Telecosm - Ike Elliott

Level 3 - Where is the Value?

Yesterday, I posted about how Level 3 has destroyed about $5B in enterprise value in the past year, and noted that Level 3's enterprise value may now be lower than the value of the assets on their balance sheet. I also asked if this might be a good buying opportunity for Level 3, because you are basically buying Level 3's assets at a discount.  Today, I'd like to explore that question further.

What are the markets saying when enterprise value dips below asset value? The markets are basically saying that either Level 3's assets or worth less than Level 3's balance sheet says, or that they have lost confidence in Level 3's management to extract appropriate value from these assets, or possibly some of both.  The market has had good cause to doubt Level 3 management, since they did erase so much enterprise value for investors recently (and it is not the first time). 

In order for enterprise value to rise above asset value again, the market needs reassurance, and Level 3 has only a couple of levers available to try to achieve that:
1. Fix the reported provisioning issues and resume rapid revenue growth (might take 6 to 12 months and assumes a recession isn't in progress by then), or 
2. Replace some senior management now with new executives that have a great reputation for fixing these kinds of issues (assuming you can find them, and even if you can the market will probably wait to see what the new management discovers, reports, and fixes before giving the company a boost in enterprise value).

There has been a lot of speculation on investor message boards that option 2, replacing key members of management, is the right way to go.  Even if management deserves this fate, I don't believe it will have the desired effect of boosting the company's stock price sooner, because I think it is too much to expect a new senior executive to accelerate the provisioning fix.    The question, though, is whether replacing management will further delay the provisioning fix, and if not, why not pull that lever, too?  Of course, the answer to that question very much depends on the abilities of the replacement managers.  And, I only think you pull that lever if you are convinced the company needs a culture change and the newly appointed managers can bring about that change.

Meanwhile, Level 3 is trading at a discount to enterprise value.  Does that mean we should rush out and buy the stock at current prices?  Not necessarily, because enterpise value is the market value of both the stocks and the bonds.   The bonds look like a better and safer bet to me, right now.

For example, the 2010 6% coupon bonds, 52729NAS9 , are trading at about $92 right now.  You can buy these bonds and get a yield of over 9% by holding them to maturity in about 2.5 years.  The only real risk is bankruptcy, and I could be wrong but I don't think that is in the cards for Level 3 in that time frame.

The stock, on the other hand, might float around quite a bit in either direction for the next six to twelve months, so it is hard to say when the best buying point will occur.  I might try to accumulate some more if it goes down further, but right now I'd rather buy the bonds.

How Much Market Value has Level 3 Erased?

I've been looking around Level 3 investor bulletin boards since last week's announcment by Level 3 that they are reducing guidance, and have noticed that people are saying that Level 3 erased $2B in market value with last week's announcement.  I think that understates the losses investors have taken.

A friend of mine suggested I look at the enterprise value of Level 3, which includes the market value of not only the stock, but also the bonds.  I have taken a stab at that, and it appears that Level 3 may have erased $5B in total enterprise value since one year ago.

A year ago the stock was trading at $5.40, and this morning it was at $3.12.  Adjusting for small differences in shares outstanding, the stock market value of Level 3 was $7.9B a year ago and is now about $4.68B, for a loss of $3.2B. 

Bond analysis is trickier and I had to make some assumptions about current market value of Level 3's bonds that have not traded recently, but it appears that the Level 3 bonds have also shown a loss.  A year ago, many of Level 3's bond issues were trading at a premium to face value.  Now, most are trading at a discount.  I estimate the current market value of Level 3's bonds at about $5.46B, which is a discount to the the face value of about $6.75B.  There have been a lot of new issues and replacement issues in Level 3's bond portfolio, so it is hard to track, but I'll go out on a limb and estimate that Level 3's bond portfolio had a market value of about $7.3B one year ago.  So, Level 3 has erased approximately $1.86B in bond market value in the past twelve months.

If my analysis is correct, Level 3's enterprise value was about $15.2B a year ago, and now stands at about $10.1B.  Level 3 has lost approximately one third of its enterprise value in the past year, or just over $5B. 

