, obviously, simultaneous ring, which is what it’s most known for. You’ve also got call recording. You’ve also got conference calling –all built into the app. And it’s quite possible to use Google Voice with an Enterprise phone system, with Skype, with a normal cell phone. And they’ve basically put the carrier into the application layer and I think it’s a pretty interesting trend. You look at some of these enterprise implementations: Avaya one-X, Mitel has got Mobile Extension -- a very similar concept where they’re putting a lot of what we would associate with the carrier or even the equipment-based PBX systems on to any phone anywhere you want with a lot of control to the user. I think that kind of changes the notion of what a carrier does and puts it back into the user’s control, which is, I think, a very interesting trend. Michael, do you have any thoughts?

Michael Finneran: Yeah. Thank you, Dave. Well, when I think about the carriers, my division is facilities-based versus non-facilities-based. And clearly, all the interesting stuff has been going on with the non-facility-based carriers and that would include Google Voice and Skype and RingCentral and Facebook. A much different story for the facility guys; basically I just describe it as the inexorable evolution to a dumb pipe. And we’ve already seen it happen in wired. Essentially we have a network that carries IP packets and all the intelligence is either in the end device or the extracted layer above it with something like a Google Voice, a Skype or a RingCentral. Of course, the part of this I focus on most is mobile and I think that’s going to be an exception—for a number of reasons. One of the biggest is there’s just less competition. Also, the mobile carriers are much better at exerting control. When you think about it, the 2G, the traditional voice service is the last bastion of circuit switching. Also, the mobile guys are just better businessmen. So they will fight tooth and nail against being devalued to that dumb pipe. And they do have the ability to impair voiceover 3G service if they choose. And I wouldn’t put it past them. Basically, they’re exempt from network neutrality. Overall, it’s going to be an inexorable development. Eventually, everything moves to the facility carrier being the dumb pipe for IP packets, either wired or wireless. It’s just going to take a little longer for that to come about in a mobile space, just given the nature of the business.

Russell, let me kick it back to you.

Russell Bennett: Thanks, Michael. Now we’re going to pass on to open forum. I think that Jon Arnold had a comment that he wanted to make.

Jon Arnold: Yeah. Thanks, Russell, it’s Jon Arnold. Lots of great points and I agree with most everything I’m hearing here. Things I just want to add are just a couple of touch points on the cloud. I think I agree with Michael that it’s inevitable that almost everything is going to head to the cloud, but I will just throw a little note of caution into that. One of the reservations against the cloud early on is that will it scale and other issues about security and privacy issues, and of course, when you start getting into things about where the source of the cloud is – if it’s offshore – there are concerns that can be raised here. And you know, you just have to look at WikiLeaks as a potential of things that can really be the beginning of things that could go wrong. And we hope that doesn’t happen. If the technology does its job, it won’t. But there’s still that possibility that the cloud can fail or come up against some limitations that will make it not the best way to do voice. I think that’s yet to be determined, but you talk to anybody in the security space and they’ll tell you there’s all kinds of things to be worried about. So I think there’s a couple of caveats there but certainly, the dumb pipe scenario is almost inevitable here. But that does raise the point, though, in the initial topic here, Russell – can traditional service providers still find a niche? And I think their calling card has always been the reliability and quality of the service they provide. But the problem is nobody’s willing to pay for it now with all these alternatives. So I think one of the only things that can save that model is if, for some reason, the cloud loses favor and does not live up to this scenario that we’re all looking at here. So I think there’s still some unsettled issues here. But the economics are pretty much the driver for a lot of this stuff. I don’t see anything that’s going to replace that any time soon.

But I think to your question earlier, Russell, about who’s going to come into this space, we’ve already talked about that. Another one that hasn’t been mentioned is Amazon. And I think at the end of the day, the cloud companies who are going to make the most hay here are the ones who know how to run the most efficient server operations and we know that that’s Google. We also know that Amazon is one of those major players and, again, it disintermediates the idea that a carrier with a physical network is really the best option. And I think, in this case, it’s the one who operates the best data center network and knows how to deliver applications efficiently and on a large scale. So that opens the door for all kinds of players and I think Amazon won’t be the last of them. And I think this is where you’re going to see a lot of potential disruption in this market because these servers can be anywhere in the world and the geography just doesn’t matter. So that opens up all kinds of possibilities for new players.

Russell Bennett: Thanks very much, UCStrategies experts, for your insightful comments. I think in summary, there’s a general agreement that the incumbent service providers have lost the initiative and that there’s a lot of momentum heading in the direction of these new service providers, if you want to call them that. The worst case scenario for the incumbents is that they will end up being operators of the last mile networks and parts of the internet backbone, turning their network into a  “dumb pipe,” as I think it’s been described as.  Or they could, I think, carve a niche for themselves by offering the new communications services as cloud vendors themselves. Obviously, it remains to be seen, but this business is moving so fast that every day that they don’t do something reduces their opportunity.

Thanks, everyone. See you again next time.