The Telecommunications Equipment Manufacturer (aka TEM, sometimes "Network Equipment Provider", or NEP) industry has undergone a rapid upheaval in the way they develop and build their products since 2000. Previously an industry where products were built in an entirely proprietary fashion, from the physical design of the equipment (including boards and chassis), to the operating systems, the middleware, and the overlying applications, manufacturers have changed their product building blocks to include standardized boards, middleware interfaces, and operating systems.
There is currently a large ecosystem of telecommunications equipment "building block" providers supplying the industry with commercial-off-the-shelf components. Additionally, there are numerous industry standards bodies driving the definition of methodologies of how these COTS components work together.
Most of the notable TEMs/NEPs have been active in their participation with standards bodies, specifications, and promotional organizations relating to carrier hardware, carrier-grade linux, and middleware. Notably absent from participation in most of these organizations has been Cisco, one of the strong leaders in the telecom and networking product industry.
For many years, products made by TEMs and NEPs were completely proprietary, from the board to the application. This was highly expensive for these companies; however, they were able to absorb the engineering costs by virtue of the fact that their products, despite their relatively low "parts" costs, were extremely expensive. Additionally, TEMs/NEPs generally sold not a single product to a carrier, but a grouping of products for an end-to-end solution, and were thus able to gain additional revenue from services not simply consisting of service contracts (wherein they would agree to fix / replace a product or part within a certain amount of time), but also from installation and deployment.
Capital Expenditures by carriers peaked in 2000; the burst of the so-called "internet bubble", and later, the economic fallout from the September 11, 2001 terrorism attacks, led to significant cutbacks in carrier spending. Increasing competition in the carrier market, particularly in the mobile phone space, although leading to increasing numbers of subscribers, led to significant decreases in subscription pricing for end users, and in the end, a downward trend in ARPU (average revenue per user). At the same time, 3G was beginning to gain significant traction, and new equipment deployments were still needed, particularly to support the emerging, data-heavy applications demanded by mobile customers.
One thing was clear: Carriers were reducing capital expenditures, but the growing mobile base demanded an increase in infrastructure. The obvious conclusion was that carriers needed to be able to purchase equipment at lower costs.
Throughout the period of rapid technology evolution in the late 1990's and early 2000's, a number of initiatives and concepts were already in motion.
The collectively-developed vision, in the end, was to develop an ecosystem enabling the telecommunications equipment manufacturer industry to bring products to market by harnessing the power of commercial-off-the-shelf, or COTS, components. The term "standards-based building blocks" was also used to express this method of product development. The strategy proposed that TEMs and NEPs, in lieu of having mostly or completely proprietary systems from the board level to the application level, build their products using standard boards, standards-based operating systems, and standards-based middleware. This would enable the TEMs and NEPs to focus their respective company's engineering expertise in the area that defined the companies from one another, as well as where the companies held most of their Intellectual property rights - their applications. The expected outcome of this situation was that TEMs and NEPs would be able to sell infrastructure equipment at reduced prices.
There are a number of vendors supplying COTS components to the TEM/NEP industry.
This market encompasses the boards and chassis which make up the physical piece of hardware sold by a TEM or NEP. For the carrier-grade market, the current specification of board is called Advanced TCA, or ATCA. Boards are placed into a standard chassis, and communications between the boards are conducted over the chassis backplane. Chassis can then be connected together, and applications can run over multiple boards, over multiple chassis. The board specification was implemented by PICMG.
Vendors in the board and chassis market include:
Carrier-Grade Linux (CGL) is most likely the predominant operating system standard being deployed in next-generation carrier hardware. Some companies listed here, most notably Wind River, have non-linux embedded operating systems as well that have been, and continue to be, deployed in carrier environments on TEM/NEP hardware.
Other companies that have solutions that could address the carrier market include:
High availability middleware and clustering solutions are provided by a number of companies, as well as open-source projects. These solutions are mostly based upon SA Forum specifications.
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The applications space for carrier solutions is dominated by the TEM/NEP companies; their Intellectual property rights and applications that run on the hardware is what drives carriers to purchase their solutions. However, there are companies developing open source solutions that replace the TEM/NEP proprietary applications, such as Vyatta and Digium.
There are a multitude of standards bodies and initiatives working to resolve issues facing equipment manufacturers as well as to enhance the ecosystem's capabilities to serve equipment manufacturers.
PICMG, or PCI Industrial Computer Manufacturers Group, is a consortium of companies which develops open specifications for telecommunications and industrial computing applications. It is comprised mainly of hardware vendors, including board and chassis manufacturers, as well as industry leaders such as IBM, Intel, and Hewlett Packard. This organization developed the specification for the AdvancedTCA board, which is the predominant standard for boards in next-generation carrier hardware.