It is interesting to note that Level 3's current enterprise value of $10.1B is slightly lower than the $10.3B value of the assets listed on Level 3's balance sheet at the end of the third quarter.  With Level 3's stocks and bonds trading at a discount to asset value, could this be a good buying opportunity?

No Taco For You! Rox Get A Reality Check

Either the Colorado Rockies were not as good as I thought, or the Red Sox were better than I thought.  I was kind of put out on Friday when I talked to some friends in Boston, after the 13-1 drubbing in Game 1, and heard that the fans and the media were saying that the Rockies were no competition for the Red Sox, that the Sox were sure to sweep, that the Sox would get to play their backups a lot, and that the National League is the farm system for the American League.  That last one especially hurt, because I have been a National League fan my entire life (Cincinnati Reds until the Marge Schott fiasco, then the Rockies since then). 

Now, I have to admit that those Sox fans were right, all except for the part about playing their backups.  The Rox were a lot more competitive in games 2 through 4, but they were still swept by a better team. 

You can't deny that the Rox were pretty good in their season-ending streak, but I think two things worked against them in the series:  the 8-day layoff prior to the start of the series did hurt their momentum a bit, but more importantly, the youth and inexperience of the Rox showed in the series.  A lot of Rockies hitters looked nervous, especially earlier in the series.  Many Rockies pitchers struggled against a great Sox lineup.  Yes, the two rookie starters on the Sox played great, but the Rockies have more young players and some of them crumbled under the pressure.  Good experience should they make it back to the playoffs next year.

I think that next year the NL West will be just as competitive as this year, despite the Rockies' late surge.   There are a lot of good teams in the West, and they will be cannibalizing each other all year, and the division title and possibly the wild card will be up for grabs again at the end of the year. 

I may have missed my only chance to see my first World Series game...I had tickets for game 5.  At least I can get a free Taco at Taco Bell tomorrow afternoon!

The Problem With The Internet As A Wholesale Business

I love the Internet.  It has been a fantastic leap forward for the world, and so far has been the most effective means we've yet found to distribute and consume information (even though truth is sometimes obscured by a potentially bad signal-to-noise ratio on the Internet - a subject for a future post).  But as much as I love the Internet, it is a very tough wholesale business.

To prove the point, let's look at exhibit 1:  The past three quarters of Level 3 Communications'  IP & Data service revenue:

3Q07:  $144M
2Q07:  $143M
1Q07:  $144M

Basically, LVLT, arguably the premier wholesale IP backbone, has had flat revenue in its IP & Data services business since the beginning of the year.  Of course, they had a big jump from 4Q06 ($92M) to 1Q07 ($144M), but that was primarily due to revenue gained from acquisitions.

Why has Level 3's IP & Data revenue been so stagnant?  You could blame some of it on the recently announced provisioning problems at Level 3, but I think there is more at work here. 

There are two big issues that have made wholesale Internet access a hard business:
1. Price compression
2. Peering

Traffic on the Internet has been growing at a 70% year-over-year pace of late, and you can bet that Level 3 is getting a fair share of that increased traffic.  So why isn't revenue growing at the same rate?  Becuase unit pricing is continuing to decline.  If you assume, for the sake of example, that Level 3's 4Q07 IP & Data revenue will continue to hold steady at about $144M, then Level 3 will have achieved zero revenue growth in IP & Data for an entire year.  However, they may be carrying 70% more traffic than at the beginning of the year, so unit pricing must be continuing a consistent decline toward Cogent's now-famous $10 per Mbps mark.  It's a good thing that the cost of the communications gear that is used in Internet backbones has continued to drop at Moore's Law rates, or wholesale Internet access businesses would have cratered a long time ago.

But price compression isn't the only factor at work here: wholesale Internet access businesses are also plagued by peering.  Most wholesale businesses give their biggest customers the best prices, but only in the Internet access business do your biggest customers get free service by converting from paying customers into "peer networks" that get their service for free.   

