A bit more than a year after Nortel announced its landmark deal with Verizon, the reality is that the RBOC only replaced between 5 to 10 of its Class 5 switches, which represents less than 1% of its total Class 5 switches in service (2,500).  This result is not surprising.  I recommended a lot of caution right from the early going.  I recall using a hockey game analogy in an interview I had at about the same time last year.  It was just the first period, and Nortel had just scored a goal, I said.  But it was still early. 

Also, while a couple of legacy Lucent switches were replaced, at such a low pace, it would seem that Lucent was able to just about maintain its share of the Verizon Class 5 installed base, with the other replacements being older Nortel DMS switches.  Since Nortel's exclusivity expires in July of this year, Lucent will still be given a few chances to get a significant portion of the replacement opportunity.  This just goes to show that, despite the initial Nortel win, it is still very hard to replace the incumbent, and in the worst case scenario, Lucent will still be the secondary supplier.  So expect that the months following July will be a good acid test for the recently acquired Telica softswitch (company acquired on May 2004 for $295 million).

Verizon's own Class 5 VoIP plan called for a an agressive 5 to 6 year deployment, but right now, a more likely scenario would be a 5 to 10 year exercise, with a rough annual spend of $100 to $200 million.  But that is assuming that Verizon will stick to its original allocated capex for class 5 switch replacement of roughly $1 billion.  And that other high priority items (e.g. FTTH project, IMS, etc.) will not draw more resources.  Those are two big ifs.  Nothing but a big dose of reality for those engaged in a bit of "irrational exuberance". 

With all the talk about how the RBOCs should start building out fiber-based video networks instead of relying on the satellite approach, one would think that the fiber deployments should be happening in full force in 2005. Verizon (NYSE:VZ) is favoring a FTTP (Fiber To The Premises) strategy, whereas SBC (NYSE:SBC) and others are more inclined to a FTTN (Fiber To The Node) approach.

No doubt that FTTN is the "quick fix" method, being faster and cheaper, however there are risks (i.e. is there sufficient bandwidth for when the loop length exceeds a certain threshold, or for HDTV). Also, the standards issues persist (VDSL or ADSL2+?) and then, there is also the question of the cost and availability of the set top boxes. 

FTTP is slower, and entails a higher upfront cost, but it should give Verizon the best network asset among its peers.  But the buildout will be slow, as Verizon plans to launch FTTH to 10 million homes over the next five years. 

SBC's Project Lightspeed is highly ambitious in terms of their video share gain assumptions, which call for a higher portion of the pie than what DBS players get today.  But their roll-out pace, opex and capex estimates presented in November of last year look reasonable.  However, despite the fact that these numbers were well received by Wall Street, some naysayers still point to past experiences as the best predictor of how long this deployment will take (who remembers Project Pronto?).

Another factor that might definitely dampen the RBOCs pace of fiber deployment is the potential SBC and AT&T merger.  Om Malik highlights a Merrill Lynch report that should the deal close, US wireline CAPEX might decrease by 10% (or roughly US$ 2 billion).  The SBC and AT&T were planning to spend about $7 billion of wireline capex this year, but a combined organization would mean a shrinkage of 30% (or $2.1 billion).  Of course, some of this reduction might also trickle down to Project Lightspeed, as SBC focuses on integrating the AT&T network.  In such a scenario, it remains to be seen whether or not Verizon, after seeing a combined SBC/AT&T spending less, will also follow suit.

Regardless, the MSOs will have a significant time-to-market advantage in bundling voice service versus the RBOCs in bundling video with their fiber buildouts.

Looks like Jeff Pulver has done it again.  After his very first FWD (Free World Dialup) back in the mid 90's (with Vocaltec's Internet Phone, a program which I was lucky to get a free license for, as a thank you for being one of the original beta testers), his second one FWD launched in 2002 (courtesy of a SIP registrar), Jeff now has topped himself again by having a new service called Bellster (maybe a wordplay meaning how to get Bell service the Napster way - i.e. for free).

Bellster is essentially a P2P (Peer To Peer) service that enables users to share their phone lines to make "free" calls anywhere within the reach of the global PSTN network.  The system does not provide actual PSTN access, but it assists a user to find other users sharing their lines via Asterisk (please see photo to the left), an open-source PBX (believe it or not, for an open source PBX, Asterisk has quite a decent list of features that is growing over time - it has been impressive to see this grow over time). 

Callers can call any phone number in the world by sending the call via Internet to a shared phone line near the person that is being called.  That is pretty similar to the very first FWD, except for certain rules.  The system is setup based on a "social rules arbitrage" code.  In other words, users have to earn credits before being able to make these free calls, and these credits are directly proportional to the amount and duration of calls that users allow to move over their private lines.  Jeff Pulver already listed in this blog the countries that are currently supported by Bellster, and the list includes the US, Canada, Russia, France, Italy, the UK, Germany, Argentina and Brazil, among others.

So what is the catch?  For one, the investment in the Asterisk PBX ($1,030, quite a steep initial investment to make supposedly "free" calls - a payback period of more than 20 months for someone making $50 worth of calls per month).  The second possible deterrent is privacy.  Because the call goes through the Internet, there could be very little in the way of assurances of a secure call.  Hence, security could be a major concern.  But still, this is cutting edge in that calls can be made from a PC to a phone anywhere else in the world.  It is also a service that is growing quite fast, with the recent tally showing 22 countries available and 487 nodes registered across them.

