1. Introduction
1.6 Research Procedure and Flowchart
Figure 1. Research Procedure and Flowchart 1.7 Dissertation Organization
The paper is organized as follows: Chapter One described the research background, objectives, approaches and methodology; Chapter Two reviews the telecom industry boom and doom; Chapter Three analyzes the MAN access network and the LAN technology evolution; Chapter Four uses Fuzzy Multi-Criteria Decision Making approach to evaluate alternative MAN access strategies; Chapter Five discusses and analyzes the emerging access technologies and alternatives to stimulate local loop competition, and Chapter Six provides conclusions and suggestions.
1.8 Glossary
1.8.1 Acronyms
AAL 5: ATM Adaptation Layer 5 ADM: Add-Drop Multiplex
ADSL: Asynchronous Digital Subscriber Line xDSL: x Digital Subscriber Line
Industry/Technical paper review Journal Paper review
MAN access network Trade-off analysis on Ethernet and
SONET/SDH
Telecom industry overview
Fuzzy MCDM analysis
Conclusions and recommendations
Local loop network
Analyze local loop technologies Trade-off analysis on local loop
competition alternatives
AHP: Analytic Hierarchy Process ASP: Application Service Provider ATM: Asynchronous Transfer Mode ATM VP Ring: ATM Virtual Path Ring ATM PVC: ATM Permanent Virtual Circuit BNP: Best Non-fuzzy Performance
CLEC: Competitive Local Exchange Carrier COA: Center of Area
CSMA/CD: Carrier Sense Multiple Access with Collision Detection DCS: Digital Cross-Connect System
DS (DS0, DS1, DS3): Digital Signal (DS0, DS1, DS3) DWDM: Dense Wavelength Division Multiplexing GR-253: Generic Requirement-253
IEEE: Institute of Electrical and Electronic Engineers IP: Internet Protocol
LAN: Local Area Network
LRAIC: Long-Run Average Incremental Cost MAN: Metropolitan Area Network
MCDM: Multiple Criteria Decision-Making MOM: Mean of Maximal
OSS: Operations Support System
PATTERN: Planning Assistance through Technical Evaluation of Relevance Number PLL: Phase Locked Loop
QoS: Quality of Service
RPR: Resilient Protection Ring
SOHO: Small Office, Home Office
SONET/SDH: Synchronous Optical Network/Synchronous Digital Hierarchy SONET/SDH MSPP: SONET/SDH Multi-Service Provision Platform SONET OC-192: SONET Optical Carrier -192
SSP: Storage Service Provider TDM: Time Division Multiplexing VLAN: Virtual Local Area Network WAN: Wide Area Network
WiMAX: World Interoperability for Microwave Access 1.8.2 Terms
AAL 5:
ATM Adaptation Layer 5 – An ATM protocol layer for transporting different service data units
ADM:
Add-Drop Multiplex – A multiplexer capable of extracting or inserting lower-rate signals from a higher-rate multiplexed signals without the completely demultiplexing the signal.
ADSL:
Asynchronous Digital Subscriber Line - Asymmetric Digital Subscriber Line (ADSL), a modem technology, converts existing twisted-pair telephone lines into access paths for multimedia and high-speed data communications.
xDSL:
x Digital Subscriber Line – various DSL technologies (e.g., HSDL, VDSL) ATM:
Asynchronous Transfer Mode – A cell-based, fast-packet technology that provides a protocol for transmitting voice and data over high-speed networks.
ATM VP Ring:
ATM Virtual Path Ring – Using ATM virtual ring architecture to improve the reliability of voice and data communications and the efficiency of bandwidth utilization.
ATM PVC:
ATM Permanent Virtual Circuit – A Permanent Virtual Circuit will establish a fixed path for ATM traffic transmission until the circuit is taken down.
CSMA/CD:
Carrier Sense Multiple Access with Collision Detection – A channel access mechanism wherein devices wishing to transmit first check the channel for a carrier. If no carrier is sensed for some period of time, devices can transmit. If two devices transmit simultaneously, a collision occurs and is detected by all colliding devices, which subsequently delays their retransmissions for some random length of time.
DCS:
Digital Cross-Connect System – A transmission system that provides cross-connect functions for tributaries between input and output signals.
DS (DS0, DS1, DS3):
Digital Signal (DS0, DS1, DS3) – A digital signal hierarchy for different signal transmission speed.
DWDM:
Dense Wavelength Division Multiplexing - An optical technology used to increase bandwidth over existing fiber optic backbones. DWDM works by combining and transmitting multiple signals simultaneously at different wavelengths on the same fiber.
GR-253:
Generic Requirement-253 – A requirement that specifies the SONET requirements.
LAN:
Local Area Network - A local area network (LAN) is a group of computers and associated devices that share a common communications line or wireless link and typically share the resources of a single processor or server within a small geographic area (for example, within an office building).