At the risk of over-simplifying, let's look at a hypothetical example.  Suppose Level 3 has a really big cable service provider as a customer...let's call them TimeCast.  TimeCast has been a big Internet access customer of Level 3's for many years, but as TimeCast has grown, the amount of traffic TimeCast sends to Level 3 has matched the amount of traffic Level 3 sends to TimeCast.  That's the signal that TImeCast has been waiting for...they ask Level 3 to establish a peering arrangement, so that they can stop paying Level 3 for Internet access.  Level 3 has a hard time refusing, because other Level 3 customers need to send and receive data from TimeCast, and TimeCast could refuse to carry Level 3's traffic. 

Now, in reality, the world of Internet peering is not so binary, and Level 3 is not in danger of Internet access revenue from all of their largest customers disappearing overnight.  But Level 3 and every other big Tier 1 Internet backbone does feel a fairly constant pressure from large customers to convert some part of their Internet connections into peering arrangements.

Between price compression and peering, wholesale Internet access services have been facing constant headwinds for years. 

So if the wholesale Internet access business is so bad, why do wholesale Internet access providers keep investing in the business?  Because they hope that massive new demand from new internet applications, such as video, will finally stop or even reverse price compression, and that stable or rising prices will convert the wholesale Internet access business into a money-making machine.  And, of course, as the Internet continues to grow, if you don't have an Internet backbone then you probably won't have much of facilities-based network at all.   

So, Level 3 can't abandon the wholesale Internet access business...it is just too strategically important.  But until pricing stabilizes more, or until Level 3 fixes their provisioning systems so that they can install enough new business to make significant market share gains, the IP & Data part of Level 3's business isn't likely to be a major revenue growth engine for Level 3.

Lots of New Subscribers and Readers

Wow!  We've had a ton of new readers over the past three days, and a lot of new RSS subscriptions.   We had over 700 hits on Friday and Saturday, and feedburner says there are now 33 RSS subscriptions...much more than I expected for a blog that is just a little over a week old.  Thanks for coming, welcome, and I will do my best to earn the attention you have given to this page.

For all of the newcomers, an overview is probably in order: I plan to post daily, except when I am on vacation or holiday.  Posts will mostly be in the web/tech category, but I will share other things from time to time. 

I hope all of you feel comfortable sharing your comments here...the community will benefit from your thoughts.

Welcome aboard!

Telecosm - The History of the Name

I have had a few off-line comments from readers of this blog that they would like to know more about the word Telecosm.  Some of you know that George Gilder coined the term in his book, "Telecosm: How Infinite Bandwidth Will Revolutionize Our World," and have noted that Gilder was decidedly off-base with some of his pronouncements in that book, such as his rabid enthusiasm for Global Crossing.  Such is the life of a futurist, so I am willing to cut him a little slack on that. 

I do have to point out that Gilder was hardly the first to speculate on what a world of unlimited bandwidth would bring.  The leader of Level 3 Communications (and my former bosses bosses boss), Jim Crowe, was speechifying about what Gilder calls the Telecosm way back in 1997, when I first met Jim.  Gilder's book came out in 2000.  Honestly, Jim probably could have written a better book a few years earlier, though maybe with less poetry.

Some of what Gilder predicted will undoubtedly come to pass, and some won't, and this blog is not intended to be a roundabout endorsement of Gilder.  I just like the term Telecosm and I think it captures the part of the technology world that I will most often be blogging about. 

Still, I'd like to give credit where credit is due: Gilder coined the term that now titles this blog.

Oh The Misery - Rockies Down By Two

I am wallowing in my misery here, the day after the Rockies dropped Game 2 of the World Series to the Red Sox.  I'm not about to do anything so desperate as jump out of my ground-floor window or anything, but I had hoped for better.  It was critical for the Rox to take one of the first two games in Fenway, and they didn't get it done.  To hold the Sox to two runs and still not win...that hurts.  Credit the Sox pitchers...they made the Rox hitters look very uncomfortable in the first two games.  Hopefully we can break the team-wide slump on Saturday night.

Exploring Level 3's Miss

In the past few days, I've been posting on Level 3's announcement that they reduced guidance due to problems with provisioning orders.  Mitchell Ashley (who blogs at The Converging Network) commented that it is possible that "business leaders didn't listen and put vastly unreasonable expectations on IT."  I have checked around enough to determine that to some degree, Mitchell's speculation is on target.  What I'm hearing from the grapevine is that folks in the trenches were making noises about provisioning issues as early as the first quarter of this year, and that if more action had been taken at that time then some of the issues Level 3 is now facing could have been avoided.