Update (26/01): Another issue that I forgot to mention is the cost of local calls in some regions.  For instance, in South America and Europe, each local call costs (taking Brazil as an example, each local call during business hours costs an "impulse" for the first few minutes, and then additional ones after that, much like a pay phone in the US; the story changes during the evenings and weekends when each call is one impulse, no matter how long it is).  These costs would be billed to the local user, so obviously there is an imbalance there versus in North America (US and Canada), where users can make unlimitted local calls paying the same monthly flat fee.  That said, on the plus side, the receiving end does not need to have a computer or any broadband access (in case someone wants to call their grandma who is not a computer user).

It came as a surprise to some, but FCC Chairman Michael Powell has called it quits, announcing his resignation from the post this past Friday. I had been made aware of this event late Thursday night, but was under a "friendly NDA" from one of my insider sources and Friday at 6:43 AM, the Wall Street Journal was the first to break the news, when one could see the following story on the online version (requires a subscription).  "You read it here first," the story read, "FCC Chairman Michael Powell will resign today."  Here are a few other interesting insights from Jeff Pulver, Om Malik, and The Economist. 

Undoubtedly, VoIP is losing one of its biggest allies, who fought innumerous battles inside and outside the Beltway to sustain the free market concept, and recognizing its powers over politics, centralized planning or regulation.  Powell saw the benefits of allowing a nascent VoIP industry a chance to grow, instead of killing it before it was born, and he deserves a lot of credit for that, particularly considering his stance was new and refreshing for someone representing a regulatory body such as the FCC.

There are a lot of folks rumored to be in the running to replace Powell, as reported in Light Reading or Greg Galitzine's TMCNet VoIP blog.  Regardless of who replaces him, he will be really missed.  I certainly hope that Powell's successor will continue following his consumer empowerment steps, and recognizing the following freedoms (so eloquently written in Jeff Pulver's blog entry):

• the right to access the content and applications of their choice
• the right to attach the personal devices of their choice
• the right to service plan information

There have been quite a few rumors about a possible takeover of Canadian high-tech star Research In Motion (Nasdaq:RIMM).  RIM, the makers of the popular Blackberry device, has been rumored to be taken, due to the success of the product, which has reached an impressive installed base of over 2 million users.  In a Goldman Sachs report, RIM was called "a very attractive acquisition", with possible suitors such as Nokia or Motorola being mentioned.  The new Blackberry 7100 series is being regarded as one of the key catalysts for growth this year, because of its form factor (looks more like a cell phone, it is slim, has a color display and only weighs 122 grams).  RIM has been relying on licensing its software to rival hardware makers in order to compete against the likes of Extended Systems or Good Technology.  Goldman believes RIM will be able to add between 20 to 30 new carrier customers this year.

Cisco (Nasdaq:CSCO) confirmed rumors of making another acquisition in the WLAN space after making public this past Tuesday its acquisition of startup Airespace.  This is yet another company that Cisco has purchased in this space (other notables in the past included Aironet, bought in 1999, and Linksys, acquired in 2003).  Aironet solidified Cisco's entrance in the enterprise WLAN arena, while Linksys gave the San Jose-based company a solid position in the consumer/SOHO WLAN market.  However, the acquisition of Airespace definitely indicates that Cisco finally turned the page on the "fat" AP (Access Point) model (the architecture used by its Aironet solution), and the company seems to now be finally ready to embrace the centralized WLAN switch architecture which has become the industry standard.

The rationale for the new "thin" AP approach is the centralization of the network management function, responsible for tasks such as compensation for failing APs, surveillance of possible rogue access points, load balancing of the traffic between AP, and other functions such as authentication and encryption. Another consideration was that centralizing these functions at the switch translates into cost savings for enterprises deploying large, ubiquitous WLANs.

The key developments to watch following the deal are:

1- Disruption in the WLAN plans of Airespace OEM partners (including Alcatel, NEC and Nortel): we have seen the same disruption before in the UM space, when Cisco bought the Unity portion of Active Voice, and the havoc that caused to Unity OEM partners such as Alcatel and Siemens.

2- Impact to the Cisco product lineup: early indications are that Cisco will continue supporting its newer WLAN switch (SWAN strategy with the WLSM blade for the Catalyst switches) and the Airespace product lines.  But the latter solution is much broader and easier to use.

3- With Siemens' acquisition of Chantry Networks late last year and Cisco's purchase of Airespace, who is next?  The WLAN space still has a few innovative startup players that are left, some of which could be potential targets, including the like of Aruba Networks, Meru Networks, Strix Systems, and Trapeze Networks.  Could one of them be snapped up by any of the Cisco rivals that had partnered with Airespace in the past?  If so, what would be the multiples involved?  Stay tuned... there will be more acquisitions in this space happening this year.

4- Other ramifications: Om Malik points out something interesting in his blog, namely that Airespace's relationship with PoE (Power over Ethernet) mind share leader PowerDsine might finally help the Israeli company to establish stronger ties with Cisco.