A survey of mid-size telecommunication carriers released Wednesday shows that despite curtailed spending habits from the economic slowdown, price remains at the bottom of the priority list when assessing network equipment purchases. Instead, mid-size carriers still place more importance on products' reliability, scalability and quality.
That's the conclusion reached by telecommunication market research firm Infonetics Research Inc. of San Jose, California, which surveyed 20 second-tier carriers to find out about their view of the current economic environment for communications and their forecast for the next 12 months, said Kevin Mitchell, lead analyst for the survey.
Infonetics defines a tier two carrier as either a national service provider without a national fiber-optic backbone, or a regional provider with fiber-optic lines. Mitchell cited cable company Charter Communications Inc., telecommunication service provider Allegiance Telecom Inc. and managed IP (Internet Protocol) services company Yipes Communications Inc. as examples.
If network equipment helps carriers make money quickly, price becomes less important, Mitchell said. Carriers are "very sensitive about their financial position, but lowest price is at the bottom of the list," he said, describing responses to a survey question asking carriers to rank their priorities. Only when other factors like equipment quality and reliability are equal (or nearly so) does price become a factor, he said. "Given the macro(economic) conditions, you would think it would have moved up."
Given the shift in investors' sentiment to an emphasis on financial performance, carriers are "primarily concerned about revenue and profitability," he said. "In the past, the major challenges were network growth."
In years past, mergers and acquisitions pushed many second-tier carriers into the top tier, but in 2001 many are disintegrating instead. The number of second-tier carriers fell from 90 to 75 in 2001, typified by the bankruptcies of NorthPoint Communications Group Inc. and Rhythms NetConnections Inc. Network growth may be essential to accommodate increasing telecommunication traffic, but these days it comes second to financial survival.
As a result, carriers of all tiers are reducing their planned expenditures on new equipment. Most recently, WorldCom Inc. said last month it would spend US$5.5 billion on new gear -- 20 percent less than its earlier projection and 44 percent less than it spent last year. Still, new equipment will be bought, but now it will be different kinds of equipment, to match the financial imperatives of the time.
MPLS (Multi-protocol Label Switching) emerged in the survey as a technology mid-level carriers strongly desire for quality of service and traffic engineering. Because MPLS standards and technical capabilities are still under development, carriers haven't yet adopted it in quantity, Mitchell said.