Now, it could be that the issues being raised in the trenches in the first quarter were just a continuation of a long period of issue-raising and that leaders could be forgiven for not being able to sort out which issues were legitimate big issues from issues with lower impact.  Or, it could be that folks at Level 3 knew about the issues and tried to address them but that they couldn't solve them. I don't really know if either was the case. 

It's clear, though, that Level 3 does need some cultural change so that there is better bottom-to-top communication.  Perhaps a flatter organization structure is needed?

Comcast as Traffic Cop - Much Ado About Nothing

On October 19th, the Associated Press reported that Comcast was engaging in "traffic shaping" on their network by blocking BitTorrent uploads.  The horror!  Net neutrality paranoids immediately began to argue for regulation, again.  This, however, is no net neutrality violation, and if the neutrality fanatics keep shouting about it they are going to get a reputation for crying wolf too often.

Don't get me wrong: I am against network operators using their power to either inhibit competition or to forcibly extract more money from my wallet, so I guess you could say I am in favor of Net Neutrality.  I just think that in this case, Comcast is not engaging in anything that really hurts anybody.

Let's look at this issue like a good Net Detective: just the facts.  When the upstream network is congested, Comcast is sometimes telling both ends of BitTorrent TCP/IP sessions that the other end disconnected, which in effect causes a retry which delays the sending of those BitTorrent packets until a later, presumably less congested, time.   Comcast says they are doing this to keep the big bad peer to peer bandwidth hogs from ruining the Internet experience for the majority of their subscribers. 

Some net neutrality advocates claim that Comcast is blocking a competitor's traffic, which would obviously violate the spirit of net neutrality, if it were true.  They claim that Comcast has the motive (blocking a video on demand competitor), and the opportunity (through their DOCSIS infrastructure) to block the competitor's traffic. 

But Comcast isn't actually blocking BitTorrent traffic...they are delaying upload traffic only, and only during congested times.  Given the way BitTorrent works, as a peer-to-peer file sharing protocol that supplies pieces of bulky media files from multiple sources, Comcast's "traffic shaping" actions only slow down BitTorrent, in hopes of reducing the bandwidth consumption of this greedy application. So it can't be argued that Comcast is blocking a competitor. 

You could claim that Comcast is impeding a competitor, couldn't you?  Well, Comcast is balancing two competing demands: serving the bulk of their High Speed Internet subscribers (the ones who aren't using BitTorrent) with consistently decent internet access speeds, versus giving the big BitTorrent users all of the bandwidth their hungry application might try to use. 

You could argue that there is a third choice, of course: Comcast could just provision a lot more bandwidth so that everybody is happy.  Of course, this is expensive, and might cause Comcast to raise prices on everybody to serve the few, which consumers would reject, of course.  So, I think this third choice is not realistic and should be dismissed.

So, given the choice between serving the many and serving the few, it looks like Comcast is choosing to serve the many at the inconvenience of the few.  I think they would do that even if BitTorrent wasn't a competitor, and that's my "test" to see if Comcast is out of bounds.  I think Comcast is passing the test, for now.  But it's good for Comcast to know that we are watching!

The Big Miss - Behind Level 3's Lower Guidance

Level 3 Communications announced 3rd Quarter earnings yesterday, and the stock took a dive because of reduced 4th quarter and 2008 guidance.  The market was prepared for some bad news because the company had already announced that they were going to replace their CFO, so there was speculation that Level 3 had some bad news to share.  However, the news was worse than the market expected, and worse than I expected. 

Level 3 blamed their inability to process orders.  They were selling a ton, but just couldn't translate all those orders into revenue, because their order entry and provisioning systems couldn't handle the load.  They are saying their integration of the order entry and provisioning systems of their six big acquisitions is where the fault lies, and this matches the word on the grapevine. The basic idea is that each of the acquired companies had their own systems to provision orders for various products, and Level 3 created a master plan to consolidate those systems so that there wouldn't be a lot of redundant systems to maintain.  That makes sense.  The part that doesn't make sense is that Level 3 is saying they either retired some of the acquired systems, or they laid off the experts in the acquired systems that were slated to be discontinued, long before the unified systems were ready.