MAN:
Metropolitan Area Network – A data communication network covering the geographic area of a city (generally, larger than a LAN but smaller than a WAN)
OSS:
Operations Support System – Systems that provide operations support for telecom service providers.
PATTERN:
Planning Assistance through Technical Evaluation of Relevance Number PLL:
Phase Locked Loop – A method to extract timing from the incoming signal.
RPR:
Resilient Protection Ring – A term that refers to the specific efforts of the IEEE 802.17 working group to generate a resilient packet ring protocol for Wide and Metro Area Networks.
SONET/SDH:
Synchronous Optical Network/Synchronous Digital Hierarchy - SONET and SDH are a set of related standards for synchronous data transmission over fiber optic networks. SONET is the
(ANSI). SDH is the international version of the standard published by the International Telecommunications Union (ITU).
SONET OC-192:
SONET Optical Carrier –192 – Defined standard for the SONET optical data rate transmitting at 9.953 Gb/s.
TDM:
Time Division Multiplexing – A form of transmission in which different flows are combined on the basis of time slots.
VLAN:
Virtual Local Area Network - Virtual LANs (VLANs) can be viewed as a group of devices on different physical LAN segments which can communicate with each other as if they were all on the same physical LAN segment
WAN:
Wide Area Network - A wide area network (WAN) is a geographically dispersed telecommunications network. The term distinguishes a broader telecommunication structure from a local area network (LAN).
2. Telecom Industry Review and Analysis
The telecom industry has long been perceived as stable and growing. In the US, Bell Systems has provided consumers with stable POTS (Plain Old Telephone Service) for over a century. Until the emergence of the Internet, voice had been the predominant service. As packet-switched data traffic converged with circuit-switched voice traffic, new network architecture and requirements evolved, and the demand for next generation network infrastructure surged. Additionally, the abundance of capital feeding the vision of 3G multimedia mobile service markets further accelerated the growth of the telecom industry (Cheng, et al., 2003). Through journal review and in-depth expert interviews, major business drivers and draggers were identified for the boom and gloom of the telecom industry. The selection of these drivers and draggers were primarily based on their significant impact on the overall telecom industry market capitalization.
2.1 Growth in The Telecommunications Industry
Major business drivers for this phenomenal growth have included global telecommunications deregulation, e-commerce, high-speed Internet access, IP packet technology, mobile communications services, the new digital economy, acquisition strategy, and vendor equipment financing.
2.1.1 Driver: the global telecommunications deregulation
Telecommunications deregulation has opened up the local, long-distance, international, cable and cellular telephone markets in many countries. The breakup of telecom monopolies has enabled competitive carriers to offer telecom services and has forced incumbent monopolies to upgrade their networks, improving overall telecommunication services. New carriers, such as Qwest Communications and Level 3 Communications of the U.S., deployed optical fiber core networks to offer end-to-end broadband services to US enterprise customers.
continents. Following international standards, new wireless service providers can offer seamless wireless roaming service to mass-market customers. For example, since wireless service was deregulated in Taiwan, six new cellular service providers began competing with incumbent Chunghwa Telecom, the previous Taiwan telecom monopoly. Telecom deregulation permitted cable operators to offer voice service in their cable network which pressured the incumbent telephony operators to upgrade their twisted copper pair network infrastructure to offer xDSL broadband access services. Telecom deregulation has eliminated many telecom business limitations and has created an open competitive environment for telecom equipment vendors and service operators around the world.
Since many new carriers have had to start from scratch, the need for new telecom infrastructure equipment was tremendous, particularly for fiber optic and IP data networking equipment. Additionally, the incumbent operators also generated a huge demand for network upgrades and enhancements. As a result, growth in the telecom equipment market was extraordinary, adding even more fuel to the worldwide economic boom, particularly in the telecom industry. (Table 1). In this driver, government played a pivotal role in generating new telecom business demand.
Table 1. Equipment Needed by Telecom carriers
Carriers Needs New Telecom Carriers Deploy new telecom infrastructure
Incumbent Carriers
Upgrade and enhance existing network infrastructure in anticipation of a surge in Internet traffic and competition in service quality
2.1.2. Driver: E-commerce
The proliferation of the Internet and the WWW, as well as the development of B2B (Business to Business) and B2C (Business to Consumer) E-commerce has enabled enterprises
and consumers worldwide to conduct business through communication via telecom networks.
For example, Amazon.com sells books and other merchandise via the Internet. Dell Computer employs B2C to allow customers to order computers on-line, while it uses the Internet to establish supply chain management systems with its suppliers to minimize inventory and speed up delivery.