Carrier-grade linux (CGL) is a term used to define a specific variant of Linux containing enhancements that make Linux a deployable operating system for use in telecommunications equipment, and hence, in carrier environments. CGL is also a set of set of specifications developed by the Carrier Grade Linux working group of the Linux Foundation. The specifications define standards such as availability and service response time of the operating system, among others, and OS vendors may register their version of Linux as being CGL-Compliant, provided their OS meets the list of standards.
Scope Alliance is an industry alliance composed of telecommunications equipment, operating system, middleware, and board manufacturers, as well as some industry heavyweights including Intel and IBM. Founded by a group of telecommunications equipment manufacturers, SCOPE does not publish specifications. Rather, they focus on developing profiles to enable the use of product building blocks (including boards, operating systems, and middleware) in conjunction with the specifications and standards defined by other ecosystem standards bodies, including those written by PICMG, SA Forum, and the Carrier-Grade Linux working group. They also identify gaps in existing specifications, and work with the respective standards bodies to resolve those gaps.
The Service Availability Forum is a consortium consisting of board, operating system, middleware, and telecommunications equipment manufacturers. The group's objective is to develop and publish high availability and management software interface specifications, used as standards throughout the telecommunications equipment ecosystem, so that product manufacturers would be able to pick and choose operating systems, middleware, and hardware and have assurance that the products will interoperate, and that any service software they develop would operate on any combination of the platforms they choose.
SA Forum currently has two specifications:
This new ecosystem is mostly a win-win for everyone. Carriers have obtained the added benefit of purchasing equipment at lower costs; Operating System vendors have grown in a market that has gone from nearly a 0% market share to one representing a significant foothold by Linux, and will continue to grow as new products go through testing and validation, and eventually out to the deployed market. Some OS vendors, such as Wind River, have likely seen a shift in the mix of the revenues from the various operating systems they sell; companies relatively newer to the overall OS market, such as MontaVista, as well as established Linux companies such as Red Hat and Novell, have significantly larger opportunities to grow their overall revenues by entering the carrier-grade linux market. Middleware vendors, like the operating system vendors, have also developed a significant opportunity, and this is shown by the large number of vendors who have sprung up to address this market.
For board and chassis vendors, the ecosystem has been mostly positive, but has changed their revenue mix in many ways. Previously, many of the vendors in this market developed custom board solutions for the TEMs/NEPs; this was a significant source of revenue for them. As the market has changed to adopt standard solutions, revenues from custom engineering have gone down, but overall costs related to paying the engineers have gone down, and board shipments have risen as carriers have expanded their infrastructure. The overall headcount reductions combined with the reductions in engineering revenues have likely stayed in line with each other, so although their overall total revenues may have dropped, their profit margins are likely in line with what they had been previously.
Like the board and chassis vendors, the TEMs have made gains and losses here. The move from proprietary products to standards-based building block products has forced pricing down on their solutions; however, the costs related to developing the hardware parts of the solutions have declined as well. The bread and butter of these companies is their applications, and this is the way that they differentiate amongst themselves in terms of their solutions.
The nature of an industry transitioning from top-to-bottom proprietary products to products built from COTS components creates risks for some companies, and opportunities for other companies.
Obviously, the Commoditization of PCs is a model that the TEM industry does not wish to follow in the footsteps of. At the dawn of the PC era, most personal computers were mostly proprietary in terms of their hardware, and were purchased by consumers at significant expense. As the PC market moved to standard form factors, pricing dropped accordingly. More importantly, although the majority of consumers purchase their PCs completely built, end-users did gain the ability to assemble their own computers. However, users still need to purchase the operating system and application software to run on their PCs.
Today, carriers could conceivably purchase boards, chassis, and other components directly from the vendors who currently supply these parts directly to the TEMs/NEPs. They can also pick and choose from a list of operating system vendors and middleware vendors. The overlying applications, at this point, are proprietary.
However, movements are slowly being made to develop open-source projects and products for the communications industry. Vyatta is a company utilizing the open-source business model to develop firewall, VPN, and routing applications for the SOHO and Enterprise business markets, available to run on standard, easily available hardware. Digium targets the VoIP/ telephony market with support and services for their open-source project, Asterisk. Although most applications in the carrier environment are significantly more complicated to develop, it is not inconceivable that open-source projects and companies could develop as competition to the legacy TEM/NEP products. Carriers could possibly welcome the opportunity to use open-source products in their environments, partially due to reduced costs, and also because obtaining the capabilities to customize their applications to enhance the services they provide to their end-users could prove to be lucrative, as well as a way to differentiate their services from other providers.
This type of scenario would, in the short term, not likely damage business of the TEMs and NEPs; however, in the long term, it could potentially be devastating to their businesses, particularly if value added resellers (VAR) or other companies adopt a business model of providing integration and support for carrier solutions that include COTS components and open-source carrier applications. This situation would not be as damaging to the value-chain supplying the TEMs/NEPs with COTS components, and in fact those vendors would probably realize added gains in business.