Meanwhile, the combined sales forces of all of the acquired companies continued to sell, expecting that the combined company would continue to provision their orders just like they had been provisioned before the companies were combined.  Much to their dismay, these unsuspecting salespeople discovered that nobody was around who knew how to get their orders provisioned, or worse, the old system had been unplugged.   So these orders go into limbo until the limited supply of IT wizards (the ones who weren't laid off) can work the magic they need to work to force the orders into the working systems that remain in service. 

It just goes to show that acquisition integration is hard to do, especially when you have six acquisitions to integrate all at once. 

Donna Jaegers, a telecommunications analyst at Janco Partners in Greenwood Village, was quoted in the Rocky Mountain News this morning as saying that she believes Level 3 should hire a new CFO who is an outsider to "widen the cultural pool," because Level 3's culture is dominated by former MFS execs. 

I think it is true that many of Level 3's people worked together at MFS, including the CEO, the COO/President, the General Counsel, and the outgoing CFO...but it is not as many of the top execs as you might think.  Of the 17 execs listed under the "Management Bios" section of the Level 3 Web Site, seven worked with MFS or Peter Kiewit & Sons (MFS' parent company) prior to working at Level 3.  Once the CFO is replaced, 35% of the top 17 execs will be from MFS & Kiewit.  (I'm hearing that Sunit will stay with the company in a different role, which is a good thing, because he did a great job, in my view). 

I think the issue is not really "too much MFS culture."  I think the issue is too little IT depth among the leadership team.  As good a job as Level 3 has done over time on acquisition integration (and they really have been hitting the ball out of the park for years), they didn't know they had bitten off more than they could chew with the big six acquisitions, and they organized their systems in some sub-optimal ways.  If more execs in the inner circle had stronger IT instincts, it certainly would have helped ensure better integration decision-making when there were so many moving parts.   

A little while back, the company organized themselves around market segments, hoping to get more focus on customers.  A worthy goal, no doubt.  However, when they did that, they also distributed the systems for order entry and provisioning into these market facing groups, and nobody had end-to-end accountability for the order-entry or provisioning process.  That created a mess, of course.

In the end, though, these problems at Level 3 are not fatal.  I'm sure there are lots of folks running around with their hair on fire over on Eldorado Boulevard right now, finding ways to fix the problems.  Yes, Level 3 will have missed out on some revenue in the meantime, and its reputation may be damaged a bit, but this is small potatoes compared to what Level 3 has already survived.  Small consolation to us stockholders, though! 

(Full disclosure: I do own some Level 3 stock)

Getting Rockies World Series Tickets Like Running the Gauntlet

Wow, what a roller-coaster ride!  After two hours of trying, I just squeaked in and got 4 tickets to Game 5 of the World Series here at Coors Field, way up in U303, which is one of the nosebleed sections in right field.  Getting there, though, was frustrating, and I'm still steaming. 

A little history for those that don't know it:  The tickets were supposed to go on sale yesterday at 10 am, only through the Rockies web site.  I wasted a little over an hour trying to get tickets yesterday morning before I had to go to an appointment, and I never really got through to anything looking like a purchase page.  I learned on the radio later in the day that the web site was overwhelmed with requests and as a result only about 500 tickets were sold.  The Rox brass later claimed that they had been targeted by a malicious attack.  I suspect they are just using this excuse for cover.

Today, the system performed only a little bit better.  After about an hour of waiting for one of my four computers to get through to the web site, my iMac let me in and as quickly as I could, I navigated the screens.  This actually was very slow - the Rox servers were extraordinarily slow.  Anyway, I got a lock on 4 fantastic seats to Game 3, in section 143, row 36, which are lower seats along the left-field line, about 20 yards past third base.  When I entered the credit card info and tried to check out, the server told me "couldn't confirm the transaction."  Aaargh!