In addition, there are e-marketplaces for suppliers and buyers to trade electronically over the network (Business Online 2000). Closely related to B2B and B2C is the ASP (Application Service Provider) model which delivers software application services to users via the network (Business Online, 2000). For example, many small-sized IC design houses are not able to afford expensive IC-design software tools. An ASP model allows IC design houses to use the tool via the network on a monthly subscription fee basis, which can avoid the costly up front capital investment and on-going software maintenance and upgrade expenses.
Lastly, to ensure reliable Internet enabled E-commerce service, IDC (Internet Data Center) and web hosting companies (such as Exodus) specialize in providing around-the-clock backend computer processing and storage services (Business Online, 2000). Some of them have even allied with telecom carriers to secure the necessary bandwidth to minimize transmission delay for their customers.
These new E-commerce business models have moved many business activities from the traditional physical world to cyberspace, where they have created huge demand for information technology and telecom networking equipment, such as bridges, routers, and servers (Table 2). Essentially, business and end user E-commerce needs stimulated telecom growth.
Table 2. Equipment Needed by E-commerce Companies
E-commerce Player Needs
Dot-com Computer servers; routers
Trading Hub Computer server; routers
IDC Server farm; routers; facility
ASP Bandwidth; servers
B2B – supply chain management Servers; routers
2.1.3 Driver : high-speed Internet access
The explosion of Internet traffic was beyond anyone’s imagination (Beranek, 2000).
Regardless of measurement criteria, its growth was remarkable on all fronts – the number of hosts, the number of users, the amount of traffic, the number of links, the bandwidth of individual links, or the growth of ISPs (Internet Service Providers).
Web surfing, e-mail, on-line banking, on-line trading, music on demand, and distance learning all rely on the last-mile high speed Internet access link between telecom carrier office and customer premises. As these web-based activities become more enriched with video, audio, and graphics, customers are no longer satisfied with the traditional modem dial-up access, and instead broadband access becomes essential. To meet customer demand, ISPs and cable operators use xDSL and cable modem technologies to offer high speed Internet access.
In the core network, Gigabit routers and Gigabit Fiber Optic Transmission Systems have been deployed to make ready for broadband Internet services. These broadband access and core network upgrades have again created huge demand for telecommunications equipment (Table 3).
Table 3. Equipment Needed for High Speed Internet Access
Internet Connection Needs
Access Network xDSL; cable modem
Core Network Gigabit Router; Gigabit Fiber Optic
Transmission System
2.1.4 Driver : IP packet technology
As Internet and WWW applications grow worldwide, data traffic is expected to exceed voice traffic in the PSTN (Public Switched Telephone Network). To meet this demand, the traditional PSTN is pressured to evolve. Circuit switching, the foundation of the PSTN is being supplanted by packet switching, a technology more suitable for transporting data.
Routers and Call Agents, so called “soft switches”-- such as Sonus soft switch -- are based on IP technology and are being developed and deployed to replace traditional circuit switches. In addition to these, a whole spectrum of IP-based equipment and functionalities will need to be developed and integrated into the new network. The evolution of IP technology has pushed development of IP-based telecom equipment (Cheng, et al., 2003).
Furthermore, to achieve the full operational efficiency of IP networks, the vision of an “All IP” network has been promoted by the industry. “IP over DWDM” and “Wireless IP” have been hot R&D topics in the NGN (Next Generation Network) IP deployment. Since the service features, operations, and management of an IP network are fundamentally different from that of the existing PSTN network, this IP network evolution will indeed require huge capital spending by telecom service providers. Big R&D investment among telecom manufacturers to develop the new IP technologies and equipment, ranging from IP CPE gateway, IP core network, and IP network management systems, etc., have already begun.
The emergence of IP packet technology has created an expensive new technology push (supply side driver) in the telecom industry.
2.1.5 Driver : mobile communications services
The convenience of wireless communications generated tremendous global user demand. In particularly, GSM (Global System for Mobil Communications) has had unprecedented success in the worldwide wireless communications market. By 2000, two out of three Europeans had a mobile phone. Asian GSM market penetration is also proceeding at breath-taking pace. For example, cell phone market penetration rate in Taiwan has reached over 100%. Seamless roaming ability is one of the key features for GSM’s success in the worldwide wireless market, and to lure consumers into becoming mobile service subscribers, wireless service operators subsidize mobile handsets. While wireless operators are busy expanding their wireless networks, mobile handset manufacturers also enjoyed revenue expansion (Table 4). Today, mobile communications have become the fastest growing and most lucrative market for telecom service providers and manufacturers (Cheng, et al., 2003).