It took me another hour to get through to get the nosebleed seats for Game 5. 

I have now spent more time getting tickets than the game will probably last.  I guess I should just be happy I got some tickets, no matter how remote the seats are.  Still, I wish I had those Game 3 seats in section 143!

Did you try to get tickets?  Did you have similar troubles?

Mossberg Beats the Drum For Unlocked Phones

Walter Mossberg has written a great article in this morning's Wall Street Journal, entitled Free My Phone (http://mossblog.allthingsd.com/20071021/free-my-phone/), in which he argues that the US mobile networks are a joke because of the restrictions that are placed on mobile phones by carriers.  Keep beating the drum, Walt!  We need to increase the pressure on the FCC in order to get things to change.

Or do we?  What if we created a contest for the best Mobile Carterphone idea?  (see my post on this same topic from two days ago, http://ikeelliott.typepad.com/telecosm/2007/10/the-unlocked-ip.html) The idea would be to have a technical workaround that circumvents the carrier restrictions, allowing a device to be used on multiple networks, without the carrier's permission.  Let me know what you think by posting here.

Last Tomatoes

Yesterday was a beautiful autumn day in Colorado, temperatures above 70 degrees, sunny, incredible.  Today, it's about 38 degrees and it's snowing!  Typical October in Colorado.  The picture is of the last three tomoatoes I harvested from my garden after dark last night, just ahead of the storm.  They are sitting on the window sill in my kitchen, with a snow-covered tree outside the window.  Click on the thumbnail for a larger, higher-res view.

The "Unlocked" iPhone - Solving a Fraction of a Bigger Problem

Apple made it official this week - the iPhone is "unlocked" for third-party developers (http://hosted.ap.org/dynamic/stories/A/APPLE_IPHONE?SITE=CTNHR&SECTION=HOME&TEMPLATE=DEFAULT).  This is in keeping the the Internet ethic and will go a long way to restoring Steve Jobs to the good graces of the the development community.  However, the iPhone remains "locked" in the sense that iPhones can only be used on AT&T's network, and can't be used with other carriers without going to great lengths to hack it.  This is just one more episode in the long history of wireless carriers maintaining an iron grip on the end-user devices that can be used with their networks, which necessarily limits the innovation potential of wireless services, and limits consumer choice.

Why won't the carriers allow just any phone to work on their networks?  Service revenue loss is the biggest fear.  Carriers like the captive audience for basic phone service, texting, and photo sharing, and unauthorized devices could siphon some of that revenue off of the walled garden carrier network and onto free wi-fi networks.  Of course, carriers are offering their own hybrid services that use wi-fi networks to augment their existing services, but the carriers charge for the privilege, and instead of losing revenue to free wi-fi networks, they generate additional revenue.  A prime example is T-Mobile's "HotSpot @ Home" service, which is added on to your regular service for $9.99 per month, and then your wi-fi calls still count against your plan minutes unless you pay $20 a month for unlimited wi-fi calls. 

Why is this bad?  It means that T-Mobile is taking the power they derive from their walled garden, privately licensed spectrum network, and projecting it onto the wide-open Internet, and exploiting consumers in the process.  Don't get me wrong: I think T-Mobile has every right to run their licensed spectrum network any way they please.  They paid for it.  I just get peeved when they project that power onto the Internet.

Think about it:  The $30 per month T-Mobile collects for unlimited VoIP calling on the internet is $5 more per month than Vonage's equivalent service.  What's more, the big flaw in Vonage's business model is that their cost of customer acquisition eats most of their margins...but in the case of T-Mobile's HotSpot @ Home service, it is an add-on product, so T-Mobile has already acquired the customer.  Net result: T-Mobile has a much more profitable Internet voice service than Vonage, and only because people will pay for the "privilege" of using a handset that works with both T-Mobile's network and the public Internet. 

This seems wrong to me.  Why should a carrier charge consumers for opening up a phone manufactured by a third party, just so the consumer can make some of their calls on the consumer's own wi-fi network? 

This kind of onerous behavior on the part of carriers was corrected in land-line networks way back in 1968, with the landmark Carterphone decision (http://en.wikipedia.org/wiki/Carterfone), and regulation is beginning to catch up (a little bit) on the wireless side. In February this year, Skype petitioned the FCC to impose the same open equipment rules on the wireless network operators.  In July, the FCC rendered a decision (http://www.fcc.gov/073107/700mhz_news_release_073107.pdf) encumbering the "C" Block of the 700 MHz spectrum with rules the prohibit service providers from restricting the devices that can be used in combination with that spectrum.  Unfortunately, the "C" Block is only 22 MHz of the 108 MHz spectrum being licensed by the FCC, so this is still just a tiny half-measure in the battle to open up wireless networks. 

So, hooray, Apple has unlocked its iPhone for third-party developers.  Too bad most of those iPhone users will remain slaves to AT&T til either Apple (if their AT&T agreement allows it), or the FCC, takes action.  Meanwhile, look for hacks and Carterphone-like workarounds to proliferate.

IMS - Will it EVER live up to the hype?

I read with interest Brough Turner's post about moderating a panel titled "Increasing Service Velocity" at Connect 2007, in which Brough concludes that the IP Multimedia Subsystem (IMS) is about transport (and service plumbing), rather than services (http://blogs.nmss.com/communications/2007/10/ims-is-about-tr.html).  Brough is right, as usual, but that is not the key point of this post. 

Brough mourned that there was not as much controversy on the panel as he would have liked, which was not surprising, considering most of the panelists are developing IMS solutions or have a vested interest in the eventual success of IMS.  So, I'll offer some after-the fact controversy here.

I fear that these IMS panelists will be disappointed in the success of IMS in the long run, unless they broaden the definition "IMS success" to include many non-standard implementations.

In my view, standards-based IMS as a convergence platform for multiple network types is doomed to mediocrity.  Many carriers and the technologists that work for carriers have gravitated toward IMS in hopes of reducing overall capital spending (through network convergence) and increasing service development speed.  The engineers that have written the IMS standards have poured their hearts into the effort and have produced some sterling work, but it is unlikely that much will come of it outside of the wireless networks for which IMS was originally designed. 

The dream of converging the service platform for wireless, wireline telephony, and internet networks has long-since become bogged down in skirmishing at the 3GPP meetings, where the wireless architects who invented the standard have been understandably reluctant to let go of key architectural assumptions that made complete sense in wireless networks, but which are less than optimal for the more diverse world of the internet and wireline voice over IP backbones.  Some key areas of disagreement include security, authentication, and firewall traversal, and the resulting IMS designs have exacerbated the already bloated message exchange requirements in the standard.

The result of all of this wrangling:  an inefficient standard that most carriers will want to adapt (optimize) in non-standard ways before deploying it in any large way. 

Meanwhile, while all of this "IMS tweaking" is going on, organizations without a "big carrier pedigree" (Google?) are achieving much faster service velocity than the carriers, without IMS.  Hmmm... which model will win in the end?

Welcome to the Telecosm

Welcome to the Telecosm, Ike Elliott's blog on telecom, technology, and whatever else comes to mind.  Depending on when you start counting, I have enjoyed being a technology geek for 21 to 31 years.  I count myself very lucky to have been born in the information age, because life is a lot more interesting this way!

My career background in two sentences:  lots of telecom at Level 3 and MCI (before they were swallowed by the evil Worldcom empire), with some defense contracting in the distant past.  Software development at first, followed by "managing" software developers, doing network architecture (that's a great gig), general management, mergers and acquisitions, and finally private consulting (see my consulting company's shingle at www.practiq.com). 

My hobbies: singing, songwriting, physical fitness, Rockies baseball, church, gardening, and supporting great causes.

My family: the best wife in the universe, and two great sons who make me very proud despite my efforts to derail them.

I started this blog at the incessant urging of my good friend Mitchell Ashley, one of the world's top security experts, a face-melting electric guitar player, and an all-around good guy.  You can find his blog at http://mitchellashley.typepad.com/.  It's worth checking out - his podcast has over 8,000 subscribers!

I'm looking forward to sharing my thoughts on telecom, technology, and whatever else comes to mind, and hearing your thoughts, too.  Let the blogging begin!