Table 4. Equipment Needed by Mobile Service Operators and Subscribers Mobile Operators/Subscribers Needs
Mobile Core Network Operators Base Station, Mobile Switching Center Mobile Service Subscribers Mobile Handsets
2.1.6 Driver: promise of new digital economy
The perceived potential of E-commerce via the Internet created an optimistic vision of the so-called “New Economy” which was going to revolutionize the traditional brick-and-mortar
“Old Economy”. Underpinning the “New Economy Internet Era” was the assumption and perception of a new economic business model - “Fast coverage of network facilities and dominance of customer base take precedence over short-term revenue or profitability.” It was assumed that profitability would come naturally after market share was secured. To attract customers, Websites rushed to offer free services and content, generating tremendous Internet traffic throughout the world. New Economy proponents thought that Internet traffic would go
wherever bandwidth was available, and that delays in network expansion would only result in customer dissatisfaction with service throughput and response time, an increase in customer churn rate, loss of revenue, and eventual business decay. The New Economy became a race to expand investment into service development as well as network equipment and facilities deployment.
The stock market and the venture capitalists concurred and supported such visions and strategies. The combined results were an abundant supply of capital generously invested to the Telecom Service Providers, E-Commerce Providers, Information Content Providers, Internet Services Providers, etc., and led to an unprecedented expansion in the telecom industry from 1995 to 2000 (Cheng, et al., 2003).
2.1.7 Driver: acquisition strategies
As Internet service providers continue to demand faster broadband Internet technologies and solutions to compete in the market of digital economy, telecom equipment suppliers remain under pressure to shorten the development cycle to come up with new versions of products and systems. Many suppliers acquire small, innovative technology companies to gain access to new technologies and product ideas for IP, optical, broadband, and wireless, etc.
For example, Cisco acquired more than 40 companies in the past few years to beef up its networking product offering.
Since the stock prices of Cisco and most other telecom manufacturers had high valuations over the past few years, they were able to leverage their high stock prices to acquire target startup companies. For example, Cisco paid a premium price of $7 billion for optical equipment maker Cerent and $5.7 billion in stock for ArrowPoint Communications. Overall, Cisco’s acquisitions have contributed to 40% of Cisco’s $25 billion in revenue in 2000 (Shinak, 2001).
Imitating Cisco’s successful acquisition model, many other telecom suppliers employed the same strategy to broaden their product offerings. Often, bidding on acquisition targets created tremendous market values for startups, which may not have even had a customer or a commercial product. These high acquisition prices on telecom startups not only changed the traditional rules of “market valuation”, but also changed the rules of “wealth creation”.
Consequently, the impact of these high market valuations of telecom startups attracted more venture capitalists investing in this sector. When investors perceived an increase in their market competitiveness, the acquirers’ market valuation also increased. The stock market’s positive feedback on acquisition contributed to the temporary prosperity of the telecom industry.
2.1.8 Driver: telecom equipment vendor financing
Building up telecom infrastructure requires huge capital investments. However, it takes time to sign up fee-paying subscribers and to build up revenue streams from telecom services.
To obtain the necessary capital for network deployment becomes a critical issue, particularly for new telecom service startups. Naturally, telecom service providers sought financial assistance from telecom equipment vendors. The financial assistance could range from investing money in the company, accepting startup company stock in exchange for equipment, or making loans with flexible payments towards the purchase price of the equipment. In a promising telecom market where service operators looked at promising future and equipment manufacturers enjoyed tremendous revenue growth, “vendor financing” was a common practice among telecom equipment suppliers. In a highly competitive telecom equipment market, “vendor financing” was also essential for major telecom equipment manufacturers to win contracts from telecom service providers. With this easy source of capital, new startups as well as incumbent telecom service providers further accelerated their network buildups to expand their market size and to compete for market share. This buildup, in turn, fueled the
demand for telecom equipment and resulted in revenue growth for telecom equipment vendors (Rosenbush, et al., 2001).
Table 5 summarizes the business drivers that brought about the explosion of growth in the telecommunications industry.
Table 5. Summary of Business Drivers for Telecom Boom
Business Drivers Results
Telecommunications Deregulation
New CLECs, ILECs, cable and mobile wireless carriers; demand in new network infrastructures and network upgrades
E-Commerce Demand in IT and networking products
High Speed Internet Access Demand in high speed Internet access and core equipment
Packet Technology Demand in IP NGN products
High Growth of Mobile Communications Global demand of mobile equipment
New Digital Economy
Market shares are top priority and bandwidth drives demand; continuous infrastructure investment
Acquisition Strategy High market valuation; abundant capital for start ups
Vendor Financing Available capital for faster network buildups; more capital spending 2.2 Gloom in The Telecommunications Industry
Many factors contributed to the slowdown of the global economy, which started the third quarter of 2000. However, the telecom industry has certainly been one of the major contributors to this economic downturn. In this section, we look at the history of the telecom
Many factors contributed to the slowdown of the global economy, which started the third quarter of 2000. However, the telecom industry has certainly been one of the major contributors to this economic downturn. In this section, we look at the history of the telecom